[Title 24 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2018 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          Title 24

Housing and Urban Development


________________________

Parts 200 to 499

                         Revised as of April 1, 2018

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2018
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 24:
    SUBTITLE B--Regulations Relating to Housing and Urban 
      Development (Continued)
          Chapter II--Office of Assistant Secretary for 
          Housing--Federal Housing Commissioner, Department of 
          Housing and Urban Development                              5
          Chapter III--Government National Mortgage 
          Association, Department of Housing and Urban 
          Development                                              625
          Chapter IV--Office of Housing and Office of 
          Multifamily Housing Assistance Restructuring, 
          Department of Housing and Urban Development              643
  Finding Aids:
      Table of CFR Titles and Chapters........................     677
      Alphabetical List of Agencies Appearing in the CFR......     697
      List of CFR Sections Affected...........................     707

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 24 CFR 200.1 refers 
                       to title 24, part 200, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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[[Page vi]]

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[[Page vii]]

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    Director,
    Office of the Federal Register
    April 1, 2018







[[Page ix]]



                               THIS TITLE

    Title 24--Housing and Urban Development is composed of five volumes. 
The first four volumes containing parts 0-199, parts 200-499, parts 500-
699, parts 700-1699, represent the regulations of the Department of 
Housing and Urban Development. The fifth volume, containing part 1700 to 
end, continues with regulations of the Department of Housing and Urban 
Development and also includes regulations of the Board of Directors of 
the Hope for Homeowners Program, and the Neighborhood Reinvestment 
Corporation. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of April 1, 2018.

    For this volume, Gabrielle E. Burns was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                 TITLE 24--HOUSING AND URBAN DEVELOPMENT




                  (This book contains parts 200 to 499)

  --------------------------------------------------------------------

   SUBTITLE B--Regulations Relating to Housing and Urban Development 
                                (Continued)

                                                                    Part

chapter ii--Office of Assistant Secretary for Housing--
  Federal Housing Commissioner, Department of Housing and 
  Urban Development.........................................         200

chapter iii--Government National Mortgage Association, 
  Department of Housing and Urban Development...............         300

chapter iv--Office of Housing and Office of Multifamily 
  Housing Assistance Restructuring, Department of Housing 
  and Urban Development.....................................         401

[[Page 3]]

   Subtitle B--Regulations Relating to Housing and Urban Development 
                               (Continued)

[[Page 5]]



 CHAPTER II--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING 
        COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter II appear at 59 FR 
14090, Mar. 25, 1994.

                          SUBCHAPTER A--GENERAL
Part                                                                Page
200             Introduction to FHA programs................           7
   SUBCHAPTER B--MORTGAGE AND LOAN INSURANCE PROGRAMS UNDER NATIONAL 
                    HOUSING ACT AND OTHER AUTHORITIES
201             Title I property improvement and 
                    manufactured home loans.................          96
202             Approval of lending institutions and 
                    mortgagees..............................         129
203             Single family mortgage insurance............         142
204             Coinsurance.................................         254
206             Home equity conversion mortgage insurance...         255
207             Multifamily housing mortgage insurance......         306
208             Electronic transmission of required data for 
                    certification and recertification and 
                    subsidy billing procedures for 
                    multifamily subsidized projects.........         320
213             Cooperative housing mortgage insurance......         323
214             Housing counseling program..................         330
219             Flexible subsidy program for troubled 
                    projects................................         343
220             Mortgage insurance and insured improvement 
                    loans for urban renewal and concentrated 
                    development areas.......................         343
221             Low cost and moderate income mortgage 
                    insurance--Savings clause...............         352
231             Housing mortgage insurance for the elderly..         362
232             Mortgage insurance for nursing homes, 
                    intermediate care facilities, board and 
                    care homes, and assisted living 
                    facilities..............................         362
234             Condominium ownership mortgage insurance....         379

[[Page 6]]

236             Mortgage insurance and interest reduction 
                    payment for rental projects.............         387
241             Supplementary financing for insured project 
                    mortgages...............................         402
242             Mortgage insurance for hospitals............         423
244             Mortgage insurance for group practice 
                    facilities [Title XI]...................         452
245             Tenant participation in multifamily housing 
                    projects................................         452
246             Local rent control..........................         464
247             Evictions from certain subsidized and HUD-
                    owned projects..........................         469
248             Prepayment of low income housing mortgages..         473
251             Coinsurance for the construction or 
                    substantial rehabilitation of 
                    multifamily housing projects............         523
252             Coinsurance of mortgages covering nursing 
                    homes, intermediate care facilities, and 
                    board and care homes....................         525
255             Coinsurance for the purchase or refinancing 
                    of existing multifamily housing projects         526
266             Housing finance agency risk-sharing program 
                    for insured affordable multifamily 
                    project loans...........................         528
267             Credit risk retention.......................         553
    SUBCHAPTER C--PLANNING ASSISTANCE TO HOUSING SPONSORS [RESERVED]
       SUBCHAPTER D--PUBLICLY FINANCED HOUSING PROGRAMS [RESERVED]
                       SUBCHAPTERS E-H [RESERVED]
                   SUBCHAPTER I--HUD-OWNED PROPERTIES
290             Disposition of multifamily projects and sale 
                    of HUD-held multifamily mortgages.......         595
291             Disposition of HUD-acquired and -owned 
                    single family property..................         605
292-299

[Reserved]

[[Page 7]]



                          SUBCHAPTER A_GENERAL





PART 200_INTRODUCTION TO FHA PROGRAMS--Table of Contents



Sec.
200.1 Purpose.

  Subpart A_Requirements for Application, Commitment, and Endorsement 
 Generally Applicable to Multifamily and Health Care Facility Mortgage 
Insurance Programs; and Continuing Eligibility Requirements for Existing 
                                Projects

200.3 Definitions.

                           Eligible Mortgagor

200.5 Eligible mortgagor.
200.6 Employer identification and social security numbers.

                           Eligible Mortgagee

200.10 Lender requirements.
200.11 Audit requirements for State and local governments as mortgagees.

                            Eligible Mortgage

200.15 Maximum mortgage.
200.16 Project mortgage adjustments and reductions.
200.17 Mortgage coverage.
200.18 Minimum loan prohibition.

                Miscellaneous Project Mortgage Insurance

200.20 Refinancing insured mortgages.
200.21 Reinsurance of Commissioner held mortgages.
200.22 Operating loss loans.
200.23 Projects in declining neighborhoods.
200.24 Existing projects.
200.25 Supplemental loans.

                 Miscellaneous Cross Cutting Regulations

200.30 Nondiscrimination and equal opportunity.
200.31 Debarment and suspension.
200.32 Participation and compliance requirements.
200.33 Labor standards.
200.34 Property and mortgage assessment.
200.35 Appraisal standards--nondiscrimination requirements.
200.36 Financial reporting requirements.
200.37 Preventing crime in federally assisted housing.
200.38 Protections for victims of domestic violence.

                            Fees and Charges

200.40 HUD fees.
200.41 Maximum mortgagee fees and charges.

                         Commitment Applications

200.45 Processing of applications.
200.46 Commitment issuance.
200.47 Firm commitments.

                Requirements Incident to Insured Advances

200.50 Building loan agreement.
200.51 Mortgagee certificate.
200.52 Construction contract.
200.53 Initial operating funds.
200.54 Project completion funding.
200.55 Financing fees and charges.
200.56 Assurance of completion for on-site improvements.

                          General Requirements

200.60 Assurance of completion for offsite facilities.
200.61 Title.
200.62 Certifications.
200.63 Required deposits and letters of credit.

                          Property Requirements

200.70 Location and fee interest.
200.71 Liens.
200.72 Zoning, deed and building restrictions.
200.73 Property development.
200.74 Minimum property standards.
200.75 Environmental quality determinations and standards.
200.76 Smoke detectors.
200.77 Lead-based paint poisoning prevention.
200.78 Energy conservation.

                           Mortgage Provisions

200.80 Mortgage form.
200.81 Disbursement of mortgage proceeds.
200.82 Maturity.
200.83 Interest rate.
200.84 Payment requirements.
200.85 Covenant against liens.
200.86 Covenant for fire and other hazard insurance.
200.87 Mortgage prepayment.
200.88 Late charge.

                           Cost Certification

200.95 Certification of cost requirements.
200.96 Certificates of actual cost.
200.97 Adjustments resulting from cost certification.

                               Endorsement

200.100 Insurance endorsement.

[[Page 8]]

200.101 Mortgagor lien certificate.

                        Regulation of Mortgagors

200.105 Mortgagor supervision.
200.106 Projects with limited distribution mortgagors and program 
          assistance.

 Subpart B_Electronic Submission of Required Data for Mortgage Defaults 
     and Mortgage Insurance Claims for Insured Multifamily Mortgages

200.120 Purpose and applicability.
200.121 Requirements and effectiveness.

Subparts C-D [Reserved]

         Subpart E_Mortgage Insurance Procedures and Processing

                        Application for Insurance

200.145 Property and mortgage assessment.

                            Claims for Losses

200.153 Presentation of claim.
200.156 Settlement of claims.
200.157 Provisions and characteristics of debentures.
200.158 Applicability of Treasury regulations to debenture transactions.
200.159 Relief on account of lost, stolen, destroyed, mutilated or 
          defaced debentures.
200.160 Redemption of debentures prior to maturity.
200.161 Administration of debenture transactions.
200.162 Certificates of claim.

  Subpart F_Placement and Removal Procedures for Participation in FHA 
                                Programs

                          FHA Inspector Roster

200.170 FHA Inspector Roster; Mortgagee and inspector requirements.
200.171 Placement on the Inspector Roster.
200.172 Removal from the Inspector Roster.

             Section 203(k) Rehabilitation Loan Consultants

200.190 HUD list of qualified 203(k) consultants.
200.191 Placement of 203(k) consultant.
200.192 Removal of 203(k) consultant.
200.193 Responsibilities of 203(k) consultants on the list.

                         Nonprofit Organizations

200.194 Placement of nonprofit organization on Nonprofit Organization 
          Roster.
200.195 Removal of nonprofit organization from Nonprofit Organization 
          Roster.

                       Subpart G_Appraiser Roster

200.200 What is the Appraiser Roster?
200.202 How do I apply for placement on the Appraiser Roster?
200.204 What actions may HUD take against unsatisfactory appraisers on 
          the Appraiser Roster?
200.206 What are my responsibilities as an appraiser listed on the 
          Appraiser Roster?

           Subpart H_Participation and Compliance Requirements

Sec.
200.210 Policy.
200.212 Definitions.
200.214 Covered Projects.
200.216 Controlling Participants.
200.218 Triggering Events.
200.220 Previous Participation review.
200.222 Request for reconsideration.

              Subpart I_Nondiscrimination and Fair Housing

200.300 Nondiscrimination and fair housing policy.

                 Subpart J_Equal Employment Opportunity

200.400 Purpose.
200.405 Notice to public.
200.410 Definition of term ``applicant''.
200.415 Agreement of applicant.
200.420 Equal opportunity clause to be included in contracts and 
          subcontracts.
200.425 Exemptions.
200.430 Sanctions.

Subparts K-L [Reserved]

        Subpart M_Affirmative Fair Housing Marketing Regulations

200.600 Purpose.
200.605 Authority.
200.610 Policy.
200.615 Applicability.
200.620 Requirements.
200.625 Affirmative fair housing marketing plan.
200.630 Notice of housing opportunities.
200.635 Compliance.
200.640 Effect on other requirements.

Appendix to Subpart M of Part 200--Equal Housing Opportunity Insignia

Subpart N [Reserved]

             Subpart O_Lead-Based Paint Poisoning Prevention

200.800 Lead-based paint.
200.805 Definitions.
200.810 Single family insurance and coinsurance.

[[Page 9]]

         Subpart P_Physical Condition of Multifamily Properties

200.850 Purpose.
200.853 Applicability.
200.855 Physical condition standards and physical inspection 
          requirements.
200.857 Administrative process for scoring and ranking the physical 
          condition of multifamily housing properties.

Subpart R [Reserved]

                  Subpart S_Minimum Property Standards

200.925 Applicability of minimum property standards.
200.925a Multifamily and care-type minimum property standards.
200.925b Residential and institutional building code comparison items.
200.925c Model codes.
200.926 Minimum property standards for one and two family dwellings.
200.926a Residential building code comparison items.
200.926b Model codes.
200.926c Model code provisions for use in partially accepted code 
          jurisdictions.
200.926d Construction requirements.
200.926e Supplemental information for use with the CABO One and Two 
          Family Dwelling Code.
200.927 Incorporation by reference of minimum property standards.
200.929 Description and identification of minimum property standards.
200.929a Fair Housing Accessibility Guidelines.
200.931 Statement of availability.
200.933 Changes in minimum property standards.
200.934 User fee system for the technical suitability of products 
          program.
200.935 Administrator qualifications and procedures for HUD building 
          products certification programs.
200.936 Supplementary specific procedural requirements under HUD 
          building products certification program for solid fuel type 
          room heaters and fireplace stoves.
200.937 Supplementary specific procedural requirements under HUD 
          building product standards and certification program for 
          plastic bathtub units, plastic shower receptors and stalls, 
          plastic lavatories, plastic water closet bowls and tanks.
200.940 Supplementary specific requirements under the HUD building 
          product standards and certification program for sealed 
          insulating glass units.
200.942 Supplementary specific procedural requirements under HUD 
          building product standards and certification program for 
          carpet and carpet with attached cushion.
200.943 Supplementary specific requirements under the HUD building 
          product standards and certification program for the 
          grademarking of lumber.
200.944 Supplementary specific requirements under the HUD building 
          product standards and certification program for plywood and 
          other performance rated wood-based structural-use panels.
200.945 Supplementary specific requirements under the HUD building 
          product standards and certification program for carpet.
200.946 Building product standards and certification program for 
          exterior finish and insulation systems, use of Materials 
          Bulletin UM 101.
200.947 Building product standards and certification program for 
          polystyrene foam insulation board.
200.948 Building product standards and certification program for carpet 
          cushion.
200.949 Building product standards and certification program for 
          exterior insulated steel door systems.
200.950 Building product standards and certification program for solar 
          water heating system.
200.952 Supplementary specific requirements under the HUD building 
          product standards and certification program for particleboard 
          interior stair treads.
200.954 Supplementary specific requirements under the HUD building 
          product standard and certification program for construction 
          adhesives for wood floor systems.
200.955 Supplementary specific requirements under the HUD building 
          product standard and certification program for fenestration 
          products (windows and doors).

 Subpart T_Social Security Numbers and Employer Identification Numbers; 
                 Assistance Applicants and Participants

200.1001 Cross-reference.

 Subpart U_Social Security Numbers and Employer Identification Numbers; 
                    Applicants in Unassisted Programs

200.1101 Cross-reference.

  Subpart V_Income Information; Assistance Applicants and Participants

200.1201 Cross-reference.

                    Subpart W_Administrative Matters

200.1301 Expiring programs--Savings clause.

[[Page 10]]

200.1303 Annual income exclusions for the Rent Supplement Program.

 Subpart Y_Multifamily Accelerated Processing (MAP): MAP Lender Quality 
                          Assurance Enforcement

200.1500 Sanctions against a MAP lender.
200.1505 Warning letter.
200.1510 Probation.
200.1515 Suspension of MAP privileges.
200.1520 Termination of MAP privileges.
200.1525 Settlement agreements.
200.1530 Bases for sanctioning a MAP lender.
200.1535 MAP Lender Review Board.
200.1540 Imminent harm notice of action.
200.1545 Appeals of MAP Lender Review Board decisions.

Appendix A to Part 200--Standards Incorporated by Reference in the 
          Minimum Property Standards for Housing (HUD Handbook 4910.1)

    Authority: 12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

    Source: 36 FR 24467, Dec. 22, 1971, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 200 appear at 69 FR 
18803, Apr. 9, 2004.



Sec.  200.1  Purpose.

    This part sets forth requirements that are applicable to several of 
the programs of the Federal Housing Administration, an organizational 
unit within the Department of Housing and Urban Development. Program 
requirements applicable to FHA programs and other HUD programs also can 
be found in 24 CFR part 5. The specific program regulations should be 
consulted to determine which requirements in this part 200 or 24 CFR 
part 5 are applicable.

[61 FR 14398, Apr. 1, 1996]



  Subpart A_Requirements for Application, Commitment, and Endorsement 
 Generally Applicable to Multifamily and Health Care Facility Mortgage 
Insurance Programs; and Continuing Eligibility Requirements for Existing 
                                Projects

    Source: 61 FR 14399, Apr. 1, 1996, unless otherwise noted.



Sec.  200.3  Definitions.

    (a) The definitions ``department'', ``elderly person'', ``family'', 
``HUD'', and ``Secretary'', as used in this subpart A, shall have the 
meanings given these terms in 24 CFR part 5.
    (b) The terms ``first mortgage'', ``hospital'', ``maturity date'', 
``mortgage'', ``mortgagee'', and ``state'', as used in this subpart A 
shall have the meaning given in the section of the National Housing Act 
(12 U.S.C. 1701), as amended, under which the project mortgage is 
insured.
    (c) As used in this subpart A:
    Act means the National Housing Act, (12 U.S.C. 1701) as amended.
    Commissioner means the Federal Housing Commissioner.
    FHA means the Federal Housing Administration.
    Insured mortgage means a mortgage which has been insured by the 
endorsement of the credit instrument by the Commissioner, or the 
Commissioner's duly authorized representative.
    Project means a property consisting of site, improvements and, where 
permitted, equipment meeting the provisions of the applicable section of 
the Act, other applicable statutes and regulations, and terms, 
conditions and standards established by the Commissioner.

[61 FR 14399, Apr. 1, 1996, as amended at 77 FR 5675, Feb. 3, 2012]

                           Eligible Mortgagor



Sec.  200.5  Eligible mortgagor.

    (a) Except as provided in paragraph (b) of this section, the 
mortgagor:
    (1) Shall be a single asset mortgagor entity acceptable to the 
Commissioner, as limited by the applicable section of the Act, and shall 
possess the powers necessary and incidental to operating the project, 
except that the Commissioner may approve a non-single asset mortgagor 
entity under such circumstances, terms and conditions determined and 
specified as acceptable to the Commissioner; and
    (2) Shall not be a natural person or tenant in common.
    (b)(1) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance

[[Page 11]]

before September 1, 2011, and for multifamily project mortgages insured 
under section 232 of the Act (12 U.S.C. 1715w), the mortgagor shall be a 
natural person or entity acceptable to the Commissioner, as limited by 
the applicable section of the Act, and shall possess the powers 
necessary and incidental to operating the project.
    (2) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance on or after September 1, 2011, the 
regulations of paragraph (a) of this section shall apply, unless the 
mortgagor demonstrates to the satisfaction of the Commissioner that 
financial hardship to the mortgagor would result from application of the 
regulations in paragraph (a) of this section due to the reasonable 
expectations of the mortgagor that the transaction would close under the 
regulations in effect prior to September 1, 2011, in which case, the 
regulations of paragraph (b)(1) shall apply.

[76 FR 24369, May 2, 2011]



Sec.  200.6  Employer identification and social security numbers.

    The requirements set forth in 24 CFR part 5, regarding the 
disclosure and verification of social security numbers and employer 
identification numbers by applicants and participants in assisted 
mortgage and loan insurance and related programs, apply to these 
programs.

                           Eligible Mortgagee



Sec.  200.10  Lender requirements.

    The requirements set forth in part 202 of this chapter regarding 
approval, recertification, withdrawal of approval, approval for 
servicing, report requirements and conditions for supervised mortgagees, 
nonsupervised mortgagees, investing mortgagees, and governmental and 
similar institutions, apply to these programs.

[62 FR 20081, Apr. 24, 1997]



Sec.  200.11  Audit requirements for State and local governments as
mortgagees.

    Requirements set forth in 2 CFR part 200, subpart F, apply to State 
and local governments (as defined at 2 CFR 200.90 and 200.64, 
respectively) that receive mortgage insurance as mortgagees.

[80 FR 75936, Dec. 7, 2015]

                            Eligible Mortgage



Sec.  200.15  Maximum mortgage.

    Mortgages must not exceed either the statutory dollar amount or loan 
ratio limitations established by the section of the Act under which the 
mortgage is insured, except that the Commissioner may increase the 
dollar amount limitations:
    (a) By not to exceed 170 percent, in any geographical area, in which 
the Commissioner finds that cost levels so require; and
    (b) By not to exceed 170 percent, or 215 percent in high-cost areas, 
where the Commissioner determines it necessary on a project-by-project 
basis.

[73 FR 17239, Mar. 31, 2008]



Sec.  200.16  Project mortgage adjustments and reductions.

    The principal amount computed in accordance with the applicable 
section of the Act for the insured mortgage shall be subject to 
additional adjustments and reductions in accordance with terms and 
conditions established by the Commissioner.



Sec.  200.17  Mortgage coverage.

    The mortgage shall cover the entire property included in the 
project.



Sec.  200.18  Minimum loan prohibition.

    A mortgagee may not require that the mortgage exceed a minimum 
amount established by the mortgagee, as a condition of providing a loan 
secured by a mortgage insured under this part.

                Miscellaneous Project Mortgage Insurance



Sec.  200.20  Refinancing insured mortgages.

    An existing mortgage insured under the Act, or an existing mortgage 
held by the Secretary that is subject to a mortgage restructuring and 
rental assistance sufficiency plan under the Multifamily Assisted 
Housing Reform and Affordability Act, 42 U.S.C. 1437f

[[Page 12]]

note (MAHRA), may be refinanced pursuant to section 223(a)(7) of the Act 
and such terms and conditions as may be established by the Commissioner. 
The term of such refinancing in connection with the implementation of an 
approved restructuring plan under section 401, subpart C of this title, 
may be up to, but not more than, 30 years.

[72 FR 66037, Nov. 26, 2007]



Sec.  200.21  Reinsurance of Commissioner held mortgages.

    Any mortgage assigned to the Commissioner in connection with payment 
under a contract of mortgage insurance, or executed in connection with a 
sale by the Commissioner of any property acquired under any section or 
title of the Act, may be insured pursuant to provisions of section 
223(c) of the Act and such terms and conditions established by the 
Commissioner.



Sec.  200.22  Operating loss loans.

    An insured loan to cover the operating losses of a project with an 
existing Commissioner insured mortgage may be made in accordance with 
provisions of section 223(d) of the Act and such terms and conditions 
established by the Commissioner.



Sec.  200.23  Projects in declining neighborhoods.

    A Mortgage financing the repair, rehabilitation or construction of a 
project located in an older declining urban area shall be eligible for 
insurance pursuant to provisions of section 223(e) of the Act and such 
terms and conditions established by the Commissioner.



Sec.  200.24  Existing projects.

    A mortgage financing the purchase or refinance of an existing rental 
housing project or refinance of the existing debt of an existing 
cooperative project under section 207 of the Act, or for refinancing the 
existing debt of an existing nursing home, intermediate care facility, 
assisted living facility, or board and care home, or any combination 
thereof, under section 232 of the Act, may be insured pursuant to 
provisions of section 223(f) of the Act and such terms and conditions 
established by HUD.

[79 FR 42189, July 21, 2014]



Sec.  200.25  Supplemental loans.

    A loan, advance of credit or purchase of an obligation representing 
a loan or advance of credit made for the purpose of financing 
improvements or additions to a project covered by a mortgage insured 
under any section of the Act or Commissioner-held mortgage, or equipment 
for a nursing home, intermediate care facility, board and care home, 
assisted living facility, or group practices facility, may be insured 
pursuant to the provisions of section 241 of the Act and such terms and 
conditions established by HUD.

[72 FR 67545, Nov. 28, 2007]

                 Miscellaneous Cross Cutting Regulations



Sec.  200.30  Nondiscrimination and equal opportunity.

    The requirements set forth in 24 CFR part 5, and subparts I, J, and 
M of this part pertaining to nondiscrimination and equal opportunity, 
apply to these programs.



Sec.  200.31  Debarment and suspension.

    The requirements set forth in 2 CFR part 2424 apply to these 
programs.

[72 FR 73494, Dec. 27, 2007]



Sec.  200.32  Participation and compliance requirements.

    The requirements set forth in 24 CFR part 200, subpart H, apply to 
these programs.



Sec.  200.33  Labor standards

    (a) The requirements set forth in 29 CFR parts 1, 3 and 5 for 
compliance with labor standards laws apply to projects under these 
programs to the extent that labor standards apply as provided in section 
212 of the Act, provided that:
    (1) The labor standards provisions do not apply to projects insured 
under sections 207 or 232 pursuant to section 223(f) of the Act; and
    (2) Supplemental loans under section 241 of the Act are subject to 
the provisions of section 212 applicable to the

[[Page 13]]

section or title pursuant to which the mortgage covering the project is 
insured or pursuant to which the original mortgage was insured.
    (b) The requirements set forth in 24 CFR part 70 apply to those 
programs with respect to which there is a statutory provision allowing 
HUD waiver of Davis-Bacon prevailing wage rates for volunteers.
    (c) Project commitments, contracts and agreements, as determined by 
the Commissioner, and construction contracts and subcontracts, shall 
include terms, conditions and standards for compliance with applicable 
requirements set forth in 29 CFR parts 1, 3 and 5 and section 212 of the 
Act.
    (d) No advance under a loan or mortgage that is subject to the 
requirements of section 212 shall be eligible for insurance unless there 
is filed with the application for the advance a certificate as required 
by the Commissioner certifying that the laborers and mechanics employed 
in construction of the project have been paid not less than the wage 
rates required under section 212.



Sec.  200.34  Property and mortgage assessment.

    The requirements set forth in 24 CFR part 200, subpart E, regarding 
the mortgagor's responsibility for making those investigations, analysis 
and inspections it deems necessary for protecting its interests in the 
property apply to these programs.



Sec.  200.35  Appraisal standards--nondiscrimination requirements.

    (a) Nondiscrimination in the selection of appraiser. In the 
selection of an appraiser, there shall be no discrimination on the basis 
of race, color, religion, national origin, sex, age, or disability.
    (b) Nondiscrimination in appraisal determination. The certification 
required by the Uniform Standards of Professional Appraisal Practice 
must include a statement that the racial/ethnic composition of the 
neighborhood surrounding the property in no way affected the appraisal 
determination.



Sec.  200.36  Financial reporting requirements.

    The mortgagor must comply with the financial reporting requirements 
in 24 CFR part 5, subpart H.

[63 FR 46592, Sept. 1, 1998]



Sec.  200.37  Preventing crime in federally assisted housing.

    See part 5, subparts I and J of this title, for provisions 
concerning preventing crime in federally assisted housing, including 
programs administered under section 236 and under sections 221(d)(3) and 
221(d)(5) of the National Housing Act.

[66 FR 28797, May 24, 2001]



Sec.  200.38  Protections for victims of domestic violence.

    (a) The requirements for protection for victims of domestic 
violence, dating violence, sexual assault, or stalking in 24 CFR part 5, 
subpart L (Protection for Victims of Domestic Violence, Dating Violence, 
Sexual Assault, or Stalking) apply to programs administered under 
section 236 and under sections 221(d)(3) and (d)(5) of the National 
Housing Act, as follows:
    (1) Multifamily rental housing under section 221(d)(3) of the 
National Housing Act (12 U.S.C. 17151(d)) with a below-market interest 
rate (BMIR) pursuant to section 221(d)(5), with implementing regulations 
at 24 CFR part 221. The Section 221(d)(3) BMIR program insured and 
subsidized mortgage loans to facilitate new construction or substantial 
rehabilitation of multifamily rental cooperative housing for low- and 
moderate-income families. The program is no longer active, but Section 
221(d)(3) BMIR properties that remain in existence are covered by VAWA. 
Coverage of section 221(d)(3) and (d)(5) BMIR housing does not include 
section 221(d)(3) and (d)(5) BMIR projects that refinance under section 
223(a)(7) or 223(f) of the National Housing Act where the interest rate 
is no longer determined under section 221(d)(5).
    (2) Multifamily rental housing under section 236 of the National 
Housing Act (12 U.S.C. 1715z-1), with implementing

[[Page 14]]

regulations at 24 CFR part 236. Coverage of the section 236 program 
includes not only those projects with FHA-insured project mortgages 
under section 236(j), but also non-FHA-insured projects that receive 
interest reduction payments (``IRP'') under section 236(b) and formerly 
insured section 236 projects that continue to receive interest reduction 
payments through a ``decoupled'' IRP contract under section 236(e)(2). 
Coverage also includes projects that receive rental assistance payments 
authorized under section 236(f)(2).
    (b) For the programs administered under paragraph (a) of this 
section, ``covered housing provider'' as such term is used in 24 CFR 
part 5, subpart L, refers to the mortgagor, or owner, as applicable.

[81 FR 80805, Nov. 16, 2016]

                            Fees and Charges



Sec.  200.40  HUD fees.

    The following fees apply to mortgages to be insured under this part.
    (a) Application fee--SAMA letter (for new construction). An 
application fee of $1 per thousand dollars of the requested mortgage 
shall accompany the application for a SAMA letter. An additional fee of 
$1 per thousand dollars of the requested mortgage amount shall be 
charged for the review of plans and specifications.
    (b) Application fee--feasibility letter (for substantial 
rehabilitation). An application fee of $3 per thousand dollars of the 
requested mortgage amount shall accompany the application for a 
feasibility letter.
    (c) Application fee--conditional commitment. For a mortgage being 
insured under section 223(f) of the Act (12 U.S.C. 1715n), an 
application-commitment fee of $3 per thousand dollars of the requested 
mortgage amount shall accompany an application for conditional 
commitment.
    (d)(1) Application fee--firm commitment: General. An application for 
firm commitment shall be accompanied by an application-commitment fee in 
an amount determined by the Secretary, which when added to any prior 
fees received in connection with the same application, shall not exceed 
$5.00 per thousand dollars of the requested mortgage amount to be 
insured. The payment of an application-commitment fee shall not be 
required in connection with an insured mortgage involving the sale by 
the government of housing or property acquired, held, or contracted 
pursuant to the Atomic Energy Community Act of 1955 (42 U.S.C. 2301 et 
seq.).
    (2) Application fee--Section 232 Programs. For purposes of mortgages 
insured under HUD's regulations in 24 CFR part 232, subpart C, an 
application for firm commitment shall be accompanied by an application 
fee in an amount determined by the Secretary, which shall not exceed 
$5.00 per thousand dollars of the requested mortgage amount to be 
insured.
    (e) Inspection fee--(1) In general. The firm commitment may provide 
for the payment of an inspection fee in an amount not to exceed $5 per 
thousand dollars of the commitment. If an inspection fee is required, it 
shall be paid as follows:
    (i) If the case involves insurance of advances, at the time of 
initial endorsement; or
    (ii) If the case involves insurance upon completion, before the date 
construction is begun.
    (2) Existing projects. For a mortgage being insured under section 
223(f) of the Act, if the application provides for the completion of 
repairs, replacements and/or improvements (repairs), the Commissioner 
will charge an inspection fee equal to one percent (1%) of the cost of 
the repairs. However, where the Commissioner determines the cost of 
repairs is minimal, the Commissioner may establish a minimum inspection 
fee that exceeds one percent of the cost of repairs and can periodically 
increase or decrease this minimum fee.
    (f) Fees on increases--in general. This section applies to all 
applications except applications involving hospitals, which are covered 
in 24 CFR part 242.
    (1) Increase in firm commitment before endorsement. An application, 
filed before initial endorsement (or before endorsement in a case 
involving insurance upon completion), for an increase in the amount of 
an outstanding firm commitment, shall be accompanied by

[[Page 15]]

a combined additional application and commitment fee. This combined 
additional fee shall be in an amount that will aggregate $5 per thousand 
dollars of the amount of the requested increase. If an inspection fee 
was required in the original commitment, an additional inspection fee 
shall be paid in an amount computed at the same dollar rate per thousand 
dollars of the amount of increase in commitment as was used for the 
inspection fee required in the original commitment. When insurance of 
advances is involved, the additional inspection fee shall be paid at the 
time of initial endorsement. When insurance upon completion is involved, 
the additional inspection fee shall be paid before the date construction 
is begun; or, if construction has begun, it shall be paid with the 
application for increase.
    (2) Increase in mortgage between initial and final endorsement. Upon 
the filing of an application between initial and final endorsement, for 
an increase in the amount of the mortgage, either by amendment or by 
substitution of a new mortgage, a combined additional application and 
commitment fee shall accompany the application. This combined additional 
fee shall be in an amount that will aggregate $5 per thousand dollars of 
the amount of the increase requested. If an inspection fee was required 
in the original commitment, an additional inspection fee shall accompany 
the application in an amount not to exceed the $5 per thousand dollars 
of the amount of the increase requested.
    (3) Loan to cover operating losses. In connection with a loan to 
cover operating losses (see Sec. 200.22), a combined application and 
commitment fee of $5 per thousand dollars of the amount of the loan 
applied for shall be submitted with the application for a firm 
commitment. No inspection fee shall be required.
    (g) Reopening of expired commitments. An expired commitment may be 
reopened if a request for reopening is received by the Commissioner 
within 90 days of the expiration of the commitment. The reopening 
request shall be accompanied by a fee of 50 cents per thousand dollars 
of the amount of the expired commitment. If the reopening request is not 
received by the Commissioner within the required 90-day period, a new 
application, accompanied by the required application and commitment fee, 
must be submitted.
    (h) Transfer fee. Upon application for the approval of a transfer of 
physical assets or the substitution of mortgagors, a transfer fee of 50 
cents per thousand dollars shall be paid on the original face amount of 
the mortgage in all cases, except that a transfer fee shall not be paid 
where both parties to the transfer transaction are nonprofit purchasers, 
or when the transfer of physical assets or the substitution of 
mortgagors occurs contemporaneously with the restructuring of a mortgage 
pursuant to a restructuring plan under part 401, subpart C of this 
title.
    (i) Refund of fees. If the amount of the commitment issued or 
increase in mortgage granted is less than the amount applied for, the 
Commissioner shall refund the excess amount of the application and 
commitment fees submitted by the applicant. If an application is 
rejected before it is assigned for processing, or in such other 
instances as the Commissioner may determine, the entire application and 
commitment fee or any portion thereof may be returned to the applicant. 
Commitment, inspection and reopening fees may be refunded, in whole or 
in part, if it is determined by the Commissioner that there is a lack of 
need for the housing or that the construction or financing of the 
project has been prevented because of condemnation proceedings or other 
legal action taken by a governmental body or public agency, or in such 
other instances as the Commissioner may determine. A transfer fee may be 
refunded only in such instances as the Commissioner may determine.
    (j) Fees not required. (1) The payment of an application, 
commitment, inspection, or reopening fee shall not be required in 
connection with the insurance of a mortgage involving the sale by the 
Secretary of any property acquired under any section or title of the 
Act.
    (2) The payment of an application or commitment fee shall not be 
required in connection with the insurance of a

[[Page 16]]

mortgage used to facilitate a restructuring plan under part 401, subpart 
C of this title.

[61 FR 14414, Apr. 1, 1996, as amended at 72 FR 66037, Nov. 26, 2007; 72 
FR 67545, Nov. 28, 2007; 80 FR 48027, Aug. 11, 2015]



Sec.  200.41  Maximum mortgagee fees and charges.

    (a) Mortgagee fees and charges included in the mortgage must be for 
actual required services provided to the mortgagor by the mortgagee, and 
shall not exceed common market rates for such services as determined by 
the Commissioner.
    (b) Mortgagee charges for prepayment of the mortgage and late 
mortgage payments shall not exceed that determined appropriate by the 
Commissioner.

                         Commitment Applications



Sec.  200.45  Processing of applications.

    (a) Preapplication conference. Except for mortgages insured under 
section 241(f) or 242 of the Act, the local HUD Office will determine 
whether participation in such a conference is required as a condition to 
submission of an initial application for either a site appraisal and 
market analysis (SAMA) letter (for new construction), a feasibility 
letter (for substantial rehabilitation), or for a firm commitment. The 
project sponsor may elect (after the preapplication conference if 
required) to submit an application for a SAMA or a feasibility letter 
(as appropriate), or for a firm commitment for insurance depending upon 
the completeness of the drawings, specifications and other required 
exhibits. An application for a SAMA or feasibility letter may be 
submitted by the project sponsor. An application for a firm commitment 
for insurance must be submitted by both the project sponsor and an 
approved mortgagee. Applications shall be submitted to the local HUD 
Office on HUD-approved forms. No application will be considered unless 
accompanied by all exhibits required by the form and program handbooks. 
At the option of the local HUD Office, the SAMA/Feasibility letter stage 
of processing can be combined with the firm commitment stage of 
processing.
    (b) Firm commitment requirement. An application for a firm 
commitment must be made by an approved mortgagee for any project for 
which a mortgagor seeks mortgage insurance under the Act.
    (c) Staged applications. Staged applications leading to an 
application for firm commitment shall be made as determined appropriate 
by the Commissioner, and in accordance with such terms and conditions 
established by the Commissioner. The intermediate stages to firm 
commitment may include a site appraisal and market analysis (SAMA) 
letter stage or a feasibility letter stage and a conditional commitment. 
The conditional commitment stage applies only to mortgages to be insured 
pursuant to section 223(f) of the Act.
    (d) Effect of SAMA letter, feasibility letter, and firm commitment--
(1) SAMA letter. (i) The issuance of a SAMA letter indicates completion 
of the site appraisal and market analysis stage to determine initial 
acceptability of the site and recognition of a specific market need. The 
SAMA letter is not a commitment to insure a mortgage for the proposed 
project and does not bind the Commissioner to issue a firm commitment to 
insure. The SAMA letter precedes the later submission of acceptable 
plans and specifications for the proposed project and is limited to 
advising the applicant as to the following determinations of the 
Commissioner, which shall not be changed to the detriment of an 
applicant, if the application for a firm commitment is received before 
expiration of the SAMA letter:
    (A) The land value fully improved (with off-site improvements 
installed);
    (B) The acceptability of the proposed project site, the proposed 
composition, number and size of the units and the market for the number 
of proposed units. Where the application is not acceptable as submitted, 
but can be made acceptable by a change in the number, size, or 
composition of the units, the SAMA letter may establish the specific 
lesser number of units which would be acceptable and any acceptable 
alternative plan for the composition and size of units; and

[[Page 17]]

    (C) The acceptability of the unit rents proposed. Where rent levels 
are unacceptable, the SAMA letter may establish specific rents which are 
acceptable.
    (ii) After receiving a SAMA letter, the sponsor shall submit design 
drawings and specifications in a timeframe prescribed by the 
Commissioner. The Commissioner will review and comment on design 
development and the drawings and specifications. The comments will be 
provided to the sponsor for use in preparing a firm commitment 
application.
    (2) Feasibility letter. The issuance of a feasibility letter 
indicates approval of the preliminary work write-up and outline 
specifications and completion of technical processing involving the 
estimated rehabilitation cost of the project, the ``as is'' value of the 
site, the detailed estimates of operating expenses and taxes, the 
specific unit rents, the vacancy allowance, and the estimated mortgage 
amount. The issuance of a feasibility letter is not a commitment to 
insure a mortgage for the proposed project and does not bind the 
Commissioner to issue a firm commitment to insure. Determinations found 
in a feasibility letter are not to be binding upon the Department and 
may be changed in whole or in part at any later point in time. The 
letter may even be unilaterally terminated by the Commissioner if found 
necessary.
    (3) Conditional commitment. The issuance of a Section 223(f) 
conditional commitment indicates completion of technical processing 
involving the estimated value of the property, the detailed estimates of 
rents, operating expenses and taxes and an estimated mortgage amount.
    (e) Term of SAMA letter, feasibility letter, and conditional 
commitment. A SAMA letter, a feasibility letter, and a conditional 
commitment shall be effective for whatever term is specified in the 
respective letter or commitment.
    (f) Rejection of an application. A significant deviation in an 
application from the Commissioner's terms or conditions in an earlier 
stage application commitment or agreement shall be grounds for 
rejection. The fees paid to such date shall be considered as having been 
earned notwithstanding such rejection.

(Approved by the Office of Management and Budget under control number 
2502-0029)

[61 FR 14415, Apr. 1, 1996]



Sec.  200.46  Commitment issuance.

    Upon approval of an application for insurance, a commitment shall be 
issued by the Commissioner setting forth the terms and conditions upon 
which the mortgage will be insured. The commitment term and any 
extension or reopening of an expired commitment shall be in accordance 
with standards established by the Commissioner.



Sec.  200.47  Firm commitments.

    A valid firm commitment must be in effect at the time the mortgage 
instrument is endorsed.
    (a) Insurance upon completion. The commitment shall provide the 
terms and conditions for the insurance of the mortgage:
    (1) After completion of construction or substantial rehabilitation 
of the project; or
    (2) Upon completion of required work, except as deferred by the 
Commissioner in accordance with terms, conditions and standards 
established by the Commissioner, for an existing project without 
substantial rehabilitation.
    (b) Insured advances. The commitment shall provide for insurance of 
the mortgage as provided in paragraph (a) of this section, and for the 
insurance of mortgage money advanced in accordance with terms and 
conditions established by the Commissioner during: construction; 
substantial rehabilitation; or other work acceptable to the 
Commissioner.

                Requirements Incident to Insured Advances



Sec.  200.50  Building loan agreement.

    The mortgagor and mortgagee must execute a building loan agreement 
approved by the Commissioner, that sets forth the terms and conditions 
under

[[Page 18]]

which progress payments may be advanced during construction, before 
initial endorsement of the mortgage for insurance.



Sec.  200.51  Mortgagee certificate.

    The mortgagee shall certify to the Commissioner that it will conform 
with terms and conditions established by the Commissioner for the 
mortgagee's control of project funds, and other incidental requirements 
established by the Commissioner.



Sec.  200.52  Construction contract.

    The form of contract between the mortgagor and builder shall be as 
prescribed by the Commissioner in accordance with terms and conditions 
established by the Commissioner.



Sec.  200.53  Initial operating funds.

    The mortgagor shall deposit cash with the mortgagee, or in a 
depository satisfactory to the mortgagee and under control of the 
mortgagee, in accordance with terms, conditions and standards 
established by the Commissioner for:
    (a) Accruals for taxes, ground rates, mortgage insurance premiums, 
and property insurance premiums, during the course of construction;
    (b) Meeting the cost of equipping and renting the project subsequent 
to its completion in whole or part; and
    (c) Allocation by the mortgagee for assessments required by the 
terms of the mortgage in an amount acceptable to the Commissioner.



Sec.  200.54  Project completion funding.

    (a) Except as provided in paragraph (d) of this section, the 
mortgagor shall deposit with the mortgagee cash deemed by the 
Commissioner to be sufficient, when added to the proceeds of the insured 
mortgage, to assure completion of the project and to pay the initial 
service charge, carrying charges, and legal and organizational expenses 
incident to the construction of the project. The Commissioner may accept 
a lesser cash deposit or an alternative to a cash deposit in accordance 
with terms and conditions established by the Commissioner, where the 
required funding is to be provided by a grant or loan from a Federal, 
State, or local government agency or instrumentality.
    (b) An agreement acceptable to the Commissioner shall require that 
funds provided by the mortgagor under requirements of this section must 
be disbursed in full for project work, material, and incidental charges 
and expenses before disbursement of any mortgage proceeds, except:
    (c) Low-income housing tax credit syndication proceeds, historic 
tax-credit syndication proceeds, New Markets Tax Credits proceeds, or 
funds provided by a grant or loan from a Federal, State, or local 
governmental agency or instrumentality under requirements of this 
section need not be fully disbursed before the disbursement of mortgage 
proceeds, where approved by the Commissioner in accordance with terms, 
conditions, and standards established by the Commissioner;
    (d) In the case of a mortgage insured under any provision of this 
title executed in connection with the purchase, construction, 
rehabilitation, or refinancing of a multifamily tax credit project, the 
Commissioner may not require:
    (1) The escrowing of equity provided by Low-Income Housing Tax 
Credits for the project pursuant to Title 26, section 42 of the Internal 
Revenue Code of 1986;
    (2) The escrowing of equity provided by historic rehabilitation tax 
credits, New Markets Tax Credits, or any other form of security, such as 
a letter of credit.

[75 FR 51915, Aug. 23, 2010]



Sec.  200.55  Financing fees and charges.

    Fees and charges approved by the Commissioner in excess of the 
initial service charge shall be deposited with the mortgagee in cash 
before initial endorsement, except as otherwise preapproved by the 
Commissioner.



Sec.  200.56  Assurance of completion for on-site improvements.

    The mortgagor shall furnish assurance of completion of the project 
in the form and amount provided by terms, conditions and standards 
established by the Commissioner.

[[Page 19]]

                          General Requirements



Sec.  200.60  Assurance of completion for offsite facilities.

    An assurance of completion for offsite utilities, streets, and other 
facilities required for a buildable site shall be provided in an amount 
and form acceptable to the Commissioner, except where a municipality or 
other public body has, in a manner acceptable to the Commissioner, 
agreed to install such improvements without cost to the mortgagor.



Sec.  200.61  Title.

    (a) Marketable title to the project must be vested in the mortgagor 
as of the date the mortgage is filed for record.
    (b) Title evidence for the Commissioner's examination shall include 
a lender's title insurance policy, which title policy provides survey 
coverage based on a survey acceptable to the title company and the 
Commissioner; or as the Commissioner may otherwise require, in 
accordance with terms, conditions and standards established by the 
Commissioner.
    (c) Endorsement of the credit instrument for insurance shall 
evidence the acceptability of title evidence.



Sec.  200.62  Certifications.

    Any agreement, undertaking, statement or certification required by 
the Commissioner shall specifically state that it has been made, 
presented, and delivered for the purpose of influencing an official 
action of the FHA, and of the Commissioner, and may be relied upon by 
the Commissioner as a true statement of the facts contained therein.



Sec.  200.63  Required deposits and letters of credit.

    (a) Deposits. Where the Commissioner requires the mortgagor to make 
a deposit of cash or securities, such deposit shall be with the 
mortgagee or a depository acceptable to the mortgagee. The deposit shall 
be held by the mortgagee in a special account or by the depository under 
an appropriate agreement approved by the Commissioner.
    (b) Letter of credit. Where the use of a letter of credit is 
acceptable to the Commissioner in lieu of a deposit of cash or 
securities, the letter of credit shall be issued to the mortgagee by a 
banking institution and shall be unconditional and irrevocable:
    (1) The mortgagee of record may not be the issuer of any letter of 
credit without the prior written consent of the Commissioner.
    (2) The mortgagee shall be responsible to the Commissioner for 
collection under the letter of credit. In the event a demand for payment 
thereunder is not immediately met, the mortgagee shall immediately 
provide a cash deposit equivalent to the undrawn balance of the letter 
of credit.

                          Property Requirements



Sec.  200.70  Location and fee interest.

    The property must be held by an eligible mortgagor, and must conform 
with requirements pertaining to property location and fee or lease 
interests of the section of the Act under which the mortgage is insured.



Sec.  200.71  Liens.

    The project must be free and clear of all liens other than the 
insured mortgage, except that the property may be subject to an inferior 
lien as provided by terms and conditions established by the Commissioner 
for an inferior lien:
    (a) Made or held by a Federal, State or local government 
instrumentality;
    (b) Required in connection with: an operating loss loan insured 
pursuant to a section 223(d) of the Act; a supplemental loan insured 
pursuant to section 241 of the Act; or a mortgage to purchase or 
refinance an existing project pursuant to section 223(f) of the Act; or
    (c) As otherwise provided by the Commissioner.



Sec.  200.72  Zoning, deed and building restrictions.

    The project when completed shall not violate any material zoning or 
deed restrictions applicable to the project site, and shall comply with 
all applicable building and other governmental codes, ordinances, 
regulations and requirements.

[[Page 20]]



Sec.  200.73  Property development.

    (a) The property shall be suitable and principally designed for the 
intended use, as provided by the applicable section of the Act under 
which the mortgage is insured, and have long-term marketability. Design, 
construction, substantial rehabilitation and repairs shall be in 
accordance with standards established by the Commissioner.
    (b) A project may include such commercial and community facilities 
as the Commissioner deems acceptable.
    (c) The improvements shall constitute a single project. Not less 
than five rental dwelling units or personal care units, 20 medical care 
beds, or 50 manufactured home pads, shall be on one site, except that 
such limitations do not apply to group practice facilities.



Sec.  200.74  Minimum property standards.

    The requirements set forth in subpart S of this part apply to these 
programs, except for hospitals insured under section 242 of the Act and 
group practice facilities insured under title XI of the Act.



Sec.  200.75  Environmental quality determinations and standards.

    Requirements set forth in 24 CFR part 50, Protection and Enhancement 
of Environmental Quality, 24 CFR part 51, Environmental Criteria and 
Standards, 24 CFR part 55, Implementation of Executive Order 11988, 
Flood Plain Management, and as otherwise required by the Commissioner 
apply to these programs.



Sec.  200.76  Smoke detectors.

    Smoke detectors and alarm devices must be installed in accordance 
with standards and criteria acceptable to the Commissioner for the 
protection of occupants in any dwelling or facility bedroom or other 
primary sleeping area.



Sec.  200.77  Lead-based paint poisoning prevention.

    Requirements set forth in 24 CFR part 35 apply to these programs.



Sec.  200.78  Energy conservation.

    Construction, mechanical equipment, and energy and metering 
selections shall provide cost effective energy conservation in 
accordance with standards established by the Commissioner.

                           Mortgage Provisions



Sec.  200.80  Mortgage form.

    The mortgage shall be:
    (a) Executed on a form approved by the Commissioner for use in the 
jurisdiction in which the property securing the mortgage is situated, 
which form shall not be changed without the prior written approval of 
the Commissioner.
    (b) Executed by an eligible mortgagor.
    (c) A first lien on the property securing the mortgage, which 
property conforms with the property standards prescribed by the 
Commissioner.



Sec.  200.81  Disbursement of mortgage proceeds.

    The mortgagee shall be obligated, as a part of the mortgage 
transaction, to disburse the principal amount of the mortgage to the:
    (a) Mortgagor or mortgagor's account;
    (b) Mortgagor's creditors for the mortgagor's account, subject to 
the mortgagor's consent.



Sec.  200.82  Maturity.

    The mortgage shall have a maturity satisfactory to the Commissioner, 
and shall contain complete amortization or sinking-fund provisions 
satisfactory to the Commissioner.
    (a) The maximum mortgage term may not exceed the lesser of:
    (1) Any limits included under the applicable section of the Act.
    (2) Thirty-five years for existing projects, except that the 
mortgage term may be up to 40 years under terms and conditions 
established by the Commissioner, and 40 years for proposed construction 
and substantial rehabilitation projects.
    (3) Seventy-five percent of the estimated remaining economic life of 
the physical improvements.
    (b) The minimum mortgage term shall not be less than 10 years.

[[Page 21]]



Sec.  200.83  Interest rate.

    (a) The mortgage shall bear interest at the rate agreed upon by the 
mortgagee and the mortgagor.
    (b) Interest shall be payable in monthly installments on the 
principal amount of the mortgage outstanding on the due date of each 
installment.
    (c) The amount of any increase approved by the Commissioner in the 
mortgage amount between initial and final endorsement in excess of the 
amount that the Commissioner had committed to insure at initial 
endorsement shall bear interest at the rate agreed upon by the mortgagee 
and the mortgagor.



Sec.  200.84  Payment requirements.

    The mortgage shall provide for:
    (a) A single aggregate payment each month for all payments to be 
made by the mortgagor to the mortgagee.
    (b) The mortgagor to pay to the mortgagee:
    (1) Interest and principal on the first day of each month in 
accordance with an amortization plan agreed upon by the mortgagor, the 
mortgagee and the Commissioner.
    (i) Date of first payment to interest shall be the endorsement date 
or, where there are insured advances, the initial endorsement date.
    (ii) Date of first payment to principal. The Commissioner shall 
estimate the time necessary to complete the project and shall establish 
the date of the first payment to principal so that the lapse of time 
between completion of the project and commencement of amortization will 
not be longer than necessary to obtain sustaining occupancy.
    (2) An amount on each interest payment date sufficient to accumulate 
in the hands of the mortgagee one payment period prior to its due date, 
the next annual mortgage insurance premium payable by the mortgagee to 
the Commissioner. Such payments shall continue only so long as the 
contract of insurance shall remain in effect.
    (3) Equal monthly payments as will amortize the ground rents, if 
any, and the estimated amount of all taxes, water charges, special 
assessments, and fire and other hazard insurance premiums, within a 
period ending one month prior to the dates on which the same become 
delinquent.
    (4) The mortgage shall further provide:
    (i) That such payments shall be held by the mortgagee, for the 
purpose of paying such items before they become delinquent.
    (ii) For adjustments in case such estimated amounts shall prove to 
be more, or less, than the actual amounts so paid therefor by the 
mortgagor.
    (c) The mortgagee to apply each mortgagor payment received to the 
following items in the order set forth:
    (1) Premium charges under the contract of mortgage insurance.
    (2) Ground rents, taxes, special assessments, and fire and other 
hazard insurance premiums.
    (3) Interest on the mortgage.
    (4) Amortization of the principal of the mortgage.



Sec.  200.85  Covenant against liens.

    (a) The mortgage shall contain a covenant against the creation by 
the mortgagor of liens against the property superior or inferior to the 
lien of the mortgage except for such inferior lien as may be approved by 
the Commissioner in accordance with provisions of Sec.  200.71; and
    (b) A covenant against repayment of a Commissioner approved inferior 
lien from mortgage proceeds other than surplus cash or residual 
receipts, except in the case of an inferior lien created by an operating 
loss loan insured pursuant to section 223(d) of the Act, or a 
supplemental loan insured pursuant to section 241 of the Act.



Sec.  200.86  Covenant for fire and other hazard insurance.

    The mortgage shall contain a covenant binding the mortgagor to 
maintain fire and extended coverage insurance on the property in 
accordance with terms and conditions established by the Commissioner.



Sec.  200.87  Mortgage prepayment.

    (a) Prepayment privilege. Except as provided in paragraph (c) of 
this section or otherwise established by the Commissioner, the mortgage 
shall contain a provision permitting the mortgagor to prepay the 
mortgage in whole

[[Page 22]]

or in part upon any interest payment date, after giving the mortgagee 30 
days' notice in writing in advance of its intention to so prepay.
    (b) Prepayment charge. The mortgage may contain a provision for such 
charge, in the event of prepayment of principal, as may be agreed upon 
between the mortgagor and the mortgagee, subject to the following:
    (1) The mortgagor shall be permitted to prepay up to 15 percent of 
the original principal amount of the mortgage in any one calendar year 
without any such charge.
    (2) Any reduction in the original principal amount of the mortgage 
resulting from the certification of cost which the Commissioner may 
require shall not be construed as a prepayment of the mortgage.
    (c) Prepayment of bond-financed or GNMA securitized mortgages. Where 
the mortgage is given to secure GNMA mortgage-backed securities or a 
loan made by a lender that has obtained the funds for the loan by the 
issuance and sale of bonds or bond anticipation notes, or both, the 
mortgage may contain a prepayment restriction and prepayment penalty 
charge acceptable to the Commissioner as to term, amount, and 
conditions.
    (d) HUD override of prepayment restrictions. In the event of a 
default, the Commissioner may override any lockout, prepayment penalty 
or combination thereof in order to facilitate a partial or full 
refinancing of the mortgaged property and avoid a claim.



Sec.  200.88  Late charge.

    (a) The mortgage may provide for the collection by the mortgagee of 
a late charge in accordance with terms, conditions, and standards of the 
Commissioner for each dollar of each payment to interest or principal:
    (1) More than 10 days in arrears to cover the expense involved in 
handling delinquent payments;
    (2) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance before September 1, 2011, and for 
multifamily project mortgages insured under section 232 of the Act (12 
U.S.C. 1715w), more than 15 days in arrears to cover the expense 
involved in handling delinquent payments.
    (b) Late charges shall be separately charged to and collected from 
the mortgagor and shall not be deducted from any aggregate monthly 
payment.

[76 FR 24369, May 2, 2011]

                           Cost Certification



Sec.  200.95  Certification of cost requirements.

    (a) Before initial endorsement of the mortgage for insurance, the 
mortgagor, the mortgagee, and the Commissioner shall enter into an 
agreement in form and content satisfactory to the Commissioner for the 
purpose of precluding any excess of mortgage proceeds over statutory 
limitations. Under this agreement, the mortgagor shall disclose its 
relationship with the builder, including any collateral agreement, and 
shall agree:
    (1) To enter into a construction contract, the terms of which shall 
depend on whether or not there exists an identity of interest between 
the mortgagor and the builder.
    (2) To execute a Certificate of Actual Costs, upon completion of all 
physical improvements on the mortgaged property.
    (3) To apply in reduction of the outstanding balance of the 
principal of the mortgage any excess of mortgage proceeds over statutory 
limitations based on actual cost.
    (b) The provisions of paragraph (a) of this section relating to 
disclosure and the requirement for a construction contract shall not 
apply where the mortgagor is the general contractor.



Sec.  200.96  Certificates of actual cost.

    (a) The mortgagor's certificate of actual cost, in a form prescribed 
by the Commissioner, shall be submitted upon completion of the physical 
improvements to the satisfaction of the Commissioner and before final 
endorsement, except that in the case of an existing project that does 
not require substantial rehabilitation and where the commitment provides 
for completion of specified repairs after endorsement, a supplemental 
certificate of actual cost will be submitted covering

[[Page 23]]

the completed costs of any such repairs. The certificate shall show the 
actual cost to the mortgagor, after deduction of any kickbacks, rebates, 
trade discounts, or other similar payments to the mortgagor, or to any 
of its officers, directors, stockholders, partners or other entity 
member ownership, of construction and other costs, as prescribed by the 
Commissioner.
    (b) The Certificate of Actual Cost shall be verified by an 
independent Certified Public Accountant or independent public accountant 
in a manner acceptable to the Commissioner.
    (c) Upon the Commissioner's approval of the mortgagor's 
certification of actual cost such certification shall be final and 
incontestable except for fraud or material misrepresentation on the part 
of the mortgagor.



Sec.  200.97  Adjustments resulting from cost certification.

    (a) Fee simple site. Upon receipt of the mortgagor's certification 
of actual cost there shall be added to the total amount thereof the 
Commissioner's estimate of the fair market value of any land included in 
the mortgage security and owned by the mortgagor in fee, such value 
being prior to the construction of the improvements.
    (b) Leasehold site. In the event the land is held under a leasehold 
or other interest less than a fee, the cost, if any, of acquiring the 
leasehold or other interest is considered an allowable expense which may 
be added to actual cost provided that in no event shall such amount be 
in excess of the fair market value of such leasehold or other interest 
exclusive of proposed improvements.
    (c) Adjustment. If the amount calculated in accordance with 
paragraphs (a) or (b) of this section exceeds the statutory dollar 
amount limits or loan ratio limits permitted by the section of Act under 
which the mortgage is to be insured, or program loan ratio limits 
established by the Commissioner in the absence of statutory limits, the 
amount must be reduced to the applicable limits before final 
endorsement.

                               Endorsement



Sec.  200.100  Insurance endorsement.

    The credit instrument shall be initially and finally endorsed 
simultaneously for insurance pursuant to a commitment to insure upon 
completion. Where the advances of construction funds are to be insured 
pursuant to a commitment for insured advances, initial endorsement of 
the credit instrument shall occur before any mortgage proceeds are 
insured and the time of final endorsement shall be as set forth in 
paragraph (b) of this section.
    (a) Initial endorsement. The Commissioner shall indicate the 
insurance of the mortgage by endorsing the original credit instrument 
and identifying the section of the Act and the regulations under which 
the mortgage is insured and the date of insurance.
    (b) Final endorsement. When all advances of mortgage proceeds have 
been made and all the terms and conditions of the commitment have been 
met to the Commissioner's satisfaction the Commissioner shall indicate 
on the original credit instrument the total of all advances approved for 
insurance and again endorse such instrument.
    (c) Contract rights and obligations. The Commissioner and the 
mortgagee or lender shall be bound from the date of initial endorsement, 
whether the initial and final endorsement occur simultaneously or are 
split, by the provisions of the Contract Rights and Obligations set 
forth in the respective regulations for each section of the Act, as 
follows: Section 207 of the Act (24 CFR part 207); Section 213 of the 
Act (24 CFR part 213); Section 220 of the Act (24 CFR part 220); Section 
221 of the Act (24 CFR part 221); Section 231 of the Act (24 CFR part 
231); Section 232 of the Act (24 CFR part 232); Section 234 of the Act 
(24 CFR part 234); Section 241 of the Act (24 CFR part 241); Section 242 
of the Act (24 CFR part 242); title XI of the Act (24 CFR part 244).



Sec.  200.101  Mortgagor lien certificate.

    The mortgagor shall certify at the final endorsement of the mortgage 
for insurance as to each of the following:

[[Page 24]]

    (a) That the mortgage is the first lien upon and covers the entire 
project, including any equipment financed with mortgage proceeds.
    (b) That the property upon which the improvements have been made or 
constructed and the equipment financed with mortgage proceeds are free 
and clear of all liens other than the insured mortgage and such other 
liens as may be approved by the Commissioner.
    (c) That the certificate sets forth all unpaid obligations in 
connection with the mortgage transaction, the purchase of the mortgaged 
property, the construction or rehabilitation of the project or the 
purchase of the equipment financed with mortgage proceeds.

                        Regulation of Mortgagors



Sec.  200.105  Mortgagor supervision.

    (a) As long as the Commissioner is the insurer or holder of the 
mortgage, the Commissioner shall regulate the mortgagor by means of a 
regulatory agreement providing terms, conditions and standards 
established by the Commissioner, or by such other means as the 
Commissioner may prescribe.
    (b) The Commissioner may delegate to the mortgagee or other party 
the Commissioner's authority, in whole or in part, in accordance with 
the terms, conditions and standards established by the Commissioner in 
any executed Regulatory Agreement or other instrument granting the 
Commissioner supervision of the mortgagor.

[61 FR 14399, Apr. 1, 1996, as amended at 65 FR 61074, Oct. 13, 2000]



Sec.  200.106  Projects with limited distribution mortgagors and program
assistance.

    (a) Regulation as limited distribution mortgagors. In addition to 
regulation under Sec.  200.105, limited distribution mortgagors for 
projects receiving ``assistance within the jurisdiction of the 
Department'' (as defined in Sec.  4.3 of this title) may be regulated by 
the Commissioner as to additional matters, by regulation or otherwise, 
including as to the amount of the permissible distribution to the 
mortgagor.
    (b) Increased distributions. The Commissioner may permit increased 
distributions of surplus cash, in excess of the amounts the Commissioner 
otherwise permits for limited distribution mortgagors, to a limited 
distribution mortgagor who participates in a HUD-approved initiative or 
program to preserve housing stock with below-market rents as affordable 
housing. The increased distribution will be limited to a maximum amount 
based on market rents and calculated according to HUD instructions. 
Funds that the mortgagor is authorized to retain under section 236(g)(2) 
of the National Housing Act are not considered distributions to the 
mortgagor.
    (c) Pre-emption. Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by the Commissioner 
under authority of this section is preempted to the extent provided in 
section 524(f) of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997.

[65 FR 61074, Oct. 13, 2000]



 Subpart B_Electronic Submission of Required Data for Mortgage Defaults 
     and Mortgage Insurance Claims for Insured Multifamily Mortgages

    Source: 64 FR 4769, Jan. 29, 1999, unless otherwise noted.



Sec.  200.120  Purpose and applicability.

    (a) Purpose. The purpose of this subpart B is to require mortgagees 
of all multifamily projects whose mortgages are insured or coinsured by 
HUD to submit electronically information regarding mortgage 
delinquencies, defaults, reinstatements, elections to assign, and 
withdrawals of assignment elections, and related information, as that 
information is required by 24 CFR part 207 and Form HUD-92426 (which is 
available at the Department of Housing and Urban Development, HUD 
Customer Service Center, 451 7th Street, SW, Room B-100, Washington, DC 
20410; telephone (800) 767-7468).
    (b) Applicability. This subpart applies to all HUD multifamily 
mortgage insurance and coinsurance programs.

[[Page 25]]



Sec.  200.121  Requirements and effectiveness.

    (a) Multifamily mortgagees, which are required by 24 CFR part 207 to 
report mortgage delinquencies, defaults, reinstatements, assignment 
elections, withdrawals of assignment elections, and related information, 
must submit this information electronically, over the Internet, in 
accordance with the following schedule of effectiveness:
    (1) Mortgagees having 70 or more insured mortgage loans must comply 
with this section by no later than March 1, 1999;
    (2) Mortgagees having from 26 to 69 insured mortgage loans must 
comply with this section by no later than January 1, 2000;
    (3) Mortgagees having from 11 to 25 insured mortgage loans must 
comply with this section by no later than January 1, 2001;
    (4) Mortgagees having 10 or fewer insured mortgage loans must comply 
with this section by no later than January 1, 2002.
    (b) Exception. On or after January 1, 2002, mortgagees that hold or 
service fewer than 10 multifamily mortgages may continue to report 
mortgage delinquencies, defaults, reinstatements, assignment elections, 
withdrawals of assignment elections, and related information in writing 
on Form HUD-92426 only with specific HUD approval. HUD will grant such 
approval, upon application by the mortgagee, for reasons of hardship due 
to insufficient financial resources to purchase the required hardware 
and Internet access.
    (c) HUD will not accept reports of information regarding defaults, 
reinstatements, assignment elections, and related information in a 
manner that is not in accordance with this section. Failure on the part 
of mortgagees to report this information as required by 24 CFR part 207 
and this section may result in HUD's application of the sanctions and 
surcharges specified in 24 CFR part 207.

Subparts C-D [Reserved]



         Subpart E_Mortgage Insurance Procedures and Processing

                        Application for Insurance



Sec.  200.145  Property and mortgage assessment.

    (a) The mortgagor is responsible for making those investigations, 
analyses and inspections it deems necessary for protecting its interests 
in the property.
    (b) Any appraisals, inspections, environmental assessments, and 
technical or financial evaluations conducted by or for the Commissioner 
are performed to determine the maximum insurable mortgage, and to 
protect the Commissioner and the FHA insurance funds. Such appraisals, 
inspections, assessments and evaluations neither create nor imply a duty 
or obligation from HUD to the mortgagor, or to any other party, and are 
not to be regarded as a warranty by HUD to the mortgagor, or any other 
party, of the value or condition of the property.

[61 FR 14404, Apr. 1, 1996]

                            Claims for Losses



Sec.  200.153  Presentation of claim.

    In the event the insured lender is entitled under the contract of 
mortgage insurance to receive a claim settlement, the mortgagee presents 
a claim for insurance benefits in accordance with the Secretary's 
instructions.

[61 FR 14404, Apr. 1, 1996]



Sec.  200.156  Settlement of claims.

    Upon the Secretary's approval of a claim, the claim will be settled 
by issuance of cash, debentures or both, and, in certain cases, by 
issuance of a certificate of claim. However, in the event a final claim 
is in a negative amount, the claim will be settled by the mortgagee's 
payment of cash or surrender of debentures at par plus accrued interest 
to the Secretary.

[61 FR 14404, Apr. 1, 1996]



Sec.  200.157  Provisions and characteristics of debentures.

    (a) Series and fund. Debentures are issued in appropriate series and 
are the obligation of and issued in the name of

[[Page 26]]

the particular mortgage insurance fund under which the mortgage is 
insured.
    (b) Registration and denominations. Debentures in certificated form 
are issued in denominations of $50, $100, $500, $1,000 and $10,000 with 
the name of the owner inscribed on the face of the certificate. 
Debentures in book entry form are issued in a minimum amount of one 
dollar and in increments of one cent with the name of the owner recorded 
in an account master record on the books of the Treasury.
    (c) Rate of interest and interchangeability. Debentures carry a rate 
of interest prescribed by the Commissioner but not in excess of an 
annual rate determined by the Secretary of the Treasury in accordance 
with prescribed statutory formula involving yields or prices of 
outstanding marketable obligations of the United States. Debentures in 
certificated form of the same series bearing the same interest rate and 
having the same maturity date shall be freely interchangeable between 
the various authorized denominations and may be exchanged for similar 
debentures in book entry form. Debentures in book entry form cannot be 
exchanged for debentures in certificated form.
    (d) Negotiability and Redemption. Debentures in certificated form 
are negotiable and, if in book entry form, are transferable in the 
manner described in applicable Treasury regulations. Debentures are 
fully guaranteed as to principal and interest by the United States. 
Debentures are redeemable on call issued by the Commissioner.
    (e) Payment of principal and interest. Principal and interest on 
debentures shall be payable when due at the Department of the Treasury, 
Washington, DC, or any Government agency or agencies in the United 
States which the Secretary of the Treasury may from time to time 
designate for that purpose. The principal and interest shall be payable 
to the owner whose name shall be inscribed on the debenture in 
certificated form, to the owner designated as assignee as shown by 
executed assignments for maturing or called certificated debentures, or 
to the owner whose name shall be recorded in the account master record 
of the book entry debentures.
    (f) Transfer and use--(1) In general. Debentures in certificated 
form are negotiable and, if in book entry form, are transferable in the 
manner described in applicable Treasury regulations. They may be used by 
approved mortgagees in lieu of cash for payment of FHA mortgage 
insurance premiums.
    (2) Mutual Mortgage Insurance Fund debentures. Debentures of the 
Mutual Mortgage Insurance Fund may be used to pay mortgage insurance 
premiums on mortgages insured under sections 203(b), 203(h), and 203(i), 
of the National Housing Act.
    (3) Cooperative Management Housing Insurance Fund debentures. 
Debentures which are the obligation of the Cooperative Management 
Housing Insurance Fund may be used to pay premiums on mortgages and 
loans which are insured under that Fund. Where the insurance of a 
mortgage or loan is transferred from the General Insurance Fund to the 
Cooperative Management Housing Insurance Fund, or where a mortgage or 
loan is endorsed for insurance pursuant to a commitment transferred to 
the Cooperative Management Housing Insurance Fund, debentures issued in 
connection with such mortgage or loan may be used to pay insurance 
premiums of either the Cooperative Management Housing Insurance Fund or 
the General Insurance Fund.
    (4) General Insurance Fund and debentures of other funds. Debentures 
of the General Insurance Fund and those debentures issued as obligations 
of mortgage insurance funds and accounts in existence prior to the 
enactment of the Housing and Urban Development Act of 1965 (other than 
the Mutual Mortgage Insurance Fund) which are transferred by the 1965 
Act to the General Insurance Fund may be used to pay mortgage insurance 
premiums only on the following mortgages and loans:
    (i) Those which are the obligation of the General Insurance Fund.
    (ii) Those transferred from the General Insurance Fund to the 
Cooperative Management Housing Insurance Fund.
    (iii) Those endorsed for insurance pursuant to commitments 
transferred to the Cooperative Management Housing Insurance Fund.

[36 FR 24467, Dec. 22, 1971, as amended at 59 FR 49815, Sept. 30, 1994]

[[Page 27]]



Sec.  200.158  Applicability of Treasury regulations to debenture transactions.

    The Department of the Treasury acts as fiscal agent for the 
Commissioner in connection with transactions and operations relating to 
debentures. Treasury's General Regulations Governing U.S. Securities (31 
CFR part 306) and its Supplemental Regulations Governing Federal Housing 
Administration Debentures (31 CFR part 337) have been and are adopted as 
revised and amended, to the extent applicable, as the regulations of the 
Commissioner governing the issuance of, transactions in and redemption 
of debentures, including the payment of interest thereon with the 
following exceptions:
    (a) Payment of final interest on maturing or called debentures. If 
the notice of maturity or call for redemption shall so provide, the 
final installment of interest payable on any debentures at maturity or 
earlier redemption date may be paid with the principal in accordance 
with the assignments on the debentures instead of by separate check 
drawn to the order of the registered payee and forwarded to him at his 
address of record.
    (b) Closing of transfer books. If the call for redemption shall so 
provide, the books maintained by the Treasury Department may be closed 
against transfers and denominational exchanges in debentures for three 
full months preceding any interest payment date with respect to any 
debentures called for redemption on such interest payment date.

[36 FR 24467, Dec. 22, 1971, as amended at 59 FR 49815, Sept. 30, 1994]



Sec.  200.159  Relief on account of lost, stolen, destroyed, mutilated
or defaced debentures.

    The statutes of the United States and the regulations of the 
Treasury Department governing relief on account of the loss, theft, 
destruction, mutilation or defacement of United States securities, so 
far as applicable and as necessarily modified to relate to debentures, 
are adopted as the regulations of the Commissioner for the issuance of 
substitute debentures or the payment of lost, stolen, destroyed, 
mutilated or defaced debentures.



Sec.  200.160  Redemption of debentures prior to maturity.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment date on 3 months' 
notice of redemption given in such manner as the Commissioner shall 
prescribe. The debenture interest on the debentures called for 
redemption shall cease on the semiannual interest payment date 
designated in the call notice. The Commissioner may include with the 
notice of redemption an offer to purchase the debentures at par plus 
accrued interest at any time during the period between the notice of 
redemption and the redemption date. If the debentures are purchased by 
the Commissioner after such call and prior to the named redemption date, 
the debenture interest shall cease on the date of purchase.



Sec.  200.161  Administration of debenture transactions.

    The Secretary of the Treasury or the Acting Secretary of the 
Treasury is authorized and empowered, on behalf of the Commissioner, to 
administer the regulations governing any transactions and operations in 
debentures, to do all things necessary to conduct such transactions and 
operations, and to delegate such authority at his discretion to other 
officers, employees, and agents of the U.S. Treasury Department. At his 
discretion the Secretary, the Under Secretary, or any Assistant 
Secretary of the Treasury acting by direction of the Secretary, is 
authorized to waive any such regulation on behalf of the Commissioner in 
any particular case where a similar regulation of the Treasury 
Department with respect to United States bonds or interest thereon would 
be waived.



Sec.  200.162  Certificates of claim.

    The certificate of claim issued to the mortgagee at the time 
debentures are issued constitutes an agreement by the FHA that after the 
FHA has recovered its investment in a particular property any excess 
over and above such investment is available for payment on the 
certificate of claim. Certificates of

[[Page 28]]

claim bear interest at the rate of 3 percent per annum.



  Subpart F_Placement and Removal Procedures for Participation in FHA 
                                Programs

                          FHA Inspector Roster

    Source: 69 FR 11496, Mar. 10, 2004, unless otherwise noted.



Sec.  200.170  FHA Inspector Roster; Mortgagee and inspector requirements.

    (a) General. The FHA Inspector Roster (Roster) is a list of the 
inspectors selected by FHA as eligible to determine if the construction 
quality of a one- to four-unit property is acceptable as security for an 
FHA insured loan.
    (b) Mortgagee requirement. Only an inspector included on the Roster 
may be selected by a mortgagee to determine if the construction quality 
of a property is acceptable as security for an FHA insured loan, as 
follows:
    (1) For new construction, the FHA requires three inspections by 
Roster inspectors; and
    (2) For existing construction, the FHA requires an inspection by a 
Roster inspector where structural repairs have been made requiring an 
inspection and this inspection is not performed by a licensed, bonded, 
and registered engineer; a licensed home inspector; or other person 
specifically registered or licensed to conduct such inspections.
    (3) The requirements of paragraph (b)(1) of this section do not 
apply if:
    (i) The local jurisdiction where the newly constructed one- to four-
unit property is located performs the inspections and issues a building 
permit prior to construction and a certificate of occupancy or 
equivalent document; or
    (ii) When the new construction is 100 percent complete, an appraiser 
who is on FHA's Appraiser Roster appraises the property and an FHA 
Roster inspector has already performed two inspections.
    (c) Inspector requirement. To be eligible to conduct inspections as 
required by paragraph (b) of this section, an inspector must be listed 
on the Roster, except that any inspector already otherwise listed by HUD 
as eligible to conduct inspections as of April 9, 2004, may conduct 
inspections until October 12, 2004, without being listed on the Roster.
    (d) Effect of placement on the Roster. Placement of an inspector on 
the Roster only qualifies an inspector to be selected by a mortgagee to 
determine if the construction quality of a property is acceptable as 
security for an FHA-insured loan. Placement on the Roster does not 
guarantee that any mortgagee will select an inspector. Use of an 
inspector placed on the Roster also does not create or imply any 
warranty or endorsement concerning the inspected property by HUD to a 
prospective homebuyer or any other party.



Sec.  200.171  Placement on the Inspector Roster.

    (a) Application. To be considered for placement on the Roster, an 
inspector must apply to HUD using an application (or materials) in a 
form prescribed by HUD.
    (b) Eligibility. To be eligible for placement on the Roster, an 
inspector must demonstrate the following to HUD:
    (1) A minimum of three years experience in one or more construction-
related fields;
    (2) Possession of an inspector's state or local license or 
certification, if licensing or certification is required by the state or 
local jurisdiction in which the inspector will operate;
    (3) Certification that the applicant inspector has read and fully 
understands the inspection requirements, including any update to those 
requirements, of:
    (i) HUD Handbook 4905.1 REV-1 (Requirements for Existing Housing, 
One to Four Family Units);
    (ii) HUD Handbook 4910.1 (Minimum Property Standards for Housing);
    (iii) HUD Handbook 4145.1 REV-2 (Architectural Processing and 
Inspections for Home Mortgage Insurance);
    (iv) HUD Handbooks 4150.1 and 4150.2 (Valuation Analysis for Home 
Mortgage Insurance);
    (v) HUD Handbook 4930.3G (Permanent Foundations Guide for 
Manufactured Housing);
    (vi) The applicable local, state, or Council of American Building 
Officials (CABO) code; and

[[Page 29]]

    (vii) The HUD requirements at 24 CFR 200.926; and
    (4) Verification that the inspector has taken and passed HUD's 
comprehensive examination for inspectors, after such an examination 
becomes available. Inspectors who are included on the Roster on the date 
when the requirement for the examination becomes effective have until 
six months following that date to pass the comprehensive exam. Failure 
to pass the examination by the deadline date constitutes cause for 
removal under Sec.  200.172.



Sec.  200.172  Removal from the Inspector Roster.

    (a) Cause for removal. HUD may remove an inspector from the Roster 
for any cause that HUD determines to be detrimental to HUD or its 
programs. Cause for removal includes, but is not limited to:
    (1) Poor performance on a HUD quality control field review;
    (2) Failure to comply with applicable regulations or other written 
instructions or standards issued by HUD;
    (3) Failure to comply with applicable civil rights requirements;
    (4) Being debarred, suspended, or subject to a limited denial of 
participation;
    (5) Misrepresentation or fraudulent statements;
    (6) Failure to retain standing as a state or local government 
licensed or certified inspector, where such a license or certificate is 
required;
    (7) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation; or
    (8) Being listed on HUD's Credit Alert Interactive Voice Response 
System (CAIVRS).
    (b) Procedure for removal. An inspector that is debarred, suspended, 
or subject to a limited denial of participation will be automatically 
removed from the Roster. In all other cases, the following procedure for 
removal will be followed:
    (1) HUD will give the inspector written notice of the proposed 
removal. The notice will state the reasons for and the duration of the 
proposed removal.
    (2) The inspector will have 20 days after the date of the notice (or 
longer, if provided in the notice) to submit a written response 
appealing the proposed removal and requesting a conference. A request 
for a conference must be in writing and must be submitted with the 
written response.
    (3) A HUD official will review the appeal and send a response either 
affirming, modifying, or canceling the removal. The HUD official will 
not be someone who was involved in HUD's initial removal decision. HUD 
will respond with a decision within 30 days after receiving the appeal 
or, if the inspector has requested a conference, within 30 days after 
the completion of the conference. HUD may extend the 30-day period by 
providing written notice to the inspector.
    (4) If the inspector does not submit a timely written response, the 
removal will be effective 20 days after the date of HUD's initial 
removal notice (or after a longer period provided in the notice). If a 
written response is submitted, and the removal decision is affirmed or 
modified, the removal will be effective on the date of HUD's notice 
affirming or modifying the initial removal decision.
    (c) Placement on the list after removal. An inspector who has been 
removed from the Roster may apply for placement on the Roster (in 
accordance with Sec.  200.171) after the period of the inspector's 
removal from the Roster has expired. An application will be rejected if 
the period for the inspector's removal from the list has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against an inspector, as provided in 2 CFR part 2424, 
or from seeking any other remedy against an inspector, available to HUD 
by statute or otherwise.

[69 FR 11496, Mar. 10, 2004, as amended at 72 FR 73494, Dec. 27, 2007]

             Section 203(k) Rehabilitation Loan Consultants



Sec.  200.190  HUD list of qualified 203(k) consultants.

    (a) Qualified consultant list. HUD maintains a list of qualified 
consultants for use in the rehabilitation loan

[[Page 30]]

insurance program authorized by section 203(k) of the National Housing 
Act (12 U.S.C. 1709(k)) (referred to as the ``203(k) Program'').
    (b) Consultant functions. Only a consultant included on the list may 
be selected by the lender to conduct any consultant function under the 
203(k) Program (see Sec.  203.50(l) of this title).
    (c) Disclaimer. The inclusion of a consultant on the list means only 
that the consultant has met the qualifications and conditions prescribed 
by the Secretary for placement on the list of consultants qualified for 
the 203(k) Program. The inclusion of a consultant on the list does not 
create or imply a warranty or endorsement by HUD of the consultant, nor 
does it represent a warranty of any work performed by the consultant.

[67 FR 52380, Aug. 9, 2002]



Sec.  200.191  Placement of 203(k) consultant.

    (a) Application. To be considered for placement on the list, a 
consultant must apply to HUD using an application (or materials) in a 
form prescribed by HUD.
    (b) Eligibility. To be eligible for placement on the list:
    (1) The consultant must demonstrate to HUD that it either:
    (i) Has at least three years' experience as a remodeling contractor, 
general contractor or home inspector; or
    (ii) Is a state-licensed architect or state-licensed engineer;
    (2) If located in a state that requires the licensing of home 
inspectors, the consultant must submit proof of such licensing;
    (3) The consultant must submit a narrative description of the 
consultant's ability to perform home inspections, prepare architectural 
drawings, use proper methods of cost estimating and complete draw 
inspections.
    (4) The consultant must certify that it has read and fully 
understands the requirements of the HUD handbook on the 203(k) Program 
(4240.4) and all HUD Mortgagee Letters and other instructions relating 
to the 203(k) Program.
    (5) The consultant must not be listed on:
    (i) The General Services Administration's Suspension and Debarment 
List;
    (ii) HUD's Limited Denial of Participation List; or
    (iii) HUD's Credit Alert Interactive Voice Response System.
    (6) The consultant must have passed a comprehensive examination on 
the 203(k) Program, if HUD has developed such an exam.
    (c) Delayed effective date of examination requirement for 
consultants currently on the list. Consultants who are included on the 
list on the date when the requirement for the examination described in 
paragraph (b)(6) of this section becomes effective have until 6 months 
following this date to pass the comprehensive exam. Failure to pass the 
examination by the deadline date constitutes cause for removal under 
Sec.  200.192.

[67 FR 52380, Aug. 9, 2002]



Sec.  200.192  Removal of 203(k) consultant.

    (a) Cause for removal. HUD may remove a consultant from the list for 
any cause that HUD determines to be detrimental to HUD or its programs. 
Cause for removal includes, but is not limited to:
    (1) Poor performance on a HUD quality control field review;
    (2) Failure to comply with applicable regulations or other written 
instructions or standards issued by HUD;
    (3) Failure to comply with applicable Civil Rights requirements;
    (4) Being debarred or suspended, or subject to a limited denial of 
participation;
    (5) Misrepresentation or fraudulent statements;
    (6) Failure to retain standing as a state licensed architect or 
state-licensed engineer (unless the consultant can demonstrate the 
required three years experience as a home inspector or remodeling 
contractor);
    (7) Failure to retain standing as a state licensed home inspector, 
if the consultant is located in a sate that requires such licensing; or
    (8) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation.
    (b) Procedure for removal. A consultant that is debarred or 
suspended, or subject to a limited denial of participation will be 
automatically removed from

[[Page 31]]

the list. In all other cases, the following procedure for removal will 
be followed:
    (1) HUD will give the consultant written notice of the proposed 
removal. The notice will state the reasons for, and the duration of, the 
proposed removal.
    (2) The consultant will have 20 days from the date of the notice (or 
longer, if provided in the notice) to submit a written response 
appealing the proposed removal and to request a conference. A request 
for a conference must be in writing and must be submitted along with the 
written response.
    (3) A HUD official will review the appeal and send a response either 
affirming, modifying, or canceling the removal. The HUD official will 
not be someone who was involved in HUD's initial removal decision. HUD 
will respond with a decision within 30 days of receiving the appeal or, 
if the consultant has requested a conference, within 30 days after the 
completion of the conference. HUD may extend the 30-day period by 
providing written notice to the consultant.
    (4) If the consultant does not submit a timely written response, the 
removal will be effective 20 days after the date of HUD's initial 
removal notice (or after a longer period provided in the notice). If a 
written response is submitted, and the removal decision is affirmed or 
modified, the removal will be effective on the date of HUD's notice 
affirming or modifying the initial removal decision.
    (c) Placement on the list after removal. A consultant that has been 
removed from the list may apply for placement on the list (in accordance 
with Sec.  200.191) after the period of the consultant's removal from 
the list has expired. An application will be rejected if the period for 
the consultant's removal from the list has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against a consultant, as provided in 2 CFR part 2424, 
or from seeking any other remedy against a consultant, available to HUD 
by statute or otherwise.

[67 FR 52380, Aug. 9, 2002, as amended at 72 FR 73494, Dec. 27, 2007]



Sec.  200.193  Responsibilities of 203(k) consultants on the list.

    All consultants included on the list are responsible for:
    (a) Obtaining and reading the HUD handbook on the 203(k) Program 
(4240.4) and any updates to the handbook.
    (b) Complying with the HUD handbook on the 203(k) Program (4240.4), 
and any updates to the handbook, when performing any consultant function 
under the 203(k) Program.
    (c) Obtaining and reading all Mortgagee Letters and other 
instructions issued by HUD relating to the 203(k) Program.
    (d) Complying with all Mortgagee Letters and other instructions 
issued by HUD relating to the 203(k) Program, when undertaking any 
consultant function under the 203(k) Program.
    (e) Complying with HUD's request for documentation relating to any 
203(k) project on which the consultant has worked.
    (f) Complying with HUD's monitoring requirements relating to the 
203(k) Program.

[67 FR 52381, Aug. 9, 2002]

                         Nonprofit Organization



Sec.  200.194  Placement of nonprofit organization on Nonprofit
Organization Roster.

    (a) Nonprofit Organization Roster. HUD maintains a roster of 
nonprofit organizations that are qualified to participate in certain 
specified FHA activities. In order to be recognized as a nonprofit 
organization for purposes of single family regulations in this chapter, 
an organization must:
    (1) Be included in the Roster; and
    (2) Comply with any requirements stated in a specific applicable 
provision of the single family regulations in this chapter.
    (b) Application. To be included in the Roster, a nonprofit 
organization must apply to HUD using an application (or materials) in a 
form prescribed by HUD (which may require an affordable housing program 
narrative for the activities the nonprofit organization proposes to 
carry out). The nonprofit organization must specify in its application

[[Page 32]]

the FHA activities it proposes to carry out.
    (c) HUD response to application. HUD's review of the application 
will result in one of the following:
    (1) Approval of the nonprofit organization to participate in all, or 
some, of the FHA activities specified in its application and the 
addition of the nonprofit organization to the Roster.
    (2) Rejection due to deficiencies in the application. HUD will 
provide the nonprofit organization with a period to correct these 
deficiencies.
    (3) Rejection due to the nonprofit organization's failure to submit 
a program that complies with applicable single family regulations in 
this chapter, Mortgagee Letters, or other standards or instructions 
issued by HUD.
    (d) Reapplication after two years. The placement of a nonprofit 
organization on the Roster expires after two years. The nonprofit 
organization must reapply for placement on the Roster, in accordance 
with paragraph (b) of this section, before expiration of the two-year 
period.

[67 FR 39239, June 6, 2002]



Sec.  200.195  Removal of nonprofit organization from Nonprofit
Organization Roster.

    (a) Cause for removal. HUD may remove a nonprofit organization from 
the FHA Nonprofit Organization Roster established under Sec.  200.194. 
Removal may be for any cause that HUD determines to be detrimental to 
FHA or any of its programs, including but not limited to:
    (1) Failure to comply with applicable single family regulations in 
this chapter, Mortgagee Letters or other written instructions or 
standards issued by HUD;
    (2) Failure to comply with applicable Civil Rights requirements;
    (3) Holding a significant number of FHA-insured mortgages that are 
in default, foreclosure, or claim status (in determining the number 
considered ``significant,'' HUD may compare the number of insured 
mortgages held by the nonprofit organization against the similar 
holdings of other nonprofit organizations);
    (4) Being debarred or suspended, subject to a limited denial of 
participation, or otherwise sanctioned by HUD;
    (5) Failure to further all objectives described in the affordable 
housing program narrative;
    (6) Misrepresentation or fraudulent statements; or
    (7) Failure to respond within a reasonable time to HUD inquiries, 
including recertification requests or other requests for further 
documentation.
    (b) Procedure for removal. A nonprofit organization that is debarred 
or suspended or subject to a limited denial of participation will be 
automatically removed from the FHA Nonprofit Organization Roster. In all 
other cases, the following procedure for removal applies:
    (1) HUD will give the nonprofit organization written notice of the 
proposed removal. The notice will include the reasons for the proposed 
removal and the duration of the proposed removal.
    (2) The nonprofit organization will have 20 days from the date of 
the notice (or longer, if provided in the notice) to submit a written 
response appealing the proposed removal and to request a conference. A 
request for a conference must be in writing and must be submitted along 
with the written response.
    (3) A HUD official will review the appeal and provide an informal 
conference if requested. The HUD official will send a response either 
affirming, modifying, or canceling the removal. The HUD official will 
not be someone who was involved in HUD's initial removal decision. HUD 
will respond with a decision within 30 days of receiving the response, 
or, if the nonprofit organization has requested a conference, within 30 
days after the completion of the conference. HUD may extend the 30-day 
period by providing written notice to the nonprofit organization.
    (4) If the nonprofit organization does not submit a timely written 
response, the removal will be effective 20 days after the date of HUD's 
initial removal notice (or after a longer period provided in the 
notice). If a written response is submitted, and the initial removal 
decision is affirmed or modified, the removal will be effective on the 
date of HUD's notice affirming or modifying the initial removal 
decision.
    (c) Placement on the Roster after removal. A nonprofit organization 
that

[[Page 33]]

has been removed from the FHA Nonprofit Organization Roster may apply 
for placement on the Roster (in accordance with Sec.  200.194) after the 
nonprofit organization's removal from the Roster has expired. An 
application will be rejected if the period for the nonprofit 
organization's removal from the Roster has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against a nonprofit organization, as provided in 2 CFR 
part 2424, or from seeking any other remedy against a nonprofit 
organization, available to HUD by statute or otherwise.

[67 FR 39239, June 6, 2002, as amended at 72 FR 73494, Dec. 27, 2007]



                       Subpart G_Appraiser Roster

    Source: 64 FR 72869, Dec. 28, 1999, unless otherwise noted.



Sec.  200.200  What is the Appraiser Roster?

    (a) Appraiser Roster. HUD maintains a list of appraisers. A 
mortgagee must select only an appraiser from this list for the appraisal 
of a property that is to be the security for an FHA-insured single 
family mortgage.
    (b) Disclaimer. Since an appraisal is performed to determine the 
maximum insurable mortgage and to also protect the FHA insurance funds, 
the inclusion of an appraiser on the Appraiser Roster does not create or 
imply a warranty or endorsement to a prospective homebuyer or to any 
other organization or individual by HUD of the listed appraiser nor does 
it represent a warranty of any appraisal performed by the listed 
appraiser. The inclusion of an appraiser on the Appraiser Roster means 
only that a listed appraiser has met the qualifications and conditions, 
prescribed by the Secretary, for inclusion on the Appraiser Roster.



Sec.  200.202  How do I apply for placement on the Appraiser Roster?

    (a) Application. To apply for placement on the Appraiser Roster, you 
must submit an application to HUD.
    (b) Eligibility. To be eligible for placement on the Appraiser 
Roster:
    (1) You must be a state-certified appraiser with credentials that 
complied with the applicable certification criteria established by the 
Appraiser Qualification Board (AQB) of the Appraisal Foundation and in 
effect at the time the certification was awarded by the issuing 
jurisdiction; and
    (2) You must not be listed on:
    (i) The General Services Administration's Suspension and Debarment 
List;
    (ii) HUD's Limited Denial of Participation List; or
    (iii) HUD's Credit Alert Verification Reporting System.

[73 FR 1432, Jan. 8, 2008, as amended at 76 FR 72308, Nov. 23, 2011]



Sec.  200.204  What actions may HUD take against unsatisfactory appraisers
on the Appraiser Roster?

    An unsatisfactory appraiser may be subject to removal, education 
requirements, or other actions, as follows:
    (a) Removal from the Appraiser Roster. HUD officials, as designated 
by the Secretary, may at any time remove a listed appraiser from the 
Appraiser Roster for cause, in accordance with paragraphs (a)(1) through 
(a)(3) of this section. The provisions of paragraphs (a)(1) through 
(a)(3) of this section do not apply to removal actions taken under any 
section in 2 CFR part 2424 or to any other remedy against an appraiser, 
available to HUD by statute or otherwise.
    (1) Cause for removal. Cause for removal includes, but is not 
limited to:
    (i) Significant deficiencies in appraisals, including non-compliance 
with Civil Rights requirements regarding appraisals;
    (ii) Losing standing as a state-certified appraiser due to 
disciplinary action in any state in which the appraiser is certified;
    (iii) Prosecution for committing, attempting to commit, or 
conspiring to commit fraud, misrepresentation, or any other offense that 
may reflect on the appraiser's character or integrity;
    (iv) Failure to perform appraisal functions in accordance with 
instructions and standards issued by HUD;
    (v) Failure to comply with any agreement made between the appraiser 
and HUD or with any certification made by the appraiser;

[[Page 34]]

    (vi) Being issued a final debarment, suspension, or limited denial 
of participation;
    (vii) Failure to maintain eligibility requirements for placement on 
the Appraiser Roster as set forth under this subpart or any other 
instructions or standards issued by HUD; or,
    (viii) Failure to comply with HUD-imposed education requirements 
under paragraph (d) of this section within the specified period for 
complying with such education requirements.
    (2) Procedure for removal. If you are a listed appraiser and HUD 
decides to remove you for cause from the Appraiser Roster, the following 
procedure applies to you unless you have been issued a final debarment, 
suspension, or limited denial of participation, in which case you are 
subject to paragraph (a)(3) of this section:
    (i) You will be given written notice of your proposed removal. The 
notice will include the reasons for your proposed removal and the 
duration of your proposed removal.
    (ii) You will have 20 days from the date of your notice of proposed 
removal to submit a written response appealing the proposed removal and 
to request a conference. A request for a conference must be in writing 
and must be submitted along with a written response.
    (iii) Within 30 days of receiving your written response, or if you 
have requested a conference, within 30 days after the completion of your 
conference, a HUD official, designated by the Secretary, will review 
your appeal and will send you a final decision either affirming, 
modifying, or canceling your removal from the Appraiser Roster. HUD may 
extend this time upon giving you notice. The HUD official designated by 
the Secretary to review your appeal will not be someone involved in 
HUD's initial removal decision nor will it be someone who reports to a 
person involved in that initial decision.
    (iv) If you do not submit a written response, your removal will be 
effective 20 days after the date of HUD's initial removal notice. If you 
submit a written response, and the removal decision is affirmed or 
modified, your removal or modification will be effective on the date of 
HUD's notice affirming or modifying the initial removal decision.
    (3) Automatic removal for issuance of final debarment, suspension, 
or limited denial of participation. If you are a listed appraiser and 
you have been issued a final debarment, a suspension, or a limited 
denial of participation, the provisions of paragraph (a)(2) of this 
section do not apply to you, and you will be automatically removed from 
the Appraiser Roster.
    (b) Reinstatement. If an appraiser who has been removed from the 
Roster wants to be reinstated on the Roster, the appraiser must follow 
the procedures and requirements contained in this subpart for placement 
on the Roster. Before an appraiser is eligible to reapply for placement 
on the Roster, the appraiser shall comply with the terms of any 
applicable remedial training education requirements, and the time period 
for the appraiser's removal from the Roster shall have expired.
    (c) Automatic suspension from Appraiser Roster--(1) Appraisers 
subject to state disciplinary action. An appraiser whose state 
certification in any state has been revoked, suspended, or surrendered 
as a result of a state disciplinary action is automatically suspended 
from the Appraiser Roster and prohibited from conducting FHA appraisals 
in any state until HUD receives evidence demonstrating that the state-
imposed sanction has been lifted.
    (2) Expirations not due to state disciplinary action. An appraiser 
whose certification in a state has expired is automatically suspended 
from the Appraiser Roster in that state and may not conduct FHA 
appraisals in that state until HUD receives evidence that demonstrates 
renewal, but may continue to perform FHA appraisals in other states in 
which the appraiser is certified.
    (d) Education requirements. Where there is evidence that an 
appraiser is deficient in FHA appraisal requirements, HUD may require an 
appraiser to undergo professional training.
    (e) Other action. Nothing in this section prohibits HUD from taking 
any other action against an appraiser, as provided under 2 CFR part 
2424, or from seeking any other remedy against an

[[Page 35]]

appraiser, available to HUD by statute or otherwise.

[65 FR 17977, Apr. 5, 2000, as amended at 68 FR 26950, May 16, 2003; 72 
FR 73494, Dec. 27, 2007; 73 FR 1432, Jan. 8, 2008; 76 FR 72308, Nov. 23, 
2011]



Sec.  200.206  What are my responsibilities as an appraiser listed
on the Appraiser Roster?

    All appraisers listed on the Appraiser Roster are responsible for:
    (a) Obtaining and reading the HUD Appraiser Handbook (4150.2) and 
any updates to the Handbook;
    (b) Complying with the HUD Appraiser Handbook (4150.2), and any 
updates to the Handbook, when performing all appraisals of properties 
for HUD single family mortgage insurance purposes; and
    (c) Complying with all other instructions and standards issued by 
HUD when performing all appraisals of properties for HUD single family 
mortgage insurance purposes.



           Subpart H_Participation and Compliance Requirements

    Source: 81 FR 71263, Oct. 14, 2016, unless otherwise noted.



Sec.  200.210  Policy.

    (a) Regulations. It is HUD's policy that, in accordance with the 
intent of the National Housing Act (12 U.S.C. 1701 et seq.), and with 
other applicable federal statutes, participants in HUD's housing and 
healthcare programs be responsible individuals and organizations who 
will honor their legal, financial and contractual obligations. 
Accordingly, as provided in this subpart, HUD will review the prior 
participation of Controlling Participants, as defined in Sec.  200.212 
and Sec.  200.216, as a prerequisite to participation in HUD's 
multifamily housing and healthcare programs listed in Sec.  200.214.
    (b) Processing Guide. The regulations in this subpart are 
supplemented by the Processing Guide for Previous Participation Reviews 
of Prospective Multifamily Housing and Healthcare Programs' Participants 
(Guide), which is found on HUD's Web site at www.hud.gov. This Guide 
elaborates on the basic procedures involved in the previous 
participation review process. For any significant changes made to this 
Guide, HUD will provide advance notice and the opportunity to comment, 
providing a comment period of no less than 30 days.



Sec.  200.212  Definitions.

    As used in this subpart:
    Commissioner means the Assistant Secretary for Housing-Federal 
Housing Commissioner, or the Commissioner's delegates and designees.
    Controlling Participant means an individual or entity serving in a 
capacity for a Covered Project that makes the individual or entity 
subject to Previous Participation review under this subpart, as further 
described in Sec.  200.216.
    Covered Project means a project in which the participation of a 
Controlling Participant is conditioned on Previous Participation review 
under this subpart, as further described in Sec.  200.214.
    Previous Participation means a Controlling Participant's previous 
participation in Covered Projects, and, if applicable, other federal, 
state and local housing programs, in accordance with the definition of 
Risk.
    Risk. In order to determine whether a Controlling Participant's 
participation in a project would constitute an unacceptable risk, the 
Commissioner must determine whether the Controlling Participant could be 
expected to participate in the Covered Project in a manner consistent 
with furthering the Department's purposes. The Commissioner's review of 
Previous Participation shall consider compliance with applicable 
statutes, regulations and program requirements. The Commissioner must 
consider the Controlling Participant's previous financial and 
operational performance in Covered Projects that may indicate a 
financial or operating risk in approving the Controlling Participant's 
participation in the subject Triggering Event. At the Commissioner's 
discretion, as necessary to determine financial or operating risk and to 
the extent the Commissioner determines such information to be reliably 
available, the Commissioner may consider the Controlling Participant's 
participation and performance in any federal, state or local

[[Page 36]]

government program. The Commissioner may exclude any Previous 
Participation the Commissioner determines to be of limited value, 
unreliable or irrelevant in evaluating risk and/or any Previous 
Participation in which the Controlling Participant did not exercise, 
actually or constructively, control. Any information collection in 
connection with review of Previous Participation must follow all 
applicable requirements for information collection.
    Triggering Event means an occurrence in connection with a Covered 
Project that subjects a Controlling Participant to Previous 
Participation review under this subpart, as further described in Sec.  
200.218.



Sec.  200.214  Covered Projects.

    The following types of multifamily and healthcare projects are 
Covered Projects subject to the requirements of this subpart, provided 
however that single family projects are excluded from the definition of 
Covered Projects:
    (a) FHA insured projects. A project financed or which is proposed to 
be financed with a mortgage insured under the National Housing Act, a 
project subject to a mortgage held by the Secretary under the National 
Housing Act, or a project acquired by the Secretary under the National 
Housing Act.
    (b) Housing for the elderly or persons with disabilities. Housing 
for the elderly financed or to be financed with direct loans or capital 
advances under section 202 of the Housing Act of 1959, as amended; and 
housing for persons with disabilities under section 811 of the Cranston-
Gonzalez National Affordable Housing Act.
    (c) Risk Share projects. A project that is insured under section 
542(b) or 542(c) of the Housing and Community Development Act of 1992(12 
U.S.C. 17107 note).
    (d) Projects subject to continuing HUD requirements. A project that 
is subject to a use agreement or any other affordability restrictions 
pursuant to a program administered by HUD's Office of Housing.
    (e) Subsidized Projects. Any project in which 20 percent or more of 
the units now receive or will receive a subsidy in the form of:
    (1) Interest reduction payments under section 236 of the National 
Housing Act (12 U.S.C. 1715z-1);
    (2) Rental Assistance Payments under section 236 of the National 
Housing Act (12 U.S.C. 1715z-1);
    (3) Rent Supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (12 U.S.C. 1701s); or
    (4) Project-based housing assistance payment contracts under section 
8 of the United States Housing Act of 1937 (42 U.S.C. 1437f) 
administered by HUD's Office of Housing.



Sec.  200.216  Controlling Participants.

    (a) Definition. Controlling Participants are those entities and 
individuals (i) serving as a Specified Capacity with respect to a 
Covered Project and (ii) the entities and individuals in control of the 
Specified Capacities. Each of the following capacities for a Covered 
Project is a ``Specified Capacity:''
    (1) An owner of a Covered Project;
    (2) A borrower of a loan financing a Covered Project;
    (3) A management agent;
    (4) An operator (in connection with healthcare projects insured 
under the following section of the National Housing Act: Section 232 (12 
U.S.C. 1715w) and section 242 (12 U.S.C. 1715z-7));
    (5) A master tenant (in connection with any multifamily housing 
project insured under the National Housing Act (12 U.S.C. 1701 et seq.) 
and in connection with certain healthcare projects insured under 
sections 232 or section 242 of the National Housing Act);
    (6) A general contractor; and
    (7) In connection with a hospital project insured under section 242 
of the National Housing Act (12 U.S.C. 1715z-7), a construction manager;
    (b) Control of entities. To the extent any Specified Capacity listed 
in paragraph (a) of this section is an entity, any individual(s) or 
entities determined by HUD to control the financial or operational 
decisions of such Specified Capacity shall also be considered 
Controlling Participants. Without limiting the foregoing and unless 
otherwise determined by HUD, the following

[[Page 37]]

individuals or entities shall be considered Controlling Participants:
    (1) Individuals or entities with the ability to direct the day-to-
day operations of a Specified Capacity or a Covered Project;
    (2) Individuals or entities that own at least 25 percent of an 
entity that is a Specified Capacity;
    (3) Individuals or entities with the ability to direct the entity to 
enter into agreements relating to the Triggering Event that necessitates 
review of Previous Participation, including without limitation 
individuals or entities that own at least 25 percent of entities 
determined to control an entity that is a Specified Capacity; and
    (4) In connection with a hospital project insured under section 242 
of the National Housing Act (12 U.S.C. 1715z-7), members of a hospital 
Board of Directors (or similar body) and executive management (such as 
the Chief Executive Officer and Chief Financial Officer) that HUD 
determines to have control over the finances or operation of a Covered 
Project.
    (c) Exclusions from definition. The following individuals or 
entities are not Controlling Participants for purposes of this subpart:
    (1) Passive investors and investor entities with limited liability 
in Covered Projects benefiting from tax credits, including but not 
limited to low-income housing tax credits pursuant to section 42 of 
title 26 of the United States Code, whether such investors are 
syndicators, direct investors or investors in such syndicators and/or 
investors;
    (2) Individuals or entities that do not exercise financial or 
operational control over the Covered Project, a Specified Capacity or 
another Controlling Participant;
    (3) Unless determined by HUD to exercise day-to-day control over the 
operations or finances of a Specified Capacity or Covered Project, board 
members of a non-profit corporation who are not officers or otherwise 
part of the executive management teams of the non-profit;
    (4) Mortgagees acting in their capacity as such; and
    (5) Public housing agencies (PHAs).



Sec.  200.218  Triggering Events.

    (a) Each of the following is a Triggering Event that may subject a 
Controlling Participant to Previous Participation review under Sec.  
200.220:
    (1) An application for FHA mortgage insurance;
    (2) An application for funds provided by HUD pursuant to a program 
administered by HUD's Office of Housing, such as but not limited to 
supplemental loans;
    (3) A request to change any Controlling Participant for which HUD 
consent is required with respect to a Covered Project; or
    (4) A request for consent to an assignment of a housing assistance 
payment contract under section 8 of the United States Housing Act of 
1937 or of another contract pursuant to which a Controlling Participant 
will receive funds in connection with a Covered Project.
    (b) The Commissioner may also require a review of a potential 
owner's Previous Participation in connection with a loan sale or other 
form of property disposition, including foreclosure sale. 
Notwithstanding anything contained in the regulations in this subpart to 
the contrary, any such review shall be in accordance with the terms, 
conditions, provisions and other requirements set forth by the 
Commissioner in connection with such loan sale or property disposition 
which may differ, in whole or in part, from the regulations in this 
subpart.



Sec.  200.220  Previous Participation review.

    (a) Scope of review. (1) Upon the occurrence of a Triggering Event, 
as provided in Sec.  200.218, the Commissioner shall review the Previous 
Participation of the relevant Controlling Participants in considering 
whether to approve the participation of the Controlling Participants in 
connection with the Triggering Event in accordance with the definition 
of Risk in Sec.  200.212.
    (2) The Commissioner will not review Previous Participation for 
interests acquired by inheritance or by court decree.
    (3) In connection with the submittal of an application for any 
Triggering Event, applicants shall identify the

[[Page 38]]

Controlling Participants and, to the extent requested by HUD, make 
available to HUD the Controlling Participant's Previous Participation in 
Covered Projects.
    (b) Results of review. (1) Based upon the review under paragraph (a) 
of this section, the Commissioner will approve, disapprove, limit, or 
otherwise condition the continued participation of the Controlling 
Participant in the Triggering Event, in accordance with paragraphs (c) 
and (d) of this section.
    (2) The Commissioner shall provide notice of the determination to 
the Controlling Participant including the reasons for disapproval or 
limitation. The Commissioner may provide notice of the determination to 
other parties as well, such the FHA-approved lender in the transaction.
    (c) Basis for disapproval. (1) The Commissioner must disapprove a 
Controlling Participant if the Commissioner determines that the 
Controlling Participant is suspended, debarred or subject to other 
restriction pursuant to 2 CFR part 180 or 2 CFR part 2424;
    (2) The Commissioner may disapprove a Controlling Participant if the 
Commissioner determines:
    (i) The Controlling Participant is materially restricted, including 
voluntarily, from doing business with HUD (other than the restrictions 
listed in paragraph (c)(1) of this section) or any other governmental 
department or agency if the Commissioner determines that such 
restriction demonstrates a significant risk to proceeding with the 
Triggering Event; or
    (ii) The Controlling Participant's record of Previous Participation 
reveals significant risk to proceeding with the Triggering Event.
    (d) Alternatives to disapproval. In lieu of disapproval, the 
Commissioner may:
    (1) Condition or limit the Controlling Participant's participation;
    (2) Temporarily withhold issuing a determination in order to gather 
more necessary information; or
    (3) Require the Controlling Participant to remedy or mitigate 
outstanding violations of HUD requirements to the Commissioner's 
satisfaction in order to participate in the Triggering Event.



Sec.  200.222  Request for reconsideration.

    (a) Where participation in a Triggering Event has been disapproved, 
otherwise limited or conditioned because of Previous Participation 
review, the Controlling Participant may request reconsideration of such 
determination by a review committee or reviewing officer as established 
by the Commissioner. Reconsideration decisions shall not be rendered by 
the same individual who rendered the initial review.
    (b) The Controlling Participant shall submit requests for such 
reconsideration in writing within 30 days of receipt of the 
Commissioner's notice of the determination under Sec.  200.220.
    (c) The review committee or reviewing officer shall schedule a 
review of such requests for reconsideration. The Controlling Participant 
shall be provided written notification of such a review; such notice 
shall provide at least 7 business days advanced notice of the 
reconsideration. The Controlling Participant shall be provided the 
opportunity to submit such supporting materials as the Controlling 
Participant desires or as the review committee or reviewing officer 
requests.
    (d) Before making its decision, the review committee or reviewing 
officer will analyze the reasons for the decision(s) for which 
reconsideration is being requested, as well as the documents and 
arguments presented by the Controlling Participant. The review committee 
or reviewing officer may affirm, modify, or reverse the initial 
decision. Upon making its decision, the review committee or reviewing 
officer will provide written notice of its determination to the 
Controlling Participant setting forth the reasons for the 
determination(s).



              Subpart I_Nondiscrimination and Fair Housing



Sec.  200.300  Nondiscrimination and fair housing policy.

    Federal Housing Administration programs shall be administered in 
accordance with:
    (a) The nondiscrimination and fair housing requirements set forth in 
24 CFR part 5, including the prohibition

[[Page 39]]

on inquiries regarding sexual orientation or gender identity set forth 
in 24 CFR 5.105(a)(2); and
    (b) The affirmative fair housing marketing requirements in 24 CFR 
part 200, subpart M and 24 CFR part 108.

[77 FR 5675, Feb. 3, 2012]



                 Subpart J_Equal Employment Opportunity



Sec.  200.400  Purpose.

    The purpose of this subpart is to assist in achieving the aims of 
part III of Executive Order 11246 and the relevant regulations of the 
Secretary of Labor and the Secretary of Housing and Urban Development.



Sec.  200.405  Notice to public.

    Participants in insurance programs under the National Housing Act 
shall be informed, as early as possible upon indicating their interest 
in any such program, of the established policy of nondiscrimination in 
employment in construction, repair or rehabilitation work financed with 
assistance under the Act.



Sec.  200.410  Definition of term ``applicant''.

    (a) In any mortgage or loan insurance transaction under this chapter 
where the Commissioner will control the mortgagor either through the 
ownership of corporate stock or under the provisions of a regulatory 
agreement, the term applicant as used in Sec.  200.415 shall mean the 
mortgagor.
    (b) In any transaction other than one specified in paragraph (a) of 
this section, the term applicant as used in Sec.  200.415 shall mean the 
developer, or the builder, dealer or contractor performing the 
construction, repair or rehabilitation work for the property owner.



Sec.  200.415  Agreement of applicant.

    An applicant, prior to the Commissioner's issuance of any commitment 
or other loan approval, shall agree (in a form prescribed by the 
Commissioner) that there shall be no discrimination against anyone who 
is employed in carrying out work receiving assistance pursuant to this 
chapter, or against an applicant for such employment, because of race, 
color, religion, sex, handicap, age, or national origin.

[58 FR 41000, July 30, 1993]



Sec.  200.420  Equal opportunity clause to be included in contracts
and subcontracts.

    (a) The equal opportunity clause prescribed by the Commissioner 
pursuant to the regulations of the Secretary of Labor (41 CFR chapter 
60) shall be included in each nonexempt contract and subcontract for 
work receiving FHA assistance.
    (b) Subcontracts less than $50,000 may incorporate by reference the 
equal opportunity clause.
    (c) The equal opportunity clause shall be deemed to be a part of 
each nonexempt contract or subcontract whether or not it is physically 
incorporated in such contract.



Sec.  200.425  Exemptions.

    (a) Transactions of $10,000 or under. Contracts and subcontracts not 
exceeding $10,000 are exempt from the requirements of the equal 
opportunity clause. No contractor or subcontractor shall procure 
supplies or services in less than usual quantities to avoid 
applicability of the equal opportunity clause.
    (b) Contracts and subcontracts for indefinite quantities. Contracts 
and subcontracts for indefinite quantities are exempt from the 
requirements of the equal opportunity clause if the amount to be ordered 
in a single year under any such contract will not exceed $10,000.
    (c) Work outside the United States. Contracts and subcontracts with 
regard to work performed outside the United States by employees who were 
not recruited within the United States are exempt from the requirements 
of the equal opportunity clause.
    (d) Others. Other exemptions set forth in the regulations of the 
Secretary of Labor at 41 CFR 60-1.5 apply to transactions under this 
subpart.



Sec.  200.430  Sanctions.

    Failure or refusal to comply and give satisfactory assurances of 
future compliance with the requirements of this subpart shall be proper 
basis for applying sanctions. The sanctions shall be

[[Page 40]]

applied in accordance with the provisions of Executive Order 11246 and 
the relevant regulations of the Secretary of Labor.

Subparts K-L [Reserved]



        Subpart M_Affirmative Fair Housing Marketing Regulations

    Source: 37 FR 75, Jan. 5, 1972, unless otherwise noted.



Sec.  200.600  Purpose.

    The purpose of this subpart is to set forth the Department's equal 
opportunity regulations for affirmative fair housing marketing under FHA 
subsidized and unsubsidized housing programs.



Sec.  200.605  Authority.

    The regulations in this subpart are issued pursuant to the authority 
to issue regulations granted to the Secretary by section 7(d) of the 
Department of Housing and Urban Development Act of 1965, 42 U.S.C. 
3535(d), and implement the functions, powers, and duties imposed on the 
Secretary by Executive Order 11063, 27 FR 11527, and title VIII of the 
Civil Rights Act of 1968, as amended, 42 U.S.C. 3608.

[40 FR 20080, May 8, 1975]



Sec.  200.610  Policy.

    It is the policy of the Department to administer its FHA housing 
programs affirmatively, as to achieve a condition in which individuals 
of similar income levels in the same housing market area have a like 
range of housing choices available to them regardless of their race, 
color, religion, sex, handicap, familial status or national origin. Each 
applicant for participation in FHA subsidized and unsubsidized housing 
programs shall pursue affirmative fair housing marketing policies in 
soliciting buyers and tenants, in determining their eligibility, and in 
concluding sales and rental transactions.

[40 FR 20080, May 8, 1975, as amended at 58 FR 41337, Aug. 3, 1993]



Sec.  200.615  Applicability.

    The affirmative fair housing marketing requirements, as set forth in 
paragraphs (a) through (f) of Sec.  200.620, shall apply to all 
applicants for participation in FHA subsidized and unsubsidized housing 
programs whose application is hereafter approved for development or 
rehabilitation of:
    (a) Multifamily projects and manufactured home parks of five or more 
lots, units or spaces, and initial submissions by a lender for an 
application for mortgage insurance on a single family property, where 
the property is located in a subdivision and the builder or developer 
intends to sell five or more properties in the subdivision; or
    (b) Dwelling units, when the applicant's participation in FHA 
housing programs had exceeded or would thereby exceed development of 
five or more such dwelling units during the year preceding the 
application, except that there shall not be included in a determination 
of the number of dwelling units developed by an applicant those in which 
a single family dwelling is constructed or rehabilitated for occupancy 
by a mortgagor on property owned by the mortgagor and in which the 
applicant had no interest prior to entering into the contract for 
construction or rehabilitation.

[37 FR 75, Jan. 5, 1972, as amended at 50 FR 9268, Mar. 7, 1985; 58 FR 
41337, Aug. 3, 1993]



Sec.  200.620  Requirements.

    With respect to all FHA subsidized or unsubsidized programs in which 
the applicant hereafter participates (except for housing for which a 
conditional commitment has been issued prior to the effective date of 
these regulations), the applicant shall meet the following requirements 
or, if he contracts marketing responsibility to another party, be 
responsible for that party's carrying out the requirements:
    (a) Carry out an affirmative program to attract buyers or tenants, 
regardless of sex, handicap or familial status, of all minority and 
majority groups to the housing for initial sale or rental. An 
affirmative marketing program shall be in effect for each multifamily 
project throughout the life of the mortgage. Such a program shall 
typically

[[Page 41]]

involve publicizing to minority persons the availability of housing 
opportunities regardless of race, color, religion, sex, handicap or 
familial status or national origin, through the type of media 
customarily utilized by the applicant, including minority publications 
or other minority outlets which are available in the housing market 
area. All advertising shall include either the Department-approved Equal 
Housing Opportunity logo or slogan or statement and all advertising 
depicting persons shall depict persons of majority and minority groups, 
including both sexes.
    (b) Maintain a nondiscriminatory hiring policy in recruiting from 
both minority and majority groups, including both sexes and the 
handicapped, for staff engaged in the sale or rental of properties.
    (c) Instruct all employees and agents in writing and orally in the 
policy of nondiscrimination and fair housing.
    (d) Specifically solicit eligible buyers or tenants reported to the 
applicant by the Area or Insuring Office.
    (e) Prominently display in all offices in which sale or rental 
activity pertaining to the project or subdivision takes place the 
Department-approved Fair Housing Poster and include in any printed 
material used in connection with sales or rentals, the Department-
approved Equal Housing Opportunity logo or slogan or statement.
    (f) Post in a conspicuous position on all FHA project sites a sign 
displaying prominently either the Department-approved Equal Housing 
Opportunity logo or slogan or statement.

[37 FR 75, Jan. 5, 1972, as amended at 40 FR 20080, May 8, 1975; 40 FR 
53008, Nov. 14, 1975; 58 FR 41337, Aug. 3, 1993]



Sec.  200.625  Affirmative fair housing marketing plan.

    Each applicant for participation in FHA housing programs to which 
these regulations apply shall provide on a form to be supplied by the 
Department information indicating his affirmative fair housing marketing 
plan to comply with the requirements set forth in Sec.  200.620. This 
form, once approved by HUD, will be available for public inspection at 
the sales or rental offices of the applicant.



Sec.  200.630  Notice of housing opportunities.

    The Director of each Field Office shall prepare monthly a list of 
all projects covered by this subpart, and of all initial submissions by 
lenders for single family mortgage insurance where the property is 
located in a subdivision and the builder or developer intends to sell 
five or more properties in the subdivision, on which commitments have 
been issued during the preceding 30 days. The Director shall maintain a 
roster of interested organizations and individuals (including public 
agencies responsible for providing relocation assistance and local 
housing authorities) who have expressed a wish to receive the monthly 
list, and shall provide the list to these organizations and individuals.

[58 FR 41337, Aug. 3, 1993]



Sec.  200.635  Compliance.

    Applicants failing to comply with the requirements of this subpart 
will make themselves liable to sanctions authorized by regulations, 
rules or policies governing the program pursuant to which the 
application was made, including but not limited to denial of further 
participation in departmental programs and referral to the Department of 
Justice for suit by the United States for injunctive or other 
appropriate relief. The Department will enforce compliance through the 
procedures outlined in 24 CFR part 108.

[37 FR 75, Jan. 5, 1972, as amended at 58 FR 41337, Aug. 3, 1993]



Sec.  200.640  Effect on other requirements.

    The requirement for compliance with this part is in addition to, and 
not in substitution for, any other requirements imposed by or under 
Executive Order 11063 or the Fair Housing Act.

[58 FR 41337, Aug. 3, 1993]



   Sec. Appendix to Subpart M of Part 200--Equal Housing Opportunity 
                                Insignia

    The Equal Housing Opportunity insignia are as follows:
    Equal Housing Opportunity logo:

[[Page 42]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.037

    Equal Housing Opportunity statement: ``We are pledged to the letter 
and spirit of U.S. policy for the achievement of equal housing 
opportunity throughout the Nation. We encourage and support an 
affirmative advertising and marketing program in which there are no 
barriers to obtaining housing because of race, color, religion, sex, or 
national origin.''
    Equal Housing Opportunity slogan: ``Equal Housing Opportunity.''

[37 FR 75, Jan. 5, 1972, as amended at 40 FR 20080, May 8, 1975]

Subpart N [Reserved]



             Subpart O_Lead-Based Paint Poisoning Prevention

    Source: 64 FR 50224, Sept. 15, 1999, unless otherwise noted.



Sec.  200.800  Lead-based paint.

    The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), 
the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856), and implementing regulations at part 35, subparts A, B, F, 
G, I, and R of this title, apply to activities under these programs, 
except for single family mortgage insurance and guarantee programs. 
Sections 200.805 and 200.810 apply to single family mortgage insurance 
and guarantee programs administered by HUD.



Sec.  200.805  Definitions.

    Applicable surface. All intact and nonintact interior and exterior 
painted surfaces of a residential structure.
    Defective paint surface. Paint on applicable surfaces that is 
cracking, scaling, chipping, peeling or loose.
    Lead-based paint surface. A paint surface, whether or not defective, 
identified as having a lead content greater than or equal to 1 mg/cm\2\.



Sec.  200.810  Single family insurance and coinsurance.

    (a) General. (1) The requirements of this section apply to any one-
to four-family dwelling which was constructed before 1978 and is the 
subject of an application for mortgage insurance under section 203(b) or 
other sections of the National Housing Act relating to the insurance or 
coinsurance of mortgages on one-to-four-family dwellings. Such other 
sections include:
    (i) Section 244 (coinsurance);
    (ii) Section 213 (cooperative housing insurance);
    (iii) Section 220 (rehabilitation and neighborhood conservation 
housing insurance);
    (iv) Section 221 (housing for moderate income and displaced 
families);
    (v) Section 222 (mortgagor insurance for servicemen);
    (vi) Section 809 (armed services housing for civilian employees);
    (vii) Section 810 (armed services housing in impacted areas);
    (viii) Section 234 (mortgage insurance for condominiums);
    (ix) Section 235 (mortgage assistance payments for home ownership 
and project rehabilitation);
    (x) Section 237 (special mortgage insurance for low and moderate 
income families); and
    (xi) Section 240 (mortgage insurance on loans for purchase of fee 
simple title from lessors).
    (2) [Reserved]
    (3) Applications for insurance in connection with a refinancing 
transaction where an appraisal is not required under the applicable 
procedures established by the Commissioner are excluded from the 
coverage of this section. Any housing assisted under the programs set 
out in this section for

[[Page 43]]

which no new activity is applied for or required is not covered by this 
section.
    (b) Appraisal. The appraiser shall, when appraising a dwelling 
constructed prior to 1978, inspect the dwelling for defective paint 
surfaces.
    (c) Treatment of defective paint surfaces. For defective paint 
surfaces, treatment shall be provided to defective areas. Treatment of 
hazards shall consist of covering or removing defective paint surfaces. 
Covering may be accomplished by such means as adding a layer of 
wallboard to the wall surface. Depending on the wall condition, 
wallcoverings which are permanently attached may be used. Covering or 
replacing trim surfaces is also permitted. Paint removal may be 
accomplished by such methods as scraping, heat treatment (infra-red or 
coil type heat guns) or chemicals. Machine sanding and use of propane or 
gasoline torches (open-flame methods) are not permitted. Washing and 
repainting without thorough removal or covering does not constitute 
adequate treatment. In the case of defective paint spots, scraping and 
repainting the defective area is considered adequate treatment. 
Treatment of a defective paint surface is not required if such a surface 
is found to not be a lead-based paint surface by a lead-based paint 
inspector certified pursuant to procedures of the U.S. Environmental 
Protection Agency at 40 CFR part 745.
    (d) Home equity conversion mortgage insurance. The requirements of 
this section, as modified by the following sentence, apply to a dwelling 
which is the subject of an application for mortgage insurance under 
section 255 of the National Housing Act (home equity conversion 
insurance) unless the mortgagor provides the certification described in 
Sec.  206.45(d) of this title. The defective paint surface may be 
treated after the mortgage is endorsed for insurance, provided that the 
defective paint surface is treated as expeditiously as possible in 
accordance with the repair work provisions contained in Sec.  206.47 of 
this title.

[64 FR 50224, Sept. 15, 1999, as amended at 69 FR 34275, June 21, 2004]



         Subpart P_Physical Condition of Multifamily Properties

    Source: 65 FR 77240, Dec. 8, 2000, unless otherwise noted.



Sec.  200.850  Purpose.

    The purpose of this subpart is to establish the physical conditions 
standards and physical inspection requirements that are applicable to 
certain multifamily housing properties.



Sec.  200.853  Applicability.

    This subpart applies to:
    (a) Housing assisted by HUD under the following programs:
    (1) All Section 8 project-based assistance. ``Project-based 
assistance'' means Section 8 assistance that is attached to the 
structure (see 24 CFR 982.1(b)(1) regarding the distinction between 
``project-based'' and ``tenant-based'' assistance);
    (2) Section 202 Program of Supportive Housing for the Elderly 
(Capital Advances);
    (3) Section 811 Program of Supportive Housing for Persons with 
Disabilities (Capital Advances); and
    (4) Section 202 loan program for projects for the elderly and 
handicapped (including 202/8 projects and 202/162 projects).
    (b) Housing with mortgages insured or held by HUD, or housing that 
is receiving insurance from HUD, under the following authorities:
    (1) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et 
seq.) (Rental Housing Insurance);
    (2) Section 213 of the NHA (Cooperative Housing Insurance);
    (3) Section 220 of the NHA (Rehabilitation and Neighborhood 
Conservation Housing Insurance);
    (4) Section 221(d)(3) of the NHA (Market Interest Rate (MIR) 
Program);
    (5) Section 221(d)(3) and (5) of the NHA (Below Market Interest Rate 
(BMIR) Program);
    (6) Section 221(d)(4) of the NHA (Housing for Moderate Income and 
Displaced Families);
    (7) Section 231 of the NHA (Housing for Elderly Persons);

[[Page 44]]

    (8) Section 232 of the NHA (Mortgage Insurance for Nursing Homes, 
Intermediate Care Facilities, Assisted Living Facilities, Board and Care 
Homes);
    (9) Section 234(d) of the NHA (Rental) (Mortgage Insurance for 
Condominiums);
    (10) Section 236 of the NHA (Rental and Cooperative Housing for 
Lower Income Families);
    (11) Section 241 of the NHA (Supplemental Loans for Multifamily 
Projects). (Where, however, the primary mortgage of a Section 241 
property is insured or assisted by HUD under a program covered in this 
part, the coverage by two HUD programs does not trigger two 
inspections); and
    (12) Section 542(c) of the Housing and Community Development Act of 
1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing 
Program).



Sec.  200.855  Physical condition standards and physical inspection
requirements.

    (a) Applicable standards and requirements. The physical condition 
standards and physical inspection requirements in 24 CFR part 5, subpart 
G, are applicable to the properties assisted or insured that are listed 
in Sec.  200.853.
    (b) Entity responsible for inspection of property. The regulations 
that govern the programs listed in Sec.  200.853, or regulatory 
agreements or contracts, identify the entity responsible for conducting 
the physical inspection of the property which is HUD, the lender or the 
owner. For properties with more than one HUD insured loan, only the 
first mortgage lender is required to conduct the physical inspection. 
The second mortgage lender will be provided a copy of the physical 
inspection report by the first mortgage lender.
    (c) Timing of inspections. (1) For a property subject to an annual 
inspection under this subpart, the inspection shall be conducted no 
earlier than 9 months and no later than 15 months from the date of the 
last required inspection. In no event, however, shall the physical 
inspection be conducted after the end of the calendar year following the 
one year anniversary date of the last required inspection.
    (2) For a property subject to an inspection every two years under 
this subpart, the inspection shall be conducted no earlier than 21 
months and no later than 27 months from the date of the last required 
inspection. In no event, however, shall the physical inspection be 
conducted after the end of the calendar year following the two year 
anniversary date of the last required inspection.
    (3) For a property subject to an inspection every three years under 
this subpart, the inspection shall be conducted no earlier than 33 
months and no later than 39 months from the date of the last required 
inspection. In no event, however, shall the physical inspection be 
conducted after the end of the calendar year following the three year 
anniversary date of the last required inspection.
    (4) For a newly endorsed multifamily property, the first inspection 
required under this subpart will be conducted no earlier than 21 months 
but not later than 27 months from the date of final endorsement. In no 
event, however, shall the inspection be conducted after the end of the 
calendar year following the two year anniversary date of final 
endorsement.
    (5)(i) For assisted-living facilities, board and care facilities, 
and intermediate care facilities, the initial inspection required under 
this subpart will be conducted within the same time restrictions set 
forth in paragraph (c)(4) of this section, and any further inspections 
will be conducted at a frequency determined consistent with Sec.  
200.857, except that HUD may exempt such facilities from physical 
inspections under this part if HUD determines that the State or local 
government has a reliable and adequate inspection system in place, with 
the results of the inspection being readily and timely available to HUD; 
and
    (ii) For any other Section 232 facilities, the inspection will be 
conducted only when and if HUD determines, on the basis of information 
received, such as through a complaint, site inspection, or referral by a 
State agency, on a case-by-case basis, that inspection of a particular 
facility is needed to assure protection of the residents or the adequate 
preservation of the project.

[65 FR 77240, Dec. 8, 2000, as amended at 77 FR 55135, Sept. 7, 2012]

[[Page 45]]



Sec.  200.857  Administrative process for scoring and ranking the physical
condition of multifamily housing properties.

    (a) Scoring and ranking of the physical condition of multifamily 
housing properties. (1) HUD's Real Estate Assessment Center (REAC) will 
score and rank the physical condition of certain multifamily housing 
insured properties listed in Sec.  200.853 in accordance with the 
procedures described in this section. The physical condition inspection 
of the property, upon which REAC bases its score and ranking, is 
conducted by the responsible entity in accordance with Sec.  200.855.
    (2) Depending upon the results of its physical condition inspection, 
a multifamily housing property will be assigned one of three 
designations--standard 1 performing, standard 2 performing and standard 
3 performing--in accordance with the ranking process described in 
paragraph (b) of this section.
    (b) Methodology for Ranking. (1) Multifamily housing properties will 
be ranked in accordance with the methodology provided in this paragraph 
(b). Multifamily housing properties are scored on the basis of a 100 
point scale. Because scores may include fractions, a score that includes 
a fraction below one half point will be rounded to the next lower full 
point and a score that includes a fraction of one half point or higher 
will be rounded to the next higher full point (e.g., 89.4 will be 
rounded to 89, 89.5 will be rounded to 90).
    (i) Standard 1 Performing Property. If a property receives a score 
of 90 points or higher on its physical condition inspection, the 
property will be designated a standard 1 performing property. Properties 
designated as standard 1 performing properties will be required to 
undergo a physical inspection once every three (3) years.
    (ii) Standard 2 Performing Property. If a property receives a score 
of 80 points or higher but less than 90 on its physical condition 
inspection, the property will be designated a standard 2 performing 
property. Properties designated as standard 2 performing properties will 
be required to undergo a physical inspection once every two (2) years.
    (iii) Standard 3 Performing Property. If a property receives a score 
of less than 80 points, the property will be designated a standard 3 
performing property. Properties designated as standard 3 performing 
properties will continue to undergo an annual physical inspection as 
currently required under covered HUD programs.
    (2) Owners of multifamily housing properties scoring in a standard 1 
or standard 2 range which have been cited by the REAC as having a 
Exigent Health and Safety (EHS) deficiency(s) must resolve the 
deficiency(s), as required by paragraph (c)(2) of this section, to be 
classified as standard 1 and standard 2 properties.
    (3) Regardless of the performance designation assigned to an owner's 
property, an owner is obligated to maintain its property in accordance 
with HUD's uniform physical condition standards as required by 24 CFR 
part 5, subpart G, the Regulatory Agreement and/or the Housing 
Assistance Payment (HAP) Contract. Good management principles require an 
owner to conduct routine inspections of its projects, develop 
improvement plans, and again, maintain its property to meet the standard 
of decent, safe, sanitary and in good repair.
    (c) Owner's review of physical inspection report and identification 
of objectively verifiable and material error. (1) Upon completion of a 
physical inspection of a multifamily housing property, the REAC will 
provide the owner or owner's representative, on the date of the physical 
inspection, notice of any items classified as EHS deficiencies. REAC 
also will provide the owner with the entire physical inspection report 
(electronically through the internet or by mail approximately 10 working 
days from the date of the report), which provides the physical 
inspection results and other information relevant to the inspection, 
including any items classified as EHS deficiencies and already provided 
to the owner, on the date of the inspection (EHS deficiencies are 
relayed by the inspector on the date of the inspection).

[[Page 46]]

    (2) The owner must carefully review the physical inspection report, 
particularly those items classified as EHS. The owner is also 
responsible for conducting its own survey of the total project based on 
the REAC's physical inspection findings. The owner must mitigate all EHS 
items immediately, and the owner must file a written report with the 
applicable Multifamily Hub Director within 3 business days of the date 
of the inspection, which is the date the owner was provided with the EHS 
notice. The report filed by the owner must provide a certification and 
reasonable evidence that the EHS items have been resolved.
    (3) If, following review of the physical inspection results and 
score, the owner reasonably believes that an objectively verifiable and 
material error (or errors) occurred in the inspection, which, if 
corrected, will result in a significant improvement in the property's 
overall score (``significant improvement'' is defined in paragraph 
(d)(4) of this section), the owner may submit a written request for a 
technical review. The technical review request must be received in 
writing no later than 30 calendar days (as established by the postmark, 
if applicable) from the date the physical inspection results are 
transmitted to the owner by REAC, whether the results and score are 
transmitted to the owner via the Internet or by hard copy via certified 
mail.
    (d) Technical review of physical inspection results. A request for a 
technical review of physical inspection results must be submitted in 
writing to REAC and must be received by REAC no later than the 30th 
calendar day, as applicable under paragraph (c)(3) of this section, 
following submission of the physical inspection report to the owner, as 
provided in paragraph (c)(1) of this section.
    (1) Request for technical review. The request must be accompanied by 
the owner's reasonable evidence that an objectively verifiable and 
material error (or errors) occurred which if corrected will result in a 
significant improvement in the overall score of the owner's property. A 
technical review of physical inspection results will not be conducted 
based on conditions that were corrected subsequent to the inspection. 
Upon receipt of this request from the owner, the REAC will review the 
physical inspection and the owner's evidence. If the REAC's review 
determines that an objectively verifiable and material error (or errors) 
has been documented and that it is likely to result in a significant 
improvement in the property's overall score, the REAC will take one or a 
combination of the following actions: undertake a new inspection; 
correct the original inspection; or issue a new physical condition 
score.
    (2) Burden of proof that error occurred rests with owner. The burden 
of proof rests with the owner to demonstrate that an objectively 
verifiable and material error (or errors) occurred in the REAC's 
inspection through submission of evidence, which if corrected will 
result in a significant improvement in the property's overall score. To 
support its request for a technical review of the physical inspection 
results, the owner may submit photographic evidence, written material 
from an objective source such as a local fire marshal or building code 
official, or other similar evidence.
    (3) Material errors. An objectively verifiable material error must 
be present to allow for a technical review of physical inspection 
results. Material errors are those that exhibit specific characteristics 
and meet specific thresholds. The three types of material errors are as 
follows.
    (i) Building data error. A building data error occurs if the 
inspection includes the wrong building or a building that was not owned 
by the property, including common or site areas that were not a part of 
the property. Incorrect building data that does not affect the score, 
such as the address, building name, year built, etc., would not be 
considered material, but is of great interest to HUD and will be 
corrected upon notice to the REAC.
    (ii) Unit count error. A unit count error occurs if the total number 
of units considered in scoring is incorrect. Since scoring uses total 
units, the REAC will examine instances where the participant can provide 
evidence that the total units used is incorrect.
    (iii) A non-existent deficiency error. A non-existent deficiency 
error occurs if

[[Page 47]]

the inspection cites a deficiency that does not exist.
    (4) Significant improvement. Significant improvement refers to the 
correction of a material error, asserted by the owner, which causes the 
score for the owner's property to cross an administratively significant 
threshold (for example, the property would be redesignated from standard 
3 performing to standard 2 performing or from standard 2 performing to 
standard 1 performing), or to result in an increase of 10 points or 
more.
    (5) Determining whether material error occurred and what action is 
warranted. Upon receipt of the owner's request for technical review of a 
property's physical inspection results, the REAC will evaluate the 
owner's property file and the evidence provided by the owner that an 
objectively verifiable and material error occurred which, if corrected, 
would result in a significant improvement in the property's overall 
score. If the REAC's evaluation determines that an objectively 
verifiable and material error (or errors) has been reasonably documented 
by the owner and if corrected would result in a significant improvement 
in the property's overall score, then the REAC shall take one or a 
combination of the following actions:
    (i) Undertake a new inspection;
    (ii) Correct the inspection report; or
    (iii) Issue a new physical condition score.
    (6) Responsibility for the cost of a new inspection. If a new 
inspection is undertaken by the REAC and the new inspection score 
results in a significant improvement in the property's overall score, 
then HUD shall bear the expense of the new inspection. If no significant 
improvement occurs, then the owner must bear the expense of the new 
inspection. The inspection cost of a new inspection, if paid by the 
owner, is not a valid project operating expense. The new inspection 
score will be considered the final score.
    (e) Adjustment of physical condition score based on considerations 
other than technical review and reinspection. (1) Under certain 
circumstances, HUD may find it appropriate to review the results of a 
physical inspection which are anomalous or have an incorrect result due 
to facts and circumstances affecting the inspected property which are 
not reflected in the inspection or reflected inappropriately in the 
inspection. These circumstances include, but are not necessarily limited 
to, inconsistencies between local code requirements and the HUD physical 
inspection protocol; conditions which are permitted by variance or 
license or which are preexisting physical features non-conformities and 
are inconsistent with the HUD physical condition protocol; or cases 
where the owner has been scored for elements (e.g., roads, sidewalks, 
mail boxes, resident owned appliances, etc.) that it does not own and is 
not responsible for maintaining.
    (2) To seek a score adjustment on the basis of these circumstances 
as provided in paragraph (e) of this section, the owner must submit a 
request for an adjustment to REAC with appropriate proof of the 
circumstances that resulted in the incorrect physical conditions 
results. This process may result in a reinspection and/or rescoring of 
the inspection after review and approval of the owner's submission of 
appropriate proof of the anomalous or inappropriate application.
    (3) An owner may submit the request for this adjustment to REAC 
either prior to or after the physical inspection has been concluded. If 
the owner submits a request for adjustment after the physical inspection 
has been concluded, the owner must submit its request to REAC within 45 
days following the submission of the physical inspection report, as 
provided in paragraph (c)(1) of this section. HUD may, but is not 
required to review a request made after this period has expired.
    (4) This adjustment process, provided in this paragraph (g), may 
result in a reinspection and/or rescoring of the inspection after review 
and approval of the owner's submission of appropriate proof of the 
anomalous or inappropriate application.
    (f) Issuance of final score and publication of score. (1) The 
physical condition score of the property is the final score if the owner 
files no request for technical review, as provided in paragraph (c) of 
this section, or for other adjustment of the physical condition score,

[[Page 48]]

as provided in paragraph (e) of this section. If the owner files a 
request for technical review or score adjustments in accordance with 
paragraphs (c) and (e) of this section, the final physical condition 
score is the score issued by HUD after any adjustments are determined 
necessary and made by HUD at the conclusion of these processes.
    (2) HUD will make public the final scores of the owners through 
posting on HUD's internet site, or through Federal Register publication 
or other appropriate means.
    (g) Owner's responsibility to notify residents of inspection; and 
availability of documents to residents--(1) Notification to residents. 
An owner must notify its residents of any planned physical inspections 
of their units or the housing development generally.
    (2) Availability of documents for review. Once the technical review 
and database adjustment periods have expired, as provided in paragraphs 
(d) and (e) of this section, respectively, the owner must make its 
physical inspection report and all related documents available to its 
residents during regular business hours upon reasonable request for 
review and copying. Related documents include the owner's survey plan, 
plan of correction, certification and related correspondence.
    (i) Once the owner's final physical condition score is issued and 
published, the owner must make any additional information, such as the 
results of any reinspection, appeal requests, available for review and 
copying by its residents upon reasonable request during regular business 
hours.
    (ii) The owner must maintain the documents related to the physical 
inspection of the property, as described in this paragraph (g)(2), 
available for review by residents for a period of 60 days from the date 
of submission to the owner of the physical condition score for the 
property in which the residents reside.
    (3) The owner must post a notice to the residents in the owner's 
management office and on any bulletin boards in all common areas that 
advises residents of the availability of the materials described in 
paragraphs (g)(2) of this section. The notice should include the name, 
address and telephone number of the HUD Project Manager.
    (4) Residents are encouraged to comment on this information provided 
by the owners and submit any comments directly to the applicable Field 
Office. Should residents discover the owner provided HUD with a false 
certification during the review they are encouraged to notify the Hub or 
Program Center where appropriate inquiry and action will be taken.
    (h) Administrative review of properties. The file of a multifamily 
property that receives a score of 30 points or less on its physical 
condition inspection will be referred to HUD's Departmental Enforcement 
Center (DEC) for evaluation. The files of any of the multifamily housing 
properties may be submitted to the DEC or to the appropriate HUD 
Multifamily Hub Director (MFD) for evaluation, or both, at the 
discretion of the Office of Housing.
    (1) Notification to owner of submission of property file to the MFD 
and DEC. The Department will provide for notification to the owner that 
the file on the owner's property is being submitted to the MFD and/or 
the DEC for evaluation. The notification will be provided at the time 
the REAC issues the physical inspection report to the owner or at such 
other time as a referral occurs.
    (2) 30-Day period for owner to provide the DEC with supporting and 
relevant information and documentation. The owner has 30 calendar days, 
from the date of the REAC notification to the owner, to provide 
comments, proposals, or any other information to the DEC which will 
assist the MFD and DEC in conducting a comprehensive evaluation of the 
property. A proposal provided by an owner may include the owner's plan 
to correct deficiencies (corrective action plan). During the 30-day 
response time available to the owner, the DEC may encourage the owner to 
submit a corrective action plan. The corrective action plan, if timely 
submitted during the 30-day period (whether on the owner's initiative or 
at the request of the DEC), may serve as additional information for the 
DEC to consider in determining appropriate action to take at the 
conclusion of the evaluation period. If not submitted during the 30-day 
response time, a corrective action plan

[[Page 49]]

may be required of the owner at the conclusion of the DEC's evaluation 
of the property.
    (3) Evaluation of the property. During the evaluation period, the 
DEC will perform an analysis of the multifamily housing property, which 
may include input from tenants, HUD multifamily officials, elected 
officials, and others as may be appropriate. Although the MFD will 
assist with the evaluation, for insured mortgages, the DEC will have 
primary responsibility for the conclusion of the evaluation of the 
property after taking into consideration the input of interested parties 
as described in this paragraph (h)(2). The DEC's evaluation may include 
a site visit to the owner's property.
    (4) Continuing responsibilities of HUD Multifamily Program Offices 
and Mortgagee. During the period of DEC evaluation, HUD's multifamily 
program offices continue to be responsible for routine asset management 
tasks on properties and all servicing actions (e.g., rent increase 
decisions, releases from reserve account approvals). In addition, during 
this period of evaluation, the mortgagee shall continue to carry out its 
duties and responsibilities with respect to the mortgage.
    (i) Enforcement action. If, at the conclusion of the evaluation 
period, the DEC determines that enforcement action is appropriate, the 
DEC will provide notification to the owner of the DEC's decision to 
formally accept the property for enforcement purposes.
    (1) DEC Owner Compliance Plan. (i) After notification to the owner 
of the DEC's decision, the DEC will produce a proposed action plan (DEC 
Compliance Plan), the purpose of which is to improve the physical 
condition of the owner's property, and correct any other known 
violations by the owner of its legal obligations. The DEC Compliance 
Plan will describe:
    (A) The actions that will be required of the owner to correct, 
mitigate or eliminate identified property deficiencies, problems, 
hazards, and/or correct any other known violations by the owner;
    (B) The period of time within which these actions must be completed; 
and
    (C) The compliance responsibilities of the owner.
    (ii) The DEC Compliance Plan will be submitted to the MFD for review 
and concurrence. If the MFD does not concur, the DEC Compliance Plan 
will be submitted to the Deputy Assistant Secretary for Housing and the 
Deputy Director of the DEC for review and concurrence. If the DEC 
Compliance Plan remains unapproved, a final decision on the plan will be 
made by HUD's Deputy Secretary in consultation with the General Counsel, 
the Assistant Secretary for Housing, and the Director of the DEC.
    (iii) Following submission of the DEC Compliance Plan to the owner, 
the owner will be provided a period of 30 calendar days to review and 
accept the DEC Compliance Plan. If the owner agrees to comply with the 
DEC Compliance Plan, the plan will be forwarded to the appropriate 
Multifamily Office for implementation and monitoring of completion of 
the plan's requirements.
    (2) Counter compliance plan proposal by owner. The owner may submit 
an acceptable counter proposal to the DEC Compliance Plan. An owner's 
counter proposal to a DEC Compliance Plan must be submitted no later 
than the 30th day following submission of the DEC Compliance Plan to the 
owner. The DEC, in coordination with the MFD, may enter into discussions 
with the owner to achieve agreement to a revised DEC Compliance Plan. If 
the owner and the DEC agree on a revised DEC Compliance Plan, the 
revised plan will be forwarded to the appropriate Multifamily Office for 
implementation and monitoring of completion of the plan's requirements.
    (3) Non-cooperation and Non-compliance by owner. If at the 
conclusion of the 30th calendar day following submission of the DEC 
Compliance Plan to the owner, the DEC receives no response from the 
owner, or the owner refuses to accept the DEC Compliance Plan, or to 
present a counter compliance plan proposal, or if the owner accepts the 
DEC Compliance Plan or revised DEC Compliance Plan, but refuses to take 
the actions required of the owner in the plan, the DEC may take 
appropriate enforcement action.
    (4) No limitation on existing enforcement authority. The 
administrative process provided in this section does

[[Page 50]]

not prohibit the Office of Housing, the DEC, or HUD generally, to take 
whatever action may be necessary when necessary (notwithstanding the 
commencement of this process), as authorized under existing statutes, 
regulations, contracts or other documents, to protect HUD's financial 
interests in multifamily properties and to protect the residents of 
these properties.
    (j) Limitations on material alteration of physical inspection 
software. HUD will not materially alter the physical inspection 
requirements in a manner which would materially increase the cost of 
performing the inspection.

[65 FR 77240, Dec. 8, 2000, as amended at 72 FR 54517, Sept. 25, 2007]

Subpart R [Reserved]



                  Subpart S_Minimum Property Standards



Sec.  200.925  Applicability of minimum property standards.

    All housing constructed under HUD mortgage insurance and low-rent 
public housing programs shall meet or exceed HUD Minimum Property 
Standards, except that this requirement shall be applicable to 
manufactured homes eligible for insurance pursuant to Sec.  203.43f of 
this chapter only to the extent provided therein. The Minimum Property 
Standards may be waived to the same extent as the other regulatory 
requirements for eligibility for insurance under the specific mortgage 
insurance program involved.

[58 FR 60248, Nov. 15, 1993]



Sec.  200.925a  Multifamily and care-type minimum property standards.

    (a) Construction standards. Multifamily or care-type properties 
shall comply with the minimum property standards contained in the 
handbook identified in Sec.  200.929(b)(2). In addition, each such 
property shall, for the Department's purposes, comply with:
    (1) The applicable State of local building code, if the property is 
located within a jurisdiction which has a building code accepted by the 
Secretary under Sec.  200.925a(d); or
    (2)(i) The applicable State or local building code, and
    (ii) Those portions of the codes identified in Sec.  200.295c which 
are designated by the HUD Field Office serving the jurisdiction in which 
the property is to be located, if the property is located in a 
jurisdiction which has a building code partially accepted by the 
Secretary; or
    (3) The appropriate codes, as identified in Sec.  200.925c(c), if 
the property is not located within a jurisdiction which has a building 
code accepted by the Secretary.
    (b) Conflicting standards. The minimum property standards contained 
in the handbook identified in Sec.  200.929(b)(2) do not preempt state 
or local standards, nor do they alter or affect a builder's obligation 
to comply with any state or local requirements. However, a property 
shall be eligible for benefits only if it complies with all applicable 
minimum property standards, including referenced standards.
    (c) Standard for evaluating local building codes. The Secretary 
shall compare the portions of a local or State building code applicable 
to residential or institutional occupancy, as appropriate, submitted 
under Sec.  200.925a(d) to the list of construction related areas 
contained in Sec.  200.925b.
    (1) A State or local code will be accepted if it regulates each area 
on the list.
    (2) A State or local building code will be partially accepted if it 
regulates most of the areas on the list. However, no code may be 
partially accepted if it fails to regulate the subarea for seismic 
design (see Sec.  200.925b(c)(5)), or if it fails to regulate subareas 
in more than one of the following major areas listed in Sec.  200.925b: 
fire safety, light and ventilation, structural loads and seismic design, 
foundation systems, materials standards, construction components, glass, 
mechanical, plumbing, electrical, and elevators.
    (3) For purposes of this paragraph, a state or local code regulates 
an area if it establishes a standard concerning that area. However, for 
earthquake loads (see Sec.  200.925b(c)(5)), ASCE 7-88 is mandatory.
    (d) Review process and acceptance--(1) Jurisdictions without 
previously accepted building codes. The following submission 
requirements apply to developers

[[Page 51]]

and other interested parties in jurisdictions without building codes, 
jurisdictions with building codes which have never been submitted for 
acceptance, and jurisdictions with building codes which have been 
submitted for acceptance and neither accepted nor partially accepted by 
the Secretary.
    (i) Developers or other interested parties must comply with one of 
the following by the time of application for insurance or other 
benefits:
    (A) The developer or other interested party may choose to comply 
with the appropriate codes as identified in Sec.  200.925c. If the 
developer or other interested party so chooses, then the multifamily or 
care-type property shall be constructed in accordance with one of the 
model codes designated in paragraph (c)(1), (2) or (3) of Sec.  200.925c 
and with any other code or codes identified in the same paragraph. In 
such instances, the developer or other interested party shall notify the 
Department of the code or group of codes with which it intends to comply 
by the time of application for insurance or other benefits; or
    (B) The developer or other interested party may choose to comply 
with the State or local building code, if such code is acceptable to the 
Secretary. To obtain the Secretary's acceptance, the developer or other 
interested party shall submit the material specified in paragraph 
(d)(1)(ii) of this section to the HUD Field Office serving the 
jurisdiction in which the property is to be constructed. Such material 
may be submitted at any time; provided, however, that it must be 
submitted no later than the time of application for mortgage insurance 
or other benefits.
    (ii) If, under paragraph (d)(1)(i)(B) of this section, the developer 
or other interested party chooses to comply with the State or local 
building code as prescribed in paragraph (a)(1) of this section, it 
shall submit the following material to the HUD field Office serving the 
jurisdiction in which the property is to be constructed:
    (A) A copy of the jurisdiction's building code, including all 
applicable service codes, appendices and referenced standards; and
    (B) A copy of the statute, ordinance, regulation, or order 
establishing the code, if such statute, ordinance, regulation or order 
is not contained in the building code itself.

However, the developer or other interested party need not submit any 
document already on file in the Field Office.
    (2) Jurisdictions with previously accepted or partially accepted 
building codes. The following submission requirements apply to 
developers and other interested parties in any jurisdiction with a 
building code which has been accepted or partially accepted by the 
Secretary:
    (i) At the time of application for mortgage insurance or other 
benefits, the developer or other interested party shall submit to the 
HUD Field Office serving the jurisdiction in which the property is to be 
constructed.
    (A) A certificate stating that, since its acceptance by the 
Secretary, the jurisdiction's building code has not been changed; or
    (B)(1) A copy of all changes to the jurisdiction's building code, 
including all applicable service codes and appendices, which have been 
made since the date of the code's acceptance by the Secretary. However, 
the developer or other interested party need not submit any part already 
in the possession of the Field Office; and
    (2) A copy of the statute, ordinance regulation, or order making 
such changes in the code.
    (3) Notification of decision. The Secretary shall review the 
material submitted under paragraphs (d) (1)(ii) and (2)(i). Following 
that review, the Secretary shall issue a written notice (except in the 
case of a previously accepted code which hasn't been changed) to the 
submitting party stating whether the State or local building code has 
been accepted, partially accepted, or whether the Secretary's previous 
acceptance or partial acceptance has been continued; the basis for the 
Secretary's decision; and a notification of the submitting party's right 
to present its views concerning the denial of acceptance if the code is 
neither accepted nor partially accepted. The Secretary may, in his 
discretion, permit either an oral or written presentation of views.
    (i) If a developer or other interested party is notified that a 
State or local building code has not been accepted,

[[Page 52]]

then the multifamily or care-type properties eligible for HUD benefits 
in that jurisdiction shall be constructed in accordance with the 
appropriate codes indicated in Sec.  200.925c(c). In such instances, the 
developer or other interested party shall notify the HUD Field Office of 
the code or codes with which it chooses to comply, in accordance with 
Sec.  200.925a(d)(1)(i)(A).
    (ii) If a developer or other interested party is notified that a 
State or local building code has been partially accepted, then the 
multifamily or care-type properties eligible for HUD benefits in that 
jurisdiction shall be constructed in accordance with the applicable 
State or local building code, plus those additional requirements 
identified in the written notice issued by the Secretary under Sec.  
200.925a(d)(3). The written notice shall identify, in accordance with 
appendix J of the Handbook identified in Sec.  200.929(b)(2), those 
portions of the codes listed at Sec.  200.925c(a) with which the 
property must comply.
    (iii) Each Regional Office will maintain a current list of 
jurisdictions with accepted building codes and a current list of 
jurisdictions with partially accepted building codes. The lists will 
state the most recent date of each code's acceptance or partial 
acceptance and will be available to any interested party upon request. 
In addition, the list of jurisdictions whose codes have been partially 
accepted shall identify those portions of the codes listed at Sec.  
200.925c(a) with which the property must comply.

(Approved by the Office of Management and Budget under control number 
2502-0321)

[49 FR 18695, May 1, 1984, as amended at 51 FR 28699, Aug. 11, 1986; 58 
FR 60248, Nov. 15, 1993; 59 FR 36695, July 19, 1994]



Sec.  200.925b  Residential and institutional building code comparison
items.

    HUD will review each local code submitted under this chapter to 
determine whether it regulates all of the following areas and subareas:
    (a) Fire safety. (1) Construction types permitted;
    (2) Allowable height and area;
    (3) Fire separations;
    (4) Fire resistance requirements;
    (5) Means of egress (number and distance);
    (6) Individual unit smoke detectors;
    (7) Building alarm systems;
    (8) Highrise criteria;
    (b) Light and ventilation. (1) Habitable rooms;
    (2) Bath and toilet rooms.
    (c) Structural loads and seismic design. (1) Design live loads;
    (2) Design dead loads;
    (3) Snow loads;
    (4) Wind loads.
    (5) Earthquake loads (in localities identified by ASCE 7-88 
(formerly ANSI A58.1-82) as being in seismic zones 1, 2, 3, or 4, and 
Guam).
    (6) Special loads, i.e., soil pressure, railings, interior walls 
etc.
    (d) Foundation systems. (1) Soil tests;
    (2) Foundation depths;
    (3) Footings;
    (4) Foundation materials criteria;
    (5) Piles, i.e., materials, allowable stresses, design;
    (6) Excavation;
    (e) Materials standards.
    (f) Construction components. (1) Steel;
    (2) Masonry;
    (3) Concrete;
    (4) Gypsum;
    (5) Lumber;
    (6) Roof construction and covering;
    (7) Chimneys and fireplaces.
    (g) Glass. (1) Thickness/area requirements;
    (2) Safety glazing.
    (h) Mechanical. (1) Heating, cooling and ventilation systems;
    (2) Boilers and pressure vessels;
    (3) Gas, liquid and solid fuel piping and equipment;
    (4) Chimneys and vents;
    (5) Ventilation (air changes).
    (i) Plumbing. (1) Materials standards;
    (2) Sizing and installing drainage systems;
    (3) Vents and venting;
    (4) Traps;
    (5) Cleanouts;
    (6) Plumbing fixtures;
    (7) Water supply and distribution;
    (8) Storm drain systems.
    (j) Electrical. (1) Wiring design and protection;
    (2) Wiring methods and materials;
    (3) Equipment for general use;
    (4) Special equipment;
    (5) Special conditions;

[[Page 53]]

    (6) Communication systems.
    (k) Elevators. (1) Reference ASME/ANSI Standard A 17.1-1987; and the 
ASME/ANSI A17.1b-1989 Addenda.
    (2) Acceptance tests and periodic tests.

[49 FR 18696, May 1, 1984, as amended at 51 FR 28699, Aug. 11, 1986; 58 
FR 60248, Nov. 15, 1993; 59 FR 36695, July 19, 1994]



Sec.  200.925c  Model codes.

    (a) Incorporation by reference. The following publications are 
incorporated by reference under 5 U.S.C. 552(a) and 1 CFR part 51. The 
incorporation by reference of these publications has been approved by 
the Director of the Federal Register. The locations where copies of 
these publications are available are set forth below.
    (1) Model Building Codes--(i) The BOCA National Building Code, 1993 
Edition, The BOCA National Plumbing Code, 1993 Edition, and the BOCA 
National Mechanical Code, 1993 Edition, excluding Chapter I, 
Administration, for the Building, Plumbing and Mechanical Codes and the 
references to fire retardant treated wood and a distance of 4 feet (1219 
mm) from the wall in exception number 1 of paragraph 705.6 and 707.5.2 
number 2 (Chapter 7) of the Building Code, but including the Appendices 
of the Code. Available from Building Officials and Code Administrators 
International, Inc., 4051 West Flossmoor Road, Country Club Hills, 
Illinois 60478.
    (ii) Standard Building Code, 1991 Edition, including 1992/1993 
revisions. Standard Plumbing Code, 1991 Edition, Standard Mechanical 
Code, 1991 Edition, including 1992 revisions, and Standard Gas Code, 
1991 Edition, including the 1992 revisions, but excluding Chapter I--
Administration from each standard code and the phrase ``or fire 
retardant treated wood'' in reference note (a) of table 600 (Chapter 6) 
of the Standard Building Code, but including Appendices A, C, E, J, K, 
M, and R. Available from the Southern Building Code Congress 
International, Inc., 900 Montclair Road, Birmingham, Alabama 35213.
    (iii) Uniform Building Code, 1991 Edition, including the 1993 
Accumulative Supplement, but excluding Part I--Administrative, and the 
reference to fire retardant treated plywood in section 2504(c)3 and to 
fire retardant treated wood in 1-HR type III and V construction 
referenced in paragraph 4203.2., but including the Appendix of the Code. 
Uniform Plumbing Code, 1991 Edition, including the 1992 Code Changes but 
excluding Part I--Administration, but including the Appendices of the 
Code. Uniform Mechanical Code, 1991 Edition, including the 1993 
Accumulative Supplement but excluding Part I--Administrative, but 
including the Appendices of the Code. All available from the 
International Conference of Building Officials, 5360 South Workman Mill 
Road, Whittier, California 90601.
    (2) National Electrical Code, NFPA 70, 1993 Edition, including 
appendices. Available from the National Fire Protection Association, 
Batterymarch Park, Quincy, Massachusetts 02269.
    (3) National Standard Plumbing Code, 1993 Edition. Available from 
the National Association of Plumbing-Heating-Cooling Contractors, P.O. 
Box 6808, Falls Church, Virginia 22046.
    (b) Model Code Compliance Requirements. (1) When a multifamily or 
care-type property is to comply with one of the model building codes set 
forth in paragraph (a)(1) of this section, the following requirements of 
those model codes shall not apply to those properties:
    (i) Those provisions of the model codes that do not pertain to 
residential or institutional buildings;
    (ii) Those provisions of the model codes that establish energy 
requirements for multifamily or care-type structures; and
    (iii) Those provisions of the model codes that require or allow the 
issuance of permits of any sort.
    (2) Where the model codes set forth in paragraph (a)(1) of this 
section designate a building, fire, mechanical, plumbing or other 
official, the Secretary's designee in the HUD Field Office serving the 
jurisdiction in which the property is to be constructed shall act as 
such official.
    (c) Designation of Model Codes. When a multifamily or care-type 
property is to comply with a model code, it shall comply with one of the 
model codes designated in paragraphs (c)(1), (2), or (3) of this 
section, and with any other code or codes identified in the same

[[Page 54]]

paragraph. However, seismic design is a mandatory requirement. In 
addition, the property shall comply with all of the standards that are 
incorporated into the code or codes by reference. By the time of 
application for insurance or other benefits, the developer or other 
interested party shall notify the Department of the code or group of 
codes to which the developer intends to comply.
    (1) The BOCA National Building Code, The BOCA National Plumbing and 
The BOCA National Mechanical Code, 1993 Editions.
    (2) Standard Building Code, Standard Plumbing Code, Standard 
Mechanical Code and Standard Gas Code, 1991 Editions, including the 
revisions specified in paragraph (a)(1)(ii) of this section, and the 
National Electrical Code, 1993 Edition.
    (3) Uniform Building Code, Uniform Plumbing Code and Uniform 
Mechanical Code, 1991 Editions, including the 1993 Accumulative 
Supplements to the Building and Mechanical Codes, and the 1992 Code 
Changes to the Uniform Plumbing Code, and the National Electrical Code, 
NFPA 70, 1993 Edition.
    (4) The National Electrical Code, NFPA 70, 1993 Edition.

[49 FR 18696, May 1, 1984, as amended at 51 FR 28699, Aug. 11, 1986; 58 
FR 60248, Nov. 15, 1993; 59 FR 36695, July 19, 1994]



Sec.  200.926  Minimum property standards for one and two family dwellings.

    (a) Construction standards--(1) Applicable structures. The standards 
identified or contained in this section, and in Sec. Sec.  200.926a-
200.926e, apply to single family detached homes, duplexes, three-unit 
homes, and to living units in a structure where the units are located 
side-by-side in town house fashion. Section 200.926d(c)(4) also applies 
to four-unit homes.
    (2) Applicability of standards to new construction. The standards 
referenced in paragraph (a)(1) of this section are applicable to 
structures which are:
    (i) Approved for insurance or other benefits prior to the start of 
construction, including approval under the Direct Endorsement process 
described in Sec.  203.5 of this chapter, or under the Lender Insurance 
process described in Sec.  203.6 of this chapter;
    (ii) Approved for insurance or other benefits based upon 
participation in an insured warranty program; or
    (iii) Insured as new construction based upon a Certificate of 
Reasonable Value issued by the Department of Veterans Affairs.
    (b) Conflicting standards. The requirements contained in Sec.  
200.926d do not preempt local or State standards, nor do they alter or 
affect a builder's obligation to comply with any local or State 
requirements. However, a property shall be eligible for benefits only if 
it complies with the requirements of this subpart, including any 
referenced standards. When any of the requirements identified in Sec.  
200.926c are in conflict with a partially accepted local or state code, 
the conflict will be resolved by the HUD Field Office servicing the 
jurisdiction in which the property is to be located.
    (c) Standard for evaluating local or state building codes. The 
Secretary shall compare a local building code submitted under paragraph 
(d) of this section or a State code to the list of construction related 
areas contained in Sec.  200.926a.
    (1) A local or State code will be accepted if it regulates each area 
and subarea on the list.
    (2) A State or local building code will be partially accepted if it 
regulates most of the areas on the list. However, no code may be 
partially accepted if it fails to regulate the subarea for seismic 
design (see Sec.  200.926a(c)(5)), or if it fails to regulate subareas 
in more than one of the following major areas listed in Sec.  200.926a: 
fire safety, light and ventilation, structural loads and seismic design, 
foundation systems, materials standards, construction components, glass, 
mechanical, plumbing, and electrical.
    (3) For purposes of this paragraph, a local or State code regulates 
an area or subarea if it establishes a standard concerning that area or 
subarea. However, for earthquake loads (see Sec.  200.926a(c)(5)), ASCE 
7-88 is mandatory.
    (d) Code selection. Any materials required to be submitted under 
this section must be submitted by the time the lender or other 
interested party applies

[[Page 55]]

for mortgage insurance or other benefits.
    (1) Jurisdictions without previously accepted building codes. The 
following submission requirements apply to lenders and other interested 
parties in jurisdictions without building codes, jurisdictions with 
building codes which have never been submitted for acceptance, and 
jurisdictions with building codes which previously have been submitted 
for acceptance and have not been accepted or partially accepted by the 
Secretary.
    (i) In jurisdictions without local building codes:
    (A) If the State building code is acceptable, the lender or other 
interested party must comply with the State building code and the 
requirements of Sec.  200.926d;
    (B) If the State building code is partially acceptable, the lender 
or other interested party must comply with:
    (1) The acceptable portions of the partially acceptable code; and
    (2) Those portions of the CABO One and Two Family Dwelling Code 
designated by the HUD Field Office in accordance with Sec.  200.926c; 
and
    (3) The requirements of Sec.  200.926d.
    (C) If there is no State building code or if the State building code 
is unacceptable, the lender or other interested party must comply with:
    (1) The CABO One and Two Family Dwelling Code as identified in Sec.  
200.926b(a); and
    (2) The requirements of Sec.  200.926d.
    (ii) In jurisdictions with local building codes which have never 
been submitted for review, lenders or other interested parties must:
    (A) Comply with the requirements of paragraph (d)(1)(i) (A), (B) or 
(C) of this section, as appropriate; or
    (B) Request the Secretary's acceptance of the local building code in 
accordance with paragraph (d)(1)(iv) of this section.
    (1) If the Secretary determines that the local building code is 
unacceptable, then the lender or other interested party must comply with 
the requirements of paragraph (d)(1)(i) (A), (B) or (C) of this section 
as appropriate.
    (2) If the Secretary determines that the local code is partially 
acceptable, then the lender or other interested party must comply with:
    (i) The acceptable portions of the partially acceptable local code; 
and
    (ii) Those portions of the CABO One and Two Family Dwelling Code 
designated by the HUD Field Office in accordance with Sec.  200.926c; 
and
    (iii) The requirements of Sec.  200.926d.
    (3) If the Secretary determines that the local code is acceptable, 
then the lender or other interested party must comply with the local 
building code and the requirements of Sec.  200.926d.
    (iii) In jurisdictions with local building codes which previously 
have been submitted for review and which have been found unacceptable by 
the Secretary:
    (A) If the local code has not been changed since the date the code 
or changes thereto were submitted to the Secretary, the lender or other 
interested party must comply with the requirements of paragraph 
(d)(1)(i) (A), (B) or (C) of this section, as appropriate; or
    (B) If the local code has been changed since the date when the code 
or changes thereto were submitted to the Secretary, the lender or other 
interested party must submit a copy of all changes to the local building 
code, including all applicable service codes and appendices and a copy 
of the statute, ordinance, regulation or order making such changes in 
the code, which have been made since the date when the code or other 
changes thereto were last submitted to the Secretary. However, the 
lender or other interested party need not submit any part already in the 
possession of the HUD Field Office. Based upon the Secretary's 
determination concerning the acceptability of the local code as changed, 
the lender or other interested party must comply with the requirements 
of paragraph (d)(1)(ii)(B) (1), (2) or (3) of this section, as 
appropriate.
    (iv) In order to obtain the Department's approval of a local code, 
the lender or other interested party must submit the following material 
to the HUD Field Office serving the jurisdiction in which the property 
is to be constructed:

[[Page 56]]

    (A) A copy of the jurisdiction's local building code, including all 
applicable service codes and appendices; and
    (B) A copy of the statute, ordinance, regulation, or order 
establishing the code, if such statute, ordinance, regulation or order 
is not contained in the building code itself.

However, the lender or other interested party need not submit any 
document already on file in the HUD Field Office.
    (2) Jurisdictions with previously accepted or partially accepted 
building codes. The following submission requirements apply to lenders 
or other interested parties in any jurisdiction with a building code 
which has been accepted or partially accepted by the Secretary:
    (i) The lender or other interested party shall submit to the HUD 
Field Office serving the jurisdiction in which the property is to be 
constructed:
    (A) A certificate stating that, since the date when the code or any 
changes thereto were last submitted to the Secretary, the jurisdiction's 
local building code has not been changed; or
    (B)(1) A copy of all changes to the jurisdiction's building code, 
including all applicable service codes and appendices, which have been 
made since the date when the code or other changes thereto were last 
submitted to the Secretary. However, the lender or other interested 
party need not submit any part already in the possession of the HUD 
Field Office; and
    (2) A copy of the statute, ordinance, regulation, or order making 
such changes in the code.
    (ii) If, based upon changes to the local building code, the 
Secretary determines that it is unacceptable, the lender or other 
interested party must comply with the requirements of paragraph (d)(1) 
(i)(A), (B) or (C) of this section, as appropriate.
    (iii) If the local building code was previously found by the 
Secretary to be partially acceptable and there have been no changes to 
it or if the local building code was previously found by the Secretary 
to be partially acceptable and if, based upon changes to it, the 
Secretary determines that it is still partially acceptable or if the 
local building code was previously found by the Secretary to be 
acceptable and if, based upon changes to it, the Secretary determines 
that it is partially acceptable, then the lender or other interested 
party must comply with paragraphs (d)(1)(ii)(B)(2) (i), (ii) and (iii) 
of this section.
    (iv) If the local building code was previously found by the 
Secretary to be partially acceptable and if, based upon changes to it, 
the Secretary determines that it is acceptable, or if the local building 
code was previously found by the Secretary to be acceptable and there 
have been no changes to the code, or if the local building code was 
previously found by the Secretary to be acceptable and if, based upon 
changes to it, the Secretary determines that it is still acceptable, 
then the lender or other interested party must comply with the local 
building code and the requirements of Sec.  200.926d.
    (3) Notification of decision. (i) Fire retardant treated plywood, 
where approved by a State or local building code, shall not be permitted 
for use in roof construction unless a HUD technical suitability bulletin 
has been issued by the Department for that product.
    (ii) The Secretary shall review the material submitted under Sec.  
200.926(d). Following that review, the Secretary shall issue a written 
notice (except where there is a previously accepted or partially 
accepted code which has not been changed) to the submitting party 
stating whether the local building code is acceptable, partially 
acceptable, or not acceptable. Where the local building code is not 
acceptable, the notice shall also state whether the State code is 
acceptable, partially acceptable or not acceptable. The notice shall 
also contain the basis for the Secretary's decision and a notification 
of the submitting party's right to present its views concerning the 
denial of acceptance if the code is neither accepted nor partially 
accepted. The Secretary may, in his or her discretion, permit either an 
oral or written presentation of views.
    (4) Department's responsibilities. (i) Each Regional and Field 
Office will maintain a current list of jurisdictions with accepted local 
or State building codes, a current list of jurisdictions with partially 
accepted local or State

[[Page 57]]

building codes and a current list of jurisdictions with local or State 
building codes which have not been accepted. For local codes, the lists 
will state the most recent date when the code or changes thereto were 
submitted to the Secretary. The lists, which shall be prepared by the 
Field Offices and submitted to the Regional Offices, will be available 
to any interested party upon request. In addition, the list of 
jurisdictions whose codes have been partially accepted shall identify in 
accordance with Sec.  200.926c those portions of the codes listed at 
Sec.  200.926b(a) with which the property must comply.
    (ii) The Department is responsible for obtaining copies of the State 
codes and any changes thereto.

(Approved by the Office of Management and Budget under control number 
2502-0474)

[50 FR 39592, Sept. 27, 1985, as amended at 57 FR 27927, June 23, 1992; 
57 FR 58340, Dec. 9, 1992; 58 FR 13536, Mar. 12, 1993; 58 FR 41337, Aug. 
3, 1993; 58 FR 60249, Nov. 15, 1993; 59 FR 36695, July 19, 1994; 62 FR 
30225, June 2, 1997; 64 FR 56110, Oct. 15, 1999]



Sec.  200.926a  Residential building code comparison items.

    HUD will review each local and State code submitted under this 
subpart to determine whether it regulates all of the following areas and 
subareas:
    (a) Fire Safety. (1) Allowable height;
    (2) Fire separations;
    (3) Fire resistance requirements;
    (4) Egress doors and windows;
    (5) Unit smoke detectors;
    (6) Flame spread.
    (b) Light and ventilation. (1) Habitable rooms;
    (2) Bath and toilet rooms.
    (c) Structural loads and seismic design. (1) Design live loads;
    (2) Design dead loads;
    (3) Snow loads (for jurisdictions with snow loading conditions 
identified in Section 7 of ASCE-7-88 (formerly ANSI A58.1-82);
    (4) Wind loads;
    (5) Earthquake loads (for jurisdictions in seismic zones 3 or 4, as 
identified in Section 9 of ASCE-7-88 (formerly ANSI A58.1-82)).
    (d) Foundation systems. (1) Foundation depths;
    (2) Footings;
    (3) Foundation materials criteria.
    (e) Materials standards. (1) Materials standards.
    (f) Construction components. (1) Steel;
    (2) Masonry;
    (3) Concrete;
    (4) Lumber;
    (5) Roof construction and covering;
    (6) Chimneys and fireplaces.
    (g) Glass. (1) Thickness/area requirements;
    (2) Safety glazing.
    (h) Mechanical. (1) Heating, cooling and ventilation systems;
    (2) Gas, liquid and solid fuel piping and equipment;
    (3) Chimneys and vents;
    (4) Ventilation (air changes).
    (i) Plumbing. (1) Materials standards;
    (2) Sizing and installing drainage systems;
    (3) Vents and venting;
    (4) Traps;
    (5) Cleanouts;
    (6) Plumbing fixtures;
    (7) Water supply and distribution;
    (8) Sewage disposal systems.
    (j) Electrical. (1) Branch circuits;
    (2) Services;
    (3) Grounding;
    (4) Wiring methods;
    (5) Cable;
    (6) Conduit;
    (7) Outlets, switches and junction boxes;
    (8) Panelboards.

[50 FR 39594, Sept. 27, 1985, as amended at 59 FR 36695, July 19, 1994]



Sec.  200.926b  Model codes.

    (a) Incorporation by reference. The following model code 
publications are incorporated by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporation by reference of these 
publications has been approved by the Director of the Federal Register. 
The locations where copies of these publications are available are set 
forth below.
    (1) CABO One and Two Family Dwelling Code, 1992 Edition, including 
the 1993 amendments, but excluding Chapter I--Administrative, and the 
phrase ``or approved fire retardant wood'' contained in the exception of 
paragraph R-218.2.2(2), but including the Appendices A, B, D, and E of 
the Code. (Available from the Council of American Building Officials, 
Suite 708, 5203 Leesburg Pike, Falls Church, VA 22041.)

[[Page 58]]

    (2) Electrical Code for One and Two Family Dwellings, NFPA 70A, 1990 
Edition, including Tables and Examples. Available from the National Fire 
Protection Association, Batterymarch Park, Quincy, MA 02269.
    (b) Model code compliance requirements. (1) When a one or two family 
dwelling is to comply with the model codes set forth in Sec.  
200.926b(a), the following requirements of those model codes shall not 
apply to those properties:
    (i) Those provisions of the model codes that establish energy 
requirements for one and two family dwellings; and
    (ii) Those provisions of the model codes that require or allow the 
issuance of permits of any sort.
    (2) Where the model codes set forth in paragraph (a) of this section 
designate a building, fire, mechanical, plumbing or other official, the 
Secretary's designee in the HUD Field Office serving the jurisdiction in 
which the dwelling is to be constructed shall act as such official.
    (c) Designation of Model Codes. When a one or two family dwelling or 
townhouse is to comply with portions of the model code or the entire 
model code, the dwelling shall comply with the CABO One and Two Family 
Dwelling Code 1992 Edition, including the 1993 amendments, or portion 
thereof as modified by Sec.  200.926e of this part and designated by the 
HUD Field Office serving a jurisdiction in which a property is located. 
In addition, the property shall comply with all of the standards which 
are referenced for any designated portions of the model code, and with 
the Electrical Code for One and Two Family Dwellings, NFPA 70A/1990.

[50 FR 39594, Sept. 27, 1985, as amended at 58 FR 60249, Nov. 15, 1993]



Sec.  200.926c  Model code provisions for use in partially accepted
code jurisdictions.

    If a lender or other interested party is notified that a State or 
local building code has been partially accepted, then the properties 
eligible for HUD benefits in that jurisdiction shall be constructed in 
accordance with the applicable State or local building code, plus those 
additional requirements identified below. Depending upon the major area 
identified in Sec.  200.926a which is not adequately regulated by the 
State or local code, the HUD Field Office will designate, in accordance 
with the schedule below, those portions of one of the model codes with 
which the property must comply.

       Schedule for Model Code Supplements to Local or State Codes
------------------------------------------------------------------------
                                            Portions of the CABO One and
                                              Two Family Dwelling Code,
Deficient major items from Sec.   200.926a   1992 Edition, including the
   as determined by field office review      1993 amendments, with which
                                               a property must comply
------------------------------------------------------------------------
(a) Fire safety...........................  Chapters 2, 9; Section R-
                                             402.
(b) Light and ventilation.................  Chapter 2; Section R-309.
(c) Structural loads and seismic design...  Chapter 2.
(d) Foundation systems....................  Chapter 3.
(e) Materials standards...................  Chapter 26.
(f) Construction components...............  Part III.
(g) Glass.................................  Chapter 2.
(h) Mechanical............................  Part IV.
(i) Plumbing..............................  Part V.
(j) Electrical............................  Electrical code for 1- and 2-
                                             family dwellings (NFPA 70A-
                                             1990).
------------------------------------------------------------------------


[50 FR 39594, Sept. 27, 1985, as amended at 58 FR 60249, Nov. 15, 1993; 
59 FR 36695, July 19, 1994]



Sec.  200.926d  Construction requirements.

    (a) Application--(1) General. These standards cover the agency 
requirements for accessibility to physically handicapped people, 
variations to standards, real estate entity, trespass and utilities, 
site conditions, access, site design, streets, dedication of utilities, 
drainage and flood hazard exposure, special construction and product 
acceptance, thermal requirements, and water supply systems.
    (2) Requirements for accessibility to physically handicapped people. 
The HUD Field Office will advise project sponsors as to the extent 
accessibility will be required for new construction of one- and two-
family dwellings on a project-by-project basis.
    (i) Technical standards. See HUD Handbook, 4910.1, Sections 100-1.3b 
and 100-1.3c.
    (3) Variations to standards--(i) New materials and technologies. See 
paragraph (d) of this section. Alternatives, nonconventional or 
innovative methods and materials shall be equivalent

[[Page 59]]

to these standards in the areas of structural soundness, durability, 
economy of maintenance or operation and usability.
    (ii) Variation procedures. Variations from the requirements of any 
standard with which the Department requires compliance shall be made in 
the following ways:
    (A) For a particular design or construction method to be used on a 
single case or project, the decision is the responsibility of the Field 
Office. Headquarters concurrence is not required.
    (B) Where a variation is intended to be on a repetitive basis, a 
recommendation for a Local Acceptable Standard, substantiating data, and 
background information shall be submitted by the Field Office to the 
Director, Office of Manufactured Housing and Regulatory Functions.
    (iii) Variances which require individual analysis and decision in 
each instance are not considered as repetitive variances even though one 
particular standard is repeatedly the subject of variation. Such 
variances are covered by paragraph (a)(3)(ii)(A) of this section.
    (b) General acceptability criteria--(1) Real estate entity. The 
property shall comprise a single plot except that a primary plot with a 
secondary plot for an appurtenant garage or for other use contributing 
to the marketability of the property will be acceptable provided the two 
plots are in such proximity as to comprise a readily marketable real 
estate entity.
    (2) Service and facilities--(i) Trespass. Each living unit shall be 
one that can be used and maintained individually without trespass upon 
adjoining properties, except when the windowless wall of a detached 
dwelling is located on a side lot line. A detached dwelling may be 
located on a side lot line if:
    (A) legal provision is made for permanent access for the maintenance 
of the exterior portion of the lot line wall, and
    (B) the minimum distances from the dwelling to the dwellings on the 
abutting properties are not less than the sum of the side yard distances 
computed as appropriate for the type of opposing walls. (minimum 
distance 10 ft).
    (ii) Utilities. Utility services shall be independent for each 
living unit, except that common services such as water, sewer, gas and 
electricity may be provided for living units under a single mortgage or 
ownership. Separate utility service shut-off for each unit shall be 
provided. For living units under separate ownership, common utility 
services may be provided from the main to the building line when 
protected by an easement or convenant and maintenance agreement 
acceptable to HUD, but shall not pass over, under or through any other 
living unit. Individual utilities serving a living unit may not pass 
over, under or through another living unit under the same mortgage 
unless provision is made for repair and maintenance of utilities without 
trespass or when protected by an easement or covenant providing 
permanent access for maintenance and repair of the utilities. Building 
drain cleanouts shall be accessible from the exterior where a single 
drain line within the building serves more than one unit.
    (3) Site conditions. (i) The property shall be free of those 
foreseeable hazards and adverse conditions which may affect the health 
and safety of occupants or the structural soundness of the improvements, 
or which may impair the customary use and enjoyment of the property. The 
hazards include toxic chemicals, radioactive materials, other pollution, 
hazardous activities, potential damage from soil or other differential 
ground movements, ground water, inadequate surface drainage, flood, 
erosion, or other hazards located on or off site. The site must meet the 
standards set forth in 24 CFR part 51, and HUD Handbook 4910.1, section 
606 for termite and decay protection.
    (ii) When special conditions exist or arise during construction 
which were unforeseen and which necessitate precautionary or hazard 
mitigation measures, the HUD Field Office shall require corrective work 
to mitigate potential adverse effects from the special conditions as 
necessary. Special conditions include rock formations, unstable soils or 
slopes, high ground water levels, springs, or other conditions which may 
adversely affect a property. It shall be the builder's responsibility to 
ensure

[[Page 60]]

proper design, construction and satisfactory performance where these 
conditions are present.
    (4) Access. (i) Each property shall be provided with vehicular or 
pedestrian access by a public or private street. Private streets shall 
be protected by permanent easement.
    (ii) Each living unit shall have a means of access such that it is 
unnecessary to pass through any other living unit.
    (iii) The rear yard shall be accessible without passing through any 
other living unit.
    (iv) For a townhouse type dwelling, access to the rear yard may be 
by means of alley, easement, passage through the dwelling, or other 
means acceptable to the HUD Field Office.
    (c) Site design--(1) General. (i) A site design shall be provided 
which includes an arrangement of all site facilities necessary to create 
a safe, functional, healthful, durable and energy efficient living 
environment.
    (ii) With the exception of paragraph (c)(4) of this section, these 
site design standards apply only in communities that have not adopted 
criteria for site development applicable to one and two family 
dwellings.
    (iii) Single family detached houses situated on individual lots 
located on existing streets with utilities need not comply with the 
requirements of paragraphs (c)(2) and (c)(3) of this section.
    (2) Streets. (i) Existing or proposed streets on the site shall 
connect to private or public streets and shall provide all-weather 
access to all buildings for essential and emergency use, including 
access needed for deliveries, service, maintenance and fire equipment.
    (ii) Streets shall be designed for dedication for public use and 
maintenance or, when approved by the HUD Field Office, may be retained 
as private streets where protected by permanent easements.
    (3) Dedication. Utilities shall be located to permit dedication to 
the local government or appropriate public body.
    (4) Drainage and flood hazard exposure--(i) Residential structures 
with basements located in FEMA-designated areas of special flood hazard. 
The elevation of the lowest floor in structures with basements shall be 
at or above the base flood level (100-year flood level) required for new 
construction or substantial improvement of residential structures under 
regulations for the National Flood Insurance Program (NFIP) (see 44 CFR 
60.3 through 60.6), except where variances from this standard are 
granted by communities under the procedures of the Federal Emergency 
Management Agency (FEMA) at 44 CFR 60.6(a) or exceptions from this NFIP 
standard for basements are approved by FEMA in accordance with 
procedures at 44 CFR 60.6(c).
    (ii) Residential structures without basements located in FEMA-
designated areas of special flood hazard. The elevation of the lowest 
floor in structures without basements shall be at or above the FEMA-
designated base flood elevation (100-year flood level).
    (iii) Residential structures located in FEMA-designated ``coastal 
high hazard areas''. (A) Basements or any permanent enclosure of space 
below the lowest floor of a structure are prohibited.
    (B) Where FEMA has determined the base flood level without 
establishing stillwater elevations, the bottom of the lowest structural 
member of the lowest floor (excluding pilings and columns) and its 
horizontal supports shall be at or above the base flood level.
    (iv)(A) In all cases in which a Direct Endorsement (DE) mortgagee or 
a Lender Insurance (LI) mortgagee seek to insure a mortgage on a newly 
constructed one-to four-family dwelling (including a newly erected 
manufactured home) that was processed by the DE or LI mortgagee, the DE 
or LI mortgagee must determine whether the property improvements 
(dwelling and related structures/equipment essential to the value of the 
property and subject to flood damage) are located in a 100-year 
floodplain, as designated on maps of the Federal Emergency Management 
Agency. If so, the DE mortgagee, before submitting the application for 
insurance to HUD, or the LI mortgagee, before submitting all the 
required data regarding the mortgage to HUD, must obtain:
    (1) A final Letter of Map Amendment (LOMA);
    (2) A final Letter of Map Revision (LOMR); or

[[Page 61]]

    (3) A signed Elevation Certificate documenting that the lowest floor 
(including basement) of the property improvements is built at or above 
the 100-year flood elevation in compliance with National Flood Insurance 
program criteria 44 CFR 60.3 through 60.6.
    (B) Under the DE program, these mortgages are not eligible for 
insurance unless the DE mortgagee submits the LOMA, LOMR, or Elevation 
Certificate to HUD with the mortgagee's request for endorsement.
    (v) Streets. Streets must be usable during runoff equivalent to a 
10-year return frequency. Where drainage outfall is inadequate to 
prevent runoff equivalent to a 10-year return frequency from ponding 
over 6 inches deep, streets must be made passable for commonly used 
emergency vehicles during runoff equivalent to a 25-year return 
frequency, except where an alternative access street not subject to such 
ponding is available.
    (vi) Crawl spaces. Crawl spaces must not pond water or be subject to 
prolonged dampness.
    (d) Special construction and product acceptance--(1) Structural 
features of factory produced (modular or panelized) housing or 
components.
    (i) For factory fabricated systems or components, HUD Handbook 
4950.1, ``Technical Suitability of Products Program Technical and 
Processing Procedures'' shall apply.
    (ii) The requirements of this part shall apply to structural 
features, consisting of factory fabricated systems or components 
assembled either at the factory or at the construction site, if the 
total construction is covered by these standards and can be inspected 
on-site for determination of compliance.
    (2) Non-structural or non-standard features. These features include 
methods of construction, systems, sub-systems, components, materials and 
processes which are not covered by these requirements. See HUD Handbook 
4950.1 for procedures to be followed in order to obtain acceptance of 
non-structural components or materials. See HUD Handbook 4910.1, 
appendix F for a list of Use of Materials Bulletins. Products and 
methods shall conform to the appropriate Use of Materials Bulletin.
    (3) Standard Features. These features include methods of 
construction, systems, sub-systems, components, materials and processes 
which are covered by national society or industry standards. For a list 
of standards and practices to which compliance is required, see HUD 
Handbook 4910.1, Appendix C and Appendices E and F, available from HUD, 
451 Seventh Street, SW., Attention: Mailroom B-133, Washington, DC 
20410.
    (e) Energy efficiency. All detached one- and two-family dwellings 
and one-family townhouses not more than three stories in height shall 
comply with the CABO Model Energy Code, 1992 Edition, Residential 
Buildings, except for Sections 101.3.1, 101.3.2, 104, and 105, but 
Section 101.3.2.2, Historic Buildings, shall remain, and including the 
Appendix, and HUD intermediate MPS Supplement 4930.2 Solar Heating and 
Domestic Hot Water Systems, 1989 edition.
    (f) Water supply systems--(1) General. (i) Each living unit shall be 
provided with a continuing and sufficient supply of safe water under 
adequate pressure and of appropriate quality for all household uses. 
Newly constructed residential property for which a building permit has 
been applied for on or after June 19, 1988 from the competent authority 
with jurisdiction in this matter shall have lead-free water piping. For 
purposes of these standards, water piping is ``lead free'' if it uses 
solders and flux containing not more than 0.2 percent lead and pipes and 
pipe fittings containing not more than 8.0 percent lead. This system 
shall not impair the function or durability of the plumbing system or 
attachments.
    (ii) The chemical and bacteriological standards of the local health 
authority shall apply. In the absence of such standards, those of the 
appropriate State agency shall apply. A water analysis may be required 
by either the health authority or the HUD Field Office.
    (iii) Whenever feasible, connection shall be made to a public water 
system. When a public system is not available, connection shall be made 
to a community system which complies with HUD Handbook 4940.2, if 
feasible.

[[Page 62]]

    (2) Individual water systems. (i) The system should be capable of 
delivering a flow of 5 gpm over at least a 4 hour period.
    (ii) The chemical and bacteriological standards of the local health 
authority shall apply. In the absence of such standards, those of the 
appropriate State agency shall apply. A water analysis may be required 
by either the health authority or the HUD Field Office.
    (iii) After installation, the system shall be disinfected in 
accordance with the recommendations or requirements of the local health 
authority. In the absence of a health authority, system cleaning and 
disinfection shall conform to the current EPA Manual of Individual Water 
Supply Systems.
    (iv) Bacteriological or chemical examination of a water sample 
collected by a representative of the local or state health authority 
shall be made when required by that authority or the HUD Field Office.
    (3) Location of wells. (i) A well located within the foundation 
walls of a dwelling is not acceptable except in arctic or subarctic 
regions.
    (ii) Water which comes from any soil formation which may be 
polluted, contaminated, fissured, creviced or less than 20 ft. below the 
natural ground surface is not acceptable, unless acceptable to the local 
health authority.
    (iii) Individual water supply systems are not acceptable for 
individual lots in areas where chemical soil poisoning has been or is 
practiced if the overburden of soil between the ground surface and the 
water bearing strata is coarse grained sand, gravel, or porous rock, or 
is creviced in a manner which will permit the recharge water to carry 
the toxicants into the zone of saturation.
    (iv) The following table shall be used in establishing the minimum 
acceptable distances between wells and sources of pollution located on 
either the same or adjoining lots. These distances may be increased by 
either the health authority having jurisdiction or the HUD Field Office.

                    Distance From Source of Pollution
------------------------------------------------------------------------
                                                              Minimum
                                                             horizontal
                   Source of pollution                        distance
                                                               (feet)
------------------------------------------------------------------------
Property Line............................................       10
Septic Tank..............................................       50
Absorption Field.........................................  \1\ 100
Seepage Pit..............................................  \1\ 100
Absorption Bed...........................................  \1\ 100
Sewer Lines w/Permanent Watertight Joints................       10
Other Sewer Lines........................................       50
Chemically Poisoned Soil.................................   \3\ 25
Dry Well.................................................       50
Other....................................................   (\2\)
------------------------------------------------------------------------
\1\ This clearance may be increased or decreased depending upon soil and
  rock penetrated by the well and aquifer conditions. The clearance may
  be increased in creviced limestone and permeable strata of gravel and
  sand. The clearance may be reduced to 50 ft. only where the ground
  surface is effectively separated from the water bearing formation by
  an extensive, continuous and impervious strata of clay, hardpan, or
  rock. The well shall be constructed so as to prevent the entrance of
  surface water and contaminants.
\2\ The recommendations or requirements of the local health authority
  shall apply.
\3\ This clearance may be reduced to 15 feet only where the ground
  surface is effectively separated from the water bearing formation by
  an extensive, continuous and impervious strata of clay, hardpan, or
  rock.

    (4) Well construction. (i) The well shall be constructed so as to 
allow the pump to be easily placed and to function properly.
    (ii)(A) All drilled wells shall be provided with a sound, durable 
and watertight casing capable of sustaining the loads imposed.
    (B) The casing shall extend from a point several feet below the 
water level at drawdown or from an impervious strata above the water 
level to 12 in. above either the ground surface or the pump room floor. 
The casing shall be sealed at the upper opening to a depth of at least 
15 feet.
    (iii) Bored wells shall be lined with concrete, vitrified clay or 
equivalent materials.
    (iv) The space between the casing or liner and the wall of the well 
hole shall be sealed with cement grout.
    (v) The well casing shall not be used to convey water except under 
positive pressure. A separate drop pipe shall be used for the suction 
line.
    (vi) When sand or silt is encountered in the water-bearing 
formation, the well shall either be compacted and gravel packed, or a 
removable strainer or screen shall be installed.
    (vii) The surface of the ground above and around the well shall be 
compacted and graded to drain surface water away from the well.

[[Page 63]]

    (viii) Openings in the casing, cap, or concrete cover for the 
entrance of pipes, pumps or manholes shall be watertight.
    (ix) If a breather is provided, it shall extend above the highest 
level to which surface water may rise. The breather shall be watertight, 
and the open end shall be screened and positioned to prevent entry of 
dust, insects and foreign objects.
    (5) Pump and equipment. (i) Pumps shall be capable of delivering the 
volume of water required under normal operating pressure within the 
living unit. Pump capacity shall not exceed the output of the well.
    (ii) Pumps and equipment shall be mounted to be free of 
objectionable noises, vibrations, flooding, pollution, and freezing.
    (iii) Suction lines shall terminate below maximum drawdown of the 
water level in the well.
    (iv) Horizontal segments of suction line shall be placed below the 
frost line in a sealed casing pipe or in at least 4 in. of concrete. The 
distance from suction line to sources of pollution shall be not less 
than shown in the table at paragraph (f)(3)(iv) of this section.
    (6) Storage tanks. (i) A pressure tank having a minimum capacity of 
42 gallons shall be provided. However, prepressured tanks and other 
pressurizing devices are acceptable provided that delivery between pump 
cycles equals or exceeds that of a 42 gallon tank.
    (ii) Tanks shall be equipped with a clean-out plug at the lowest 
point, and a suitable pressure relief valve.

(Approved by the Office of Management and Budget under control number 
2502-0474)

[50 FR 39594, Sept. 27, 1985, as amended at 53 FR 11271, Apr. 6, 1988; 
56 FR 5350, Feb. 11, 1991; 57 FR 9609, Mar. 19, 1992; 57 FR 27927, June 
23, 1992; 58 FR 41337, Aug. 3, 1993; 58 FR 60249, Nov. 15, 1993; 59 FR 
19112, Apr. 21, 1994; 62 FR 30225, June 2, 1997; 64 FR 56110, Oct. 15, 
1999]



Sec.  200.926e  Supplemental information for use with the CABO One and
Two Family Dwelling Code.

    The following shall be used in Table No. R-202, Climatic and 
Geographic Design Criteria of the CABO One and Two Family Dwelling Code.
    (a) Roof live loads.

Roof slope 3 in 12 or less: 20 psf
Roof slope over 3 in 12: 15 psf
Roof used as deck: 40 psf

    (b) Roof snow load. The roof snow load shall be in accordance with 
section 7 of ASCE 7-88.
    (c) Wind pressures. The minimum Design Wind Pressures (net 
pressures) set forth below apply to areas designated as experiencing 
basic wind speeds up to and including 80 mph, as shown in ASCE 7-88, 
Figure 1, Basic Wind Speed Map. These pressures also apply to buildings 
not over 30 ft. in height above finish grade, assuming exposure C or 
defined in ASCE 7-88.
    (1) Minimum design wind pressure criteria. (i) Buildings (for 
overturning racking or sliding); p = 20 psf.
    (ii) Chimneys, p = 30 psf.
    (iii) Exterior walls, p = 15 psf inward or outward. Local pressure 
at corners of walls shall be not less than p = 30 psf outward. These 
local pressures shall not be included with the design pressure when 
computing overall loads. The pressures shall be applied perpendicularly 
outward on strips of width equal to 10 percent of the least width of 
building.
    (iv) Partitions, p = 10 psf.
    (v) Windows, p = 20 psf inward or outward.
    (vi) Roof, p = 20 psf inward or outward.

Roofs with slopes greater than 6 in 12 shall be designed to withstand 
pressures acting inward normal to the surface, equal to the design wind 
pressure for exterior walls. Overhanging eaves, cornices, and ridges, 40 
psf upward normal to roof surface. These local pressures shall not be 
included with the design pressure when computing overall loads. The 
pressures shall be applied perpendicularly outward on strips of width 
equal to 10 percent of the least width of building. Net uplift on 
horizontal projection of roof shall not be less than 12 psf.
    (2) Severe wind design pressures. If the construction is higher than 
30 ft., or if it is located in an area experiencing wind speeds greater 
than 80 mph, higher design wind pressures than shown above are required. 
Use Section 6 of ASCE 7-88 for higher criteria and for

[[Page 64]]

determining where wind speeds greater than 80 mph occur. Pressures are 
assumed to act horizontally on the gross area of the vertical projection 
of the structure except as noted for roof design.
    (d) Seismic conditions shall be in accordance with Section 9 of ASCE 
7-88.
    (e) Subject to damage from: weathering. A jurisdiction's weathering 
region shall be as established by the map in ASTM C 62-83.
    (f) Subject to damage from: frost line depth. Exterior wall footings 
or foundation walls including those of accessory buildings shall extend 
a minimum of 6 in. below the finished grade and, where applicable, the 
prevailing frost line.
    (g) Subject to damage from: termites. ``Yes'' shall be used in 
locations designated as Regions I, II or III. ``No'' shall be used in 
locations designated as Region IV. The map for Termite Infestation 
Probability in appendix A of CABO, One and Two Family Dwelling Code 
shall be used to determine the jurisdiction's region.
    (h) Subject to damage from: decay. ``Yes'' shall be used in 
locations designated as moderate to severe and slight to moderate. 
``No'' shall be used in locations designated as none to slight. The 
Decay Probability map in appendix A of CABO, One and Two Family Dwelling 
Code shall be used to determine the jurisdiction's decay designation.

(Approved by the Office of Management and Budget under control number 
2502-0338)

[50 FR 39599, Sept. 27, 1985, as amended at 59 FR 36695, July 19, 1994]



Sec.  200.927  Incorporation by reference of minimum property standards.

    The Minimum Property Standards as contained in the handbooks 
identified in Sec.  200.929(b) are incorporated by reference into this 
section as though set forth in full in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51.

[50 FR 39592, Sept. 29, 1985]



Sec.  200.929  Description and identification of minimum property
standards.

    (a) Description. The Minimum Property Standards describe physical 
standards for housing. They are intended to provide a sound basis for 
determining the acceptability of housing built under the HUD mortgage 
insurance and low-rent public housing programs. The Minimum Property 
Standards refer to material standards developed by industry and accepted 
by HUD. In addition, under Section 521 of the National Housing Act, HUD 
adopts its own technical suitability standards for materials and 
products for which there are no industry standards acceptable to HUD. 
These standards are contained in Use of Materials Bulletins that apply 
to products and methods and Materials Releases that apply to specific 
materials. Use of Materials Bulletins and Materials Releases are addenda 
to the Minimum Property Standards. Unless otherwise stated, the current 
edition, issue, or version of each of these documents, as available from 
its source, is applicable to this subpart S. A list of the Use of 
Materials Bulletins, Materials Releases, and MPS Appendix listing the 
applicable referenced Standards may be obtained from the Construction 
Standards Division, Office of Manufactured Housing and Construction 
Standards, room 6170 Department of Housing and Urban Development, 451 
7th Street, SW, Washington, DC 20410.
    (b) Identification. The Minimum Property Standards have been 
published as described below:
    (1) MPS for One and Two Family Dwellings. See Sec. Sec.  200.926, 
200.926 (a) through (e).
    (2) MPS for Housing 4910.1, 1994 edition. This volume applies to 
buildings and sites designed and used for normal multifamily occupancy, 
including both unsubsidized and subsidized insured housing, and to care-
type housing insured under the National Housing Act. It also includes, 
in Appendix K, a reprint of the MPS for One and Two Family Dwellings 
identified in paragraph (b)(1) of this section.

[39 FR 26895, July 24, 1974, as amended at 42 FR 33890, July 1, 1977; 47 
FR 29524, July 7, 1982; 47 FR 35761, Aug. 17, 1982; 49 FR 18695, May 1, 
1984; 50 FR 39592, Sept. 29, 1985; 51 FR 28699, Aug. 11, 1986; 58 FR 
60250, Nov. 15, 1993; 63 FR 5423, Feb. 2, 1998]

[[Page 65]]



Sec.  200.929a  Fair Housing Accessibility Guidelines.

    Builders and developers may use the Department's Fair Housing 
Accessibility Guideline when designing or constructing covered 
multifamily dwelling units in order to comply with the Fair Housing Act. 
The Guidelines may be found in the 24 CFR Chapter I, Subchapter A, 
Appendix II, titled Fair Housing Accessibility Guidelines--Design 
Guidelines for Accessible/Adaptable Dwellings.

[58 FR 60250, Nov. 15, 1993]



Sec.  200.931  Statement of availability.

    (a) Updated copies of the Minimum Property Standards and Use of 
Materials Bulletins are available for public examination in the Office 
of Consumer and Regulatory Affairs, Department of Housing and Urban 
Development, room 9156, 451 Seventh St. SW., Washington, D.C. 20410-
8000. In addition, copies of volumes 1, 2, and 3 of the Minimum Property 
Standards may be purchased from the U.S. Government Printing Office, 
Washington, D.C. 20402.
    (b) Publications approved by the Director of the Federal Register 
for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 
CFR part 51 are available for inspection at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html.

[63 FR 5423, Feb. 2, 1998]



Sec.  200.933  Changes in minimum property standards.

    Changes in the Minimum Property Standards will generally be made 
every three years. Changes will be made in accordance with HUD policy 
for the adoption of rules and regulations set forth in part 10 of this 
title. Notice of such changes will be published in the Federal Register. 
As the changes are made, they will be incorporated into the volumes of 
the Minimum Property Standards to which they apply. The volumes 
available for public examination and for purchase will contain all 
changes up to the date of examination or purchase. An official, historic 
file of such changes will be available in the office of the Rules Docket 
Clerk in the HUD Central Office in Washington, DC, and in each HUD 
Regional, Area, and Insuring Office. A similar copy of the standards 
will also be maintained in the Office of the Federal Register, 
Washington, DC.

[39 FR 26895, July 24, 1974, as amended at 58 FR 60250, Nov. 15, 1993]



Sec.  200.934  User fee system for the technical suitability of 
products program.

    (a) General. This section establishes fee requirements for the 
issuance of Structural Engineering Bulletins (SEBs), Mechanical 
Engineering Bulletins (MEBs), Truss Connector Bulletins (TCBs), Area 
Letters of Acceptance (ALAs), Materials Releases (MRs), and review of 
program administrator applications submitted pursuant to Sec.  200.935 
of this title.
    (b) Filing address--(1) Applications containing payment. When 
applications for or correspondence concerning SEBs, MEBs, TCBs, MRs, or 
program administrator approval contain payment, such applications or 
correspondence shall be sent to the following address:

U.S. Department of Housing and Urban Development, Technical Suitability 
of Product Fees, P.O. Box 954199, St. Louis, MO. 63195-4199.

    (2) Other correspondence. All other correspondence concerning SEBs, 
MEBs, TCBs, MRs, and program administrator acceptance shall be sent to 
the following address:

Manufactured Housing and Construction Standards Division, Department of 
Housing and Urban Development, 451 Seventh Street, SW., Attn: Mail Room 
B-133, Washington, DC 20410.

    (3) Application for ALAs. Applications for or correspondence 
concerning ALAs shall be submitted to the Housing Division of the field 
office having jurisdiction over the area in which the production 
facility of the system is located, except that applications containing 
payment shall be addressed to the attention of the Collection Officer 
for deposit to Account No. 86-09-0300.
    (c) Fees. Applicants for renewal and applicants for acceptance as 
program

[[Page 66]]

administrators under Sec.  200.935 of this title shall include the 
entire processing fee with the application. All other applicants shall 
submit one half of the required processing fee with each application. 
The applicant shall pay the balance when the draft issuance is returned 
to HUD with the applicant's concurrence signature. The Department will 
not prepare a final document for printing and distribution until it has 
received the full processing fee. From time to time, as may be 
necessary, the Department will establish and amend the fee schedule by 
publication of a Notice in the Federal Register.
    (d) Initial application and review--(1) Content of applications. 
Each application shall include only one item. All applications will be 
promptly processed on receipt by the Department.
    (i) With respect to Mechanical Engineering Bulletins (MEBs), 
Structural Engineering Bulletins (SEBs), Truss Connector Bulletins 
(TCBs), and Area Letters of Acceptance (ALAs), each structural design 
shall constitute a different item.
    (ii) With respect to Materials Releases (MRs), each product or 
system shall constitute a different item.
    (2) Revisions. A recipient of a technical suitability document 
issued by the Department may apply for revision of that document at any 
time. The revision may be in the form of an amendment of or supplement 
to the document, for which the recipient will be charged the applicable 
revision fee. However, where the Department determines that a proposed 
revision constitutes a different item, the schedule of fees for initial 
applications shall apply.
    (3) Renewals. Each issuance shall be valid for a period of three 
years from the date of initial issuance or most recent renewal, 
whichever is later. An applicant shall submit an application for renewal 
with the entire required fee three months before the expiration of the 
three-year period. Failure to submit a timely renewal application along 
with the required fee shall constitute a basis for cancellation of the 
issuance.
    (4) Initial and revision applications requiring further study or 
additional data. In its discretion, the Department may request an 
applicant to submit additional data or to conduct further study to 
supplement or clarify an initial application or an application for 
revision of a previously issued technical suitability document. If the 
applicant fails to comply with the Department's request within ninety 
days of the date of that request or within such longer time as may be 
specified by the Secretary, the Department will return the application 
to the applicant. The Department will not refund any fees paid toward an 
application returned under this paragraph. The application will be 
considered further only if it is resubmitted along with payment of the 
full fee as required by these regulations.
    (5) Ineligible applications. If the Secretary determines that an 
application or request will not be considered because it is not eligible 
for issuance of a technical suitability document, the Department will 
promptly return the application or request, refund any fees paid, and 
explain why the application or request is ineligible.
    (6) Cancellation of a technical suitability document. If the 
Department determines that (i) the conditions under which a technical 
suitability document was issued have so changed as to affect the 
production of, or to compromise the integrity of, the material, product, 
or system approved thereby, or (ii) that the producer has changed its 
organizational form without notifying HUD, or (iii) that the producer is 
not complying with the responsibilities it assumed as a condition of 
HUD's acceptance of its material, product or system, the Department will 
notify the producer or manufacturer that the technical suitability 
document may be cancelled. However, before cancelling a technical 
suitability document, the Department will give the manufacturer 
reasonable notice in writing of the specific reasons therefore and an 
opportunity to present its views on why the technical suitability 
document should not be cancelled. No refund of fees will be made on a 
cancelled document.
    (e) Identification. (1) Applications for issuance of a MEB, SEB, 
TCB, or MR submitted to HUD Headquarters will be identified with a case 
number. The applicant will be notified of the case number when receipt 
of the application

[[Page 67]]

is acknowledged. Thereafter, the case number will be used on all 
correspondence relating to the application. When a final draft of a new 
document is prepared for publication and distribution, a bulletin or 
release number will be assigned to the new issuance.
    (2) In the case of an application for an ALA submitted to a field 
office, the application will be processed in accordance with the 
identification and processing procedures established by the responsible 
field office. The field office will notify the applicant of receipt of 
the application and inform the applicant of the procedures that will be 
followed with respect to the issuance of an ALA.

(Information collection requirements in paragraphs (b), (c), (d)(1), 
(2), (3) and (4) were approved by the Office of Management and Budget 
under control number 2502-0313)

[49 FR 31856, Aug. 9, 1984, as amended at 58 FR 60250, Nov. 15, 1993]



Sec.  200.935  Administrator qualifications and procedures for HUD
building products certification programs.

    (a) General. This section establishes administrator qualifications 
and procedures for the HUD Building Products Certification Programs 
under section 521 of the National Housing Act and the HUD Minimum 
Property Standards. Under these programs organizations acceptable to HUD 
validate manufacturers' certifications that certain building products or 
materials meet applicable standards. HUD may decide to implement a 
certification program for a particular building product or material for 
a variety of reasons, such as when deemed necessary by HUD to facilitate 
the introduction of new and innovative products or materials; or in 
response to reports of fraud or misrepresentation by manufacturers in 
advertising that their product or materials comply with a standard.
    (b) Definitions--(1) Certification program (``program''). The 
procedure under which accepted administrators validate manufacturers' 
certifications that particular building products or materials meet 
applicable HUD standards. A separate program is used to validate 
certifications for each particular product or material for which HUD 
requires certifications.
    (2) Program administrator (``administrator''). An organization which 
conducts the program validating the manufacturer's certification that a 
particular building product or material meets applicable HUD standards.
    (c) Administrator qualifications and application procedures--(1) 
Qualifications. Each program administrator shall be capable of 
conducting a certification program with respect to organization, staff 
and facilities, and have a reputation for adhering to high ethical 
standards. To be considered acceptable for conducting a certification 
program, each administrator shall:
    (i) Be a technically qualified organization with past experience in 
the administration of certification programs. The certification 
program(s) shall be under the supervision of a qualified professional 
with six years of experience in interpreting testing standards, test 
methods, evaluating test reports and quality control programs. Each 
administrator is responsible for staffing the program with qualified 
professional personnel with experience in interpreting testing 
standards, test methods, evaluating test reports and quality control 
programs. The staff shall be adequate to service all aspects of the 
program.
    (ii) Have field inspectors trained to make selections of materials 
for testing from manufacturer's stock or from distributors' 
establishments and to conduct product compliance inspections. Such 
inspectors must be trained and experienced in evaluating manufacturer's 
quality control records to ascertain with a reasonable degree of 
assurance that continuing production remains in compliance with the 
applicable standard set forth in the Use of Materials (UM) Bulletin. 
When inspectors are used to evaluate laboratory operations, they shall 
be qualified and under the supervision of the administrator. They shall 
be knowledgeable in such areas as test methods, quality control, testing 
techniques, and instrument calibration.
    (iii) Have facilities and capabilities for communications with 
manufacturers, laboratories, and HUD, including publication of a 
directory of certified products and a list of accredited laboratories, 
if required by the program.

[[Page 68]]

    (iv) Have adequate policies and practices for preserving information 
entrusted to its care. HUD reserves the right to review all technical 
records related to the program for the purpose of monitoring.
    (v) Have a copy of all applicable standards, test methods and 
related information necessary to carry out the program.
    (vi) Have a registered or pending certification mark at the United 
States Patent Office and be willing to license, on a uniform basis, the 
use of that mark by manufacturers as a validation of the manufacturer's 
certification that the product complies with the applicable standard.
    (2) Applications procedures. Any organization desiring HUD 
acceptance as a qualified administrator to conduct a certification 
program shall make application in writing to the Director, Office of 
Architecture and Engineering Standards. The application shall state the 
particular certification program for which acceptance is requested and 
include information indicating compliance with each of the qualification 
requirements by number and subsection. Attached to the application shall 
be:
    (i) A list of certification programs in which the organization is 
participating or has participated and the types of participation 
(sponsor, administrator, testing laboratory, etc.).
    (ii) A procedural guide used in one of these programs.
    (iii) A directory or listing used in one of these programs.
    (iv) A reproduction or facsimile of the organization's registered or 
pending mark.
    (v) A proposed procedural guide for the particular certification 
program. HUD certification program procedures described in paragraph (d) 
of this section shall be followed.
    (3) Acceptance. HUD shall review each submission and notify the 
applicant whether or not they are accepted or rejected. HUD shall be 
notified immediately of any change(s) in the administrator's submission 
regarding program procedures and/or major personnel associated with the 
program. HUD reserves the right to suspend or debar an administrator in 
accordance with 2 CFR part 2424.
    (d) HUD building products certification procedures--(1) 
Certification program development. Certification program development by 
an administrator shall be based upon the procedures and standards for 
the specific building product described in a Use of Materials Bulletin 
or a Materials Release.
    (2) License agreement. Each administrator shall have a written 
license agreement with each participating manufacturer binding each to 
the provisions of the specific program and authorizing the manufacturer 
to use the administrator's mark, seal, or label on its products. The 
administrator shall have the right to terminate any agreement prior to 
an expiration date, for example, if there has been a breach of the 
requirement of the certification program by the manufacturer.
    (3) Laboratory approval. The administrator shall review laboratories 
that apply for participation in this program on the basis of the 
procedures described in paragraph (e) of this section. A list of 
approved laboratories shall be maintained by the administrator. When the 
certification program allows the use of the administrator's testing 
laboratories, the laboratories shall be reviewed by a qualified party 
acceptable to HUD. As accreditation procedures are made available 
through the National Voluntary Laboratory Accreditation Program (NVLAP) 
for specifc products, HUD may require such accreditation.
    (4) Initial testing and quality control review--(i) Initial testing. 
Each participating manufacturer shall submit to the appropriate 
administrator, the product(s) specification and statement(s) that the 
product complies with the applicable standard. The administrator shall 
select samples of the product(s), or when HUD specifies as acceptable, a 
prototype. The particular method of sample selection shall be determined 
by HUD for each specific product certification program. Other methods of 
initial sample selection may be used if deemed necessary. If a failure 
occurs on the initial tests, additional sampling and testing may be done 
at the manufacturer's request. The administrator's validation of the

[[Page 69]]

manufacturer's declaration of certification shall be withheld until a 
finding of compliance is achieved.
    (ii) Quality assurance system review. (A) Each administrator shall 
examine a participating manufacturer's facilities and quality assurance 
system procedures to determine that they are adequate to assure 
continuing production of the product that complies with the applicable 
standard. These quality assurance system procedures shall be documented 
in the administrator's and the manufacturer's files. If a manufacturer's 
quality assurance system is not satisfactory to the administrator, 
validation of the manufacturer's declaration of certification shall be 
withheld. The following American Society for Quality Control (ASQC) 
standards, which are incorporated by reference, may be used as 
guidelines in any quality assurance review:
    (1) ASQC Q9000-1-1994 Quality Management and Quality Assurance 
Standards Guidelines for Selection and Use;
    (2) ASQC Q9001-1994 Quality Systems--Model for Quality Assurance in 
Design, Development, Production, Installation, and Servicing;
    (3) ASQC Q9002-1994 Quality Systems--Model for Quality Assurance in 
Production, Installation, and Servicing;
    (4) ASQC Q9003-1994 Quality Systems--Model for Quality Assurance in 
Final Inspection and Test;
    (5) ASQC Q9004-1-1994 Quality Management and Quality System 
Elements-Guidelines.
    (B) These standards have been approved by the Director of the 
Federal Register for incorporation by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. They are available from the American 
Society for Quality Control (ASQC), 611 East Wisconsin Avenue, 
Milwaukee, WI 53202.
    (5) Notice of validation. When initial testing, quality control 
review, and evaluation of other technical data are satisfactory to the 
administrator, a Notice of Validation or Certification shall be issued 
to the manufacturer. This allows the use of the administrator's 
registered mark on the product label.
    (6) Labeling. Each administrator shall issue to the manufacturer 
labels, tags, marks containing the administrator's validation mark, and 
the manufacturer's certification of compliance with the applicable 
standard. The registered administrator's (validator's) mark shall be on 
the label. A sponsor's (association, testing agencies, society or 
others) mark may be used in addition to the administrator's mark. The 
manufacturer's certification of compliance to the standard may be coded. 
Additional information such as type, grade, class, etc., may also be 
coded. When coding is used, the code shall be described in the directory 
or listing.
    (7) Directory or listing. When required by the program, the 
administrator shall publish a directory or listing for all certified 
products. The directory shall list the items described in paragraph 
(d)(6) of this section. The directly shall also carry a complete list of 
approved laboratories and shall be updated to reflect additions or 
deletions of certified products and laboratories. Directories or 
listings shall be published periodically as described in the specific 
program. Each administrator shall make a complimentary distribution of 
the directory or listing to the HUD Field Offices and other government 
agencies designated by HUD. A subscription fee may be charged to others 
requesting copies.
    (8) Periodic tests and quality control inspections. Samples of the 
certified product or prototype shall be selected periodically from the 
plant, warehouse inventory or sales points. The samples shall be sent to 
an administrator-approved laboratory and tested in accordance with the 
applicable standard. The frequency of testing shall be described in the 
specific building product program. The administrator shall periodically 
visit the manufacturer's facility to assure that the initially accepted 
quality control procedures are being followed.
    (9) Product decertification. If a failure should occur in any test, 
the laboratory shall notify the administrator and the manufacturer. The 
manufacturer shall notify the administrator if a retest if requested. If 
a retest is not requested, validation shall be withdrawn. If the 
manufacturer requests a retest, the administrator shall select new 
samples and submit them to the same

[[Page 70]]

or another laboratory at the manufacturer's expense, for retest of only 
the test requirement(s) in which the failure(s) occurred. If the 
specified number of specimens pass the retest, the product can continue 
to be validated and listed. If the designated number of specimens 
described in the UM Bulletin fail, the administrator shall decertify the 
product. The manufacturer may request that a new selection be made of 
the product after corredction or modifications and be subjected to the 
initial acceptance testing procedure or to a program of retesting 
established by the administrator. The administrator may decertify the 
product on the basis of inadequate quality control by the manufacturer. 
The administrator shall notify the manufacturer, HUD headquarters and 
the HUD Field Offices of any decertification within 7 days. When the 
product is decertified the magnufacturer shall remove labels, tags or 
marks from all production and inventory in his/her control determined to 
be in noncompliance.
    (10) Challenge response. Any person or organization may submit a 
sample of a manufacturer's certified product to the administrator in 
substantiation of a claim of noncompliance. Submission shall be made to 
the administrator that validated the manufacturer's product. The 
administrator shall notify the manufacturer that its product has been 
challenged and shall make arrangements to obtain test samples of the 
challenged product. An estimate of the cost of the special sample 
selection and testing shall be made to the complainant. The complainant 
shall pay the estimated cost of the investigation in advance of any 
testing of the challenged product, unless HUD believes the complaint to 
be in the public's interest. HUD may conduct its own investigation when 
deemed necessary based upon a complaint or a product failure. The 
administrator shall submit the sample of the challenged product to an 
approved laboratory of the administrator's choice with the request to 
test compliance of only the challenged requirement(s). If the samples 
tested prove that the product failed to meet the standard, the product 
shall be decertified immediately. The manufacturer whose product is 
decertified shall reimburse the administrator for all costs of the 
investigation and the administrator shall refund the complainant's 
advance payment. If the tests prove that the product does comply with 
the standard, the complainant shall be notified that the tests do not 
support the complaint and that the advance fee has been used for the 
cost of testing and investigating the claim.
    (11) Maintainance of the program. Each administrator shall maintain 
the program in conformance with administrative letters issued by HUD for 
the purpose of clarifying procedures and interpreting the applicable 
standard. These letters may also be used to revise and amend the 
procedures used in specific programs. Significant changes in any program 
shall be published in the Federal Register.
    (e) Laboratory qualifications. The following laboratory 
qualifications apply to all testing laboratories participating in the 
program including manufacturer's laboratories and the administrator's 
own laboratories when designated in the specific program.
    (1) Organization and personnel. Laboratories wishing to participate 
in a certification program shall apply to the administrator and shall 
furnish the following information:
    (i) Name of laboratory, address, telephone number, name and title of 
official to be contacted for this program.
    (ii) Name and qualifications of person assigned by the laboratory to 
supervise testing under a specific certification program.
    (iii) Name and qualifications of engineers and other key personnel 
who shall conduct the testing.
    (iv) Brief review of training program for personnel associated with 
program to assure the operational efficiency and uniformity of the 
testing and quality control procedures.

Each laboratory shall notify the administrator of any change in its 
submission regarding procedures and/or major personnel associated with 
the program.
    (2) Equipment and facilities. Each laboratory shall:
    (i) Describe the test instruments and testing facilities to be used 
in making the test(s) required by the applicable standard. Information 
shall include:

[[Page 71]]

Item of equipment, manufacturer, type or model, serial number, range, 
precision, frequency of calibration and dates of calibration.
    (ii) Provide photographs of the listed equipment.
    (iii) Provide a description of the applicable standards and 
calibration equipment being used and the calibration procedures 
followed, including National Bureau of Standards traceability, when 
applicable. List outside organizations providing calibration services, 
if used.
    (iv) Demonstrate that measurements can be made with existing 
equipment and repeated precision within the limits established by the 
applicable standards. Administrator may periodically require 
laboratories to conduct collaborative testing on standard reference 
materials.
    (v) Provide evidence, when regulated temperatures and humidity are 
required, that charts are maintained from a continuous recorder 
registering both wet and dry bulb temperature or relative humidity. The 
charts are to be properly dated, retained and available for inspection.
    (vi) Provide a list of standards, test methods and other information 
necessary to carry out the program.
    (3) Testing methodology. (i) Describe concisely the procedures for 
conducting the tests required and the specific equipment to be used.
    (ii) Attach a sample test report showing representative test results 
and accompanied by test data forms for each test required. When approved 
for program participation, testing laboratories may be required by 
administrator to report test results on standard summary report forms.
    (4) Subcontractors. If a testing laboratory plans to subcontract any 
of its testing to other laboratories, only approved laboratories 
acceptable to the administrator shall be used.
    (5) Laboratory quality control. The laboratory shall develop 
operating quality control procedures acceptable to the administrator. 
The procedures of the American Council of Independent Laboratories \1\ 
may be used as a guideline.
---------------------------------------------------------------------------

    \1\ Copies are available from the American Council of Independent 
Laboratories, Inc., 1725 ``K'' Street, NW., Washington, DC 20006.
---------------------------------------------------------------------------

    (6) Approval of laboratories. Administrators shall develop detailed 
laboratory approval requirements and conduct periodic inspections to 
assure each test laboratory's capability. Laboratory approval may be 
granted for 2 years. Reapproval of the laboratory shall be necessary 
every 2 years. When a program allows the use of an administrator's own 
laboratories, these laboratories shall be reviewed by a qualified third 
party acceptable to HUD. Documentation of acceptance for administrator 
laboratories shall be maintained by the administrator and HUD. 
Administrator laboratories shall be subject to reapproval every two 
years.
    (7) Withdrawal of approval. Laboratory approval shall be withdrawn 
or temporarily suspended if it is determined that the laboratory is not 
complying with the approved requirements. Causes for suspension include, 
but are not limited to, the following:
    (i) Incompetence.
    (ii) Failure to test in accordance with the test methods described 
in the standard.
    (iii) Issuance of test reports which fail to comply with the 
requirements described in the specific product certification program.
    (iv) Falsification of the information reported.
    (v) A statement implying validation of the product using a test 
report which constitutes only part of the total standard.
    (vi) Deceptively utilizing references in advertising or other 
promotional activities.
    (vii) Submission of incomplete or inadequate information and 
documentation called for herein.

[44 FR 54656, Sept. 20, 1979, as amended at 63 FR 5423, Feb. 2, 1998; 72 
FR 73494, Dec. 27, 2007]

[[Page 72]]



Sec.  200.936  Supplementary specific procedural requirements under
HUD building products certification program for solid fuel type room 
heaters and fireplace stoves.

    (a) Applicable standards. Solid fuel type room heaters and fireplace 
stoves certified under the HUD Building Products Certification Program 
shall be designed, assembled and tested in conformance with the 
following standards, which are incorporated by reference:
    (1) ANSI/UL 737 (1978), for fireplace stoves;
    (2) ANSI/UL 1482 (1979), for solid fuel type room heaters with coal 
amendments.
    (b) Labelling. (1) Under the procedures set forth in paragraph 
(d)(6) of Sec.  200.935, concerning labelling of a product, the 
administrator's validation mark and the manufacturer's certification of 
compliance with the applicable standards are required to be on the 
certification label issued by the administrator to the manufacturer. In 
the case of solid fuel type room heaters and fireplace stoves, the 
following additional information must be included on the certification 
label:
    (i) The manufacturer's statement of conformance to the HUD Building 
Products Certification Program;
    (ii) The manufacturer's name and the identity and location of 
manufacturing plant;
    (iii) The specification designation and manufacturer series or model 
number; and
    (iv) The type of fuel to be used.
    (2) The certification label must be permanently affixed to the 
heater or stove and be readily visible after the heater or stove is 
installed.
    (c) Periodic tests and quality control inspections. Under the 
procedures set forth in paragraph (d)(8) of Sec.  200.935, concerning 
periodic tests and quality control inspections, the frequency of testing 
for a product must be described in the specific building product 
certification program. In the case of solid fuel type room heaters and 
fireplace stoves, testing and inspection shall be conducted as follows:
    (1) Once every four years, beginning with the initial administrator 
visit, a sample of each certified product shall be selected by the 
administrator for testing for compliance with the applicable standards 
in a laboratory which has been accredited under the National Voluntary 
Laboratory Accreditation Program.
    (2) The administrator shall visit the manufacturer's facility two 
times a year to assure that the initially accepted quality control 
procedures are being followed.

[48 FR 1955, Jan. 17, 1983]



Sec.  200.937  Supplementary specific procedural requirements under HUD
building product standards and certification program for plastic bathtub
units, plastic shower receptors and stalls, plastic lavatories, plastic
water closet bowls and tanks.

    (a) Applicable standards. (1) Plastic bathtub units, plastic shower 
receptors and stalls, plastic lavatories, and plastic water closet bowls 
and tanks shall be designed, assembled and tested in compliance with the 
following standards, which are incorporated by reference:

ANSI Z124.1--(1980) Plastic Bathtub Units
ANSI Z124.2--(1980) Plastic Shower Receptors and Stalls
ANSI Z124.3--(1980) Plastic Lavatories
ANSI Z124.4--(1983) Plastic Water Closet Bowls and Tanks

    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. They are available from 
the American National Standards Institute, Inc., 11 West 42nd Street, 
New York, NY 10036. The standards are also available for inspection at 
the National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or go 
to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.
    (b) Labeling. (1) Under the procedures set forth in paragraph (d)(6) 
of Sec.  200.935, concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applicable standards are required to be on the certification label 
issued by the administrator to the manufacturer. In the case of plastic 
bathtub units, plastic shower receptors and stalls, plastic lavatories,

[[Page 73]]

and plastic water closet bowls and tanks, the following additional 
information shall be included on the certification label:
    (i) Manufacturer's statement of conformance to UM 73a;
    (ii) Manufacturer's name and code identifying the plant location.
    (2) The certification label shall be affixed to each plastic 
bathroom fixture.
    (c) Periodic tests and quality control inspections. Under the 
procedures set forth in paragraph (d)(8) of Sec.  200.935, concerning 
periodic tests and quality control inspections, the frequency of testing 
for a product shall be described in the specific building product 
certification program. In the case of plastic bathroom fixtures, testing 
and inspection shall be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified plastic 
bathtub unit, plastic shower receptor and stall, plastic water closet 
bowl and tank for testing in an approved laboratory, in accordance with 
applicable standards.
    (2) At least every twelve months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified plastic 
lavatory for testing in accordance with applicable standards.
    (3) The administrator shall also review quality control procedures 
at each visit to determine that they continue to be followed.

[49 FR 378, Jan. 4, 1984, as amended at 59 FR 36695, July 19, 1994]



Sec.  200.940  Supplementary specific requirements under the HUD
building product standards and certification program for sealed
insulating glass units.

    (a) Applicable standards. (1) All sealed insulating glass units 
shall be designed, manufactured, and tested in compliance with the 
American Society for Testing and Materials standard: ASTM E-774-92 
Standard Specification for Sealed Insulating Glass Units.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the American Society for Testing and Materials, 1916 Race Street, 
Philadelphia, PA 19103. This standard is also available for inspection 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are issued by the administrator to the manufacturer. Each 
sealed insulating glass unit shall be marked as conforming to UM 82a. 
The label shall be located on each sealed insulating unit so that it is 
available for inspection. The label shall include the manufacturer's 
name and plant location.
    (c) Periodic tests and quality assurance inspections. Under the 
procedures set forth in Sec.  200.935(d)(8) concerning periodic tests 
and quality assurance inspections, the frequency of testing for a 
product shall be described in the specific building product 
certification program. In the case of sealed insulating glass units, 
testing and inspection shall be conducted as follows:
    (1) At least once a year, the administrator shall visit the 
manufacturer's facility to select a sample, of the maximum size 
commercially available, for testing in a laboratory approved by the 
administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[58 FR 67674, Dec. 22, 1993]



Sec.  200.942  Supplementary specific procedural requirements under
HUD building product standards and certification program for carpet
and carpet with attached cushion.

    (a) Applicable standards. (1) Carpet and carpet with attached 
cushion certified for this program shall be designed, manufactured and 
tested in accordance with the following standards:
    (i) AATCC 20A-81--Fiber Analysis: Quantitative;

[[Page 74]]

    (ii) AATCC 16E-82--Colorfastness to Light: Water-Cooled Xenon-Arc 
Lamp, Continuous Light;
    (iii) AATCC 8-85--Colorfastness to Crocking: AATCC Crockmeter 
Method;
    (iv) AATCC 24-85--Insect, Resistance to Textiles to;
    (v) ASTM D1335-67 (Reapproved 1972)--Standard Test Method for Tuft 
Bind of Pile Floor Coverings;
    (vi) ASTM D3676-78 (Reapproved 1983)--Standard Specification for 
Rubber Cellular Cushion Used for Carpet or Rug Underlay;
    (vii) ASTM E648-78--Standard Test Method for Critical Radiant Flux 
of Floor-Covering Systems Using a Radiant Heat Energy Source;
    (viii) ASTM D2646-79--Standard Methods of Testing Backing Fabrics;
    (ix) ASTM D3936-80--Standard Test Method for Delamination Strength 
of Secondary Backing of Pile Floor Coverings;
    (x) ASTM D297-81--Standard Methods for Rubber Products--Chemical 
Analysis;
    (xi) ASTM D418-82--Standard Methods of Testing Pile Yarn Floor 
Covering Construction; and
    (xii) National Bureau of Standards DOC FF 1-70. (ASTM D2859-76)--
Standard Test Method for Flammability of Finished Textile Floor Covering 
Materials.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. They are available from 
the (i) American Association of Textile Chemists and Colorists (AATCC), 
P.O. Box 12215, Research Triangle Park, NC 27709;
    (ii) American Society for Testing and Materials (ASTM), 1916 Race 
Street, Philadelphia, PA 19103; and
    (iii) U.S. Department of Commerce, National Bureau of Standards, 
Washington, DC 20234.

The standards are also available for inspection at the National Archives 
and Records Administration (NARA). For information on the availability 
of this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html.
    (b) Labeling. (1) Under the procedures set forth in Sec.  
202.935(d)(6), concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applied standard is required to be on the certification label issued 
by the administrator to the manufacturer. In the case of carpet and 
carpet with attached cushion, the following additional information shall 
be included on the certification label, mark or stamp:
    (i) Manufacturer's name or code identifying the manufacturing plant 
location; and
    (ii) Manufacturer's statement of compliance with UM 44d.
    (2) The certification mark shall be applied to each carpet at 
intervals of at least every six feet, not less than one foot from the 
edge.
    (c) Periodic tests and quality control inspections. (1) Five samples 
of carpet and carpet with attached cushion shall be tested annually by 
the administrator or by an administrator-approved laboratory. Three 
samples of each certified quality shall be taken from the plant 
annually. Of these, two shall be interim samples (taken every six 
months) and one an annual sample. In addition, two samples of each 
certified quality shall be taken annually from sources other than the 
manufacturer, i.e., brought in the market place from distributors or 
stores, not from the factory. The administrator shall select samples for 
testing, and testing shall be conducted, in accordance with the 
applicable standards in a laboratory accredited by the National 
Voluntary Laboratory Accreditation Program (NVLAP) of the National 
Bureau of Standards, U.S. Department of Commerce.
    (2) The administrator shall visit the manufacturer's facility at 
least once every six months to assure that the initially accepted 
quality control procedures continue to be followed.

[51 FR 17928, May 16, 1986]



Sec.  200.943  Supplementary specific requirements under the HUD 
building product standards and certification program for the grademarking
of lumber.

    (a) Applicable standard. (1) In accordance with UM 38j, lumber shall 
be

[[Page 75]]

grademarked in compliance with the U.S. Department of Commerce Voluntary 
Product Standard PS 20-94 American Softwood Lumber Standard.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. It is available from the U.S. Department of 
Commerce, NIST, Office of Voluntary Product Standards, Gaithersburg, MD 
20899.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required on the certification label issued by the 
administrator to the manufacturer. However, in the case of grademarking 
of lumber, the following information shall be included on the 
certification label or mark:
    (1) The registered symbol which identifies the grading agency;
    (2) Species or species combination;
    (3) Grade;
    (4) Identification of the applicable grading rules when not 
indicated by the species identification or agency symbol;
    (5) Mill or grader;
    (6) For members which are less than 5 inches in nominal thickness, 
indication that the lumber was green or dry at the time of dressing;
    (7) Indication that the lumber was finger jointed; and
    (8) The certification mark shall be affixed to each piece of lumber.
    (c) Periodic tests and quality assurance. Periodic tests and quality 
assurance inspections shall be carried out by the American Lumber 
Standard Committee as defined in PS 20-94.

[63 FR 5423, Feb. 2, 1998]



Sec.  200.944  Supplementary specific requirements under the HUD
building product standards and certification program for plywood and
other performance rated wood-based structural-use panels.

    (a)(1) All plywood made to specifications of Voluntary Product 
Standard, PS 1-83, ``Construction and Industrial Plywood'' (published by 
the U.S. Department of Commerce, National Bureau of Standards (May 
1984)) and grade marked as PS 1-83 shall conform to the requirements of 
PS 1-83, except that all veneers may be D-grade. A copy of PS 1-83 may 
be obtained from the U.S. Department of Commerce, National Institute for 
Standards and Technology, Office of Product Standards, Gaithersburg, MD 
20899.
    (2) All plywood panels not meeting the veneer grade requirements of 
PS 1-83, and all performance rated composite and nonveneer structural-
use panels shall comply with the requirements described in the APA PRP-
108, ``Performance Standards and Policies for Structural-Use panels'' 
(published by the American Plywood Association, June 1988). However, in 
ASTM D-3043-87, ``Standard Methods of Testing Structural Panels in 
Flexure'' (published by the American Society for Testing and Materials, 
August 28, 1987), Method B may be used in lieu of Method C for measuring 
the mechanical properties of the panel, provided that the test specimen 
has a width of at least 12 inches. The impact load shall be 150 ft. lbs. 
for single-layer floor panels excluding any floor finishes. Copies of 
the APA Standard may be obtained from the American Plywood Association, 
P.O. Box 11700, Tacoma, WA 98411-0770. Copies of the ASTM Standard may 
be obtained from the American Society of Testing and Materials, 1916 
Race Street, Philadelphia, PA 19103.
    (3) Structural-use panels shall be installed in accordance with the 
manufacturer's installation instructions and Form No. E30K, ``APA 
Design/Construction Guide-Residential and Commercial'' (published by the 
American Plywood Association, January 1989).
    (4) These standards have been approved by the Director of the 
Federal Register for incorporation by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies of the standards are available 
for inspection at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.

[[Page 76]]

    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Panels that conform to the 
Performance Standards and Policy for Structural-Use Panels shall be 
marked as conforming to UM 40c. All panels complying with APA PRP-108 
shall be marked with a label formatted in the manner similar to the 
trademark examples shown in APA PRP-108. All panels will be marked with 
the mill number. The certification mark shall be stamped on each panel 
and be located so that it is available for inspection.
    (c) Periodic tests and qualify control inspections. Under the 
procedures set forth in Sec.  200.935(d)(8) concerning periodic tests 
and quality control inspections, the frequency of testing for a product 
shall be described in the specific building product certification 
program. In the case of plywood and wood-based structural-use panels, 
testing and inspection shall be conducted as follows:
    (1) Testing shall be done in an Administrator's laboratory or an 
Administrator-approved laboratory every three months. All plywood 
qualified for conformance with PS 1-83 shall be tested in accordance 
with PS 1-83.
    (2) All thickness and lay-ups of structural-use panels in production 
made in conformance with the Performance Standards shall be tested in 
accordance with procedures set forth in APA PRP-108 Performance 
Standards and Policies for Structural-Use Panels (published by the 
American Plywood Association Standard June 1988).
    (3) The Administrator shall examine each manufacturer's quality 
control procedures to assure they are the same as or equivalent to those 
set forth under the Quality Assurance Policy section 4.2.3 of the 
publication referenced in paragraph (2) above or PS 1-83 section 
3.8.6.6, Reexamination.
    (4) The Administrator shall inspect the manufacturer's procedures at 
the plant at least every three months to assure that the initially 
accepted quality control procedures are being followed.

[55 FR 38785, Sept. 20, 1990]



Sec.  200.945  Supplementary specific requirements under the HUD 
building product standards and certification program for carpet.

    (a) Applicable standards. (1) All carpet shall be designed, 
manufactured, and tested in compliance with the following standards from 
the American Society for Testing and Materials and the American 
Association of Textile Chemists and Colorists:
    (i) ASTM D418-92--Standard Test Methods for Tuft and Yarn Length of 
Uncoated Floor Coverings;
    (ii) ASTM D1335-67--(Reapproved 1972) Standard Test Method for Tuft 
Bind of Pile Floor Coverings;
    (iii) ASTM D 2646-87--Standard Test Methods for Backing Fabrics;
    (iv) ASTM D 3936-80--Standard Test Method for Delamination Strength 
of Secondary Backing of Pile Floor Coverings;
    (v) AATCC Test Method 16e-82--Colorfastness to Light: Water-Cooled 
Xenon-Arc Lamp, Continuous Light;
    (vi) AATCC Test Method 165-86--Colorfastness to Crocking: Carpets--
AATCC Crock Meter Method;
    (vii) ASTM D 3676-78--(Reapproved 1989) Standard Specification for 
Rubber Cellular Cushion Used for Carpet or Rug Underlay;
    (viii) ASTM D 3574-91--Standard Test Methods for Flexible Cellular 
Materials--Slab, Bonded and Molded Urethane Foams.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. The standards are 
available from the American Society for Testing and Materials, 1916 Race 
Street, Philadelphia, PA 19103 and the American Association of Textile 
Chemists and Colorists, P.O. Box 12215, Research Triangle Park, NC 
27709. These standards are also available for inspection at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html.

[[Page 77]]

    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with UM 44d are 
required to be on the certification label issued by the Administrator to 
the manufacturer. The label shall be placed on each carpet every six 
feet not less than one foot from the edge.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec.  200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) Every six months, three samples and one annual field sample of 
carpet shall be submitted to the Administrator for testing in a 
laboratory accredited by the National Voluntary Laboratory Accreditation 
Program of the U.S. Department of Commerce.
    (2) The administrator also shall review the quality assurance 
procedures every six months to assure that they are being followed by 
the manufacturer.

[58 FR 67674, Dec. 22, 1993]



Sec.  200.946  Building product standards and certification program
for exterior finish and insulation systems, use of Materials Bulletin
UM 101.

    (a) Applicable standards: (1) All Exterior Finish and Insulation 
Systems shall be designed, manufactured, and tested in compliance with 
the following standards:
    (i) ASCE 7-93, American Society of Civil Engineers--Minimum Design 
Loads for Buildings and Other Structures.
    (ii) ASTM C 150-94 Standard Specification for Portland Cement.
    (iii) ASTM C 920-87 Standard Specification for Elastomeric Joint 
Sealants.
    (iv) ASTM C-1186-91 Standard Specification for Flat Non-Asbestos 
Fiber-Cement Sheets.
    (v) ASTM D 579-90 Standard Specification for Greige Woven Glass 
Fabrics.
    (vi) ASTM D 3273-86--(Reapproved 1991) Standard Test Method for 
Resistance to Growth of Mold on the Surface of Interior Coatings in an 
Environmental Chamber.
    (vii) ASTM E 330-90 Standard Test Method for Structural Performance 
of Exterior Windows, Curtain Walls, and Doors by Uniform Static Air 
Pressure Difference.
    (viii) ASTM E 695-79 (Reapproved 1991), Standard Method of Measuring 
Relative Resistance of Wall, Floor, and Roof Construction to Impact 
Loading.
    (ix) ASTM G 26-93 Standard Practice for Operating Light-Exposure 
Apparatus (Xenon-Arc Type) With and Without Water for Exposure of 
Nonmetallic Materials.
    (x) Council of American Building Officials, Model Energy Code, 1993 
Edition.
    (xi) EIMA Test Method 101.01-95 (modified ASTM C67-91) Standard Test 
Method for Freeze/Thaw Resistance of Exterior Insulation and Finish 
Systems (EIFS), Class PB.
    (xii) EIMA Test Method 101.02-95 (modified ASTM E331-91)--Standard 
Test Method for Resistance to Water Penetration of Exterior Insulation 
and Finish Systems (EIFS), Class PB.
    (xiii) EIMA Test Method 101.03-95 (modified ASTM C297-91)--Standard 
Test Method for Determining the Tensile Adhesion Strength of an Exterior 
Insulation and Finish System (EIFS), Class PB.
    (xiv) EIMA Test Method 105.01-95--Standard Test Method for Alkali 
Resistance of Glass Fiber Reinforcing Mesh for Use in Exterior 
Insulation and Finish Systems (EIFS), Class PB.
    (xv) European Agreement Union Technical Committee--June 88--UEAtc 
Directives for the Assessment of External Insulation System for Walls 
(Expanded Polystyrene Insulation Faced with a Thin Rendering) Section 
3.3.3.3.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. They are available from:
    (i) American Society Civil Engineers (ASCE) 345 East 47th Street, 
New York, NY 10017.
    (ii) American Society for Testing and Materials (ASTM), 1916 Race 
Street, Philadelphia, Pennsylvania 19103;
    (iii) Council of American Building Officials, 5203 Leesburg Pike, 
Falls Church, Virginia 22041;

[[Page 78]]

    (iv) EAUTC Centre Scientifique ET Technique Du Batiment (CSTB), 84 
Avenue Jesu Jaures, B.P. 02-77421 Marne-LA-Valee Cedex 2, Paris, France.
    (v) Exterior Insulation Manufacturers Association (EIMA), 2759 State 
Road 580, Suite 112, Clearwater, Florida 34621-3350.
    (3) The standards are available also for inspection at the Office of 
Manufactured Housing and Regulatory Functions, Standards and Products 
Branch, Department of Housing and Urban Development, room 3214, L'Enfant 
Plaza, 490E, Mail Room B-133, Washington, DC 20410-8000, and at the 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html.
    (b) Labeling. Under the procedures as set forth in Sec.  
200.935(d)(6), concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applied standard is required to be on the certification label issued 
by the administrator to the manufacturers. In the case of exterior wall 
insulation and finish systems, the certification label containing the 
administrator's mark shall be permanently affixed on the package or 
container of base and finish coating materials. Further, additional 
information shall be included on the certification label or mark:
    (1) Manufacturer's name.
    (2) Manufacturer's statement of conformance with UM 101.
    (c) The Administrator shall visit the manufacturer's or sponsor's 
facility every 6 months, to assure that the initially accepted quality 
assurance procedures are being followed. At least every four years, the 
Administrator also shall have the exterior wall insulation and finish 
systems tested in an approved laboratory to assure that the original 
performance is maintained.
    (d) The administrator's (or administration-accepted inspection 
agency) inspection of EFIS system installation of 5000 sq. ft. or more, 
shall be made during and upon completion of the construction. Reports of 
the inspection shall be made to the owner. These reports shall state:
    (1) The coverage of the finish coat per square foot for a given 
volume of finish.
    (2) The minimum thickness of the base and finish coatings.
    (3) The fiberglass mesh is installed properly around joints and 
insulation. All penetrations, including windows, flashing, etc., are 
sealed; and there is a caulk and sealant continuity evaluation; and
    (4) There is a caulk and sealant continuity evaluation with special 
concerns on maintenance.
    (e) The manufacturer shall warrant their exterior wall insulation 
and finish system, including any caulks and sealants, for twenty years 
against faulty performance. The warranty shall include correction of 
delamination, chipping, denting, peeling, blistering, flaking, bulging, 
unsightly discoloration, or other serious deterioration of the system 
such as the intrusion of water through the wall or structural failure of 
the system's surface materials. Should any of these defects occur, the 
manufacturer shall make a pro-rata allowance for replacement or pay the 
owner the amount of the allowance. The manufacturer shall not be liable 
for damages or defects resulting from misuse, natural catastrophes, or 
other causes beyond the control of the manufacturer. The contractor 
shall provide a statement to the owner that the product has been 
installed in compliance with HUD requirements and that the 
manufacturer's warranty does not relieve the builder, in any way, of 
responsibility under the terms of the Builder's Warranty required by the 
National Housing Act, or under any other housing program.

[60 FR 47841, Sept. 14, 1995]



Sec.  200.947  Building product standards and certification program 
for polystyrene foam insulation board.

    (a) Applicable standards. (1) All polystyrene foam insulation board 
shall be designed, manufactured, and tested in compliance with the 
American Society for Testing and Materials (ASTM) standard C-578-92, 
Standard Specification for Rigid, Cellular Polystyrene Thermal 
Insulation.

[[Page 79]]

    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the American Society for Testing and Materials, 1916 Race Street, 
Philadelphia, PA 19103. This standard is also available for inspection 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's certification of 
compliance with the applicable standards and the type of board are 
required to be on the certification label issued by the administrator to 
the manufacturer.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec.  200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified polystyrene 
foam insulation board for testing by a laboratory approved by the 
administrator.
    (2) The administrator also shall review the quality assurance 
procedures every six months to assure that they are being followed by 
the manufacturer.

[58 FR 67675, Dec. 22, 1993]



Sec.  200.948  Building product standards and certification program
for carpet cushion.

    (a) Applicable standards. (1) All carpet cushion shall be designed, 
manufactured, and tested in compliance with the following standards from 
the American Society for Testing and Materials:
    (i) ASTM D 1667-76--(Reapproved 1990) Standard Specification for 
Flexible Cellular Materials--Vinyl Chloride Polymers and Copolymers 
(Closed-Cell Foam);
    (ii) ASTM D2646-87--Standard Test Methods for Backing Fabrics;
    (iii) ASTM D629-88--Standard Test Methods for Quantitative Analysis 
of Textiles;
    (iv) ASTM D3574-91--Standard Test Methods for Flexible Cellular 
Materials--Slab, Bonded, and Molded Urethane Foams;
    (v) ASTM D3676-78--Standard Specification for Rubber Cellular 
Cushion Used for Carpet or Rug Underlay.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. The standards are 
available from the American Society for Testing Materials, 1916 Race 
Street, Philadelphia, PA 19103. These standards are also available for 
inspection at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark, 
the manufacturer's certification of compliance with the applicable 
standards, and the type and class all are required to be on the 
certification label issued by the administrator to the manufacturer.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec.  200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified carpet 
cushion for testing by a laboratory approved by the administrator.
    (2) The administrator also shall review the quality assurance 
procedures every six months to assure that they are being followed by 
the manufacturer.

[58 FR 67675, Dec. 22, 1993]



Sec.  200.949  Building product standards and certification program
for exterior insulated steel door systems.

    (a) Applicable standards. (1) All Exterior Insulated Steel Door 
Systems shall be designed, manufactured, and tested in compliance with 
the following standards from the American Society for Testing and 
Materials and Insulated Steel Door Systems Institute:

[[Page 80]]

    (i) ASTM A591/A591M-89--Standard Specification for Steel Sheet, 
Electrolytic-Zinc Coated, for Light Coating Mass Applications;
    (ii) ISDSI-100-90--Door Size Dimensional Standard and Assembly 
Tolerances for Insulated Steel Door Systems;
    (iii) ISDSI-101-83--(Reapproved 1989) Air Infiltration Performance 
Standard for Insulated Steel Door Systems;
    (iv) ISDSI-102-84--Installation Standard for Insulated Steel Door 
Systems;
    (v) ISDSI-104-86--Water Penetration Performance Standard for 
Insulated Steel Door Systems;
    (vi) ISDSI-105-80--Test Procedure and Acceptance Criteria for 
Physical Endurance for Steel Doors and Hardware Reinforcings;
    (vii) ISDSI-106-80--Test Procedure and Acceptance Criteria for Prime 
Painted Steel Surfaces for Steel Doors and Frames;
    (viii) ISDSI-107-80--Thermal Performance Standard for Insulated 
Steel Door Systems;
    (ix) ASTM F476-84--(Reapproved 1991) Standard Test Methods for 
Security of Swinging Door Assemblies.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. These standards are 
available from the American Society for Testing and Materials, 1916 Race 
Street, Philadelphia, PA 19103 or the Insulated Steel Door Institute, 
712 Lakewood Center North, 14600 Detroit Avenue, Cleveland, OH 44107. 
These standards are also available for inspection at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's certification of 
compliance with the applicable standards is required to be on the 
certification label issued by the administrator to the manufacturer.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec.  200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) At least every four years, the administrator shall visit the 
manufacturer's facility to select a sample of each certified exterior 
insulated steel door system for testing by an approved laboratory in 
accordance with the applicable standard.
    (2) The administrator also shall review the quality assurance 
procedures every year to assure that they are being followed by the 
manufacturer.

[58 FR 67675, Dec. 22, 1993]



Sec.  200.950  Building product standards and certification program
for solar water heating system.

    (a) Applicable standards. (1) All solar water heating systems shall 
be designed, manufactured, and tested in compliance with Solar Rating 
and Certification Corporation (SRCC) Document OG-300-93, Operating 
Guidelines and Minimum Standards for Certifying Solar Water Heating 
Systems: An Optional SWH System Certification and Rating Program. 
Section 10 of the SRCC standard has been omitted because it was 
considered proprietary, since it describes an administrative program 
specifically carried out by SRCC.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the Solar Rating and Certification Corporation, 777 North Capitol 
Street, NE., suite 805, Washington, DC 20002. This standard is also 
available for inspection at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal_register/code_of_federal_regulations/ibr_locations.html.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Each solar water heating system shall 
be marked as conforming to UM 100. The label shall include the 
manufacturer's name and plant location.

[[Page 81]]

    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec.  200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) The Administrator shall visit the manufacturer's factory every 
two years to assure that the initially accepted quality assurance 
procedures are being followed.
    (2) At least every four years, the administrator shall visit the 
manufacturer's facility to select a sample of each certified solar water 
heating system for testing by a laboratory approved by the 
administrator.
    (d) Warranty. The manufacturer shall provide, at no cost, a full 
five-year warranty against defects in material or workmanship, on the 
absorber plate, cooling passages, and the collector (excluding any 
glass), running from the date of installation of the solar water heating 
system. The warranty also shall include the full costs of field 
inspection, parts, and labor required to remedy the defects, and will 
include the cost of replacement at the site if required. This warranty 
is not required to cover defects resulting from exposure to harmful 
materials, fire, flood, lightning, hurricane, tornado, hailstorms, 
earthquakes, or other acts of God, vandalism, explosions, harmful 
chemicals or other fluids, fumes or vapors. This exclusion will apply to 
the operation of the collector under excessive pressures or excessive 
flow rates, misuse, abuse, negligence, accidents, alterations, falling 
objects or other causes beyond the control of the manufacturer. 
Following the initial five years, the manufacturer shall provide a 
limited no-cost five-year warranty for collector parts on a prorata 
allowance basis.

[58 FR 67676, Dec. 22, 1993]



Sec.  200.952  Supplementary specific requirements under the HUD 
building product standards and certification program for particleboard
interior stair treads.

    (a) Applicable standards. (1) All interior particleboard stair 
treads shall be designed, manufactured, and tested in compliance with 
ANSI A208.1-1993 Particleboard, Grade M-3.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51, and is available from the American National 
Standards Institute, Inc., 11 West 42nd Street, New York, NY 10036.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required to be on the certification label issued by the 
administrator to the manufacturer. Each interior particleboard stair 
tread shall include the manufacturer's statement of conformance to UM 
70b, a statement that this product is for interior use only, and the 
manufacturer's name and plant location.
    (c) Periodic tests and quality assurance. Under the procedures set 
forth in Sec.  200.935(d)(8) concerning periodic tests and quality 
assurance inspections, the frequency of testing for a product shall be 
described in the specific building product certification program. In the 
case of interior particleboard stair treads, testing and inspection 
shall be conducted as follows:
    (1) At least once every three months, the administrator shall visit 
the manufacturer's facility to select a sample for testing in a 
laboratory approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



Sec.  200.954  Supplementary specific requirements under the HUD
building product standard and certification program for construction
adhesives for wood floor systems.

    (a) Applicable standards. (1) All construction adhesives for field 
glued wood floor systems shall be designed, manufactured, and tested in 
compliance with the following American Society for Testing and Materials 
(ASTM) standard: D 3498-93 Standard Specification for Adhesives for 
Field-Gluing Plywood to Lumber Framing for Floor Systems except that the 
mold and bacteria resistance tests shall not be included.
    (2) This standard has been approved by the Director of the Federal 
Register

[[Page 82]]

for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 
CFR part 51, and is available from the American Society for Testing & 
Materials Inc., 100 Barr Harbor Drive, West Conshohocken, PA. 19428.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required to be on the certification label issued by the 
administrator to the manufacturer. Each container shall be marked as 
being in compliance with UM 60a. The label shall also include the 
manufacturer's name, plant location, and shelf life.
    (c) Periodic tests and quality assurance. Under the procedures set 
forth in Sec.  200.935(d)(8) concerning periodic tests and quality 
assurance inspections, the frequency of testing for a product shall be 
described in the specific building product certification program. In the 
case of construction adhesives for field glued wood floor systems, 
testing and inspection shall be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample for testing in a laboratory 
approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



Sec.  200.955  Supplementary specific requirements under the HUD
building product standard and certification program for fenestration
products (windows and doors).

    (a) Applicable standards. (1) All windows and doors shall be 
designed, manufactured, and tested in compliance with American 
Architectural Manufacturers Association (AAMA) standard, AAMA/NWWDA 101/
I.S.2-97 Voluntary Specifications for Aluminum, Vinyl (PVC) and Wood 
Windows and Glass Doors.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51, and is available from the American 
Architectural Manufacturers Association, 1827 Walden Office Square, 
Suite 104, Schaumburg, IL 60173.
    (b) Labeling. Under the procedures set forth in Sec.  200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Each window or glass door shall 
include the manufacturer's name, plant location, and statement of 
compliance with UM 111.
    (c) Periodic tests and quality assurance inspections. Under the 
procedures set forth in Sec.  200.935(d)(8) concerning periodic tests 
and quality assurance inspections, the frequency of testing for a 
product shall be described in the specific building product 
certification program. In the case of windows and glass doors, testing 
and inspection shall be conducted as follows:
    (1) At least once every four years, the administrator shall visit 
the manufacturer's facility to select a commercial sample for testing in 
a laboratory approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



 Subpart T_Social Security Numbers and Employer Identification Numbers; 
                 Assistance Applicants and Participants



Sec.  200.1001  Cross-reference.

    The provisions in subpart B of part 5 of this title apply to Social 
Security Numbers and Employer Identification Numbers for assistance 
applicants and participants.

[61 FR 11118, Mar. 18, 1996]

[[Page 83]]



 Subpart U_Social Security Numbers and Employer Identification Numbers; 
                    Applicants in Unassisted Programs



Sec.  200.1101  Cross-reference.

    The provisions in subpart B of part 5 of this title apply to Social 
Security Numbers and Employer Identification Numbers for applicants in 
unassisted programs.

[61 FR 11118, Mar. 18, 1996]



  Subpart V_Income Information; Assistance Applicants and Participants



Sec.  200.1201  Cross-reference.

    The provisions in subpart B of part 5 of this title apply to income 
information for assistance applicants and participants.

[61 FR 11118, Mar. 18, 1996]



                    Subpart W_Administrative Matters



Sec.  200.1301  Expiring programs--Savings clause.

    (a) No new loan assistance, additional participation, or new loans 
are being insured under the programs listed in this section. Existing 
loan assistance, ongoing participation, or insured loans under the 
programs shall continue to be governed by regulations in effect as 
described in this section.
    (b) Any existing loan assistance, ongoing participation, or insured 
loans under the programs listed in this paragraph will continue to be 
governed by the regulations in effect as they existed immediately before 
October 11, 1995 (24 CFR parts 205, 209, 224-228, 240, 277, 278, 1994 
edition):
    (1) Part 205, Mortgage Insurance for Land Development (Title X of 
the National Housing Act, repealed by section 133(a) of the Department 
of Housing and Urban Development Reform Act of 1989 (Public Law 101-235, 
approved December 15, 1989).
    (2) Part 209, Individual Homes; War Housing Mortgage Insurance (12 
U.S.C. 1736-1743).
    (3) Part 224, Armed Services Housing-Military Personnel (12 U.S.C. 
1736-1746a).
    (4) Part 225, Military Housing Insurance (12 U.S.C. 1748b).
    (5) Part 226, Armed Services Housing-Civilian Employees (12 U.S.C. 
1748h-1).
    (6) Part 227, Armed Services Housing-Impacted Areas (12 U.S.C. 
1478h-2).
    (7) Part 228, Individual Residences; National Defense Housing 
Mortgage Insurance (12 U.S.C. 1750 as amended by 42 U.S.C. 1591c).
    (8) Part 240, Mortgage Insurance on Loans for Fee Title Purchase (12 
U.S.C. 1715z-5).
    (9) Part 277, Loans for Housing for the Elderly or Handicapped (12 
U.S.C. 1701q).
    (10) Part 278, Mandatory Meals Program in Multifamily Rental or 
Cooperative Projects for the Elderly or Handicapped (12 U.S.C. 1701q).
    (c) Any existing loan assistance, ongoing participation, or insured 
loans under the programs listed in this paragraph will continue to be 
governed by the regulations in effect as they existed immediately before 
May 11, 1996 (24 CFR parts 215, 222, and 237, 1995 edition):
    (1) Part 215, Rent Supplement Payments Program (12 U.S.C. 1715f).
    (2) Part 222, Service Person's Mortgage Insurance Program (12 U.S.C. 
1715m).
    (3) Part 237, Special Mortgage Insurance for Low and Moderate Income 
Families (12 U.S.C. 1715z-2).
    (d) Any existing loan assistance, ongoing participation, or insured 
loans under the program listed in this paragraph will continue to be 
governed by the regulations in effect as they existed immediately before 
December 26, 1996 (24 CFR part 233, 1995 edition):
    (1) Part 233, Experimental Housing Mortgage Insurance Program (12 
U.S.C. 1715x).
    (2) [Reserved]
    (e) Any existing loan assistance, ongoing participation, or insured 
loans under the program listed in this paragraph will continue to be 
governed by the regulations in effect as they existed immediately before 
August 15, 2014 (24 CFR part 257):
    (1) Part 257, HOPE for Homeowners Program (12 U.S.C. 1701z-22).
    (2) [Reserved]
    (f) No new emergency mortgage assistance, emergency mortgage relief

[[Page 84]]

loans, advances of credit or emergency mortgage relief payments, or any 
other type of assistance permitted under the Emergency Housing Act of 
1975, title I of the Emergency Homeowners' Relief Act (12 U.S.C. 2701), 
as amended by section 1496 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Pub. L. 111-203) is being provided under the 
programs listed below. Any existing emergency assistance, emergency 
mortgage relief loans, advances of credit or emergency mortgage relief 
payments under these programs will continue to be governed by the 
regulations in effect as they existed immediately before September 8, 
2014 (24 CFR part 2700):
    (1) Part 2700, Emergency Homeowners' Loan Program (12 U.S.C. 2701 et 
seq.)
    (2) [Reserved]
    (g) Any existing loan assistance (including recapture of loan 
assistance), ongoing participation, or insured loans under the program 
listed in this paragraph will continue to be governed by the regulations 
in effect as they existed immediately before May 4, 2015 (24 CFR part 
235, 2014 Edition):
    (1) Part 235, Mortgage Insurance and Assistance Payments for Home 
Ownership and Project Rehabilitation (12 U.S.C. 1715z).
    (2) [Reserved]
    (h) Any existing loan assistance (including recapture of loan 
assistance), ongoing participation, or insured loans under the program 
listed in this paragraph will continue to be governed by the regulations 
in effect as they existed immediately before February 10, 2016 (24 CFR 
part 280, 2015 Edition):
    (1) Part 280, Mortgage Insurance and Assistance Payments for Home 
Ownership and Project Rehabilitation (12 U.S.C. 17151).
    (2) [Reserved]

[79 FR 41423, July 16, 2014, as amended at 79 FR 46182, Aug. 7, 2014; 80 
FR 18096, Apr. 3, 2015; 81 FR 1121, Jan. 11, 2016]



Sec.  200.1303  Annual income exclusions for the Rent Supplement Program.

    (a) The exclusions to annual income described in 24 CFR 5.609(c) 
apply to those rent supplement contracts governed by the regulations at 
24 CFR part 215 in effect immediately before May 1, 1996 (contained in 
the April 1, 1995 edition of 24 CFR, parts 200 to 219), in lieu of the 
annual income exclusions described in 24 CFR 215.21(c) (contained in the 
April 1, 1995 edition of 24 CFR, parts 200 to 219).
    (b) The mandatory deductions described in 24 CFR 5.611(a) also apply 
to the rent supplement contracts described in paragraph (a) of this 
section in lieu of the deductions provided in the definition of 
``adjusted income'' in 24 CFR 215.1 (as contained in the April 1, 1995 
edition of 24 CFR, parts 200 to 219).
    (c) The definition of ``persons with disabilities'' in paragraph (c) 
of this section replaces the terms ``disabled person'' and ``handicapped 
person'' used in the regulations in 24 CFR part 215, subpart A (as 
contained in the April 1, 1995 edition of 24 CFR, parts 200 to 219). 
Person with disabilities, as used in this part, has the same meaning as 
provided in 24 CFR 891.305.

[66 FR 6224, Jan. 19, 2001]



 Subpart Y_Multifamily Accelerated Processing (MAP): MAP Lender Quality 
                          Assurance Enforcement

    Source: 70 FR 43242, July 26, 2005, unless otherwise noted.



Sec.  200.1500  Sanctions against a MAP lender.

    (a) In addition to any other legal remedy available to HUD, HUD may 
take the following actions with respect to a MAP lender:
    (1) Warning letter;
    (2) Probation;
    (3) Suspension;
    (4) Termination;
    (5) Limited Denial of Participation (LDP);
    (6) Referral to the Mortgagee Review Board; and
    (7) Referral to the Office of Inspector General.
    (b) The actions listed in paragraphs (a)(1) through (a)(4) of this 
section are carried out in accordance with the requirements of this 
subpart. An LDP is a sanction applied in accordance with subpart J of 2 
CFR part 2424 to participants in loan transactions other than

[[Page 85]]

FHA-insured lenders. The Mortgagee Review Board procedures are found at 
24 CFR part 25.

[70 FR 43242, July 26, 2005, as amended at 72 FR 73494, Dec. 27, 2007]



Sec.  200.1505  Warning letter.

    (a) In general. HUD may issue a warning letter, which specifies 
problems or violations identified by HUD, to a MAP lender.
    (b) Effect of warning letter. The warning letter:
    (1) Does not suspend a lender's MAP privileges;
    (2) May impose a higher level of review of the lender's underwriting 
by HUD;
    (3) May direct the taking of a corrective action; and
    (4) May require a meeting in a designated HUD office with the 
principal owners or officers, or both, of the MAP lender to discuss the 
specified problems and violations, and possible corrective actions.
    (c) Relationship to other sanctions. The issuance of a warning 
letter is not subject to the MAP Lender Review Board procedures in 
accordance with Sec.  200.1535, and is not a prerequisite to the 
probation, or suspension, or termination of MAP privileges.



Sec.  200.1510  Probation.

    (a) In general. Only the MAP Lender Review Board (or Board) may 
place a lender on probation, in accordance with the procedures of Sec.  
200.1535.
    (b) Effect of probation. (1) Probation is intended to be corrective 
in nature and not punitive. As a result, release from probation is 
conditioned upon the lender meeting a specific requirement or 
requirements, such as replacement of a staff member. A lender's failure 
to take prompt corrective action after being placed on probation may be 
the basis for a recommendation of either suspension or termination. Any 
such recommendation shall, when possible, go to a MAP Lender Review 
Board composed of the same members who issued the original probation.
    (2) During the probation period, a MAP lender:
    (i) Shall be removed from the MAP-Approved Lender list posted on 
HUD's website;
    (ii) May not submit, and HUD may not accept, materials after the 
close of business of the date of the probation letter for a new 
application under MAP for multifamily mortgage insurance from HUD; and
    (iii) May continue to process any existing application for 
multifamily mortgage insurance submitted to a Multifamily Hub or Program 
Center before the date of the probation letter.
    (3) The MAP Lender Review Board may impose a higher level of review 
of the lender's underwriting by HUD;
    (4) Probation is nationwide in effect.
    (c) Duration of probation. (1) Probation continues until all 
specific corrective actions required by the MAP Lender Review Board (for 
example, exclusion of a specific staff member from work on MAP loans) 
are taken by the MAP lender. When all corrective actions have been 
taken, the MAP lender shall notify the Board. Once the Board is 
satisfied that the corrective actions have occurred, the probation 
period shall end.
    (2) A false statement that corrective action has been taken 
constitutes a false certification and may constitute a violation of 18 
US.C. 1001.
    (3) When probation is lifted, the lender's name shall be promptly 
reinstated on the MAP-Approved Lender list posted on HUD's Web site.



Sec.  200.1515  Suspension of MAP privileges.

    (a) In general. Only the MAP Lender Review Board may suspend a 
lender's eligibility for MAP, in accordance with the procedures of Sec.  
200.1535.
    (b) Effect of suspension. (1) A suspension may impose any conditions 
that may be imposed by probation.
    (2) During the suspension period a MAP lender:
    (i) Shall be removed from the MAP-approved lender list posted on 
HUD's Web site;
    (ii) May not submit, and the HUD field office may not accept, 
materials after the close of business of the date of the suspension 
letter for a new application for multifamily mortgage insurance from 
HUD; and
    (iii) May continue to process any existing application for 
multifamily mortgage insurance submitted to a

[[Page 86]]

Multifamily Hub or Program Center before the date of the suspension 
letter.
    (3) The MAP Lender Review Board may impose a higher level of review 
of the lender's underwriting by HUD;
    (4) Suspension is nationwide in effect.
    (c) Duration of suspension. (1) Suspension may not exceed 12 months, 
except where conditions are imposed. If both a time period and 
conditions are imposed, a suspension shall terminate only when:
    (i) The time period of the suspension has expired;
    (ii) The MAP lender has submitted a certification of compliance with 
those conditions to the Board; and
    (iii) The Board has notified the MAP lender it has received the 
certification of compliance and is satisfied that the corrective actions 
have occurred.
    (2) When suspension is lifted, the lender's name shall be promptly 
reinstated on the MAP-Approved Lender list posted on HUD's Web site.



Sec.  200.1520  Termination of MAP privileges.

    (a) In general. Except as provided in paragraph (b) of this section, 
only the MAP Lender Review Board may terminate a lender's MAP 
privileges, in accordance with the procedures of Sec.  200.1535.
    (b) Administrative termination. HUD will notify a lender of 
immediate termination of MAP privileges when either of the following 
circumstances is present:
    (1) Failure by the MAP lender to maintain its status as an FHA-
approved lender; or
    (2) Failure by the MAP lender to maintain a minimum level of MAP 
lender activity, as evidenced by failure to submit either a pre-
application package or firm commitment application at least once every 
12 months.
    (c) Effect of termination. (1) The terminated lender shall be 
removed from the MAP-Approved Lender list on HUD's Web site.
    (2) A terminated lender may not submit, and the HUD field office may 
not accept, materials after the close of business of the date of the 
termination letter for new multifamily mortgage insurance from HUD.
    (3) Any MAP pre-application or MAP application in process may no 
longer be processed under MAP by the terminated lender. The lender will 
either:
    (i) Immediately transfer the transaction to the traditional 
application processing (TAP) procedure. HUD will completely reprocess 
all stages of the transaction; or
    (ii) Immediately transfer the project to a new MAP lender. The new 
MAP lender must completely reprocess all stages of the transaction. At 
no time can the new MAP lender assign the pre-application, the firm 
application, the mortgage insurance commitment, or the insured 
construction loan back to the original MAP lender.
    (4) HUD will not endorse any MAP loan processed by the terminated 
lender unless a firm commitment was issued before the date of 
termination.
    (i) Firm commitments involving new construction or substantial 
rehabilitation must be immediately transferred to a new MAP lender. At 
no time can the new MAP lender assign the firm mortgage insurance 
commitment, or the insured construction loan, back to the original MAP 
lender.
    (ii) Firm commitments issued for Section 223(f) projects may be 
transferred before final endorsement to any approved FHA lender or kept 
in the lender's portfolio.
    (iii) For those construction loans that have been initially 
endorsed, the MAP lender will lose its MAP privileges for construction 
loan administration. HUD will assume all the construction loan 
administration duties it normally performs for TAP processing.
    (iv) The original lender may service a transferred loan once it is 
finally endorsed.
    (5) Termination is nationwide in effect.
    (6) When a MAP lender loses its MAP lender status as a result of 
termination, the lender's status to process transactions using TAP is 
unaffected, provided that the lender has maintained its status as an 
FHA-approved multifamily lender.
    (d) Reinstatement. An application for reinstatement of MAP authority 
may not be made until at least 12 months after the date of termination. 
The requirements for reinstatement shall be

[[Page 87]]

the same as for initial qualification, and the applicant must show that 
the problems that led to termination have been resolved.



Sec.  200.1525  Settlement agreements.

    (a) HUD staff, as authorized, may negotiate a settlement agreement 
with a MAP lender before or after the issuance of a warning letter or 
referral to the MAP Lender Review Board. Once a matter has been referred 
to the MAP Lender Review Board, only the Board may approve a settlement 
agreement.
    (b) Settlement agreements may provide for:
    (1) Cessation of any violation;
    (2) Correction or mitigation of the effects of any violation;
    (3) Removal of lender staff from positions involving origination, 
underwriting, and/or construction loan administration;
    (4) Actions to collect sums of money wrongfully or incorrectly paid 
by the MAP lender to a third party;
    (5) Implementation or revision of a quality control plan or other 
corrective measure acceptable to HUD; and
    (6) Modification of the duration or provisions of any administrative 
sanction deemed to be appropriate by HUD.
    (c) A MAP lender's compliance with a settlement agreement is 
evidenced by the lender certifying its compliance with the conditions of 
the agreement, and HUD's determination that the lender is in compliance 
with the conditions of the agreement.
    (d) Failure by a MAP lender to comply with a settlement agreement 
may result in a probation, or suspension, or termination of MAP 
privileges, or referral to the Mortgagee Review Board.



Sec.  200.1530  Bases for sanctioning a MAP lender.

    It is HUD policy that approved MAP lenders are expected to comply at 
all times with HUD's underwriting and construction loan administration 
requirements and not to take any action that presents a risk to HUD's 
insurance funds. A MAP lender's improper underwriting and construction 
loan administration activities may lead to a warning letter or other 
sanction from HUD. Examples of such activities include, but are not 
limited to, the following:
    (a) Minor offenses that may be the basis for a warning letter 
include:
    (1) Failure to provide required exhibits or the submission of 
incomplete or inaccurate exhibits. Although the MAP lender will be 
permitted to correct minor errors or provide additional information, 
substantial inaccuracies or lack of significant information will result 
in a return of the application and retention of any fee collected;
    (2) Repeated failure to complete processing to firm commitment 
unrelated to an underwriting analysis that demonstrates that the process 
should not proceed to firm commitment;
    (3) Preparation of an underwriting summary that is not supported by 
the appropriate documentation and analysis;
    (4) Failure to notify the HUD processing office promptly of changes 
in the mortgage loan application for a firm commitment submitted, such 
as changes in rents, numbers of units, or gross project area;
    (5) Failure to meet MAP closing requirements or construction loan 
administration requirements;
    (6) Business practices that do not conform to those generally 
accepted by prudent lenders or that show irresponsibility; and
    (7) Failure to cooperate with a Lender Qualifications and Monitoring 
Division review by HUD.
    (b) Serious offenses that might be a basis for a warning letter or 
probation, suspension, or termination include:
    (1) Receipt of multiple warning letters over any one-year period. In 
determining which sanction to pursue as a result of prior warning 
letters, HUD will consider the facts and circumstances surrounding those 
warning letters and the corrective actions, if any, undertaken by the 
lender;
    (2) Fraud or material misrepresentation in the lender's 
participation in FHA multifamily programs;
    (3) Lender collusion with, or influence upon, third party 
contractors to modify reports affecting the contractor's independent 
evaluation;
    (4) A violation of MAP procedures by a third party contractor, which 
the MAP lender knew, or should have known, was occurring and which, if 
performed by the MAP lender itself,

[[Page 88]]

would constitute a ground for a sanction under this chapter;
    (5) Evidence that a lender's inadequate or inaccurate underwriting 
was a cause for assignment of an FHA-insured mortgage and claim for 
insurance benefits to HUD;
    (6) Identity-of-interest violations as defined by Chapter 2 of the 
MAP Guide;
    (7) Payment by, or receipt of a payment by, a MAP lender of any 
kickback or other consideration, directly or indirectly, which would 
affect the lender's independent evaluation, or represent a conflict of 
interest, in connection with any FHA-insured mortgage transaction;
    (8) Failure to comply with any agreement, certification, 
undertaking, or condition of approval listed in a MAP lender's 
application for approval;
    (9) Noncompliance with any requirement or directive of the MAP 
Lender Review Board;
    (10) Violation of the requirements of any contract with HUD, or 
violation of the requirements in any statute or regulation;
    (11) Submission of false information, or a false certification, to 
HUD in connection with any MAP mortgage transaction;
    (12) Failure of a MAP lender to respond in a timely manner to 
inquiries from the MAP Lender Review Board in accordance with this 
subpart;
    (13) Indictment or conviction of a MAP lender or any of its 
officers, directors, principals, or employees for an offense that 
reflects on the responsibility, integrity, or ability of the lender to 
participate in the MAP initiative;
    (14) Employing or retaining an officer, partner, director, or 
principal at the time when the person was suspended, debarred, 
ineligible, or subject to an LDP under 2 CFR part 2424, or otherwise 
prohibited from participation in HUD programs, when the MAP lender knew 
or should have known of the prohibition;
    (15) Employing or retaining an employee who is not an officer, 
partner, director, or principal, and who is or will be working on HUD-
FHA program matters, at a time when that person was suspended, debarred, 
ineligible, or subject to an LDP under 2 CFR part 2424, or otherwise 
prohibited from participation in HUD programs, when the MAP lender knew 
or should have known of the prohibition;
    (16) Failure to cooperate with an audit or investigation by the HUD 
Office of Inspector General or an inquiry by HUD into the conduct of the 
MAP lender's FHA-insured loans; and
    (17) Failure to fund MAP mortgage loans or any misuse of mortgage 
loan proceeds.

[70 FR 43242, July 26, 2005, as amended at 72 FR 73494, Dec. 27, 2007]



Sec.  200.1535  MAP Lender Review Board.

    (a) Authority--(1) Sanctions. The MAP Lender Review Board (or Board) 
is authorized to impose appropriate sanctions on a MAP lender after:
    (i) Conducting an impartial review of all information and 
documentation submitted to the Board; and
    (ii) Making factual determinations that there has been a violation 
of MAP requirements.
    (2) Settlement agreements. The Board is authorized to approve 
settlement agreements in accordance with Sec.  200.1525 of any matter 
pending before the Board.
    (3) Extensions. The Board is authorized to extend, on its own 
initiative or for good cause at the written request of a MAP lender, any 
time limit otherwise applicable under this section. Notice of any such 
extension shall be timely provided to a MAP lender.
    (b) Notice of violation. Before the Board reviews a matter for 
consideration of a sanction, the Board's Chairman will issue written 
notice of violation to the MAP lender's contact person as listed on the 
Multifamily MAP Web site. The notice is sent by overnight delivery and 
must be signed for by an employee of the MAP lender upon receipt. The 
notice:
    (1) Informs the lender that the Board is considering a specific 
violation;
    (2) States the specific facts alleged concerning the violation, with 
citation to the HUD requirements that have been violated;
    (3) Includes as attachments copies of all documents evidencing the 
violation and upon which the Board will rely in reaching a decision;
    (4) Provides the lender with the opportunity to request in writing, 
within

[[Page 89]]

15 business days after the date of the issuance of the notice, to:
    (i) Meet for an informal conference with the Board in person or by 
video conference using HUD facilities at Headquarters or one of HUD's 
field offices; and
    (ii) Present written evidence and any other relevant information at 
the conference;
    (5) Requires a written response to be submitted to the Board by a 
date specified within the notice;
    (6) Provides the street address, email address, or facsimile (FAX) 
number for purposes of receiving the lender's request for an informal 
conference and written response; and
    (7) Is made part of the administrative record of the Board's 
decision of the matter.
    (c) Response to notice. (1) The MAP lender's written response 
required by the notice of violation may not exceed 15 double-spaced 
typewritten pages and must include an executive summary, a statement of 
the facts, an argument, and a conclusion. The response and supporting 
documentation must be submitted in triplicate.
    (2) Failure to respond by the dates specified within the notice may 
result in a determination by the Board without conducting an informal 
conference with the MAP lender and without consideration of any written 
response submitted by the MAP lender.
    (d) Informal conference. (1) The Board will schedule an informal 
conference and notify the lender of the time and place of the 
conference, if one is requested.
    (2) At the conference, the Board will meet with the lender or its 
designees and HUD staff to review documentary evidence and presentations 
by both sides.
    (3) Oral statements made at the informal meeting will not be 
considered as part of the administrative record of the Board's 
determination, except:
    (i) The Board may note for the record and consider voluntary 
admissions, made by the lender or a representative of the lender, of any 
element of the violation charged;
    (ii) Statements substantiated by any additional documents or 
evidence submitted in accordance with paragraphs (e)(1) or (e)(3) of 
this section; and
    (iii) Transcripts prepared and submitted in accordance with 
paragraph (e)(2) of this section.
    (e) Post-conference submissions. (1) Any additional documents, 
evidence, or written arguments relevant to the notice of violation and 
the informal conference that the lender or HUD staff wish to present to 
the Board, must be presented within five business days after date of the 
informal conference.
    (2) No transcript of the informal conference will be made, unless 
the lender elects to have a transcript made by a certified court 
reporter at its own expense. If the lender elects to have a transcript 
made, the lender must provide three copies of the transcript to HUD 
within five business days after the date of the informal conference. The 
transcript will not become a part of the administrative record of the 
Board's decision unless it is submitted within the required five-day 
period frame.
    (3) Following the receipt of any post-conference submissions, the 
Board may request or permit additional documents or evidence to be 
submitted within a period set by the Board for inclusion in the 
administrative record.
    (f) Board action. (1) The Board will confer to consider the evidence 
included in the administrative record and make a final decision 
concerning the matter. Any record of confidential communications between 
and among Board members at this stage of the proceedings is privileged 
from disclosure and will not be regarded as a part of the administrative 
record of any matter.
    (2) In determining what action is appropriate concerning the matter, 
the Board considers, among other factors:
    (i) The seriousness and the extent of the violation;
    (ii) Any history of prior offenses;
    (iii) Deterrence of future violations;
    (iv) Any inappropriate benefits received by the MAP lender;
    (v) Potential inappropriate benefit to other persons; and
    (vi) Any mitigating factors.
    (3) Board decisions will be determined by majority vote.

[[Page 90]]

    (g) Notice of action. (1) The Board will issue its final decision 
within 10 business days after the date of the informal conference or the 
expiration of any period allowed for the submission of documents and 
evidence, whichever is later.
    (2) The Board will notify the MAP lender of its final decision by 
overnight delivery of a written notice of the final decision to the MAP 
lender's contact person as listed on the Multifamily MAP Web site. The 
Board will also notify HUD field offices of its final decision.
    (3) The final decision finds that a violation either does, or does 
not, exist. If a violation is found to exist, the final decision:
    (i) States the violation and any factual findings of the Board;
    (ii) States the nature and duration of the sanction;
    (iii) Informs the MAP lender of its right to an appeal conference 
and identifies the appeals official to be contacted; and
    (iv) May add to or modify the violation as stated in the initial 
notice of violation.



Sec.  200.1540  Imminent harm notice of action.

    The Board may issue an imminent harm notice of action to terminate a 
MAP lender, or to place a MAP lender on probation or suspension without 
advance notice to the MAP lender in those instances where the Board 
determines there exists a need to protect the financial interest of HUD 
from imminent harm. In all such instances, the Board shall notify the 
lender of the Board's decision promptly and give the reasons for the 
decision in accordance with Sec.  200.1535(g)(2) and (3). The lender 
shall have the right to submit materials to the Board and to appear 
before the Board to seek prompt reconsideration of the Board's decision 
in accordance with the procedures of Sec.  200.1535.



Sec.  200.1545  Appeals of MAP Lender Review Board decisions.

    (a) Request for appeal. Whenever the Board imposes a sanction of 
probation, suspension, or termination against a MAP lender, the lender 
may request, in writing, an appeal conference before the appeals 
official. The MAP lender must deliver the written request for an appeal 
to the appeals official within 10 business days after the date noted on 
the notice of action or the right to an appeal is deemed waived. 
Participation in the appeal process under this section is not a 
prerequisite to filing an action for judicial review under the 
Administrative Procedure Act.
    (b) Appeals Official. The appeals official must be an individual who 
has not been previously involved with the proceedings or settlement 
discussions at issue.
    (c) Notice of action in effect. The notice of action issued by the 
Board remains in effect while the appeal is pending.
    (d) Scheduling of appeal. (1) Upon receipt of the request for an 
appeal, the appeals official will promptly notify the MAP lender of the 
time and place of the appeal conference. The appeal conference will be 
held within 10 business days after receipt of the MAP lender's appeal 
request, except as provided in paragraph (d)(2) of this section.
    (2) A MAP lender may request, and the appeals official may agree, to 
have an appeal conference held more than 10, but not more than 30 
business days after the date of the lender's request for an appeal.
    (e) Scope of appeal. The appeals official may consider information 
included in the administrative record and any new information presented 
at the appeal conference that is substantiated in accordance with 
paragraph (f) of this section. In addition, the appeals official may 
consider voluntary admissions by the lender or a representative of the 
lender of any element of the violation charged.
    (f) Additional documents--(1) Transcript. No transcript of the 
appeal conference will be made, unless the MAP lender elects to have a 
transcript made by a certified court reporter at its own expense. If the 
lender elects to have a transcript made, it must provide three copies of 
the transcript to the appeals official within five business days after 
the date of the appeal conference.
    (2) Other documents. Any additional, relevant documents or written 
arguments that the MAP lender wishes to

[[Page 91]]

present to the appeals official must be presented within five business 
days after the date of the appeal conference.
    (g) Determination of appeal. Within 10 business days after the date 
of the appeal conference or the expiration of the period allowed for the 
submission of documents and written arguments, whichever is later, the 
appeals official will make a written determination to confirm, modify, 
or overturn the Board's decision and notice of action. If the appeals 
official overturns the Board's decision, the lender shall immediately 
return to an active status as a MAP lender and the written determination 
to overturn will be posted on HUD's MAP Web site.



Sec. Appendix A to Part 200--Standards Incorporated by Reference in the 
      Minimum Property Standards for Housing (HUD Handbook 4910.1)

    The following publications are incorporated by reference in the HUD 
Minimum Property Standards (MPS) in 24 CFR part 200. The MPS are 
available for public inspection and can be obtained for appropriate use 
at 490 L'Enfant Plaza East, Suite 3214, or at each HUD Regional, Area, 
and Service Office. Copies are available for inspection at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html. The individual standards referenced in the MPS are 
available at the address contained in the following table. They are also 
available for public inspection at the HUD, Manufactured Housing and 
Construction Standards Division, Suite 3214, 490 L'Enfant Plaza East, 
Washington, DC 20024.
Air Conditioning Contractors of America 1513 16th Street, NW., 
          Washington, DC 20036, (202) 483-9370.
    Load Calculation for Residential Winter and Summer Air Conditioning, 
Manual J 1986
Aluminum Association, 900 19th Street, NW., Washington, DC 20006, 
          Telephone (202) 862-5100.
    AA-ASM 35-80 Specifications for Aluminum Sheet Metal Work in 
Building Construction
American Architectural Manufacturers Association, 1540 East Dundee Road, 
          Paletine, IL 60067, Telephone (708) 202-1350.
    AAMA-800-92 Voluntary Specifications and Test Methods for Sealants
    AAMA-1503.1-88 Voluntary Test Method for Thermal Transmittance and 
Condensation Resistance of Windows, Doors and Glazed Wall Sections
    AAMA 1504-88 Voluntary Standards for Thermal Performance of Windows, 
Doors and Glazed Wall Sections
American Concrete Institute, P. O. Box 19150, Redford Station, Detroit, 
          Michigan 48219, Telephone (313) 532-2600.
    ACI 211.1-89 Standard Practice for Selecting Proportions for Normal, 
Heavyweight and Mass Concrete
    ACI 211.2-91 Standard Practice for Selecting Proportions for 
Structural Lightweight Concrete
    ACI 213R-87 Guide for Structural Lightweight Aggregate Concrete
    ACI 301-89 Specifications for Structural Concrete for Buildings
    ACI 302.1R-80 Guide for Concrete Floor and Slab Construction
    ACI 304R-89 Guide for Measuring, Mixing, Transporting and Placing 
Concrete
    ACI 305R-77 Hot Weather Concreting (Revised 1989)
    ACI 306R-78 Cold Weather Concreting (Revised 1988)
    ACI 311.4R-80 Guide for Concrete Inspection (Revised 1988)
    ACI 315-80 Guide for Detailing of Concrete Reinforcement
    ACI 318-89 Building Code Requirements for Reinforced Structural 
Plain Concrete (Revised 1992)
    ACI 322-72 Structural Plain Concrete
    ACI 347-78 Recommended Practice for Concrete Formwork (Reapproved 
1984)
    ACI 504R-77 Guide to Joint Sealants for Concrete Structures
    ACI 506-90 Recommended Practice for Shotcreting
    ACI 515.1R-79 A Guide to the Use of Waterproofing, Dampproofing, 
Protective and Decorative Barrier Systems for Concrete (Revised 1985)
    ACI 533.1R-69 Quality Standards and Tests for Precast Concrete Wall 
Panels
    ACI 533.2R-69 Selection and Use of Materials for Precast Concrete 
Wall Panels
    ACI 533.3R-70 Fabrication, Handling and Erection of Precast Concrete 
Wall Panels
American Forest & Paper Association, (formerly National Forest Products 
          Association), 1250 Connecticut Ave., NW., Washington, DC 
          20036. National Design Specification for Wood Construction--
          1991.
American National Standards Institute, 11 West 42nd Street, New York, NY 
          10036, Telephone (212) 642-4900.
    ANSI A108.1A-92 Specifications for Installation of Ceramic Tile, in 
the Wet Set Method with Portland Cement Mortar
    ANSI A137.1-1988 Specifications for Ceramic Tile
    ANSI/BHMA A156.2-1989 Standard for Bored and Preassembled Locks and 
Latches
    ANSI/NKCA A161.1-1985 Recommended Performance and Construction 
Standards for

[[Page 92]]

Kitchen and Vanity Cabinets (Approved March 18, 1986)
    ANSI A208.1-1989 Wood Particleboard
    ANSI/AAMA 101-1988 Voluntary Specifications for Aluminum Prime 
Windows and Sliding Glass Doors
    ANSI/AAMA 1002.10-1983 Voluntary Specifications for Aluminum 
Insulating Storm Products for Windows and Sliding Glass Doors
    ANSI/AAMA 1102.7-1989 Voluntary Specifications for Aluminum Storm 
Doors
    ANSI/AAMA 1402-1986 Standard Specifications for Aluminum Siding, 
Soffit and Fascia (ANSI Approved 1989)
    ANSI/ACI 214-77 Recommended Practice for Evaluation of Strength Test 
Results of Concrete (Reapproved 1983)
    ANSI/AHA A135.4-1982 Basic Hardboard (Reaffirmed 1988)
    ANSI/AHA A135.6-1990 Hardboard Siding
    ANSI/AHA A194.1-1985 Cellulosic Fiber Board
    ANSI/APA 1-1984 Mosaic-Parquet Hardboard Slat Flooring
    ANSI/NSPI-1-91 Standard for Public Swimming Pools
    ANSI Z34.1-1987 American National Standard for Certification, Third-
Party Certification Program
    ANSI Z124.5-1989 American National Standard for Plastic Toilet Seats 
(Water Closet Seats)
American Society of Civil Engineers, 345 East 47th Street, New York, NY 
          10017.
    ASCE 7-88 Minimum Design Loads for Buildings and Other Structures 
(Formerly ANSI A58.1)
American Society of Mechanical Engineers, 345 E 47th Street, New York, 
          NY 10017.
    ASME/ANSI A17.1-87 Safety Code for Elevators and Escalators 
Including the A17.1b-89 Addenda
    ASME A 112.18.1M89 Plumbing Fixture Fittings
American Society for Testing and Materials, 1916 Race Street, 
          Philadelphia, PA 19103, Telephone (215) 299-5400.

    ASTM C 12-91 Standard Practice for Installing Vitrified Clay Pipe 
Lines
    ASTM C 208-72 Insulating Board (Cellulosic Fiber), Structural and 
Decorative (Reapproved 1982)
    ASTM C 209-84 Standard Methods of Testing Insulating Board 
(Cellulosic Fiber), Structural and Decorative
    ASTM C 216-91c Standard Specification for Facing Brick (Solid 
Masonry Units Made from Clay or Shale)
    ASTM C 220-91 Standard Specification for Flat Asbestos-Cement Sheets
    ASTM C 221-91 Standard Specification for Corrugated Asbestos-Cement 
Sheets
    ASTM C 223-91 Standard Specification for Asbestos-Cement Siding
    ASTM C 509-91 Standard Specification for Elastomeric Cellular 
Preformed Gasket and Sealing Material
    ASTM C 516-80 Standard Specification for Vermiculite Loose Fill 
Thermal Insulation (Reapproved 1985)
    ASTM C 549-81 Standard Specification for Perlite Loose Fill 
Insulation (Reapproved 1986)
    ASTM C 578-92 Standard Specification for Rigid, Cellular Polystyrene 
Thermal Insulation
    ASTM C 640-83 Standard Specification for Insulation Board, Thermal 
(Cork)
    ASTM C 726-88 Standard Specification for Mineral Fiber and Roof 
Insulation Board
    ASTM C 739-91 Standard Specification for Cellulosic Fiber (Wood-
Based) Loose-Fill Thermal Insulation
    ASTM C 754-88 Standard Specification for Installation of Steel 
Framing Members to Receive Screw-Attached Gypsum
    ASTM C 834-91 Standard Specification for Latex Sealants
    ASTM C 841-90 Standard Specification for Installation of Interior 
Lathing and Furring
    ASTM C 842-85 Standard Specification for Application of Interior 
Gypsum Plaster (Reapproved 1990)
    ASTM C 843-92 Standard Specification for Application of Gypsum 
Veneer Plaster
    ASTM C 844-85 Standard Specification for Application of Gypsum Base 
to Receive Gypsum Veneer Plaster
    ASTM C 846-76 Standard Practice for Application of Structural 
Insulating Board (Fiberboard) Sheathing (Reapproved 1982)
    ASTM C 864-90 Standard Specification for Dense Elastomeric 
Compression Seal Gaskets, Setting Blocks and Spacers.
    ASTM C 926-90 Standard Specification for Application of Portland 
Cement-Based Plaster
    ASTM C 1036-91 Standard Specification for Flat Glass
    ASTM D 1037-89 Standard Test Methods for Evaluating the Properties 
of Wood-Base Fiber and Particle Panel Materials
    ASTM C 1048-91 Standard Specification for Heat-Treated Flat Glass-
Kind HS, Kind FT Coated and Uncoated Glass
    ASTM D 1557-91 Test Method for Laboratory Compaction Characteristics 
of Soil Using the Modified Method (56,000 ft-lbf/ft3 (2,700 
kN-m/m3))
    ASTM D 2316-75 Standard Recommended Practice for Installing 
Bituminized Fiber Drain and Sewer Pipe (Reapproved 1984)
    ASTM D 2321-89 Standard Practice for Underground Installation of 
Thermoplastic Pipe for Sewers and Other Gravity-Flow Applications
    ASTM D 3656-89 Standard Specifications for Insect Screening and 
Louver Cloth Woven From Vinyl-Coated Glass Yarns

[[Page 93]]

    ASTM D 3679-92 Standard Specification for Rigid Poly (Vinyl 
Chloride) (PVC) Siding
    ASTM E 72-80 Standard Methods of Conducting Strength Tests of Panels 
for Building Construction
    ASTM E 283-91 Standard Test Method for Determining the Rate of Air 
Leakage Through Exterior Windows, Curtain Walls, and Doors Under 
Specified Pressure Differences Across the Spectrum
    ASTM E 330-90 Standard Test Method for Structural Performance of 
Exterior Windows, Curtain Walls, and Doors by Uniform Static Air 
Pressure Difference
    ASTM E 331-86 Standard Test Method for Water Penetration of Exterior 
Windows, Curtain Walls, and Doors by Uniform Static Air Pressure 
Difference
    ASTM E 380-91a Standard Practices for Use of the International 
Systems of Units (SI) (the Modernized Metric System)
American Society of Heating, Refrigerating and Air Conditioning 
          Engineers, 1791 Tullie Circle, NE, Atlanta, GA 30329. ASHRAE 
          Handbook--Fundamentals--1989. ASHRAE Cooling and Heating Load 
          Calculation Manual--GRP 158 1979. ASHRAE Handbook--Equipment--
          1988. ASHRAE Handbook--HVAC Systems and Applications--1987.
American Welding Society, 550 NW Le Jeune Road, P. O. Box 351040, Miami, 
          FL 33126, Telephone (305) 443-9353. ANSI/AWS D1.1-90 
          Structural Welding Code--Steel. ANSI/AWS D1.4-79 Structural 
          Welding Code-Reinforcing Steel.
The Asphalt Institute, Asphalt Institute Building, College Park, MD 
          20740 Telephone (301) 277-4258.
    MSI-1-81 Thickness Design--Asphalt Pavements for Highways and 
Streets
Asphalt Roofing Manufacturers Association, 6288 Montrose Road, 
          Rockville, MD 20852, Telephone (301) 231-9050. Residential 
          Asphalt Roofing Manual--1988.
Carpet and Rug Institute, 310 Holiday Avenue, Box 2048, Dalton, GA 
          30722-0048, Telephone (404) 278-3176. How to Specify 
          Commercial Carpet Installation, 1984.
Council of American Building Officials, Suite 708, 5203 Leesburg Pike, 
          Falls Church, VA 22041, Telephone (703) 931-4533. CABO One and 
          Two Family Dwelling Code 1992 edition with Errata Package and 
          1993 Amendments. CABO Model Energy Code 1992 edition CABO/ANSI 
          A117.1-92 Accessible and Usable Buildings and Facilities.
Department of Agriculture, Publications Division, 14th and Independence 
          Avenue, SW., Washington, DC 20050, Telephone (202) 447-3957.
    Agriculture Handbook No. 73, Wood Frame House Construction
    Home and Garden Bulletin No. 64. Subterranean Termites--Their 
Prevention and Control in Buildings, October 1983
    Home and Garden Bulletin No. 73, Wood Decay in Houses, How to 
Prevent and Control It, May 1986
Department of Commerce, National Institute of Standards and Technology, 
          Gaithersburg, Maryland 20899, Telephone (301) 975-4025. PS 1-
          83 Product Standard for Construction and Industrial Plywood 
          with Typical APA Trademarks. PS 2-92 Performance Standard for 
          Wood-Based Structural-Use Panels.
    Commercial Standards:
    CS 138-55 Insect Wire Screening
    CS 242-62 1 \3/4\'' Steel Doors & Frames
Department of Defense, Naval Publication and Forms Center, 5801 Taber 
          Road, Philadelphia, PA 19120, Telephone (215) 697-2179.
    Federal Specifications:
    L-S-125B Screening, Insect, Non-metallic Febuary 3, 1972
    L-F-001641 Floor Covering Translucent or Transparent Vinyl Surface 
with Backing--1971 and Amendment 2--September 24, 1982
    L-F-00450A Flooring, Vinyl Plastic (GSAFSS)--1970 and Amendment 1, 
August 5, 1975
    L-F-475A Floor Covering Vinyl, Surface Tile and Roll, with Backing 
including Amendment 2--February 9, 1971
    HH-I-521F Insulation Blankets, Thermal (Mineral Fiber--for Ambient 
Temperatures--1980)
    HH-I-526C Insulation Board, Thermal (Mineral Fiber)--1968
    HH-I-529B Insulation Board, Thermal (Mineral Aggregate)--1971
    HH-I-530B Insulation Board, Thermal, Unfaced, Polyurethane or 
Polyisocyanurate and Interim I--1982
    HH-I-551E Insulation Block and Boards, Thermal (Cellular Glass) 
Fiber, for Ambient Temperatures, 1974
    HH-I-558B Insulation Blocks, Boards, Blankets, Felts Sleeving (Pipe 
and Tube Covering), and Pipe Fitting Covering, Thermal (Mineral Fiber, 
Insulation Type) and Amendment 3--1976
    HH-I-574B Insulation, Thermal (Perlite) and Interim Amendment--1976
    HH-I-585C Insulation, Thermal (Vermiculite) and Interim Amendment 
1--1976
    HH-I-1030B Insulation, Thermal (Mineral Fiber, for Pneumatic or 
Poured Application)--1980
    HH-I-1252B Insulation, Thermal Reflective, (Aluminum Foil) and 
Interim Amendment 1--1976
    HH-I-1972 Insulation Board, Thermal, Faced, Gen; 1, 2, 3, 
Polyurethane and Polyisocyanurate and 4, 5 & 6 Amendments--1985
    LLL-I-535B Insulation Board, Thermal, Cellulosic Fiber, 1977

[[Page 94]]

    SS-S-346C Siding (Shingles, Clapboards, and Sheets) 1968
    SS-T-312B Tile, Floor: Asphalt, Rubber, Vinyl-Composition and 
Interim Amendment--1979
Department of Housing and Urban Development, 451 Seventh Street, SW., 
          Mail Room B-133, Washington, DC 20410, Telephone (202) 755-
          7440.
    Handbooks:
    4940.2-1973 Minimum Design Standards for Community Water Supply 
Systems
    4940.3-1992 Minimum Design Standards for Community Sewerage Systems 
(Rev. 1-92)
    4950.1-1988 Technical Suitability of Products Program, Technical and 
Processing Procedures (Rev. 2 which includes revisions and changes 
through October 24, 1991)
    4930.2-1989 HUD Intermediate MPS Supplement, Solar Heating & 
Domestic Hot Water Systems
    Use of Materials Bulletins:
    25d Power Driven, Mechanically Driven and Manually Driven 
Fasteners--9/5/73
    38h Grademarking of Lumber--7/31/79
    44c HUD/FHA Standard for Carpet and Carpet Certification Program--2/
22/78 (Plus Addendum 1 & 2)
    48 Labels of Independent Programs for Certifying Pressure-Treated 
Lumber and Plywood (Plus 5 Supplements--11/15/67)
    52a Quality Certification and Labeling for Wood Flush Doors--10/7/
75)
    58a Acrylic Plastic Sheets for Glazing--9/2/75
    60 Field Glued Plywood & Wood Frame Structural Floor Systems--12/9/
70
    62a Factory-Applied Laminated Roofing Systems Based on 
Chlorosulfonated Polyethylene (CPSE)--11/16/72
    65 Controlled Density Cellular Concrete Floor Fill--10/11/73
    67 Polycarbonate Plastic Sheets for Glazing--9/3/75
    70a Particleboard Interior Stair Treads and Certification Program--
5/19/82
    71 Polystyrene Foam Insulation Sheathing Board--1/10/77
    72 HUD Standard for Carpet Cushion--2/6/80
    76 Chlorinated Poly (Vinyl Chloride) CPVC and Polybutylene (PB) Hot 
and Cold Water Distribution--4/25/78
    77a Cast Iron Sanitary Drainage System with Hubless Pipe and 
Fittings--3/28/80
    78 Polyethylene (PE), Acrylonitrile-Butadiene-Styrene (ABS), Poly 
Vinyl Chloride (PVC) and Polybutylene (PB) Plastic Piping for Domestic 
Cold Water Service--4/25/78
    79a Acrylonitrile-Butadiene-Styrene (ABS) and Poly (Vinyl Chloride) 
(PVC) Plastic Drain, Waste and Vent Pipe and Fittings--3/7/82
    80 Spray Applied Cellulosic Thermal Insulation--10/31/79
    101 HUD Building Product Standards and Certification Program for 
Exterior Wall Insulation and Finish Systems, July 26, 1993
Environmental Protection Agency, Office of Drinking Water, 401 M Street, 
          SW., Washington, DC 20460, Telephone (202) 382-5533.
    EPA 570/9-82-004 Manual of Individual Water Supply (NTIS-PB 
85242279) Systems (October 1982)
Flat Glass Marketing Association, White Lakes Professional, Building 
          3310 Harrison Street, Topeka, KS 66611, Telephone (913) 266-
          7013. FGMA Glazing Manual--1986. FGMA Sealant Manual--1990.
Hardwood Plywood Manufacturers Association, P.O. Box 2789, 1825 Michael 
          Faraday Drive, Reston, VA 22090, Telephone (703) 435-2900. 
          ANSI/HPMA LHF-1987 Laminated Hardwood Flooring.
Insect Screening Weavers Assn., 2000 Maple Hill Street, P.O. Box 309, 
          Yorktown Heights, NY 10598. IWS-089 Insect Wire Screening 
          (Wire Fabric).
National Academy of Sciences, 2101 Constitution Avenue, NW., Washington, 
          DC 20418. Publication 1571 Criteria for Selection and Design 
          of Residential Slabs-on-Ground, Report 33, Building Research 
          Advisory Board (BRAB), 1968.
National Association of Home Builders, Research Center, 400 Prince 
          Georges Boulevard, Upper Marlboro, MD 20772, Telephone (301) 
          249-4000. Insulation Manual, Homes and Apartments--1979.
National Association of Plumbing-Heating-Cooling Contractors, P.O. Box 
          6808, Falls Church, VA 22046, Telephone (703) 237-8100. 
          National Standard Plumbing Code--1993.
National Fire Protection Association, Batterymarch Park, Quincy, MA 
          02269, Telephone 1-800-344-3555.
    ANSI/NFPA 58-89 Standard for the Storage and Handling of Liquefied 
Petroleum Gases
    NFPA 54-88 National Fuel Gas Code (ANSI Z223.1-1988) NFPA 70-93 
National Electrical Code
National Institute of Building Sciences, 1201 L Street, NW., Washington, 
          DC 20005. Metric Guide for Federal Construction--1992.
National Oak Flooring Manufacturers Association, 22 North Front Street, 
          Memphis, TN 38103. Official Grading Rules, Oak, Beech, Birch, 
          Hard Maple, Pecan (OFGR/Vol. 1, No. 1/1986 and the 1989 
          Addendum). Hardwood Flooring Finishing/Refinishing Manual, 
          1986. Hardwood Flooring Installation Manual, 1986.
National Roofing Contractors Association, One O'Hare Centre, 6250 River 
          Road, Rosemont, IL 60018, Telephone (708) 318-6722. NRCA 
          Roofing and Waterproofing Manual, 1989.

[[Page 95]]

National Terrazzo and Mosaic Association, 3166 Des Plaines Avenue, Suite 
          132, Des Plaines, IL 60018, Telephone (708) 635-7744. NTMA 
          Specifications, Details and Technical Data, ``Terrazzo Ideas & 
          Design Guide'', 1990.
National Wood Window and Door Association, 205 West Touhy Avenue, Park 
          Ridge, IL 60018, Telephone (708) 299-5200.
    ANSI/NWWDA IS 1-87 Industry Standard for Wood Flush Doors
    ANSI/NWWDA IS 2-87 Industry Standard for Wood Windows
    NWWDA IS 3-88 Industry Standard for Wood Sliding Patio Doors
    ANSI/NWWDA IS 6-86 Industry Standard for Wood Stile and Rail Doors
Post-tensioning Institute, 301 West Osborn, Suite 3500, Phoenix, AZ 
          85013, Telephone (602) 870-7540. Design and Construction of 
          Post-tensioned Slabs-on-Ground--1980.
Prestressed Concrete Institute, 175 West Jackson Boulevard, Suite 1859, 
          Chicago, IL 60604, Telephone (312) 786-0353.
    PCI MNL 116 Manual for Quality Control for Plants and Production for 
Precast Prestressed Concrete Products--1985 PCI MNL 117 Manual for 
Quality Control for Plants and Production of Architectural Precast 
Concrete Products--1977
Resilient Floor Covering Institute, 966 Hungerford Drive, Suite 12-B, 
          Rockville, MD 20850, Telephone (301) 340-8580. Recommended 
          Installation Specifications for Vinyl Composition, Solid Vinyl 
          and Asphalt Tile Floorings, 1987.
Safety Glazing Certification Council, c/o ETL Testing Laboratories, 
          Industrial Park, Route 11, Cortland, New York 13045, Telephone 
          (607) 753-6711. Certified Products Directory--1990.
Southern California Association of Cabinet Manufacturers, 1933 South 
          Broadway, L. 39, Los Angeles, CA 90007, Telephone (213) 749-
          4355. Certified Construction Standards and Specifications, 
          Guide for Uniform Cabinet Specifications--1973 (Revised 1985).
Steel Door Institute, 30200 Detroit Road, Cleveland, OH 44145, Telephone 
          (216) 899-0010. ANSI/SDI A123.1-82 Nomenclature for Steel 
          Doors and Steel Door Frames.
Tile Council of America, Inc., Box 326, Princeton, NJ 08542-0326, 
          Telephone (609) 921-7050. Handbook for Ceramic Tile 
          Installation--1993.
Underwriters Laboratories, 333 Pfingsten Road, Northbrook, IL 60062, 
          Telephone (708) 272-8800. Electrical Appliance and Utilization 
          Equipment Directory, 1992.
Water Quality Association, 4151 Naperville Road, Lisle, IL 60532. 
          Telephone (708) 396-1600.
    WQA S-100 Household Commericial and Portable Exchange Water 
Softeners--1985
    WQA S-200 Household and Commercial Water Filters--1988
    WQA S-300 Point-of-Use, Low Pressure Reverse Osmosis Drinking Water 
Systems--1984
    WQA S-400 Point-of-Use Distillation Drinking Water Systems--1986
Wood Moulding and Millwork Producers, P.O. Box 25278, Portland, OR 
          97225, Telephone (503) 292-9288.
    WM 3-79 Exterior Wood Door Frames

[58 FR 60250, Nov. 15, 1993]

[[Page 96]]



SUBCHAPTER B_MORTGAGE AND LOAN INSURANCE PROGRAMS UNDER NATIONAL HOUSING 
                        ACT AND OTHER AUTHORITIES





PART 201_TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS
--Table of Contents



                            Subpart A_General

Sec.
201.1 Purpose.
201.2 Definitions.
201.3 Applicability of the regulations.
201.4 Rules of construction.
201.5 Waivers.
201.6 Disclosure and verification of Social Security and Employer 
          Identification Numbers.
201.7 Qualified mortgage.

                   Subpart B_Loan and Note Provisions

201.10 Loan amounts.
201.11 Loan maturities.
201.12 Requirements for the note.
201.13 Interest and discount points.
201.14 Payments on the loan.
201.15 Late charges to borrowers.
201.16 Default provision.
201.17 Prepayment provision.
201.18 Modification agreement or repayment plan.
201.19 Refinanced and assumed loans.

           Subpart C_Eligibility and Disbursement Requirements

201.20 Property improvement loan eligibility.
201.21 Manufactured home loan eligibility.
201.22 Credit requirements for borrowers.
201.23 Borrower's initial payment.
201.24 Security requirements.
201.25 Charges to borrower to obtain loan.
201.26 Conditions for loan disbursement.
201.27 Requirements for dealer loans.
201.28 Flood and hazard insurance, and Coastal Barriers properties.
201.29 Ineligible participants.

                      Subpart D_Insurance of Loans

201.30 Reporting of loans for insurance.
201.31 Insurance charge.
201.32 Insurance coverage reserve account.

                      Subpart E_Loan Administration

201.40 Post-disbursement loan requirements.
201.41 Loan servicing.
201.42 Bankruptcy, insolvency or death of borrower.
201.43 Administrative reports and examinations.

               Subpart F_Default Under the Loan Obligation

201.50 Lender efforts to cure the default.
201.51 Proceeding against the loan security.
201.52 Acquisition by voluntary conveyance or surrender.
201.53 Disposition of manufactured home loan property.
201.54 Insurance claim procedure.
201.55 Calculation of insurance claim payment.

         Subpart G_Debts Owed to the United States Under Title I

201.60 General.
201.61 Claims against debtors--principal amount of debt.
201.62 Claims against debtors--interest, penalties, and administrative 
          costs.
201.63 Claims against lenders.

    Authority: 12 U.S.C. 1703; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).

    Source: 50 FR 43523, Oct. 25, 1985, unless otherwise noted.



                            Subpart A_General



Sec.  201.1  Purpose.

    These regulations implement the provisions of section 2 of title I 
of the National Housing Act (12 U.S.C. 1703). They contain the 
requirements under which an approved financial institution may obtain 
insurance on loans made for the alteration, repair or improvement of 
property, for the purchase of a manufactured home and/or the lot on 
which to place such home, for the purchase and installation of fire 
safety equipment in existing health care facilities, and for the 
preservation of historic structures. The insurance granted by the 
Secretary of Housing and Urban Development shall be available only for 
loans involving property located within a State, as that term is defined 
in Sec.  201.2. The insurance can cover up to 10 percent of the amount 
of all insured Title I loans in the financial institution's portfolio, 
as reflected in the

[[Page 97]]

total amount of insurance coverage contained at any time in an insurance 
coverage reserve account established by the Secretary, less amounts for 
insurance claims paid. As limited by the amount of insurance coverage in 
such a reserve account, the insurance can cover up to 90 percent of the 
loss of any individual loan.

[50 FR 43523, Oct. 25, 1985, as amended at 61 FR 19795, May 2, 1996]



Sec.  201.2  Definitions.

    As used in the regulations in this part the term:
    Act means the National Housing Act, 12 U.S.C. 1703.
    Actuarial method means the method of allocating payments made on a 
loan between the outstanding balance of the principal amount borrowed 
and the interest due on a loan obligation, under which a payment is 
applied first to the accrued interest, and any remainder is subtracted 
from, or any deficiency is added to, the unpaid balance of the 
obligation.
    Borrower means one who applies for and receives a loan insured under 
this part. The term may also include any co-maker or co-signer or any 
assumptor who is obligated for the repayment of a loan obligation 
insured under this part.
    Combination loan means a loan made for the purchase or refinancing 
in a single transaction of a manufactured home and a manufactured home 
lot, and may also include a garage, patio, carport, or other comparable 
appurtenance.
    Dealer means, in the case of property improvement loans, a seller, 
contractor, or supplier of goods or services. In the case of 
manufactured home loans, dealer means one who engages in the business of 
manufactured home retail sales.
    Dealer loan means a loan where a dealer, having a direct or indirect 
financial interest in the transaction between the borrower and the 
lender, assists the borrower in preparing the credit application or 
otherwise assists the borrower in obtaining the loan from the lender. In 
the case of a property improvement loan, the lender may disburse the 
loan proceeds solely to the borrower, or jointly to the borrower and the 
dealer or other parties to the transaction. In the case of a 
manufactured home loan, the lender may disburse the loan proceeds solely 
to the dealer or the borrower, or jointly to the borrower and the dealer 
or other parties to the transaction.
    Debtor means the borrower, any co-maker or co-signer, and any 
assumptor who is liable for the repayment of a defaulted loan obligation 
insured under this part.
    Default means a failure by the borrower to make any payment due 
under the note, when such failure continues for a period of 30 days. For 
the purpose of these regulations, the ``date of default'' shall be 
considered as 30 days after the first failure to make an installment 
payment on the note which is not covered by subsequent payments, when 
applied to the overdue installments in the order in which they became 
due.
    Direct loan means a loan for which a borrower makes application 
directly to a lender without any assistance from a dealer. The credit 
application, signed by the borrower, may be filled out by the borrower 
or by a person acting at the direction of the borrower who does not have 
a financial interest in the loan transaction. The lender may disburse 
the loan proceeds solely to the borrower or jointly to the borrower and 
other parties to the transaction. If a dealer takes legal action 
required by State law in order for the lender to obtain a valid and 
enforceable lien against the property, such action by the dealer will 
not convert an otherwise direct loan to a dealer loan.
    Discount points means a fee charged by the lender, separate from 
interest but part of the total finance charges on the loan, that is part 
of the lender's total yield on the loan needed to maintain a competitive 
position with other types of investments. One discount point equals one 
percent of the principal amount of the loan. As discount points on the 
loan increase, the interest rate can be expected to decrease in a fairly 
consistent relationship.
    Existing structure means a dwelling, including a manufactured home, 
that was completed and occupied at least 90 days prior to an application 
for a Title I loan, or a nonresidential structure

[[Page 98]]

that was a completed building with a distinctive functional use prior to 
an application for a Title I loan. However, these occupancy and 
completion requirements shall not apply to:
    (1) Loans having a principal obligation of $1000 or less; or
    (2) Residential structures which have been damaged by conditions 
determined by the President to warrant relief under the provisions of 
title 42, chapter 68, of the United States Code.
    Fire safety equipment loan means a loan made to finance the purchase 
and installation of any device or construction feature which is 
recognized in the latest edition of the Department of Housing and Urban 
Development's Minimum Property Standards for Care Type Housing (HUD 
Handbook 4920.1) or the Fire Safety Code of the National Fire Protection 
Association, and which is designed to reduce the risk of death, personal 
injury, or property damage resulting from a fire in a health care 
facility.
    Furniture means movable articles of personal property relating to a 
home or dwelling, such as beds, chairs, sofas, lamps, tables, rugs, 
etc.; however, furniture does not include:
    (1) Items built into the home or dwelling such as wall-to-wall 
carpeting or heating or cooling equipment; or
    (2) Large appliances such as refrigerators, ovens, ranges, 
dishwashers, clothes washers or clothes dryers.
    Health care facility means a proprietary facility or facility of a 
private nonprofit corporation or association, licensed or regulated by 
the State or by the municipality or other political subdivision in which 
the facility is located, and operated as one or more of the following:
    (1) A nursing home for the accommodation of convalescents or other 
persons who are not acutely ill and not in need of hospital care, but 
who require skilled nursing care and related medical services performed 
under the general direction of persons licensed by the law of the State 
where the facility is located to provide such care or services;
    (2) An intermediate health care facility for the accommodation of 
persons who, because of incapacitating infirmities, require minimum but 
continuous care, but not continuous medical care or nursing services;
    (3) An extended health care facility for inpatient care for 
convalescents or chronic disease patients who require skilled nursing 
care and related medical services; or
    (4) Other comparable health care facility.
    Historic preservation loan means a loan to finance the preservation 
(restoration or rehabilitation) of an historic residential structure 
which is listed on the National Register of Historic Places or which is 
certified by the Secretary of the Interior as conforming with National 
Register criteria.
    Lender means a financial institution that:
    (1) Holds a valid Title I contract of insurance and is approved by 
the Secretary under 24 CFR part 202 to originate, purchase, hold, 
service, and/or sell loans insured under this part; or
    (2) Is under suspension or holds a Title I contract of insurance 
that has been terminated, but that remains responsible for servicing or 
selling Title I loans that it holds and is authorized to file insurance 
claims on such loans.
    Loan means a disbursement of proceeds (funds) or an advance of 
credit to or for the benefit of a borrower who promises to repay the 
principal amount of such disbursement or advance, plus interest, if any, 
at a stated annual rate over time, with the borrower's obligation 
evidenced by the borrower's execution of a note. Loan also means a 
purchase by a lender of a note evidencing such obligation, or a 
refinancing of an existing obligation with or without an additional 
disbursement of proceeds or advance of credit.
    Manufacturer's invoice means a document issued by a manufacturer and 
provided with a manufactured home to a retail dealer which separately 
details the wholesale (base) prices at the factory for specific models 
or series of manufactured homes and itemized options (large appliances, 
built-in items and equipment), plus actual itemized charges for freight 
from the factory to the dealer's lot or the homesite (including any 
rental of wheels and axles) and for any sales taxes to be paid by the 
dealer. The invoice may recite such prices and charges on an itemized 
basis

[[Page 99]]

or by stating an aggregate price or charge, as appropriate, for each 
category. The manufacturer shall certify on the invoice, or on a 
supplement which is attached to and made a part of the invoice, as 
follows:

    The undersigned certifies under applicable criminal and civil 
penalties for fraud and misrepresentation that: (1) The wholesale (base) 
prices for the manufactured home and itemized options, the charges for 
freight and dealer-paid sales taxes, and all other statements in this 
invoice are true and accurate; (2) all such prices reflect the actual 
dealer costs at the factory, as quoted in the applicable current 
manufacturer's wholesale (base) price list; (3) except for any payments 
of volume incentives or special benefits related to this transaction, 
all such prices and charges exclude any costs of trade association fees 
or charges, discounts, bonuses, refunds, rebates, prizes, loan discount 
points or other financing charges, or anything else of more than nominal 
value which will inure to the benefit of the dealer and/or home 
purchaser at any date; and (4) the manufacturer has not made and will 
not make any payments to or for the benefit of the dealer and/or home 
purchaser that are not disclosed on this invoice or invoice supplement.

    Manufactured home means a transportable structure, comprised of one 
or more modules, each built on a permanent chassis, with or without a 
permanent foundation, designed for occupancy as a principal residence by 
a single family. A new manufactured home shall comply with the minimum 
property standards prescribed by the Secretary to assure its livability 
and durability that are published as the Manufactured Home Construction 
and Safety Standards implementing the National Manufactured Housing 
Construction and Safety Standards Act of 1974, 42 U.S.C. 5401-5426, at 
24 CFR part 3280. To qualify for a manufactured home loan insured under 
this part, an existing manufactured home must have been constructed in 
accordance with standards published at 24 CFR part 3280 and must meet 
standards similar to the minimum property standards applicable to 
existing homes insured under title II of the Act, as prescribed by the 
Secretary.
    Manufactured home improvement loan means a loan made to finance the 
alteration, repair or improvement of an existing manufactured home which 
is classified as personalty by the State or locality in which the 
property is located. The proceeds of a manufactured home improvement 
loan may also be used for improvements to the homesite, as long as the 
borrower is the owner of the home and the underlying real estate.
    Manufactured home loan means a loan for the purchase or refinancing 
of a manufactured home and/or the lot on which to place such home. 
Unless otherwise indicated, the term includes manufactured home purchase 
loans, manufactured home lot loans, and combination loans.
    Manufactured home lot loan means a loan for the purchase or 
refinancing of a portion of land acceptable to the Secretary as a 
manufactured home lot. A manufactured home lot may consist of platted or 
unplatted land, a lot in a recorded or unrecorded subdivision or in an 
improved area of such subdivision, or a lot in a planned unit 
development. A manufactured home lot may also consist of an interest in 
a manufactured home condominium project (including any interest in the 
common areas) or a share in a cooperative association which owns and 
operates a manufactured home park.
    Manufactured home purchase loan means a loan for the purchase or 
refinancing of a manufactured home exclusive of any lot or site, and may 
also include a garage, patio, carport, or other comparable appurtenance.
    Multifamily property improvement loan means a loan to finance the 
alteration, repair, improvement, or conversion of an existing structure 
used or to be used as an apartment house or a dwelling for two or more 
families. The multifamily structure may not be owned by a corporation, 
partnership, or trust, unless the prior approval of the Secretary is 
obtained for an exception to this requirement.
    Nonresidential property improvement loan means a loan made to 
finance the construction of a new exclusively nonresidential structure 
or the alteration, repair or improvement of an existing structure that 
is nonresidential. Such a structure may be temporarily used for 
residential purposes while the borrower constructs a new dwelling to 
replace a dwelling previously occupied by the borrower that was 
destroyed or

[[Page 100]]

damaged by conditions determined by the President to warrant relief 
under the provisions of title 42, chapter 68, of the U.S.C., provided 
that the credit application is filed within one year from the date of 
such a determination.
    Note means the written instrument evidencing the borrower's 
signature to a promise to repay the principal indebtedness and to pay 
any interest due on a loan, whether the instrument is separate from or 
included within another document, and unless otherwise specified means 
also any security instrument with respect to that loan obligation.
    Owner means a person, including a borrower, who has title in whole 
or in part to the property which is the subject of a loan transaction.
    Principal residence means a home where the borrower expects to live 
at least nine months of the year.
    Property improvement loan means a loan made to finance actions or 
items that substantially protect or improve the basic livability or 
utility of a property. Unless otherwise indicated, the term includes 
single family, multifamily and nonresidential property improvement 
loans; manufactured home improvement loans where the home is classified 
as personalty; historic preservation loans; and fire safety equipment 
loans in existing health care facilities.
    Rehabilitation means the process of returning an historic 
residential structure to a state of utility, through repair or 
alteration, which makes possible an efficient contemporary use. In 
rehabilitation, those portions of the property important in illustrating 
historic, architectural and cultural values are preserved or restored.
    Restoration means the process of accurately recovering the form and 
details of an historic residential structure as it appeared at a 
particular period of time by removing later work and by replacing 
missing original work.
    Security instrument means a properly recorded chattel mortgage, real 
estate mortgage or deed of trust, or conditional sales contract.
    Single family property improvement loan means a loan to finance 
alterations, repairs and improvements to or in connection with an 
existing structure used or to be used as a single family residence, 
including an existing one-family manufactured home that qualifies as 
real property in that the home is placed on a permanent foundation, the 
home and lot are classified as realty by the State or locality in which 
the property is located, and any loans on the property are secured by 
mortgages or deeds of trust covering the home and lot.
    Solar energy system means any addition, alteration or improvement to 
an existing structure for single family or multifamily residential use 
which is designed to utilize wind or solar energy to reduce the energy 
requirements of that structure from other energy sources, and which 
complies with standards prescribed by the Secretary.
    Special benefits means benefits other than volume incentives for 
dealers which a home manufacturer funds from general corporate revenues 
by charging them against corporate overhead and profit without changing 
the wholesale (base) price of a manufactured home (or series of homes), 
as reflected in the manufacturer's published wholesale (base) price 
list, and which are limited to payments by the manufacturer directly to:
    (1) A financial institution to buy down or reduce the interest rate, 
discount points, or other fees or charges related to a lending agreement 
for a dealer's manufactured home inventory or floor plan financing 
needs; or
    (2) One or more advertising media for all or part of the costs of 
advertising the manufacturer's homes, one or more dealer's services, and 
related manufactured home materials and products in such media.
    State means any State of the United States, Puerto Rico, the 
District of Columbia, Guam, American Samoa, the Commonwealth of the 
Northern Mariana Islands, or the United States Virgin Islands.
    Volume incentives means specified dollar benefits to dealers under a 
published marketing and promotional plan, payable by a home manufacturer 
in cash or in kind in amounts or levels relating to the volume of sales 
of manufactured homes to dealers, other than

[[Page 101]]

benefits of a nominal value of less than $10 per home, which:
    (1) The manufacturer funds from general corporate revenues by 
including them in the prices quoted in the manufacturer's wholesale 
(base) price list and charging them against corporate overhead and 
profit;
    (2) Whether or not available on an optional basis, do not increase 
or decrease the wholesale (base) prices for the sale of a specific home 
or options or the charges for freight and dealer-paid sales taxes as 
detailed in the manufacturer's invoice, for a specific sale to a retail 
dealer;
    (3) The manufacturer provides without creating a special product 
line where the cost of the benefits is the only substantive difference 
between the special product line and other essentially similar homes;
    (4) Whether or not also of benefit to the ultimate purchaser, do not 
increase or decrease the retail price of the home;
    (5) Are available to any dealer in a particular market area doing 
business with the manufacturer;
    (6) The manufacturer provides only for volume sales of manufactured 
homes to dealers over a specified period of time;
    (7) The plan provides in escalating and different amounts or levels 
related to either the number of homes (or modules) sold or the dollar 
value of such sales to a dealer, or some combination of such elements, 
in a specified period of time;
    (8) Are structured so that only some of the dealer participants are 
expected to be paid the maximum benefits under the program, with 
substantial numbers of participants expected to receive less than the 
maximum amount or level of benefits; and
    (9) Accrue for volume sales to a dealer over a specified period of 
time which is at least quarterly in length, and are paid not more 
frequently than quarterly.
    Wholesale (base) price list means the price list or lists, as 
periodically amended, which are published and distributed by a home 
manufacturer to all retail dealers in a given marketing area, quoting 
the actual wholesale (base) prices at the factory for specific models or 
series of manufactured homes and itemized options offered for sale to 
such dealers during a specified period of time. The wholesale (base) 
prices may include the manufacturer's projected costs of providing 
volume incentives and special benefits related to sales to dealers 
during the period. All such wholesale (base) prices shall exclude any 
costs of trade association fees or charges, discounts, bonuses, refunds, 
rebates, prizes, loan discount points or other financing charges, or 
anything else of more than nominal value which will inure to the benefit 
of a dealer and/or home purchaser at any date. Each price list and 
amendment shall be retained by the manufacturer for a minimum period of 
six years from the date of publication so as to be available to HUD and 
other Federal agencies upon request.

[50 FR 43523, Oct. 25, 1985, as amended at 54 FR 36263, Aug. 31, 1989; 
56 FR 52428, Oct. 18, 1991; 57 FR 6480, Feb. 25, 1992; 57 FR 45246, 
Sept. 30, 1992; 60 FR 13836, Mar. 14, 1995; 61 FR 5206, Feb. 9, 1996; 61 
FR 19795, May 2, 1996; 66 FR 56419, Nov. 7, 2001; 77 FR 51468, Aug. 24, 
2012]



Sec.  201.3  Applicability of the regulations.

    The regulations in this part may be amended by the Secretary at any 
time. Such amendment shall not adversely affect the insurance privileges 
of a lender on any loan that has been made or for which a loan 
application has been approved before the effective date of the 
amendment.

[61 FR 19796, May 2, 1996]



Sec.  201.4  Rules of construction.

    As used in this part, and unless the context indicates otherwise, 
words in the singular include the plural, and words in the plural 
include the singular.

[56 FR 52429, Oct. 18, 1991]



Sec.  201.5  Waivers.

    Waiver of lender's noncompliance. The Secretary may waive a lender's 
noncompliance with any provision of this part, subject to statutory 
limitations, when it is determined that enforcement of the regulations 
would impose an injustice upon a lender which has

[[Page 102]]

substantially complied with the regulations in good faith and refunded 
or credited any excess charge made, and when such waiver does not 
involve an increase in the Secretary's obligation beyond that which 
would have been involved if the lender was in full compliance with the 
regulations.

[56 FR 52429, Oct. 18, 1991, as amended at 61 FR 5206, Feb. 9, 1996]



Sec.  201.6  Disclosure and verification of Social Security and
Employer Identification Numbers.

    To be eligible for loan insurance under this part, the borrower must 
meet the requirements for the disclosure and verification of Social 
Security and Employer Identification Numbers, as provided by part 200, 
subpart U, of this chapter.

(Approved by the Office of Management and Budget under control number 
2502-0059)

[54 FR 39692, Sept. 27, 1989, as amended at 55 FR 420, Jan. 5, 1990]



Sec.  201.7  Qualified mortgage.

    (a) Qualified mortgage. A mortgage insured under section 2 of title 
I of the National Housing Act (12 U.S.C. 1703), except for mortgage 
transactions exempted under Sec.  203.19(c)(2), is a safe harbor 
qualified mortgage that meets the ability to repay requirements in 15 
U.S.C. 1639c(a).
    (b) Effect of indemnification on qualified mortgage status. An 
indemnification demand or resolution of a demand that relates to whether 
the loan satisfied relevant eligibility and underwriting requirements at 
the time of consummation may result from facts that could allow a change 
to qualified mortgage status, but the existence of an indemnification 
does not per se remove qualified mortgage status.

[78 FR 75237, Dec. 11, 2013]



                   Subpart B_Loan and Note Provisions



Sec.  201.10  Loan amounts.

    (a) Property improvement loans. (1) The total principal obligation 
for a property improvement loan shall not exceed the actual cost of the 
project plus any applicable fees and charges authorized at Sec.  
201.25(b), up to the following maximum loan amounts:
    (i) Single family property improvement loans--$25,000, except that a 
loan for a manufactured home that qualifies as real property shall be 
limited to $17,500.
    (ii) Multifamily property improvement loans--$60,000 or an average 
of $12,000 per dwelling unit, whichever is less.
    (iii) Nonresidential property improvement loans--$25,000.
    (iv) Manufactured home improvement loans--$7,500.
    (v) Historic preservation loans--the lesser of $15,000 per dwelling 
unit in a residential structure or $45,000 per residential structure.
    (vi) Fire safety equipment loans--$50,000.
    (2) No property improvement loan shall be approved where the total 
outstanding balance of all title I property improvement loans on the 
same property exceeds the maximum loan amount prescribed for that type 
of loan. If more than one type of property improvement loan is involved, 
the total outstanding balance of such loans on a particular property 
shall not exceed the maximum loan amount prescribed for the larger type 
of loan.
    (b) Manufactured home purchase loans. (1) The total principal 
obligation for a loan to purchase a new manufactured home shall not 
exceed the sum of the following itemized amounts, up to a maximum of 
$48,600:
    (i) 130 percent of the sum of the wholesale (base) prices of the 
home and any itemized options and the charge for freight, as detailed in 
the manufacturer's invoice;
    (ii) The charge for any sales taxes to be paid by the dealer, as 
detailed in the manufacturer's invoice;
    (iii) The actual dealer's cost of transportation to the homesite, 
set-up and anchoring, including the rental of wheels and axles (if not 
included in the freight charges);
    (iv) The actual dealer's cost of skirting;
    (v) The actual dealer's cost of a garage, carport, patio or other 
comparable appurtenance to the manufactured home, as approved by the 
Secretary;

[[Page 103]]

    (vi) The actual dealer's cost of purchasing and installing a central 
air conditioning system or heat pump, if not installed by the 
manufacturer; and
    (vii) Any applicable charges authorized at Sec.  201.25(b).
    (2) The total principal obligation for a loan to purchase an 
existing manufactured home shall not exceed the lesser of the following 
amounts, up to a maximum of $48,600:
    (i) 95 percent of the appraised value of the home as equipped and 
furnished (as determined by a HUD-approved appraisal) and 95 percent of 
any itemized amounts allowed under paragraphs (b)(1)(iii) through (vii) 
of this section, if incurred; or
    (ii) 95 percent of the purchase price of the home.
    (3) The purchase price of a manufactured home financed with a 
manufactured home purchase loan shall include the retail cost to the 
borrower of all items set forth in the purchase contract, including any 
applicable charges authorized under Sec.  201.25(b).
    (c) Manufactured home lot loans. The total principal obligation for 
a loan to purchase and, if necessary, develop a lot suitable for a 
manufactured home, including on-site water and utility connections, 
sanitary facilities, site improvements and landscaping, shall not exceed 
95 percent of either the appraised value of the developed lot (as 
determined by a HUD-approved appraisal) or the total of the purchase 
price and development costs, whichever is less, up to a maximum of 
$16,200.
    (d) Combination loans. (1) The total principal obligation for a loan 
to purchase a new manufactured home and a lot on which to place the home 
shall not exceed the sum of the following itemized amounts, up to a 
maximum of $64,800:
    (i) 130 percent of the sum of the wholesale (base) prices of the 
home and any itemized options and the charge for freight, as detailed in 
the manufacturer's invoice;
    (ii) The charge for any sales taxes to be paid by the dealer, as 
detailed in the manufacturer's invoice;
    (iii) The actual dealer's cost of transportation to the homesite, 
set-up and anchoring, including the rental of wheels and axles (if not 
included in the freight charge);
    (iv) The actual dealer's cost of purchasing and installing a central 
air conditioning system or heat pump, if not installed by the 
manufacturer;
    (v) The appraised value of the developed manufactured home lot (as 
determined by a HUD-approved appraisal, including on-site water and 
utility connections, sanitary facilities, site improvements and 
landscaping) or the purchase price, whichever is less;
    (vi) The actual dealer's cost of appurtenances to the home such as a 
permanent foundation, garage, carport or patio; and
    (vii) Any applicable charges authorized at Sec.  201.25(b).
    (2) The total principal obligation for a loan to purchase an 
existing manufactured home and lot shall not exceed the lesser of the 
following amounts, up to a maximum of $64,800:
    (i) 95 percent of the total appraised value of the home, the lot, 
and any appurtenances (as determined by a HUD-approved appraisal), plus 
95 percent of any applicable charges authorized at Sec.  201.25(b); or
    (ii) 95 percent of the purchase price of the home, the lot, and any 
appurtenances.
    (3) The purchase price of a manufactured home and a lot financed 
with a combination loan shall include the retail cost to the borrower of 
all items set forth in the purchase contract or contracts, including any 
applicable charges authorized under Sec.  201.25(b).
    (e) Manufactured home loan limits in high-cost areas. (1) The 
maximum loan amounts otherwise applicable under paragraphs (b), (c) and 
(d) of this section may be increased by an amount not to exceed 40 
percent where the manufactured home and/or lot is purchased and located 
in Alaska, Guam or Hawaii.
    (2) The maximum loan amounts otherwise applicable under paragraphs 
(c) and (d) of this section may be increased for any geographical area 
except Alaska, Guam or Hawaii to the extent deemed necessary by the 
Secretary; however, any increased loan amount may not exceed the lesser 
of (i) 185 percent of the dollar amounts specified in paragraphs (c) and 
(d) of this section;

[[Page 104]]

or (ii) the dollar amounts specified in paragraphs (c) and (d) of this 
section, as increased by the same percentage by which 95 percent of the 
median 1-family house price in the area (as determined by the Secretary 
for purposes of Sec.  203.18) exceeds $67,500.
    (f) Loan refinancing. (1) The total principal obligation of a loan 
made to refinance a borrower's existing insured property improvement 
loan shall not exceed the maximum loan amount permitted under this 
section for the particular type of loan, provided that any amount in 
excess of the cost to the borrower of prepaying the existing loan shall 
be made available only to finance additional property improvements 
meeting the requirements of this part.
    (2) The total principal obligation of a loan made to refinance a 
borrower's existing insured manufactured home loan shall not exceed the 
lesser of the cost to the borrower of prepaying the existing loan or the 
maximum loan amount permitted under this section for the particular type 
of loan.
    (3) The total principal obligation of a loan made to refinance a 
borrower's existing uninsured manufactured home loan shall not exceed 
the cost to the borrower of prepaying the existing loan or the appraised 
value of the property (as determined by a HUD-approved appraisal), 
whichever is less, up to the maximum loan amount permitted under this 
section for the particular type of loan.
    (4) When a borrower's existing manufactured home lot is being 
refinanced in connection with the purchase of a manufactured home, the 
total principal obligation of the combination loan shall be determined 
in accordance with paragraph (d)(1) or (d)(2) of this section.
    (5) When a borrower's existing manufactured home is being refinanced 
in connection with the purchase of a manufactured home lot, the total 
principal obligation of the combination loan shall not exceed the lesser 
of the following amounts, up to a maximum of $64,800:
    (i) The cost to the borrower of prepaying any existing loan on the 
home, plus the purchase price of the lot; or
    (ii) The appraised value of the home and lot (as determined by a 
HUD-approved appraisal).
    (g) Minimum loan amount. A lender may not require, as a condition of 
providing a loan insured under this part, that the principal amount of 
the loan exceed a minimum amount established by the lender.

[50 FR 43523, Oct. 25, 1985, as amended at 52 FR 33406, Sept. 3, 1987; 
53 FR 8880, Mar. 18, 1988; 54 FR 10537, Mar. 14, 1989; 54 FR 36264, Aug. 
31, 1989; 56 FR 52429, Oct. 18, 1991; 57 FR 45246, Sept. 30, 1992; 58 FR 
41001, July 30, 1993; 59 FR 9084, Feb. 25, 1994; 61 FR 19796, May 2, 
1996; 62 FR 20082, Apr. 24, 1997]



Sec.  201.11  Loan maturities.

    (a) Property improvement loans. The term of a property improvement 
loan shall be not less than six months and not more than 20 years and 32 
days from the date of the loan, except that:
    (1) The maximum term for a single family property improvement loan 
on a manufactured home that qualifies as real property shall not exceed 
15 years and 32 days from the date of the loan;
    (2) The maximum term for a manufactured home improvement loan shall 
not exceed 12 years and 32 days from the date of the loan; and
    (3) The maximum term for an historic preservation loan shall not 
exceed 15 years and 32 days from the date of the loan.
    (b) Manufactured home loans. The term of a manufactured home loan 
shall be not less than six months and not more than 20 years and 32 days 
from the date of the loan, except that:
    (1) The maximum term for a manufactured home lot loan shall not 
exceed 15 years and 32 days from the date of the loan; and
    (2) The maximum term for a multi-module manufactured home and lot in 
combination shall not exceed 25 years and 32 days from the date of the 
loan.
    (c) Loan refinancing. A loan to be refinanced under this part may be 
refinanced for an extended period.
    (1) The term of a loan to refinance a borrower's existing insured 
property improvement or manufactured home loan shall not exceed the 
maximum term permitted under paragraph (a) or (b) of this section for 
the particular type of loan. In addition, the total time

[[Page 105]]

period from the date of the original loan to the final maturity of the 
refinanced loan shall not exceed:
    (i) In the case of a property improvement loan, the maximum term 
permitted under paragraph (a) of this section plus 9 years and 11 
months; and
    (ii) In the case of manufactured home loan, the maximum term 
permitted under paragraph (b) of this section plus 4 years and 11 
months.
    (2) The term of a loan made to refinance a borrower's existing 
uninsured manufactured home loan shall not exceed the maximum term 
permitted under paragraph (b) of this section for the particular type of 
loan.
    (3) When a borrower's existing manufactured home lot is being 
refinanced in connection with the purchase of a manufactured home, the 
term of the combination loan shall not exceed the maximum term permitted 
under paragraph (b) of this section for the particular type of loan.
    (4) When a borrower's existing manufactured home is being refinanced 
in connection with the purchase of a manufactured home lot, the term of 
the combination loan shall not exceed the maximum term permitted under 
paragraph (b) of this section for the particular type of loan.

[50 FR 43523, Oct. 25, 1985, as amended at 52 FR 33406, Sept. 3, 1987; 
54 FR 10537, Mar. 14, 1989; 56 FR 52430, Oct. 18, 1991; 57 FR 45246, 
Sept. 30, 1992; 61 FR 19796, May 2, 1996]



Sec.  201.12  Requirements for the note.

    The note shall bear the genuine signature of each borrower and of 
any co-maker or co-signer, be valid and enforceable against the borrower 
and any co-maker or co-signer, and be complete and regular on its face. 
The borrower and any co-maker or co-signer shall execute the note for 
the full amount of the loan obligation. Although the note may be 
executed by the borrower on an earlier date, the date of the loan shall 
be the date that the loan proceeds are disbursed by the lender. Such 
date shall be entered on the note when disbursement occurs. The note 
shall separately recite the principal amount and any interest at an 
agreed annual rate that comprises the borrower's payment obligation. The 
lender shall assure that the note and all other documents evidencing the 
loan transaction are in compliance with applicable Federal, State, and 
local laws. If the note is executed on behalf of a corporation, 
partnership, or trust by an authorized representative, it shall create a 
binding obligation on such entity.

[61 FR 19797, May 2, 1996]



Sec.  201.13  Interest and discount points.

    The interest rate for any loan shall be negotiated and agreed to by 
the borrower and the lender, and such interest rate shall be fixed for 
the full term of the loan and recited in the note. Interest on the loan 
shall accrue from the date of the loan, and shall be calculated on a 
simple interest basis. The lender and the borrower may negotiate the 
amount of discount points, if any, to be paid by the borrower as part of 
the borrower's initial payment. The lender shall not require or allow 
any party other than the borrower to pay any discount points or other 
financing charges in connection with the loan transaction.

[61 FR 19797, May 2, 1996]



Sec.  201.14  Payments on the loan.

    The note normally shall provide for equal installment payments due 
weekly, biweekly, semi-monthly or monthly. The note may provide for 
either or both of the first and final payments to vary in amount but not 
to exceed 1\1/2\ times the regular installment. Where the borrower has 
an irregular flow of income, the note may be payable at quarterly or 
semi-annual intervals corresponding with the borrower's flow of income. 
The first scheduled payment after the borrower's initial payment shall 
be due no later than two months from the date of the loan. Multiple 
payment schedules may not be used in connection with any loan.



Sec.  201.15  Late charges to borrowers.

    (a) Imposition of late charge. The note may provide for imposition 
of a late charge unless precluded by State law. The late charge may be 
imposed only for installments of principal and interest which are in 
arrears for the greater of 15 calendar days or the number of days 
required by applicable State law before such a charge may be imposed.

[[Page 106]]

Late charges must be billed to the borrower or reflected in the payment 
coupon, and evidence of any late charges that have been paid must be in 
the loan file if an insurance claim is made.
    (b) Amount of late charge. The late charge shall not exceed the 
lesser of five percent of each installment of principal and interest, up 
to a maximum of $10 per installment for any property improvement loan 
and $15 per installment for any manufactured home loan, or the maximum 
amount permitted by applicable State law.
    (c) Method of payment. Payment of any late charge cannot be deducted 
from the monthly payment for principal and interest, but must be an 
additional charge to the borrower.
    (d) Daily interest in lieu of late charges. In lieu of late charges, 
the note may provide for interest to accrue on installments in arrears 
on a daily basis at the interest rate in the note.

[54 FR 36264, Aug. 31, 1989]



Sec.  201.16  Default provision.

    The loan note shall contain a provision for acceleration of 
maturity, at the option of the holder, upon a default by the borrower.



Sec.  201.17  Prepayment provision.

    The note shall contain a provision permitting full or partial 
prepayment of the loan without penalty, except that the borrower may be 
assessed reasonable and customary charges for recording a release of the 
lender's security interest in the property, if permitted by State law.

[61 FR 19797, May 2, 1996]



Sec.  201.18  Modification agreement or repayment plan.

    (a) Modification agreement or repayment plan. A written but 
unrecorded modification agreement acceptable to the lender and executed 
by the borrower may be used in lieu of refinancing of a delinquent or 
defaulted loan to reduce or increase the monthly payment, but not to 
increase the term or the interest rate, so as to assure that the 
delinquent or defaulted loan is brought current before or by the end of 
the loan term. A modification agreement may also be used in lieu of 
refinancing in connection with a loan that is current to effect a 
reduction in the interest rate, and in the monthly payment, for the 
remainder of the loan term. When a modification agreement is used, no 
insurance reporting is required under Sec.  201.30.
    (b) Repayment plan. The lender may elect to negotiate an informal 
repayment plan with the borrower to enable a temporary delinquency to be 
cured within a short period of time. The lender may document the terms 
of the repayment plan by sending a letter to the borrower reciting the 
terms of their agreement. When a repayment plan is used, no insurance 
reporting is required under Sec.  201.30.

[52 FR 33406, Sept. 3, 1987, as amended at 54 FR 10537, Mar. 14, 1989]



Sec.  201.19  Refinanced and assumed loans.

    (a) Conditions on refinancing. (1) An existing insured property 
improvement loan or manufactured home loan may be refinanced without an 
advance of funds only under the following conditions:
    (i) A loan that is in default may not be refinanced for an amount 
greater than the original principal balance of the loan;
    (ii) The refinancing of a loan for the original borrower shall be 
subject to all of the requirements of this part, except Sec. Sec.  
201.20(b) and (c), 201.21(b) through (e), 201.22, 201.23, and 201.26;
    (iii) If there are co-makers or co-signers on the original note, the 
lender shall require the same co-makers or co-signers on the refinanced 
note, unless the lender obtains the Secretary's approval to release a 
co-maker or co-signer from liability under the note in accordance with 
Sec.  201.24(e); and
    (iv) A loan that was assumed in accordance with paragraph (c) of 
this section may be refinanced, subject to all of the requirements of 
this part except Sec. Sec.  201.20(b) and (c), 201.21(b) through (e), 
201.22, 201.23, and 201.26, as long as the original borrower and any 
intervening assumptors were released from liability for repayment of the 
loan at the time the loan was assumed. A lender may not refinance a 
previously assumed loan under any other circumstances, unless the 
requirements of

[[Page 107]]

Sec.  201.22 are also met and the Secretary has approved a release of 
the original borrower and any intervening assumptors in accordance with 
Sec.  201.24(e).
    (2) An existing insured property improvement loan may be refinanced 
with an advance of funds for additional improvements only under the 
following conditions:
    (i) The existing insured loan must not be in default; and
    (ii) The refinancing shall be subject to all of the requirements of 
this part applicable to the particular type of loan and to the 
additional improvements being financed.
    (3) An existing uninsured manufactured home loan may be refinanced 
only for the original borrower and only under the following conditions:
    (i) The existing uninsured loan must not be in default;
    (ii) Refinancing of an existing uninsured manufactured home purchase 
loan or combination loan shall be subject to all the requirements of 
this part applicable to the particular type of loan except Sec. Sec.  
201.23 and 201.26(b)(4);
    (iii) Refinancing of an existing uninsured manufactured home lot 
loan in connection with the purchase of a manufactured home shall be 
subject to all of the requirements of this part; and
    (iv) Refinancing of an existing uninsured manufactured home purchase 
loan in connection with the purchase of a manufactured home lot shall be 
subject to all of the requirements of this part except Sec.  
201.26(b)(4).
    (b) Note and security requirements for refinanced loans. (1) 
Refinancing of a loan requires the execution of a new note and 
cancellation of the old note.
    (2) Refinancing of a loan that was secured when originated, 
regardless of the principal balance of the note at the time of 
refinancing, is required to be secured.
    (3) Refinancing of a loan that was not secured when originated is 
not required to be secured if no additional funds are advanced.
    (4) When a refinanced loan is secured, the lender shall obtain and 
record a new security instrument in accordance with Sec.  201.24 and 
shall release the original lien, unless State law permits a renewal and 
extension of the original lien.
    (5) Copies of all documents pertaining to the original loan must be 
retained in the loan file for the refinanced loan.
    (c) Assumed loans. (1) At the option of the lender, an existing 
insured property improvement loan or manufactured home loan may be 
assumed, subject to the following conditions:
    (i) A determination by the lender that the assumptor is eligible 
under Sec.  201.20(a) or 201.21(a) and meets the requirements of Sec.  
201.22; and
    (ii) The execution of an assumption agreement that is satisfactory 
to the lender and is signed by the assumptor and the original borrower 
or previous assumptor at the time of assumption.
    (2) The lender shall not permit an assumption under any 
circumstances other than those contained in this section, and shall 
include appropriate provisions in any note or security agreement to 
enforce this requirement.
    (3) Prior to the execution of the assumption agreement, the lender 
shall provide the assumptor with a written notice, to be signed by the 
assumptor and retained in the loan file, that:
    (i) States that the loan being assumed is insured by HUD, and 
describes the actions the Secretary may take to recover the debt if the 
assumptor defaults on the loan and an insurance claim is paid; and
    (ii) Constitutes the assumptor's agreement to pay penalties and 
administrative costs imposed by HUD as authorized by 31 U.S.C. 3717.
    (4) If the other requirements of paragraph (c) of this section are 
met, the lender at its option may release the original borrower and any 
intervening assumptors from liability for the repayment of a loan 
obligation insured under this part. The prior approval of the Secretary 
under Sec.  201.24(e) is not required. The lender shall retain 
documentation of the release in the loan file.

[52 FR 33406, Sept. 3, 1987, as amended at 56 FR 52430, Oct. 18, 1991]

[[Page 108]]



           Subpart C_Eligibility and Disbursement Requirements



Sec.  201.20  Property improvement loan eligibility.

    (a) Borrower eligibility. (1) To be eligible for a property 
improvement loan (other than a manufactured home improvement loan), the 
borrower shall have at least a one-half interest in one of the 
following:
    (i) Fee simple title to the real property;
    (ii) Lease of the real property for a fixed term which expires not 
less than six calendar months after the final maturity of the loan; or
    (iii) A properly recorded land installment contract for the purchase 
of the real property.
    (2) To be eligible for a manufactured home improvement loan, the 
borrower shall have at least a one-half interest in the manufactured 
home, and the home must be the principal residence of the borrower.
    (b) Eligible use of the loan proceeds. (1) The loan proceeds shall 
be used only for the purposes disclosed in the loan application. If the 
borrower plans to use a dealer or contractor to carry out the 
improvement work, the lender shall obtain a copy of a proposal or 
contract that describes in detail the work to be performed and the 
estimated or actual cost. If the borrower plans to carry out the 
improvement work without the services of a dealer or contractor, the 
borrower shall be required to furnish a detailed written description of 
the work to be performed, the materials to be furnished, and their 
estimated cost.
    (2) The loan proceeds shall be used only to finance property 
improvements that substantially protect or improve the basic livability 
or utility of the property. The Secretary will establish a list of items 
and activities that may not be financed with the proceeds of any 
property improvement loan. If a lender has any doubt as to the 
eligibility of any item or activity, it shall request a specific ruling 
by the Secretary before making a loan.
    (3) The loan proceeds shall only be used to finance property 
improvements that are started after loan approval, unless:
    (i) The prior approval of the Secretary is obtained for an exception 
to this requirement; or
    (ii) The property is located in a major disaster area declared by 
the President, and the lender determines that emergency action is needed 
to repair damage resulting from the disaster.
    (c) Special pre-application requirements. (1) Where the proceeds are 
to be used for an historic preservation loan, the proposed improvements 
shall be reviewed and approved by the State Historic Preservation 
Officer (or other person authorized by the Secretary of the Interior to 
make such reviews) prior to making application for a loan. The purpose 
of the review is to determine that (i) the structure is an historic 
residential structure listed on the National Register of Historic Places 
or certified by the Secretary of the Interior as conforming with 
National Register criteria, and (ii) the proposed improvements comply 
with criteria set by the Secretary of the Interior for the preservation 
of historic structures.
    (2) Where the proceeds are to be used for a fire safety equipment 
loan, the proposed improvements shall be reviewed and approved by the 
State or local agency having primary jurisdiction over the fire safety 
requirements of health care facilities prior to making application for a 
loan.

[50 FR 43523, Oct. 25, 1985, as amended at 56 FR 52430, Oct. 18, 1991; 
61 FR 19797, May 2, 1996; 62 FR 65181, Dec. 10, 1997]



Sec.  201.21  Manufactured home loan eligibility.

    (a) Borrower eligibility. To be eligible for a manufactured home 
loan (whether a manufactured home purchase loan, a manufactured home lot 
loan, or a combination loan), the borrower must become the owner of the 
particular property which is to be financed with such a loan. Where the 
loan involves a manufactured home which is classified as realty, 
ownership of the home must be in fee simple. Where the loan involves a 
manufactured home lot, ownership of the lot must be in fee simple, 
except where the lot consists of a share in a cooperative association 
which owns and operates a manufactured home park.

[[Page 109]]

    (b) Eligible use of loan proceeds. (1) The loan proceeds may be used 
for the purchase or refinancing of a manufactured home, a suitably 
developed lot on which to place a manufactured home already owned by the 
borrower, or a manufactured home and a suitably developed lot for the 
home in combination. The loan proceeds may also be used to refinance an 
existing manufactured home already owned by the borrower in connection 
with the purchase of a manufactured home lot, or to refinance a lot 
already owned by the borrower in connection with the purchase of a 
manufactured home. Where the proceeds are for a manufactured home 
purchase loan or combination loan, the home must be the borrower's 
principal residence. Where the proceeds are for a manufactured home lot 
loan, the borrower's manufactured home must be placed on the lot and 
occupied as the borrower's principal residence within six months after 
the date of the loan.
    (2) A manufactured home financed with an insured loan under this 
part may be either:
    (i) A new home, which is one that is purchased by the borrower 
within 18 months after the date of manufacture and has not been 
previously occupied; or
    (ii) An existing home, which is one that does not meet the criteria 
for a new home. In order to be eligible for financing with an insured 
loan under this part, the manufactured home, its warranty and the site 
on which the home is placed must meet the requirements of paragraphs (c) 
through (e) of this section.
    (3) The proceeds of a loan to purchase a new manufactured home or a 
new manufactured home and lot shall not be used to purchase furniture or 
wheels and axles, and the cost of these items shall not be included in 
the total principal obligation calculated under Sec.  201.10 (b)(1) or 
(d)(1).
    (4) The proceeds of a manufactured home purchase loan may be used 
for the purchase, construction or installation of a garage, carport, 
patio or other comparable appurtenance to the manufactured home, as 
stated in the retail purchase contract and as approved by the Secretary. 
The proceeds of a combination loan may be used for the purchase, 
construction or installation of a permanent foundation, garage, carport, 
patio or other comparable appurtenance to the manufactured home.
    (5) The Secretary will establish a list of items and activities that 
may not be financed with the proceeds of any manufactured home loan. If 
a lender has any doubt as to the eligibility of any item or activity, it 
shall request a specific ruling by the Secretary before making a loan.
    (c) Construction, transportation and installation requirements. (1) 
The manufactured home shall be certified by the manufacturer under 
applicable criminal and civil penalties for fraud and misrepresentation 
to have been constructed in compliance with the National Manufactured 
Housing Construction and Safety Standards Act of 1974, 42 U.S.C. 5401-
5426, so as to conform to all applicable Federal construction and safety 
standards, as evidenced by a label or tag affixed to the manufactured 
home in accordance with 24 CFR 3280.8.
    (2) During any period of transportation from the factory to the 
borrower's homesite, the structural integrity of the manufactured home 
shall be maintained so that it will be livable and durable.
    (3) The installation or erection of the manufactured home on the 
homesite shall comply with the manufacturer's requirements for 
anchoring, support, stability and maintenance. Any permanent foundation 
shall be constructed in accordance with the current edition of HUD's 
Permanent Foundations Guide for Manufactured Housing (HUD Handbook 
4930.3).
    (4) For any manufactured home purchase loan or combination loan 
involving a sale of the manufactured home by a dealer, the dealer shall 
inspect the manufactured home, as installed or erected on the homesite, 
for structural damage or other defects resulting from the transportation 
and installation of the home. The dealer shall also test the performance 
of the home's plumbing, mechanical and electrical systems to assure that 
they are fully operational.
    (d) Manufacturer's warranty requirements. (1) To induce the 
Secretary to insure a title I loan under this part for the purchase of a 
new manufactured

[[Page 110]]

home and to induce a borrower to purchase such a home, the home 
manufacturer shall furnish the borrower with a written warranty, duly 
executed by an authorized representative of the manufacturer on a HUD-
approved form. The warranty shall be provided without cost to the 
borrower. The effective date of the warranty shall be the date of 
delivery of the manufactured home to the borrower, regardless of when 
the warranty was executed by the manufacturer or was delivered to the 
borrower.
    (2) The warranty shall obligate the home manufacturer to take 
appropriate action to correct any nonconformity with the standards 
prescribed in paragraph (c)(1) of this section or any defects in 
materials or workmanship which become evident within one year after the 
date of delivery. This warranty shall be in addition to, and not in 
derogation of, all other rights and privileges which the borrower may 
have under any other law or instrument during such period or thereafter. 
A copy of the warranty shall be retained in the lender's loan file.
    (3) Prior to making a loan involving a new manufactured home, the 
lender shall investigate whether the home manufacturer is substantially 
complying with its warranty obligations on other homes financed by the 
lender under any program. If the lender knows, because of consumer 
complaints, dealer comments or other information concerning the 
manufacturer received in the course of business, that consumers have 
complained about warranty performance, the lender shall ascertain 
whether such complaints have been resolved. The lender's findings shall 
be documented in the loan file. Such documentation may reference 
information or materials contained in other files of the lender, 
provided that the file contains a written certification signed by a 
responsible loan officer under applicable criminal and civil penalties 
for fraud and misrepresentation that the lender's findings are supported 
by such other information or materials.
    (4) If the lender concludes under paragraph (d)(3) of this section 
that a manufacturer may not be honoring its warranties, the lender shall 
immediately notify the Secretary in writing, with documentation of the 
facts and circumstances.
    (e) Manufactured homesite standards. (1) To assure the suitability 
of the homesite, the manufactured home shall be placed on a leased site 
in a manufactured home park or on an individual manufactured home lot or 
other site owned or leased by the borrower that meets the following 
standards. A manufactured home may be placed on a site within Indian 
trust or otherwise restricted lands if the borrower owns or leases the 
site, or if the borrower obtains written permission acceptable to the 
Secretary from the trustee or the tribal authority who controls the use 
of the site.
    (2) The manufactured homesite shall be served by adequate public or 
community water and sewerage systems, unless appropriate local officials 
certify that either or both such systems are unavailable to provide an 
adequate level of service to the manufactured homesite. If either or 
both such systems are not available, the manufactured homesite shall 
comply with local or State minimum lot area requirements for the 
provision of onsite water supply and/or sewage disposal.
    (3) When the manufactured home is to be placed on a leased site in a 
manufactured home park, the lender shall obtain certifications from the 
appropriate State or local government officials that the park complies 
with minimum standards relating to vehicular access, water supply, 
sewage disposal, utility connections, and other aspects of park 
development. Where minimum State and local standards for park 
development are not established or enforced, the lender shall obtain a 
certification from a registered civil engineer that the park meets 
minimum standards for park development prescribed by the Secretary.
    (4) When the manufactured home is to be placed on an individual 
manufactured home lot or other site owned or leased by the borrower (or 
on an Indian land site under paragraph (e)(1) of this section), the 
lender shall obtain certifications from the appropriate local government 
officials that:
    (i) The site complies with local zoning ordinances and regulations, 
if any;

[[Page 111]]

    (ii) Adequate vehicular access from a public right-of-way is 
available to the site;
    (iii) Adequate water supply and sewage disposal facilities are 
available to or on the site; and
    (iv) Any other minimum local standards and requirements for site 
suitability are met. Where minimum local standards for water supply and 
sewage disposal are not established or enforced, the lender shall obtain 
a certification from a registered civil engineer that the site meets 
minimum standards for water supply and sewage disposal prescribed by the 
Secretary.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985; 51 FR 1496, Jan. 14, 1986, as amended at 54 
FR 36264, Aug. 31, 1989; 56 FR 52431, Oct. 18, 1991; 61 FR 19797, May 2, 
1996]



Sec.  201.22  Credit requirements for borrowers.

    (a) Credit application and review. (1) Before making a loan insured 
under this part, the lender shall exercise prudence and diligence to 
determine whether the borrower and any co-maker or co-signer is solvent 
and an acceptable credit risk, with a reasonable ability to make 
payments on the loan obligation. All documentation supporting this 
determination and relating to the lender's review of the credit of the 
borrower and of any co-maker or co-signer shall be retained in the loan 
file.
    (2) The lender shall obtain a separate dated credit application on a 
HUD-approved form, executed by the borrower and any co-maker or co-
signer under applicable criminal and civil penalties for fraud and 
misrepresentation, for each loan made. The lender shall verify that the 
borrower's Social Security Number is valid, through such documentation 
as may be prescribed by the Secretary.
    (3) The lender shall conduct a credit investigation based on the 
credit application, and shall obtain written verification of or 
otherwise document the current employment and current income of the 
borrower and any co-maker or co-signer. If the borrower or any co-maker 
or co-signer has changed employment within the past two years, the 
lender shall obtain written verification of or otherwise document the 
person's prior employment and prior income during the two-year period. 
If the borrower or any co-maker or co-signer was self-employed during 
any period of the previous two years, the lender shall obtain 
documentation of the person's income during such period of self-
employment.
    (4) The lender shall also determine the total amount of the 
borrower's existing and proposed title I loans to ensure that the loan 
amounts in Sec.  201.10 are not exceeded.
    (5) As part of its credit investigation, the lender shall obtain a 
consumer credit report stating the credit accounts and payment history 
of the borrower and of any co-maker or co-signer. Subject to state or 
local law, the lender shall check with the inquirers concerning all 
credit inquiries reported within the previous 90 days to determine 
whether the borrower or the co-maker or co-signer has incurred debts not 
listed on the credit application. If a consumer credit report is not 
available or is incomplete, the loan file shall contain other 
documentation of the lender's diligent investigation of the credit of 
the borrower or of the co-maker or co-signer.
    (6) If the consumer credit report does not contain the necessary 
information, the lender shall obtain written verification that the 
borrower is not over 30 days delinquent on any senior mortgages or deeds 
of trust on the property being improved with a property improvement 
loan.
    (7) The lender shall verify, in such manner as the Secretary may 
prescribe, whether the borrower is in default or a claim has been paid 
in connection with any loan obligation owed to or insured or guaranteed 
by the Federal Government.
    (8) For any loan with a total principal balance in excess of $5,000, 
the lender shall obtain written verification of the source of all funds 
of the borrower required for the borrower's initial payment, if such 
payment will be in excess of five percent of the loan.
    (9) Before making a final determination on the creditworthiness of 
the borrower, the lender shall conduct a face-to-face or telephone 
interview with the

[[Page 112]]

borrower and any co-maker or co-signer to resolve any discrepancies in 
the information on the credit application and to assure that the 
information is accurate and complete.
    (10) After a thorough credit investigation and in the absence of 
information to the contrary, the lender may rely upon all statements of 
fact made by the borrower or any co-maker or co-signer in a credit 
application.
    (b) Income requirements. (1) For any Title I loan, the credit 
application and review must establish that the borrower's income will be 
adequate to meet the periodic payments required by the loan, as well as 
the borrower's other housing expenses and recurring charges. For a 
borrower's income to be considered adequate, housing expenses and total 
fixed expenses generally may not exceed maximum percentages of effective 
gross income established by the Secretary. If these expense-to-income 
ratios are exceeded, the borrower's income may be considered adequate 
only if the lender determines and documents in the loan file the 
existence of compensating factors concerning the borrower's 
creditworthiness that support approval of the loan.
    (2) In determining whether the borrower's income is adequate, the 
following definitions are applicable:
    (i) Effective gross income is defined as continuing income from all 
sources that is reasonably expected to be available during the first two 
years of the loan obligation, without any deduction for income taxes or 
other items.
    (ii) Total fixed expenses is the sum of the borrower's housing 
expenses and other recurring charges.
    (iii) Housing expenses includes all payments for principal, 
interest, loan or mortgage insurance charges, ground rent or leasehold 
charges, real estate taxes, hazard insurance, and homeowners association 
or condominium fees, but does not include utility costs.
    (iv) Other recurring charges include all payments on automobile 
loans, furniture loans, student loans, installment loans, revolving 
charge accounts, alimony or child support, and any other debt for which 
the obligation is expected to continue for six months or more.
    (c) Evidence of delinquency, default or misrepresentation. Except 
with the prior approval of the Secretary the lender shall not approve a 
loan if the lender has knowledge of any of the following circumstances:
    (1) The borrower is past due more than 30 days as to the payment of 
principal or interest under the original terms of a loan obligation owed 
to or insured or guaranteed by the Federal Government, unless the debt 
has since been discharged or satisfied; or
    (2) The borrower has previously made material misstatements of fact 
on applications for loans or other assistance.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986; 
54 FR 10537, Mar. 14, 1989; 56 FR 52431, Oct. 18, 1991; 57 FR 6480, Feb. 
25, 1992; 61 FR 19797, May 2, 1996]



Sec.  201.23  Borrower's initial payment.

    (a) General requirement. The borrower shall be responsible for the 
payment in cash of any costs that will not be paid, or are not eligible 
to be paid, from the proceeds of the loan. Such costs payable by the 
borrower may include any required downpayment, any discount points to be 
paid by the borrower to the lender, any other fees and charges that may 
not be financed, and any other costs in excess of the loan amount. No 
part of such costs payable by the borrower may be loaned, advanced, or 
paid to or for the benefit of the borrower by the dealer, the 
manufacturer, or any other party to the loan transaction. If the 
borrower obtains all or any part of such costs through a gift or a loan 
from some other source, the borrower must disclose the source of such 
gift or loan on the credit application. Any such loan must be secured by 
property or collateral owned by the borrower independently of the 
property securing repayment of the Title I loan, unless the prior 
approval of the Secretary is obtained for an exception to this 
requirement. The lender shall consider any such loan obligation in 
performing the credit investigation. Documentation of any initial 
payment shall be retained by the lender in the loan file.
    (b) Manufactured home purchase loans. In the case of a manufactured 
home

[[Page 113]]

purchase loan, the borrower shall make a minimum cash downpayment of at 
least five percent of the purchase price of the home. The borrower's 
equity in an existing manufactured home and any movable appurtenances 
may be traded-in on a new home and accepted in lieu of full or partial 
cash downpayment, but without any cash payment to the borrower. The 
existing manufactured home being traded-in shall be clearly identified, 
and the borrower's equity in the home shall be based upon the retail 
value of the home and appurtenances (as determined by a HUD-approved 
appraisal), less the total of all loans outstanding on the home and 
appurtenances.
    (c) Manufactured home lot loans. In the case of a manufactured home 
lot loan, the borrower shall make a minimum cash downpayment of at least 
five percent of the total of the purchase price and development costs 
for the lot.
    (d) Combination loans. In the case of a combination loan, the 
borrower shall make a minimum cash downpayment of at least five percent 
of the purchase price of the manufactured home and lot. If the borrower 
already owns a manufactured home or a lot on which a manufactured home 
is to be placed, the borrower's equity in such home or lot may be 
accepted in lieu of full or partial cash downpayment on a combination 
loan, but without any cash payment to the borrower.

[61 FR 19798, May 2, 1996]



Sec.  201.24  Security requirements.

    (a) Property improvement loans--(1) Property improvement loans in 
excess of $7,500. (i) Any property improvement loan in excess of $7,500 
shall be secured by a recorded lien on the improved property. The lien 
shall be evidenced by a mortgage or deed of trust, executed by the 
borrower and all other owners in fee simple.
    (ii) If the borrower is a lessee, the borrower and all owners in fee 
simple must execute the mortgage or deed of trust. If the borrower is 
purchasing the property under a land installment contract, the borrower, 
all owners in fee simple, and all intervening contract sellers must 
execute the mortgage or deed of trust.
    (iii) The lien need not be a first lien on the property; however, 
the lien securing the Title I loan must hold no less than the second 
lien position. This requirement shall not apply where the first and 
second mortgages were made at the same time or the second mortgage was 
provided by a state or local government agency in conjunction with a 
downpayment assistance program.
    (2) Property improvement loans of $7,500 or less. Any property 
improvement loan for $7,500 or less (other than a manufactured home 
improvement loan) shall be similarly secured if, including any such 
additional loans, the total amount of all Title I loans on the improved 
property is more than $7,500.
    (3) Manufactured home improvement loans. Manufactured home 
improvement loans need not be secured.
    (b) Manufactured home loans. Any manufactured home loan shall be 
secured by a recorded lien on the home (or lot or home and lot, as 
appropriate), its furnishings, equipment, accessories, and 
appurtenances. The lien shall be a first lien, superior to any other 
lien on that property, and shall be evidenced by a properly recorded 
financing statement, a properly recorded security instrument executed by 
the borrower and any other owner of the property, or another acceptable 
instrument, such as a certificate of title issued by the State and 
containing a recitation of the lender's lien interest in the 
manufactured home.
    (c) Recording and perfection of security. The lender shall assure 
that the legal description of the property as recited in the security 
instrument is accurate, and that the security instrument creates a valid 
and enforceable lien on the property in the jurisdiction in which the 
property is located. The security instrument shall be recorded and 
perfected in the manner specified by applicable State law in the State 
where the property is located.
    (d) Substitution or subordination of security. The Secretary may 
approve substitution or subordination of security where the security 
value will not be impaired or reduced.
    (e) Release of liability or lien. The lender shall not release the 
borrower or any

[[Page 114]]

co-maker or co-signer from any liability under a note or from any lien 
securing a loan insured under this part without the prior approval of 
the Secretary.

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986; 
54 FR 36265, Aug. 31, 1989; 61 FR 19798, May 2, 1996; 66 FR 56419, Nov. 
7, 2001]



Sec.  201.25  Charges to borrower to obtain loan.

    (a) Fees and charges that may be financed in a property improvement 
loan. The Secretary will establish a list of fees and charges that may 
be included in a property improvement loan. Such fees and charges shall 
have been incurred in connection with the origination of the loan, and 
their inclusion shall not increase the total principal obligation beyond 
the maximum loan amounts in Sec.  201.10.
    (b) Fees and charges that may be financed in a manufactured home 
loan. The Secretary will establish a list of fees and charges that may 
be included in a manufactured home loan. Such fees and charges shall 
have been incurred in connection with the origination of the loan, and 
their inclusion shall not increase the total principal obligation beyond 
the maximum loan amounts in Sec.  201.10.
    (c) Fees and charges that may not be financed. The Secretary will 
establish a list of fees and charges incurred by the lender that may be 
collected from the borrower in the initial payment, but may not be 
included in the loan amount or otherwise financed or advanced by the 
dealer, the manufacturer, or any other party to the loan transaction.
    (d) Fees and charges that may not be paid. Neither the lender nor 
the borrower may pay a referral fee to any dealer, home manufacturer, 
contractor, supplier, real estate broker, loan broker, or any other 
party in connection with the origination of a loan insured under this 
part.

[61 FR 19798, May 2, 1996]



Sec.  201.26  Conditions for loan disbursement.

    (a) Property improvement loans. The lender shall comply with the 
following applicable requirements before disbursing the proceeds of a 
property improvement loan.
    (1) The lender shall ensure that the following conditions are met:
    (i) The borrower is eligible for a property improvement loan in 
accordance with Sec.  201.20(a) (1) or (2); and
    (ii) The interest of the borrower in the property is valid, through 
such title or other evidence as are generally acceptable to prudent 
lending institutions and leading attorneys in the community in which the 
property is situated.
    (2) The proposed use of the loan proceeds shall be documented in 
accordance with the requirements of Sec.  201.20(b)(1).
    (3) Where the proceeds are to be used for an historic preservation 
loan, the lender shall ensure that the proposed improvements have been 
approved by the State Historic Preservation Officer in accordance with 
Sec.  201.20(c).
    (4) Where the proceeds are to be used for a fire safety equipment 
loan, the lender shall ensure that the proposed improvements have been 
approved by the State or local agency having jurisdiction over the fire 
safety requirements of health care facilities in accordance with Sec.  
201.20(c).
    (5) In the case of a dealer loan, the lender shall obtain a 
completion certificate, on a HUD-approved form and signed by the 
borrower and the dealer under applicable criminal and civil penalties 
for fraud and misrepresentation, certifying that
    (i) the improvements are eligible and have been completed in general 
accordance with the contract or cost estimate furnished to the lender, 
and
    (ii) The borrower has not obtained the benefit of and will not 
receive any cash payment, rebate, cash bonus, sales commission, or 
anything of more than nominal value from the dealer as an inducement for 
the consummation of the transaction.
    (6) In the case of a dealer loan made on or after December 7, 2001, 
the lender may disburse the loan proceeds solely to the borrower, or 
jointly to the borrower and the dealer or other parties to the 
transaction.

[[Page 115]]

    (7) In the case of a dealer loan, the lender must conduct a 
telephone interview with the borrower before the disbursement of the 
loan proceeds. The lender, at minimum, must obtain an oral affirmation 
from the borrower to release funds to the dealer. The lender shall 
document the borrower's oral affirmation.
    (8) For any property improvement loan, the lender shall provide the 
borrower with a written notice, to be signed by the borrower and 
retained in the loan file, that:
    (i) States that the loan will be insured by HUD and describes the 
actions the Secretary may take to recover the debt if the borrower 
defaults on the loan and an insurance claim is paid;
    (ii) Constitutes the borrower's agreement to pay penalties and 
administrative costs imposed by HUD as authorized by 31 U.S.C. 3717; and
    (iii) In the case of a direct loan, constitutes an acknowledgement 
of the borrower's postdisbursement obligation to furnish a completion 
certificate and to permit an on-site inspection by the lender or its 
agent in accordance with Sec. Sec.  201.40(b) and (c).
    (9) The lender shall assure that the loan file is complete and 
contains the note, security instrument, and copies of all other 
documents relating to the property improvement loan transaction.
    (b) Manufactured home loans. The lender shall comply with the 
following applicable requirements before disbursing the proceeds of a 
manufactured home loan.
    (1) The lender shall ensure that the borrower is eligible for a 
manufactured home loan in accordance with Sec.  201.21(a).
    (2) The lender shall assure that the loan file is complete, and 
shall obtain the following documents for retention in the loan file:
    (i) A signed copy of the purchase contract between the borrower and 
the dealer or seller;
    (ii) A copy of the manufacturer's invoice, where the loan involves 
the purchase of a new manufactured home;
    (iii) Copies of itemized statements of other costs, fees and 
charges, whether paid by the borrower or financed with the loan 
proceeds; and
    (iv) The note and security instrument and copies of all other 
documents relating to the loan transaction.
    (v) The note, security instrument and copies of all other documents 
relating to the loan transaction.
    (3) The lender shall obtain certifications from the borrower under 
applicable criminal and civil penalties for fraud and misrepresentation 
that:
    (i) The manufactured home being financed with a manufactured home 
purchase loan or combination loan will be occupied as the borrower's 
principal residence;
    (ii) Where the proceeds are for a manufactured home lot loan, the 
borrower's manufactured home will be placed on the lot and will be 
occupied as the borrower's principal residence within six months after 
the date of the loan;
    (iii) The initial payment required under Sec.  201.23 was made, and 
no part of the initial payment was borrowed from or otherwise advanced 
or paid to or for the benefit of the borrower by the dealer or seller, 
the manufacturer, or any other party to the transaction, and if any part 
of the initial payment was obtained through a gift or loan, the source 
of the gift or loan and the security for any such loan was disclosed on 
the credit application;
    (iv) While any portion of the loan obligation on a manufactured home 
purchase loan is unpaid, the manufactured home may be moved only to a 
new site in compliance with Sec.  201.21 (c) and (e), and only with the 
lender's prior approval;
    (v) While any portion of the loan obligation on a combination loan 
is unpaid, the manufactured home will not be moved to a new site;
    (vi) The borrower has paid the remaining unpaid balance on any other 
manufactured home loan secured by a different property, unless the prior 
approval of the Secretary is obtained for an exception to this 
requirement; and
    (vii) The borrower has not obtained the benefit of and will not 
receive any cash payment, rebate, cash bonus, or anything of more than 
nominal value from the manufacturer or dealer as an inducement for the 
consummation of the transaction.

[[Page 116]]

    (4) For any manufactured home purchase loan or combination loan 
involving the sale of a manufactured home by a dealer, the lender shall 
obtain a placement certificate, on a HUD-approved form and signed by the 
dealer under applicable criminal and civil penalties for fraud and 
misrepresentation, certifying that:
    (i) The manufactured homesite meets the requirements of Sec.  
201.21(e);
    (ii) The structural integrity of the manufactured home was 
maintained during the process of transporting the home to the borrower's 
homesite;
    (iii) The manufactured home has been installed or erected on the 
homesite in accordance with the manufacturer's requirements for 
anchoring, support, stability and maintenance;
    (iv) If the manufactured home is placed on a permanent foundation, 
such foundation has been constructed in accordance with the requirements 
of Sec.  201.21(c)(3);
    (v) The dealer has performed the inspection and tests required under 
Sec.  201.21(c)(4) and has determined that the manufactured home has 
sustained no structural damage or other defects resulting from its 
transportation or installation, and all plumbing, mechanical and 
electrical systems are fully operational;
    (vi) Any initial payment required under Sec.  201.23 was made by the 
borrower, and no part of the initial payment was loaned, advanced, or 
paid to or for the benefit of the borrower by the manufacturer, dealer, 
or any other party to the loan transaction; and
    (vii) The borrower has not obtained the benefit of and will not 
receive any cash payment, rebate, cash bonus, or anything of more than 
nominal value from the manufacturer or dealer as an inducement for the 
consummation of the transaction.
    (5) The lender shall obtain and file the certifications by local 
officials or a civil engineer which are required under Sec.  201.21(e) 
to document the suitability of the manufactured homesite.
    (6) For any direct manufactured home purchase loan or combination 
loan involving the relocation of the manufactured home to a new homesite 
owned or leased by the borrower, the lender (or an agent of the lender 
that is not a manufactured home dealer) shall conduct a site-of-
placement inspection to verify that:
    (i) States that the loan will be insured by HUD and describes the 
actions the Secretary may take to recover the debt if the borrower 
defaults on the loan and an insurance claim is paid;
    (ii) The manufactured home and any itemized options and 
appurtenances included in the purchase price of the home or to be 
financed with the loan proceeds have been delivered and installed; and
    (iii) The manufactured home has been properly erected or installed 
on the homesite without any apparent structural damage or other serious 
defects resulting from its transportation or installation, and all 
plumbing, mechanical and electrical systems are fully operational.
    (7) The lender shall provide the borrower with a written notice, to 
be signed by the borrower and retained in the loan file, that:
    (i) States that the loan will be insured by the HUD and describes 
the actions the Secretary may take to recover the debt if the borrower 
defaults on the loan and an insurance claim is paid; and
    (ii) Constitutes the borrower's agreement to pay penalties and 
administrative costs imposed by HUD as authorized by 31 U.S.C. 3717.
    (8) Where a manufactured home purchase loan involves a manufactured 
home which is to be located on Indian trust or otherwise restricted 
lands, the lender shall obtain written permission from the trustee or 
the tribal authority who controls the site for the lender to repossess 
the home in the event of default by the borrower and acceleration of the 
loan.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986; 
54 FR 36265, Aug. 31, 1989; 56 FR 52432, Oct. 18, 1991, 57 FR 6480, Feb. 
25, 1992; 61 FR 19798, May 2, 1996; 62 FR 65181, Dec. 10, 1997; 66 FR 
56420, Nov. 7, 2001]



Sec.  201.27  Requirements for dealer loans.

    (a) Dealer approval and supervision. (1) The lender shall approve 
only those

[[Page 117]]

dealers which, on the basis of experience and information, the lender 
considers to be reliable, financially responsible, and qualified to 
satisfactorily perform their contractual obligations to borrowers and to 
comply with the requirements of this part. However, in no case shall the 
lender approve a dealer that is unable to meet the following minimum 
qualifications:
    (i) Net worth. All property improvement and manufactured home 
dealers shall have and maintain a net worth of not less than $32,000 and 
$63,000, respectively. The required net worth must be maintained in 
assets acceptable to the Secretary.
    (ii) Business experience. All property improvement loan and 
manufactured home dealers must have demonstrated business experience as 
a property improvement contractor or supplier, or in manufactured home 
retail sales, as applicable.
    (2) The lender's approval of a dealer shall be documented on a HUD-
approved form, signed and dated by the dealer and the lender under 
applicable criminal and civil penalties for fraud and misrepresentation, 
and containing information supplied by the dealer on its trade name, 
places of business, type of ownership, type of business, and names and 
employment history of the owners, principals, officers, and 
salespersons. The dealer shall furnish a current financial statement 
prepared by someone who is independent of the dealer and is qualified by 
education and experience to prepare such statements, together with such 
other documentation as the lender deems necessary to support its 
approval of the dealer. The lender shall obtain a commercial credit 
report on the dealer and consumer credit reports on the owners, 
principals, and officers of the dealership.
    (3) The lender shall require each dealer to apply annually for 
reapproval. The dealer shall furnish the same documentation as is 
required under paragraph (a)(2) of this section to support its 
application for reapproval. In no case shall the lender reapprove a 
dealer that is unable to meet the minimum net worth requirements in 
paragraph (a)(1) of this section.
    (4) The lender shall supervise and monitor each approved dealer's 
activities with respect to loans insured under this part. The lender 
shall visit each approved dealer's places of business at least once in 
every six months to review its Title I performance and compliance. The 
lender shall maintain a file on each approved dealer which contains the 
executed dealer approval form and supporting documentation required 
under paragraph (a)(2) of this section, together with information on the 
lender's experience with Title I loans involving the dealer. Each dealer 
file shall contain information about borrower defaults on Title I loans 
over time, records of completion or site-of-placement inspections 
conducted by the lender or its agent, copies of letters concerning 
borrower complaints and their resolution, and records of the lender's 
periodic review visits to the dealer's premises. The lender may also 
require that the dealer furnish records on individual loan transactions, 
if needed to enable the lender to review the dealer's Title I 
performance and compliance.
    (5) If a dealer does not satisfactorily perform its contractual 
obligations to borrowers, does not comply with Title I program 
requirements, or is unresponsive to the lender's supervision and 
monitoring requirements, the lender shall terminate the dealer's 
approval and immediately notify the Secretary with written documentation 
of the facts. A dealer whose approval is terminated under these 
circumstances shall not be reapproved without prior written approval 
from the Secretary. The lender may in its discretion terminate the 
approval of a dealer for other reasons at any time.
    (6) The lender shall require each approved (or reapproved) dealer to 
provide written notification of any material change in its trade 
name(s), place(s) of business, type of ownership, type of business, or 
principal individuals who control or manage the business. The dealer 
shall furnish such notification to the lender within 30 days after the 
date of any material change.
    (7) As a condition of manufactured home dealer approval (or 
reapproval), the lender may require a manufactured home dealer to 
execute a written

[[Page 118]]

agreement that, if requested by the lender, the dealer will resell any 
manufactured home repossessed by the lender under a title I insured 
manufactured home purchase loan approved by the lender as a dealer loan 
involving that dealer.
    (b) Provision for full or partial recourse. In the case of a dealer-
originated manufactured home purchase loan or combination loan, the 
lender and the dealer may agree to a provision in the loan documents for 
partial or full recourse against the dealer, to reduce or eliminate the 
lender's loss in the event of foreclosure or repossession. Such recourse 
provision shall specify that, for a default occurring within a period of 
not more than three years from the date of the loan, the dealer shall 
reimburse the lender for a fixed percentage of the unpaid amount of the 
loan obligation, after deducting the proceeds from the sale of the 
property and any amounts received or retained by the lender after the 
date of default. However, the extent of the dealer's liability may not 
exceed 100 percent of the unpaid amount of the loan obligation prior to 
such deductions. When a claim is filed, the lender shall notify the 
Secretary if the loan was subject to a recourse agreement and whether 
the recourse agreement has been honored. If without the lender's 
approval a dealer has failed to honor its recourse obligation, the 
lender shall notify the Secretary and shall assign the recourse 
obligation to the Secretary in filing an insurance claim.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 56 FR 52433, Oct. 18, 1991; 
61 FR 19799, May 2, 1996; 66 FR 56420, Nov. 7, 2001]



Sec.  201.28  Flood and hazard insurance, and Coastal Barriers properties.

    (a) Flood insurance. No property improvement loan or manufactured 
home loan shall be eligible for insurance under this part if the 
property securing repayment of the loan is located in a special flood 
hazard area identified by the Federal Emergency Management Agency 
(FEMA), unless flood insurance on the property is obtained by the 
borrower in compliance with section 102 of the Flood Disaster Protection 
Act of 1973 (42 U.S.C. 4012a). Such insurance shall be obtained at any 
time during the term of the loan that the lender determines that the 
secured property is located in a special flood hazard area identified by 
FEMA, and shall be maintained by the borrower for the remaining term of 
the loan, or until the lender determines that the property is no longer 
in a special flood hazard area, or until the property is repossessed or 
foreclosed upon by the lender. The amount of such insurance shall be at 
least equal to the unpaid balance of the Title I loan, and the lender 
shall be named as the loss payee for flood insurance benefits.
    (b) Hazard insurance. No manufactured home purchase loan or 
combination loan shall be eligible for insurance under this part unless 
hazard insurance on the manufactured home is obtained by the borrower 
and the lender is named as a loss payee of insurance benefits. Such 
insurance shall be maintained by the borrower for the full term of the 
loan or until the property is repossessed or foreclosed by the lender, 
and in an amount at least equal to the unpaid balance of the loan, 
except that the amount of insurance coverage shall be not less that the 
actual cash value of the home where State law precludes a higher amount. 
If the borrower fails to maintain such insurance, the lender shall 
obtain it at the borrower's expense. If the home is not insured against 
hazards and sustains damage which would normally be covered by such 
insurance during the borrower's ownership, the appraised value of the 
home for claim purposes will be adjusted in accordance with Sec.  
201.51(b)(3). Upon acquiring title to the property through repossession 
or foreclosure, the lender shall maintain hazard insurance upon the 
property in the amount prescribed above until its disposition and sale.
    (c) Coastal barriers properties. No title I insurance shall be made 
available under this part for any property improvement loan or 
manufactured home loan except pursuant to a loan application approved 
before October 18, 1982, with respect to any property within the Coastal 
Barriers Resources System

[[Page 119]]

established by the Coastal Barriers Resources Act (16 U.S.C. 3501).

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986; 
53 FR 10537, Mar. 14, 1989; 54 FR 36265, Aug. 31, 1989; 61 FR 19799, May 
2, 1996]



Sec.  201.29  Ineligible participants.

    No loan may be insured under this part where the lender has been 
advised in writing by HUD or otherwise knows that any participant in the 
transaction as a dealer, home manufacturer, contractor, supplier, or 
broker, or as its agent or representative, has been suspended or 
debarred, or has otherwise been determined by HUD to be ineligible to 
participate in the title I program.



                      Subpart D_Insurance of Loans



Sec.  201.30  Reporting of loans for insurance.

    (a) Date of reports. The lender shall transmit a loan report on each 
loan reported for insurance within 31 days from the date of the loan's 
origination or purchase from a dealer or another lender. The loan report 
must be submitted on the form prescribed by the Secretary, and must 
contain the data prescribed by HUD. Any loan refinanced under this part 
shall similarly be reported on the prescribed form within 31 days from 
the date of refinancing. When a loan insured under this part is 
transferred to another lender without recourse, guaranty, guarantee, or 
repurchase agreement, a report on the prescribed form shall be 
transmitted to the Secretary within 31 days from the date of the 
transfer. No transfer of loan report is required when a loan insured 
under this part is transferred with recourse or under a guaranty, 
guarantee, or repurchase agreement.
    (b) Late reports. The Secretary may accept a late report on a loan 
where the lender certifies that the obligation is not in default.
    (c) Electronic loan reporting. With the prior approval of the 
Secretary, the lender may use electronic transmission to report loans 
for insurance in accordance with paragraph (a) of this section.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 56 FR 52434, Oct. 18, 1991; 
66 FR 56420, Nov. 7, 2001]



Sec.  201.31  Insurance charge.

    (a) Insurance charge. For each eligible property improvement loan 
and manufactured home loan reported and acknowledged for insurance, the 
lender shall pay to the Secretary an insurance charge equal to 1.00 
percent of the loan amount, multiplied by the number of years of the 
loan term. The insurance charge shall be paid in the manner prescribed 
in paragraph (b) of this section; however, no charge shall be made for a 
period of 14 days or less, and a charge for a full month shall be made 
for a period of more than 14 days. There shall be no abatement or refund 
of an insurance charge except as provided in paragraph (e) of this 
section.
    (b) Payment of insurance charge. (1) For any loan having a maturity 
of 25 months or less, payment of the entire insurance charge prescribed 
in paragraph (a) of this section is due on the 25th calendar day after 
the date the Secretary acknowledges the loan report.
    (2)(i) For any loan having a maturity in excess of 25 months, 
payment of the insurance charge shall be made in annual installments, 
with the first installment due on the 25th calendar day after the date 
the Secretary acknowledges the loan report, and the second and 
successive installments due on the 25th calendar day after the date of 
billing by the Secretary.
    (ii) For any loan having a maturity in excess of 25 months, payment 
shall be made in annual installments of 1.00 percent of the loan amount 
until the insurance charge is paid.
    (3) All insurance charges are considered earned when paid.
    (4) The Secretary may require that loan insurance charges be 
remitted electronically. Instructions implementing this requirement 
shall be communicated to all affected lenders.
    (c) Penalty charge and interest. Insurance charges not received from 
the lender by the due date specified in

[[Page 120]]

paragraph (b) of this section shall be assessed a penalty charge of four 
percent of the amount of the payment. Insurance charges received from 
the lender more than 30 days after the due date specified in paragraph 
(b) of this section shall also be assessed daily interest at the current 
United States Treasury value of funds rate, as published periodically in 
the Federal Register. However, no penalty charge or daily interest shall 
be assessed if the Secretary fails to acknowledge receipt of the loan 
report or fails to issue a proper billing to the lender for the 
insurance charges.
    (d) Adjustment on notes transferred. Where there is a transfer of 
loan obligations between lenders and the insurance charges on such 
obligations have already been paid, any adjustment of such charges shall 
be made by the lenders involved. Any unpaid installments of the 
insurance charge shall be paid by the purchasing lender.
    (e) Refund or abatement of insurance charges. A lender shall be 
entitled to a refund or abatement of insurance charges only in the 
following instances:
    (1) Where the loan obligation has been refinanced, the unearned 
portion of the charge on the original obligation shall be credited to 
the charge on the refinanced loan.
    (2) Where the loan obligation is prepaid in full or an insurance 
claim is filed, charges falling due after such prepayment or claim shall 
be abated.
    (3) When a loan (or portion thereof) is found to be ineligible for 
insurance, charges paid on the ineligible portion shall be refunded, 
except where the Secretary determines that there was fraud or 
misrepresentation by the lender in the loan transaction. Such refund 
shall be made only if a claim is denied by the Secretary or the 
ineligibility is reported by the lender promptly upon discovery and 
confirmed by the Secretary. In no event shall a charge be refunded on 
the basis of loan ineligibility where the application for refund is made 
after the loan is paid in full. If a loan or claim has been denied and 
is subsequently resubmitted, the refunded amount of the insurance charge 
plus any accrued insurance charge shall be repaid.
    (f) Lender passing insurance charge on to borrower. The insurance 
charge may be passed on to the borrower, provided that such charge is 
fully disclosed to the borrower.

[50 FR 43523, Oct. 25, 1985, as amended at 54 FR 36265, Aug. 31, 1989; 
60 FR 13855, Mar. 14, 1995; 66 FR 56420, Nov. 7, 2001]



Sec.  201.32  Insurance coverage reserve account.

    (a) Establishment. The Secretary shall establish an insurance 
coverage reserve account for each lender. The amount of insurance 
coverage in each reserve account shall equal 10 percent of the amount 
disbursed, advanced, or expended by the lender in originating or 
purchasing eligible loans registered for insurance under this part, less 
the amount of all insurance claims approved for payment in connection 
with losses on such loans.
    (b) Transfer of insured loans. The lender shall not sell, assign or 
otherwise transfer any insured loan or loan reported for insurance to a 
transferee lender not approved to originate and purchase title I loans 
under a valid title I contract of insurance. Nothing contained herein 
shall be construed to prevent the pledging of such a loan as collateral 
security under a trust agreement, or otherwise, in connection with a 
bona fide loan transaction.
    (c) Transfer of insurance coverage. Not more than $5,000 in 
insurance coverage shall be transferred to or from a lender's reserve 
account during any fiscal year (October 1 through September 30) without 
the prior approval of the Secretary. Except in cases involving the sale, 
assignment or transfer of loans sold with recourse or under a guaranty, 
guarantee or repurchase agreement, the Secretary shall transfer 
insurance coverage to or from a lender's reserve account to accompany 
the loan transfers reported by lenders under Sec.  201.30.
    (1) In all cases involving the sale, assignment or transfer of loans 
sold without recourse, guaranty, guarantee, or repurchase agreement, the 
Secretary shall transfer insurance coverage to the reserve account 
established for the transferee lender in an amount equal to 10 percent 
of the actual purchase

[[Page 121]]

price or the net unpaid principal balance, whichever is lesser, but not 
to exceed the amount of insurance coverage in the transferor lender's 
reserve account prior to the transfer. Insurance coverage shall be added 
to the existing amount of insurance coverage in the transferee lender's 
reserve account. The Secretary may transfer insurance coverage with 
earmarking when a determination is made that it is in the Secretary's 
interest to do so.
    (2) In cases involving the transfer of loans sold with recourse or 
under a guaranty, guarantee or repurchase agreement, no insurance 
coverage will be transferred and no reports will be required.
    (3) An existing insured property improvement loan or manufactured 
home loan may not be refinanced by a lender different from the 
originating or purchasing lender of record, unless the loan has been 
sold, assigned, or transferred to the new lender under paragraph (c) of 
this section and the Secretary has transferred insurance coverage for 
the loan under the applicable requirements of this paragraph.
    (d) Recovery shall not affect insurance coverage reserve account. 
Amounts which may be recovered by the Secretary after payment of an 
insurance claim shall not be added to the amount of insurance coverage 
remaining in a lender's reserve account.

[50 FR 43523, Oct. 25, 1985, as amended at 52 FR 33407, Sept. 3, 1987; 
54 FR 10537, Mar. 14, 1989; 56 FR 52434, Oct. 18, 1991; 61 FR 19799, May 
2, 1996]



                      Subpart E_Loan Administration



Sec.  201.40  Post-disbursement loan requirements.

    (a) Discovery of misstatements of fact. If, after a loan has been 
made, the lender discovers any material misstatement of fact or that the 
loan proceeds have been misused by the borrower, dealer or any other 
party, it shall promptly report this to the Secretary. In such case, the 
insurance of the loan shall not be affected unless such material 
misstatement of fact or misuse of loan proceeds was caused by or was 
knowingly sanctioned by the lender or its employees (see Sec.  
201.31(e)(3)), provided that the validity of any lien on the property 
has not been impaired.
    (b) Requirements on property improvement loans. (1) After receiving 
the proceeds of a direct property improvement loan, and after the work 
is completed to the borrower's satisfaction, the borrower shall submit a 
completion certificate to the lender, on a HUD-approved form and signed 
by the borrower under applicable criminal and civil penalties for fraud 
and misrepresentation, certifying that:
    (i) The improvements have been completed,
    (ii) the amount borrowed has been spent on improvements eligible 
under Sec.  201.20(b) and in accordance with the contract or cost 
estimate furnished to the lender prior to disbursement of the loan 
proceeds, and
    (iii) The borrower has not obtained the benefit of and will not 
receive any cash payment, rebate, cash bonus, sales commission, or 
anything of more than nominal value from any contractor or supplier as 
an inducement for the consummation of the loan transaction.
    (2) The borrower shall submit the completion certificate promptly 
upon the work's completion, but not later than six months after the 
disbursement of the loan proceeds, with one six-month extension if 
necessary. If the borrower fails to submit the completion certificate 
within these time limits, an on-site inspection shall be conducted in 
accordance with paragraph (c) of this section.
    (3) The borrower is not required to submit a completion certificate 
when the property improvement loan is made by or on behalf of a State or 
local government agency or a nonprofit organization, the loan proceeds 
are held in an escrow account pending completion of the improvements, 
and the loan proceeds are disbursed from the escrow account in stages, 
with the written approval of the borrower and based upon the percentage 
of work completed.
    (c) Inspection requirement on property improvement loans. The lender 
or its agent shall conduct an on-site inspection on any property 
improvement loan where the principal obligation is $7,500 or more, and 
on any direct property improvement loan where the borrower fails to 
submit a completion certificate

[[Page 122]]

as required under paragraph (b) of this section. On a dealer loan, the 
inspection shall be completed within 60 days after the date of 
disbursement. On a direct loan, the inspection shall be completed within 
60 days after receipt of the completion certificate, or as soon as the 
lender determines that the borrower is unwilling to cooperate in 
submitting the completion certificate. The purpose of the inspection is 
to verify the eligibility of the improvements and whether the work has 
been completed. If the borrower will not cooperate in permitting an on-
site inspection, the lender shall report this fact to the Secretary.
    (d) Inspection requirement on dealer manufactured home loans. For 
any manufactured home purchase loan or combination loan involving the 
sale of a manufactured home by a dealer, the lender (or an agent of the 
lender that is not a manufactured home dealer) shall conduct a site-of-
placement inspection within 60 days after the date of disbursement to 
verify that:
    (1) The terms and conditions of the purchase contract have been met;
    (2) The manufactured home and any itemized options and appurtenances 
included in the purchase price of the home or financed with the loan 
proceeds have been delivered and installed; and
    (3) The placement certificate executed by the borrower and the 
dealer is in order.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 56 FR 52434, Oct. 18, 1991; 
61 FR 19799, May 2, 1996]



Sec.  201.41  Loan servicing.

    (a) Generally. The lender shall service loans in accordance with 
accepted practices of prudent lending institutions. It shall have 
adequate facilities for contacting the borrower in the event of default, 
and shall otherwise exercise diligence in collecting the amount due. The 
lender shall remain responsible to the Secretary for proper collection 
efforts, even though actual loan servicing and collection may be 
performed by an agent of the lender. The lender shall have an organized 
means of identifying, on a periodic basis, the payment status of 
delinquent loans to enable collection personnel to initiate and follow-
up on collection activities, and shall document its records to reflect 
its collection activities on delinquent loans.
    (b) Partial payments. The lender shall accept any partial payment 
(inclusive of late charges) under an executed modification agreement or 
an acceptable repayment plan, and either apply it to the borrower's 
account or hold it in a trust account pending disposition. When partial 
payments held for disposition aggregate a full monthly installment, they 
shall be applied to the borrower's account, thus advancing the date of 
the oldest unpaid installment. If a partial payment is received more 
than 60 days after the date of default and was not submitted under a 
repayment plan or a modification agreement, the partial payment may be 
returned to the borrower, with a letter of explanation.



Sec.  201.42  Bankruptcy, insolvency or death of borrower.

    (a) Bankruptcy or insolvency. The lender shall file a proof of claim 
with the court having jurisdiction when the lender has timely 
information that a borrower is involved in bankruptcy or insolvency 
proceedings, except that a proof of claim need not be filed if the court 
notifies the lender that the borrower has no assets and a proof of claim 
should not be filed. The notice of bankruptcy and a copy of the proof of 
claim (or the notice from the court that a proof of claim is not 
required) shall be retained in the loan file.
    (b) Death of a borrower. The lender shall file a proof of claim with 
the court having jurisdiction when the lender has timely information 
that a borrower is deceased, unless the lender determines that there 
will not be a probate proceeding. A copy of the proof of claim (or 
documentation as to why a proof of claim was not filed) shall be 
retained in the loan file.
    (c) Responsibility of the lender after insurance claim is filed. 
After the Secretary pays an insurance claim, the Secretary will notify 
the bankruptcy or probate court, as appropriate, that the loan has been 
assigned to the

[[Page 123]]

United States and will request substitution as the party to whom the 
claim is owed. Until the insurance claim is paid, the lender shall take 
all steps necessary to protect the interests of the holder of the note 
in any bankruptcy or probate proceeding.

[54 FR 36266, Aug. 31, 1989]



Sec.  201.43  Administrative reports and examinations.

    The Secretary may call upon a lender for any reports deemed 
necessary in connection with the regulations in this part and may 
inspect the loan files, records, books and accounts of the lender as 
they pertain to the loans reported for insurance.



               Subpart F_Default Under the Loan Obligation



Sec.  201.50  Lender efforts to cure the default.

    (a) Personal contact with the borrower before acceleration and 
foreclosure or repossession. The lender shall undertake foreclosure or 
repossession of the property securing a Title I loan that is in default 
only after the lender has serviced the loan in a timely manner and with 
diligence in accordance with the requirements of this part, and has 
taken all reasonable and prudent measures to induce the borrower to 
bring the loan account current. Before taking action to accelerate the 
maturity of the loan, the lender or its agent shall contact the borrower 
and any co-maker or co-signer, either in a face-to-face meeting or by 
telephone, to discuss the reasons for the default and to seek its cure. 
If the borrower and the co-makers or co-signers cannot be located, will 
not discuss the default, or will not agree to its cure, the lender may 
proceed to take action under paragraph (b) of this section. The lender 
shall document the results of its efforts to contact the borrower and 
any co-maker or co-signer, and shall place in the loan file a copy of 
any modification agreement or repayment plan that has been offered.
    (b) Notice of default and acceleration. Unless the borrower cures 
the default or agrees to a modification agreement or repayment plan, the 
lender shall provide the borrower with written notice that the loan is 
in default and that the loan maturity is to be accelerated. In addition 
to complying with applicable State or local notice requirements, the 
notice shall be sent by certified mail and shall contain:
    (1) A description of the obligation or security interest held by the 
lender;
    (2) A statement of the nature of the default and of the amount due 
to the lender as unpaid principal and earned interest on the note as of 
the date 30 days from the date of the notice;
    (3) A demand upon the borrower either to cure the default (by 
bringing the loan current or by refinancing the loan) or to agree to a 
modification agreement or a repayment plan, by not later than the date 
30 days from the date of the notice;
    (4) A statement that if the borrower fails either to cure the 
default or to agree to a modification agreement or a repayment plan by 
the date 30 days from the date of the notice, then, as of the date 30 
days from the date of the notice, the maturity of the loan is 
accelerated and full payment of all amounts due under the loan is 
required;
    (5) A statement that if the default persists the lender will report 
the default to an appropriate credit reporting agency; and
    (6) Any other requirements prescribed by the Secretary.
    (c) Reinstatement of the loan. The lender may rescind the 
acceleration of maturity after full payment is due and reinstate the 
loan only if the borrower brings the loan current, executes a 
modification agreement, or agrees to an acceptable repayment plan.
    (d) Notice to credit reporting agency. If the loan maturity is 
accelerated and the loan is not reinstated, the lender shall report the 
default to an appropriate credit reporting agency.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 52 FR 33407, Sept. 3, 1987; 
56 FR 52434, Oct. 18, 1991; 57 FR 6480, Feb. 25, 1992]

[[Page 124]]



Sec.  201.51  Proceeding against the loan security.

    (a) Property improvement loans. (1) After acceleration of maturity 
on a secured property improvement loan, the lender may either proceed 
against the loan security under its title I security instrument or make 
claim under its contract of insurance. If the lender proceeds against 
the loan security, it may submit an insurance claim only if it complies 
with the requirements of paragraph (a)(2) of this section.
    (2) The lender may proceed against the secured property under its 
Title I security instrument and later submit a claim under its contract 
of insurance only with the prior approval of the Secretary. The 
Secretary's decision will be based upon all relevant factors, including 
but not limited to the appraised value and the amount of all outstanding 
loan obligations on the property, the estimated costs of foreclosure and 
disposition, and the anticipated time to dispose of the property. In 
proceeding against the secured property, the lender shall comply with 
all applicable State and local laws, and shall take all actions 
necessary to preserve its rights, if any, to obtain a valid and 
enforceable deficiency judgment against the borrower.
    (3) After acceleration of maturity on a defaulted unsecured property 
improvement loan, the lender may submit a claim under its contract of 
insurance.
    (b) Manufactured home loans. (1) After acceleration of maturity on a 
defaulted manufactured home loan, the lender shall proceed against the 
loan security by foreclosure or repossession, as appropriate, in 
compliance with all applicable State and local laws, and shall acquire 
good, marketable title to the property securing the loan. The lender 
shall also take all actions necessary under State and local law to 
preserve its rights, if any, to obtain a valid and enforceable 
deficiency judgment against the borrower.
    (2) Prior to foreclosure or repossession, the lender or its agent 
shall make a visual inspection of the property and prepare a report on 
its condition for placement in the loan file. If the lender determines 
that the property has been abandoned, the lender shall take such steps 
as are permitted under State or local law to repossess or foreclose upon 
the property, without waiting for the notice period under Sec.  
201.50(b) to run.
    (3) The lender shall obtain a HUD-approved appraisal of the property 
as soon after repossession as possible, or earlier with the permission 
of the borrower. This appraisal shall be performed on the homesite, 
unless the site owner requires that the home be removed before the 
appraisal can be performed, and it should reflect the retail value of 
comparable manufactured homes in similar condition and in the same 
geographic area where the repossession occurred. When the manufactured 
home is without hazard insurance and has sustained, at any time prior to 
the sale or disposition of the home, damage which would normally be 
covered by such insurance, the lender shall report this situation in 
submitting an insurance claim, and the appraised value shall be based 
upon the retail value of comparable homes in good condition and in the 
same geographic area, without any deduction for such damage.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 54 FR 10537, Mar. 14, 1989; 
54 FR 36266, Aug. 31, 1989; 56 FR 52435, Oct. 18, 1991]



Sec.  201.52  Acquisition by voluntary conveyance or surrender.

    The lender may accept a voluntary conveyance of title to or 
ownership of the property securing a manufactured home loan which is in 
default, provided that (a) the lender accepts the conveyance in full 
satisfaction of the borrower's obligation, and (b) no claim is submitted 
under its contract of insurance. The lender may accept voluntary 
surrender of the property without satisfaction of the borrower's 
obligation, provided that if the lender intends thereafter to submit a 
claim under its contract of insurance, the lender shall acquire title to 
or ownership of the property and then dispose of and sell the property 
in compliance with State and local law, so as to assure that it can 
assign a valid and enforceable obligation, including any deficiency 
against the borrower, to the Secretary when submitting its claim. If the 
lender accepts a voluntary conveyance of

[[Page 125]]

title or a voluntary surrender of the property, the notice of default 
and acceleration under Sec.  201.50(b) shall not be required.

[50 FR 43523, Oct. 25, 1985, as amended at 61 FR 19799, May 2, 1996]



Sec.  201.53  Disposition of manufactured home loan property.

    Where the lender obtains title to property securing a manufactured 
home loan by repossession or foreclosure, the property shall be sold for 
the best price obtainable before making an insurance claim. In the case 
of a combination loan, the manufactured home and lot shall be sold in a 
single transaction and the manufactured home may not be removed from the 
lot, unless the prior approval of the Secretary is obtained for a 
different procedure. The best price obtainable shall be the greater of:
    (a) The actual sales price of the property, after deducting the cost 
of repairs, furnishings, and equipment needed to make the property 
marketable, and after deducting the cost of transportation, set-up, and 
anchoring if the manufactured home is moved to a new homesite; or
    (b) The appraised value of the property before repairs (as 
determined by a HUD-approved appraisal obtained in accordance with Sec.  
201.51(b)(3)).

[50 FR 43523, Oct. 25, 1985, as amended at 61 FR 19799, May 2, 1996]



Sec.  201.54  Insurance claim procedure.

    (a) Claim application. A claim for reimbursement for loss on any 
eligible loan shall be made on a HUD-approved form, executed by a duly 
qualified officer of the lender under applicable criminal and civil 
penalties for fraud and misrepresentation. The insurance claim shall be 
fully documented and itemized, and shall be accompanied by all documents 
and materials required by the Secretary for claim review. The claim 
submission shall contain original copies of all notes, security 
instruments, assumption agreements, releases of liability for repayment 
of the loan, judgments obtained by the lender against the borrower, and 
any related documents and forms, except where State or local law 
requires their retention by the lender or a governmental body such as a 
court. As appropriate, the claim application shall be supported by the 
following:
    (1) Documentation of the lender's efforts to effect recourse against 
any dealer in accordance with any recourse agreement under Sec.  
201.27(b) between the lender and the dealer and contained in the loan 
documents;
    (2) Certification under applicable criminal and civil penalties for 
fraud and misrepresentation that the lender has complied with all 
applicable State and local laws in carrying out any foreclosure or 
repossession, including copies of all notices served upon the borrower 
or published in connection with such foreclosure or repossession; and
    (3) Where a borrower has declared bankruptcy or insolvency or is 
deceased, copies of the documentation required to be retained in the 
loan file under Sec.  201.42.
    (b) Maximum claim period. (1) An insurance claim shall be filed not 
later than the following dates:
    (i) For property improvement loans--nine months after the date of 
default.
    (ii) For manufactured home loans--three months after the date of 
sale of the property securing the loan, but not to exceed 18 months 
after the date of default.
    (2) The Secretary may extend the claim filing period in a particular 
case, but only if the lender shows clear evidence that the delay in 
claim filing was in the interest of the Secretary or was caused by one 
of the following:
    (i) Litigation related to the loan;
    (ii) Management control of the lender or the Title I loan portfolio 
was assumed by a Federal or State agency; or
    (iii) The borrower had experienced a loss of income or other 
financial difficulties directly attributable to a major disaster 
declared by the President, and additional time was needed to provide 
forbearance on a property improvement loan.
    (3) If a borrower is a ``person in military service'' as that term 
is defined in the Soldiers' and Sailors' Civil Relief Act of 1940 and is 
in default on a loan insured under this part, any period of military 
service after the date of default shall be excluded in computing

[[Page 126]]

the maximum time period for filing an insurance claim.
    (c) Resubmitted and supplemental claims. (1) Any insurance claim 
which is resubmitted with an appeal of a claim denial or a request for a 
waiver of the regulations in accordance with Sec.  201.5(b) shall be 
filed within six months after the date of the claim denial.
    (2) Any supplemental insurance claim shall be filed within six 
months after the date of payment on the initial claim. A reprocessing 
fee, in an amount prescribed by the Secretary, will be charged for any 
supplemental claim.
    (d) Assignment of lender's rights to the United States. Upon the 
filing of the insurance claim, the lender shall assign its entire 
interest in the loan note (or in a judgment in lieu of the note), in any 
security held, and in any claim filed in probate, bankruptcy or 
insolvency proceedings, to the United States of America. The assignment 
shall be made in the form provided in paragraph (f) of this section, 
provided that if this form is not valid or generally acceptable in the 
jurisdiction involved, a form which is valid and generally acceptable in 
the jurisdiction where the judgment or security was taken shall be used. 
If the security interest has been assigned to the United States, the 
assignment shall be recorded in that jurisdiction prior to filing the 
insurance claim, unless the Secretary determines that recordation by the 
lender in that jurisdiction is impractical.
    (e) Valid and enforceable obligation when assigned. The loan 
obligation evidenced by the note must be both valid and enforceable 
against the debtor at the time the note is assigned to the United States 
of America. If the Secretary has reason to believe that the obligation 
may not be either valid or enforceable against the borrower, the 
Secretary may either deny the claim and reassign the loan note to the 
lender, or require the lender to repurchase the paid claim and accept 
reassignment of the note. The lender will be notified of the reasons for 
the claim denial or repurchase. If the lender subsequently obtains a 
valid and enforceable judgment against the borrower for the unpaid 
balance of the loan, the lender may resubmit the claim with an 
assignment of the judgment.
    (f) Form of assignment. A lender shall use the following form of 
assignment, or one generally acceptable in the jurisdiction involved, 
properly dated, to assign the lender's entire interest in a loan note, 
judgment, real estate mortgage, deed of trust, conditional sales 
contract, chattel mortgage, mechanic's lien, or any security, in making 
an insurance claim:

    All right, title, and interest of the undersigned is hereby assigned 
(without warranty, except that the loan qualifies for insurance) to the 
United States of America (HUD).

(Financial Institution)_________________________________________________

By:_____________________________________________________________________
Title:__________________________________________________________________
Date:___________________________________________________________________

If the assignment does not appear on the note or other instrument that 
is assigned, it shall be duly executed on an allonge which is attached 
to such note or other instrument.
    (g) Denial of insurance claim. The Secretary may deny a claim for 
insurance in whole or in part based upon a violation of these 
regulations, unless a waiver of compliance with the regulations is 
granted under Sec.  201.5.
    (h) Incontestability of insurance claim payment. Any insurance claim 
payment on a title I loan shall be final and incontestable after two 
years from the date the claim was certified for payment by the 
Secretary, in the absence of fraud or misrepresentation on the part of 
the lender, unless a demand for repurchase of the loan obligation is 
made on behalf of the United States prior to the expiration of the two-
year period.

(Approved by the Office of Management and Budget under control number 
2502-0328)

[50 FR 43523, Oct. 25, 1985; 51 FR 5068, Feb. 11, 1986, as amended at 51 
FR 32060, Sept. 9, 1986; 56 FR 52435, Oct. 18, 1991; 57 FR 6480, Feb. 
25, 1992; 61 FR 19800, May 2, 1996]



Sec.  201.55  Calculation of insurance claim payment.

    The lender will be reimbursed in an amount not to exceed 90 percent 
of its loss on any eligible loan up to the amount of insurance coverage 
in the lender's insurance coverage reserve account established by the 
Secretary under Sec.  201.32, if the insurance claim is

[[Page 127]]

made in accordance with the requirements of this part. The amount of the 
insurance claim payment shall be computed as follows:
    (a) Property improvement loans. For property improvement loans, the 
insurance claim payment shall be 90 percent of the following amounts:
    (1) The unpaid amount of the loan obligation (net unpaid principal 
and the uncollected interest earned to the date of default, calculated 
according to the terms of the note executed for any loan application 
that is approved prior to the effective date of these regulations, and 
calculated according to the actuarial method for all loans for which 
loan applications are approved on or after the effective date of these 
regulations). Where the lender has proceeded against the secured 
property under Sec.  201.51(a)(2), the unpaid amount of the loan 
obligation shall be reduced by the proceeds received from the property's 
sale or disposition, after deducting the following:
    (i) The balances due on any obligations senior to the Title I loan 
obligation; and
    (ii) Customary and reasonable expenses for foreclosure and 
disposition, as determined by the Secretary.
    (2) Interest on the unpaid amount of the loan obligation from the 
date of default to the date of the claim's initial submission for 
payment plus 15 calendar days, calculated at the rate of seven percent 
per annum. However, interest shall not be paid for any period greater 
than nine months from the date of default.
    (3) The amount of uncollected court costs, including fees paid for 
issuing, serving, and filing a summons.
    (4) The amount of attorney's fees on an hourly or other basis for 
time actually expended and billed, not to exceed $500.
    (5) The amount of expenses for recording the assignment of the 
security to the United States.
    (b) Manufactured home loans. For manufactured home loans, the 
insurance claim payment shall be 90 percent of the sum of the following 
amounts:
    (1) The unpaid amount of the loan obligation (net unpaid principal 
and the uncollected interest earned to the date of default, calculated 
according to the actuarial method), after deducting the following 
amounts:
    (i) The best price obtainable for the property after lawful 
repossession or foreclosure, as determined in accordance with Sec.  
201.53;
    (ii) All amounts to which the lender is entitled after the date of 
default from any source relating to the property, including but not 
limited to such items as rent, other income, recourse recovery against 
the dealer, hazard insurance benefits, secured interest protection 
insurance benefits, and rebates on prepaid insurance premiums; and
    (iii) Amounts retained by the lender after the date of default, 
including amounts held or deposited to the account of the borrower or to 
which the lender is entitled under the loan transaction, and which have 
not been applied in reduction of the borrower's indebtedness.
    (2) Interest on the unpaid amount of the loan obligation from the 
date of default to the date of the claim's initial submission for 
payment plus 15 calendar days, calculated at the rate of seven percent 
per annum. However, interest shall not be paid for any period greater 
than nine months from the date of default.
    (3) For manufactured home purchase loans, the amount of costs paid 
to a dealer or other third party to repossess and preserve the 
manufactured home and other property securing repayment of the loan 
(including the costs of site inspection, property appraisal, hazard 
insurance premiums, personal property taxes, and site rental, as 
appropriate), plus actual costs not to exceed $1,000 per module for 
removing and transporting the home to a dealer's lot or other off-site 
location.
    (4) The amount of a sales commission paid to a dealer, real estate 
agent or other third party for the resale of the repossessed or 
foreclosed manufactured home and/or lot. Where the home is resold on-
site, the commission shall not exceed 10 percent of the sales price. 
Where the home is resold off-site, the commission shall not exceed seven 
percent of the sales price.
    (5) For manufactured home lot loans, and for combination loans where 
both the foreclosed manufactured home and

[[Page 128]]

lot are classified as realty, the amount of:
    (i) State or local real estate taxes, ground rents, and municipal 
water and sewer fees or liens, prorated to the date of disposition of 
the property;
    (ii) Special assessments which are noted on the loan application or 
which become liens after the insurance is issued, prorated to the date 
of disposition of the property;
    (iii) Premiums for hazard insurance on the manufactured home, 
prorated to the date of disposition of the property; and
    (iv) Transfer taxes imposed upon any deeds or other instruments by 
which the property was acquired by the lender.
    (6) The amount of uncollected court costs, including fees paid for 
issuing, serving, and filing a summons.
    (7) The amount of attorney's fees on an hourly or other basis for 
time actually expended and billed, not to exceed $1,000.
    (8) The amount of expenses for recording the assignment of the 
security to the United States, and for costs of repossession or 
foreclosure other than attorney's fees and those incurred under 
paragraph (b)(3), but not to exceed costs which are customary and 
reasonable in the jurisdiction where the repossession or foreclosure 
takes place, as determined by the Secretary.

[50 FR 43523, Oct. 25, 1985, as amended at 54 FR 10537, Mar. 14, 1989; 
54 FR 36266, Aug. 31, 1989; 56 FR 52435, Oct. 18, 1991; 57 FR 30395, 
July 9, 1992; 61 FR 19800, May 2, 1996]



         Subpart G_Debts Owed to the United States Under Title I

    Source: 58 FR 47379, Sept. 9, 1993, unless otherwise noted.



Sec.  201.60  General.

    (a) Applicability. The provisions in this subpart apply to the 
collection of debts owed to the United States arising out of the Title I 
program. These debts include, but are not limited to:
    (1) Amounts owed on loans assigned to the United States by insured 
lenders as the result of defaults by borrowers;
    (2) Unpaid insurance charges owed by lenders; and
    (3) Unpaid obligations of lenders arising from repurchase demands.
    (b) Departmental debt collection regulations. Except as modified by 
this subpart, collection of debts arising out of the Title I program is 
subject to the Department's debt collection regulations in subpart C of 
24 CFR part 17.



Sec.  201.61  Claims against debtors--principal amount of debt.

    (a) Liability. A debtor is liable to the Secretary for the principal 
amount of the debt, as described in paragraphs (b), (c), or (d) of this 
section, as appropriate.
    (b) Property improvement notes. In the case of an assigned note for 
a property improvement loan, the principal amount of the debt is the 
unpaid amount of the loan obligation, as defined in Sec.  201.55(a)(1) 
of this part, plus amounts described in Sec. Sec.  201.55(a) (3), (4), 
(5).
    (c) Manufactured home notes. In the case of an assigned note for a 
manufactured home loan, the principal amount of the debt is the unpaid 
amount of the loan obligation, as defined in Sec.  201.55(b)(1) of this 
part, plus amounts described in Sec. Sec.  201.55(b) (3) through (8).
    (d) Assigned judgments. In the case of a judgment obtained by the 
lender on a property improvement loan or a manufactured home loan and 
assigned to the Secretary, the principal amount of the debt is the 
amount of the judgment.



Sec.  201.62  Claims against debtors--interest, penalties, and 
administrative costs.

    (a) Interest. In addition to the principal amount of the debt, the 
debtor is liable for the payment of interest. Interest accrues on the 
principal amount of the debt as of the date of default, as defined in 
Sec.  201.2(h) of this part, as follows:
    (1) In the case of a debt based upon the assignment of a defaulted 
note, interest is assessed at the lesser of the rate specified in the 
note or the United States Treasury's current value of funds rate in 
effect on the date the Title I insurance claim was paid.
    (2) In the case of a debt based upon the assignment of a judgment, 
interest is assessed at the lesser of the rate specified in the judgment 
or the United

[[Page 129]]

States Treasury's current value of funds rate in effect on the date the 
Title I insurance claim was paid.
    (b) Penalties and administrative costs. The Secretary shall assess 
reasonable administrative costs and penalties as authorized in 31 U.S.C. 
3717, unless there is no provision in the note providing for such 
charges and the debtor has not otherwise consented to liability for such 
charges.



Sec.  201.63  Claims against lenders.

    Claims against lenders for money owed to the Department, including 
unpaid insurance charges and unpaid repurchase demands, shall be 
collected in accordance with 24 CFR part 17, subpart C.



PART 202_APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES
--Table of Contents



                     Subpart A_General Requirements

Sec.
202.1 Purpose.
202.2 Definitions
202.3 Approval status for lenders and mortgagees.
202.4 Request for determination of compliance.
202.5 General approval standards.

               Subpart B_Classes of Lenders and Mortgagees

202.6 Supervised lenders and mortgagees.
202.7 Nonsupervised lenders and mortgagees.
202.8 Sponsored third-party originators.
202.9 Investing lenders and mortgagees.
202.10 Governmental institutions, Government-sponsored enterprises, 
          public housing agencies and State housing agencies.

          Subpart C_Title I and Title II Specific Requirements

202.11 Title I.
202.12 Title II.

    Authority: 12 U.S.C. 1703, 1709 and 1715b; 42 U.S.C. 3535(d).

    Source: 62 FR 20082, Apr. 24, 1997, unless otherwise noted.



                     Subpart A_General Requirements



Sec.  202.1  Purpose.

    This part establishes minimum standards and requirements for 
approval by the Secretary of lenders and mortgagees to participate in 
the Title I and Title II programs.



Sec.  202.2  Definitions.

    Act means the National Housing Act (12 U.S.C. 1702 et seq.).
    Claim means a single family insured mortgage for which the Secretary 
pays an insurance claim within 24 months after the mortgage is insured.
    Default means a single family insured mortgage in default for 90 or 
more days within 24 months after the mortgage is insured.
    Lender or Title I lender means a financial institution that:
    (a) Holds a valid Title I Contract of Insurance and is approved by 
the Secretary under this part as a supervised lender under Sec.  202.6, 
a nonsupervised lender under Sec.  202.7, an investing lender under 
Sec.  202.9, or a governmental or similar institution under Sec.  
202.10; or
    (b) Is under suspension or held a Title I contract that has been 
terminated but remains responsible for servicing or selling Title I 
loans that it holds and is authorized to file insurance claims on such 
loans.
    Loan or Title I loan means a loan authorized for insurance under 
Title I of the Act.
    Mortgage, Title II mortgage or insured mortgage means a mortgage or 
loan insured under Title II or Title XI of the Act.
    Mortgagee or Title II mortgagee means a mortgage lender that is 
approved to participate in the Title II programs as a supervised 
mortgagee under Sec.  202.6, a nonsupervised mortgagee under Sec.  
202.7, an investing mortgagee under Sec.  202.9, or a governmental or 
similar institution under 202.10.
    Multifamily mortgagee means a mortgagee approved to participate only 
in multifamily Title II programs, except that for purposes of Sec.  
202.8(b)(1) the term also means a mortgagee approved to participate in 
both single family and multifamily Title II programs.
    Normal rate means the rate of defaults and claims on insured 
mortgages for the geographic area served by a HUD field office, or other 
area designated by the Secretary, in which a mortgagee originates 
mortgages.

[[Page 130]]

    Origination approval agreement means the Secretary's agreement that 
a mortgagee is approved to originate single family insured mortgages.
    Title I program(s) means an insurance program or programs authorized 
by Title I of the Act.
    Title II program(s) means an insurance program or programs 
authorized by Title II or Title XI of the Act.

[62 FR 20082, Apr. 24, 1997, as amended at 62 FR 65181, Dec. 10, 1997; 
75 FR 20731, Apr. 20, 2010]



Sec.  202.3  Approval status for lenders and mortgagees.

    (a) Initial approval. A lender or mortgagee may be approved for 
participation in the Title I or Title II programs upon filing a request 
for approval on a form prescribed by the Secretary and signed by the 
applicant. The approval form shall be accompanied by such documentation 
as may be prescribed by the Secretary.
    (1) Approval is signified by:
    (i) The Secretary's agreement that the lender or mortgagee is 
considered approved under the Title I or Title II programs, except as 
otherwise ordered by the Mortgagee Review Board or an officer or 
subdivision of the Department to which the Mortgagee Review Board has 
delegated its power, unless the lender or mortgagee voluntarily 
relinquishes its approval;
    (ii) Consent by the lender or mortgagee to comply at all times with 
the general approval requirements of Sec.  202.5, and with additional 
requirements governing the particular class of lender or mortgagee for 
which it was approved as described under subpart B at Sec. Sec.  202.6 
through 202.10; and
    (iii) Under the Title I program, the issuance of a Contract of 
Insurance constitutes an agreement between the Secretary and the lender 
and which governs participation in the Title I program.
    (2) Limitations on approval:
    (i) Separate approval as lender or mortgagee is required for 
participation in the Title I or Title II programs, respectively. 
Application must be made, and approval will be granted, on the basis of 
one or both categories of programs, as is appropriate.
    (ii) Separate approval as mortgagee is required for the Single 
Family Mortgage Insurance Programs and for the Multifamily Mortgage 
Insurance Programs. Application must be made, and approval will be 
granted, on the basis of either or both categories, as is appropriate.
    (iii) In addition to the requirements for approval as a Title II 
mortgagee, the Secretary may from time to time issue eligibility 
requirements for participation in specific programs, such as the Direct 
Endorsement program.
    (iv) A Title II mortgagee may be approved to operate either on a 
nationwide basis or on a geographically restricted basis in only those 
areas designated by the Secretary.
    (v) A Title I lender may originate loans or purchase advances of 
credit only within a geographic lending area approved by the Secretary. 
Expansion of this lending area shall be subject to a determination by 
the Secretary that the lender is able to originate loans in compliance 
with part 201 of this chapter within such expanded area.
    (3) Authorized agents. A mortgagee approved under Sec. Sec.  202.6, 
202.7, or 202.10 as a nonsupervised mortgagee, supervised mortgagee, or 
governmental or similar institution approved as a Direct Endorsement 
mortgagee under 24 CFR 203.3 may, with the approval of the Secretary, 
designate a nonsupervised or supervised mortgagee with Direct 
Endorsement approval under 24 CFR 203.3 as authorized agent for the 
purpose of underwriting loans. The application for mortgage insurance 
may be submitted in the name of the FHA-approved mortgagee or its 
designated authorized agent under this paragraph.
    (b) Recertification. On each anniversary of the approval of a lender 
or mortgagee, the Secretary will determine whether recertification, 
i.e., continued approval, is appropriate. The Secretary will review the 
yearly verification report required by Sec.  202.5(m) and other 
pertinent documents, ascertain that all application and annual fees have 
been paid, and request any further information needed to decide upon 
recertification.
    (c) Termination--(1) Termination of the Title I Contract of 
Insurance--(i) Notice.

[[Page 131]]

A Contract of Insurance may be terminated in accordance with its terms 
by the Secretary or by the Secretary's designee upon giving the lender 
at least 5 days prior written notice.
    (ii) Informal meeting. If requested, and before expiration of the 5-
day notice period, a lender shall be entitled to an informal meeting 
with the Department official taking action to terminate the Contract of 
Insurance.
    (iii) Effect of termination. Termination of a Contract of Insurance 
shall not affect:
    (A) The Department's obligation to provide insurance coverage with 
respect to eligible loans originated before the termination, unless 
there was fraud or misrepresentation;
    (B) A lender's obligation to continue to pay insurance charges or 
premiums and meet all other obligations, including servicing, associated 
with eligible loans originated before termination; or
    (C) A lender's right to apply for and be granted a new Title I 
Contract of Insurance, provided that the requirements for approval under 
this part are met.
    (2) Credit Watch Termination. (i) Scope and frequency of review. The 
Secretary will review, on an ongoing basis, the number of defaults and 
claims on mortgages originated, underwritten, or both, by each mortgagee 
in the geographic area served by a HUD field office. HUD will make this 
rate information available to mortgagees and the public through 
electronic means and will issue instructions for accessing this 
information through a Mortgagee Letter. For this purpose, and for all 
purposes under paragraph (c) of this section, a mortgage is considered 
to be originated in the same federal fiscal year in which its 
amortization commences. The Secretary may also review the insured 
mortgage performance of a mortgagee's branch offices individually and 
may terminate the authority of the branch or the authority of the 
mortgagee's overall operation.
    (ii) Credit Watch Status. Mortgagees are responsible for monitoring 
their default and claim rate performance. A mortgagee is considered to 
be on Credit Watch Status if, at any time, the mortgagee has a rate of 
defaults and claims on insured mortgages originated, underwritten, or 
both, in an area which exceeds 150 percent of the normal rate and its 
origination approval agreement has not been terminated.
    (iii) Notice of termination. (A) Notice of termination of 
origination approval agreement. The Secretary may notify a mortgagee 
that its origination approval agreement will terminate 60 days after 
notice is given, if the mortgagee had a rate of defaults and claims on 
insured mortgages originated in an area which exceeded 200 percent of 
the normal rate and exceeded the national default and claim rate for 
insured mortgages.
    (B) Notice of termination of direct endorsement approval. The 
Secretary may notify a mortgagee that its direct endorsement approval 
under 24 CFR part 203 will terminate 60 days after notice is given, if 
the mortgagee had a rate of defaults and claims on insured mortgages 
underwritten in an area which exceeded 200 percent of the normal rate 
and exceeded the national default and claim rate for insured mortgages. 
The termination of a mortgagee's direct endorsement approval pursuant to 
this section is separate and apart from the termination of a mortgagee's 
direct endorsement approval under 24 CFR part 203.
    (C) No need for prior action by Mortgagee Review Board. The 
termination notices described in paragraphs (c)(2)(ii)(A) and (B) of 
this section may be given without prior action by the Mortgagee Review 
Board.
    (D) Underserved areas. Before the Secretary sends the termination 
notice, the Secretary shall review the Census tract concentrations of 
the defaults and claims. If the Secretary determines that the excessive 
rate is the result of mortgage lending in underserved areas, as defined 
in 24 CFR 81.2, the Secretary may determine not to terminate the 
mortgagee's origination approval agreement and/or direct endorsement 
approval.
    (iv) Request for informal conference. Prior to termination the 
mortgagee may submit a written request for an informal conference with 
the Deputy Assistant Secretary for Single Family Housing or that 
official's designee. HUD must receive the written request no later than 
30 calendar days after the

[[Page 132]]

date of the proposed termination notice. Unless HUD grants an extension, 
the informal conference must be held no later than 60 calendar days 
after the date of the proposed termination notice. After considering 
relevant reasons and factors beyond the mortgagee's control that 
contributed to the excessive default and claim rates, the Deputy 
Assistant Secretary for Single Family Housing or designee may withdraw 
the termination notice.
    (v) Limitation on the establishment of new branches. Upon receipt of 
a proposed termination notice of its origination approval agreement, the 
mortgagee shall not establish a new branch or new branches for the 
origination of FHA-insured mortgages in the area or areas that are 
covered by the proposed termination notice. As of January 18, 2005, a 
mortgagee that is in receipt of a notice of proposed termination may not 
establish any new branch in the location or locations cited in the 
proposed termination notice until either:
    (A) The proposed termination notice is withdrawn or
    (B) The Secretary reinstates the mortgagee's origination approval 
agreement, in accordance with paragraph (e) of this section.
    (vi) Effects of termination. (A) Termination of origination approval 
agreement. If a mortgagee's origination approval agreement is 
terminated, it may not originate single family insured mortgages unless 
the origination approval agreement is reinstated by the Secretary in 
accordance with paragraph (e) of this section, notwithstanding any other 
provision of this part except Sec.  202.3(c)(2)(vii)(A).
    (B) Termination of direct endorsement approval. If a mortgagee's 
direct endorsement approval is terminated, it may not underwrite single 
family insured mortgages for the area(s) identified in the termination 
notice, unless the direct endorsement approval is reinstated by the 
Secretary in accordance with paragraph (e) of this section, 
notwithstanding any other provision of this part except Sec.  
202.3(c)(2)(vii)(A).
    (vii) Rights and obligations in the event of termination. 
Termination of the origination approval agreement and/or direct 
endorsement approval shall not affect:
    (A) The eligibility of the mortgage for insurance, absent fraud or 
misrepresentation, if the mortgagor and all terms and conditions of the 
mortgage had been approved before the termination by the Direct 
Endorsement or Lender Insurance mortgagee or were covered by a firm 
commitment issued by the Secretary; however, no other mortgages 
originated or underwritten after the date of termination by the 
mortgagee shall be insured unless the mortgagee's origination approval 
agreement and/or direct endorsement approval is reinstated by the 
Secretary;
    (B) The right of a mortgagee whose direct endorsement approval has 
been terminated to transfer cases to another mortgagee with direct 
endorsement approval for the area covered by the termination.
    (C) A mortgagee's obligation to continue to pay insurance premiums 
and meet all other obligations, including servicing, associated with 
insured mortgages;
    (D) A mortgagee's right to apply for reinstatement of the 
origination approval agreement and/or direct endorsement approval in 
accordance with paragraph (e) of this section; or
    (E) A mortgagee's right to purchase insured mortgages or to service 
its own portfolio or the portfolios of other mortgagees with which it 
has a servicing contract.
    (d) Withdrawal and suspension of approval. Lender or mortgagee 
approval may be suspended or withdrawn by the Mortgagee Review Board as 
provided in part 25 of this title.
    (e) Reinstatement--(1) General. A mortgagee whose origination 
approval agreement and/or direct endorsement approval has been 
terminated under paragraph (c) of this section may apply for 
reinstatement if:
    (i) The origination approval agreement and/or direct endorsement 
approval for the affected branch or branches has been terminated for at 
least six months; and
    (ii) The mortgagee continues to be an approved mortgagee meeting the 
general standards of Sec.  202.5 and the specific requirements of 
Sec. Sec.  202.6, 202.7, 202.8 or 202.10, and 202.12.

[[Page 133]]

    (2) Application for reinstatement. The mortgagee's application for 
reinstatement must:
    (i) Be in a format prescribed by the Secretary and signed by the 
mortgagee;
    (ii) Be accompanied by an independent analysis of the terminated 
office's operations and identifying the underlying cause of the 
mortgagee's unacceptable default and claim rate. The independent 
analysis must be prepared by an independent Certified Public Accountant 
(CPA) qualified to perform audits under the government auditing 
standards issued by the General Accounting Office; and
    (iii) Be accompanied by a corrective action plan addressing each of 
the issues identified in the independent analysis described in paragraph 
(e)(2)(ii) of this section, along with evidence demonstrating that the 
mortgagee has implemented the corrective action plan.
    (3) HUD action on reinstatement application. The Secretary will 
grant the mortgagee's application for reinstatement if the mortgagee's 
application is complete and the Secretary determines that the underlying 
causes for the termination have been satisfactorily remedied.

[62 FR 20082, Apr. 24, 1997, as amended at 62 FR 30225, June 2, 1997; 62 
FR 65181, Dec. 10, 1997; 69 FR 75807, Dec. 17, 2004; 75 FR 20731, Apr. 
20, 2010; 78 FR 57060, Sept. 17, 2013]



Sec.  202.4  Request for determination of compliance.

    Pursuant to section 539(a) of the Act, any person may file a request 
that the Secretary determine whether a lender or mortgagee is in 
compliance with Sec.  202.12(a) or with provisions of this chapter 
implementing sections 223(a)(7) and 535 of the Act such as Sec. Sec.  
201.10(g), 203.18d and 203.43(c)(5) of this chapter (only section 535 
applies to lenders). The request for determination shall be made to the 
following address: Department of Housing and Urban Development, Office 
of Lender Activities and Program Compliance, 451 Seventh Street SW., 
Washington, DC, 20410. The Secretary shall inform the requestor of the 
disposition of the request. The Secretary shall publish in the Federal 
Register the disposition of any case referred by the Secretary to the 
Mortgagee Review Board.



Sec.  202.5  General approval standards.

    To be approved for participation in the Title I or Title II 
programs, and to maintain approval, a lender or mortgagee shall meet and 
continue to meet the general requirements of paragraphs (a) through (n) 
of this section (except as provided in Sec.  202.10(b)) and the 
requirements for one of the eligible classes of lenders or mortgagees in 
Sec. Sec.  202.6 through 202.10.
    (a) Business form. (1) The lender or mortgagee shall be a 
corporation or other chartered institution, a permanent organization 
having succession, or a partnership. A partnership must meet the 
requirements of paragraphs (a)(1)(i) through (iv) of this section.
    (i) Each general partner must be a corporation or other chartered 
institution consisting of two or more persons.
    (ii) One general partner must be designated as the managing general 
partner. The managing general partner shall comply with the requirements 
of paragraphs (b), (c), and (f) of this section. The managing general 
partner must have as its principal activity the management of one or 
more partnerships, all of which are mortgage lenders or property 
improvement or manufactured home lenders, and must have exclusive 
authority to deal directly with the Secretary on behalf of each 
partnership. Newly admitted partners must agree to the management of the 
partnership by the designated managing general partner. If the managing 
general partner withdraws or is removed from the partnership for any 
reason, a new managing general partner shall be substituted, and the 
Secretary shall be immediately notified of the substitution.
    (iii) The partnership agreement shall specify that the partnership 
shall exist for the minimum term of years required by the Secretary. All 
insured mortgages and Title I loans held by the partnership shall be 
transferred to a lender or mortgagee approved under this part prior to 
the termination of the partnership. The partnership shall be 
specifically authorized to continue its existence if a partner 
withdraws.

[[Page 134]]

    (iv) The Secretary must be notified immediately of any amendments to 
the partnership agreement that would affect the partnership's actions 
under the Title I or Title II programs.
    (2) Use of business name. The lender or mortgagee must use its HUD-
registered business name in all advertisements and promotional materials 
related to FHA programs. HUD-registered business names include any alias 
or ``doing business as'' (DBA) on file with FHA. The lender or mortgagee 
must keep copies of all print and electronic advertisements and 
promotional materials for a period of 2 years from the date that the 
materials are circulated or used to advertise.
    (3) Non-FHA-approved entities. A lender or mortgagee that accepts a 
loan application from a non-FHA-approved entity must confirm that the 
entity's legal name and Tax ID number are included in the FHA loan 
origination system record for the subject loan. The loan to be insured 
by FHA must be underwritten by the FHA-approved lender or mortgagee.
    (b) Employees. The lender or mortgagee shall employ competent 
personnel trained to perform their assigned responsibilities in consumer 
or mortgage lending, including origination, servicing, and collection 
activities, and shall maintain adequate staff and facilities to 
originate and service mortgages or Title I loans, in accordance with 
applicable regulations, to the extent the mortgagee or lender engages in 
such activities.
    (c) Officers. All employees who will sign applications for mortgage 
insurance on behalf of the mortgagee or report loans for insurance shall 
be corporate officers or shall otherwise be authorized to bind the 
lender or mortgagee in the origination transaction. The lender or 
mortgagee shall ensure that an authorized person reports all 
originations, purchases, and sales of Title I loans or Title II 
mortgages to the Secretary for the purpose of obtaining or transferring 
insurance coverage.
    (d) Escrows. The lender or mortgagee shall not use escrow funds for 
any purpose other than that for which they were received. It shall 
segregate escrow commitment deposits, work completion deposits, and all 
periodic payments received under loans or insured mortgages on account 
of ground rents, taxes, assessments, and insurance charges or premiums, 
and shall deposit such funds with one or more financial institutions in 
a special account or accounts that are fully insured by the Federal 
Deposit Insurance Corporation or the National Credit Union 
Administration, except as otherwise provided in writing by the 
Secretary.
    (e) Servicing. A lender shall service or arrange for servicing of 
the loan in accordance with the requirements of 24 CFR part 201. A 
mortgagee shall service or arrange for servicing of the mortgage in 
accordance with the servicing responsibilities contained in subpart C of 
24 CFR part 203 and in 24 CFR part 207, with all other applicable 
regulations contained in this title, and with such additional conditions 
and requirements as the Secretary may impose.
    (f) Business changes. The lender or mortgagee shall provide prompt 
notification to the Secretary, in such form as prescribed by the 
Secretary, of:
    (1) All changes in its legal structure, including, but not limited 
to, mergers, terminations, name, location, control of ownership, and 
character of business; and
    (2) Any officer, partner, director, principal, manager, supervisor, 
loan processor, loan underwriter, loan originator, of the lender or 
mortgagee, or the lender or mortgagee itself, that is subject to one or 
more of the sanctions in paragraph (j) of this section.
    (g) Financial statements. The lender or mortgagee shall:
    (1) Furnish to the Secretary a copy of its audited financial 
statements within 90 days of its fiscal year end, except as provided in 
Sec.  202.6(c);
    (2) Furnish such other information as the Secretary may request; and
    (3) Submit to an examination of that portion of its records that 
relates to its Title I and/or Title II program activities.
    (h) Quality control plan. The lender or mortgagee shall implement a 
written quality control plan, acceptable to the Secretary, that assures 
compliance with the regulations and other issuances of the Secretary 
regarding

[[Page 135]]

loan or mortgage origination and servicing.
    (i) Fees. The lender or mortgagee, unless approved under Sec.  
202.10, shall pay an application fee and annual fees, including 
additional fees for each branch office authorized to originate Title I 
loans or submit applications for mortgage insurance, at such times and 
in such amounts as the Secretary may require. The Secretary may identify 
additional classes or groups of lenders or mortgagees that may be exempt 
from one or more of these fees.
    (j) Ineligibility. For a lender or mortgagee to be eligible for FHA 
approval, neither the lender or mortgagee, nor any officer, partner, 
director, principal, manager, supervisor, loan processor, loan 
underwriter, or loan originator of the lender or mortgagee shall:
    (1) Be suspended, debarred, under a limited denial of participation 
(LDP), or otherwise restricted under 2 CFR part 2424 or 24 CFR part 25, 
or under similar procedures of any other federal agency;
    (2) Be indicted for, or have been convicted of, an offense that 
reflects adversely upon the integrity, competency, or fitness to meet 
the responsibilities of the lender or mortgagee to participate in the 
Title I or Title II programs;
    (3) Be subject to unresolved findings as a result of HUD or other 
governmental audit, investigation, or review;
    (4) Be engaged in business practices that do not conform to 
generally accepted practices of prudent mortgagees or that demonstrate 
irresponsibility;
    (5) Be convicted of, or have pled guilty or nolo contendere to, a 
felony related to participation in the real estate or mortgage loan 
industry:
    (i) During the 7-year period preceding the date of the application 
for licensing and registration; or
    (ii) At any time preceding such date of application, if such felony 
involved an act of fraud, dishonesty, or a breach of trust or money 
laundering;
    (6) Be in violation of provisions of the Secure and Fair Enforcement 
(SAFE) Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.) or any 
applicable provision of state law; or
    (7) Be in violation of any other requirement established by the 
Secretary.
    (k) Branch offices. A lender may, upon approval by the Secretary, 
maintain branch offices for the origination of Title I or Title II 
loans. A branch office of a mortgagee must be registered with the 
Department in order to originate mortgages or submit applications for 
mortgage insurance. The lender or mortgagee shall remain fully 
responsible to the Secretary for the actions of its branch offices.
    (l) Conflict of interest and responsibility. A mortgagee may not pay 
anything of value, directly or indirectly, in connection with any 
insured mortgage transaction or transactions to any person or entity if 
such person or entity has received any other consideration from the 
mortgagor, seller, builder, or any other person for services related to 
such transactions or related to the purchase or sale of the mortgaged 
property, except that consideration, approved by the Secretary, may be 
paid for services actually performed. The mortgagee shall not pay a 
referral fee to any person or organization.
    (m) Reports. Each lender and mortgagee must submit an annual 
certification on a form prescribed by the Secretary. Upon application 
for approval and with each annual recertification, each lender and 
mortgagee must submit a certification that it has not been refused a 
license and has not been sanctioned by any state or states in which it 
will originate insured mortgages or Title I loans. In addition, each 
mortgagee shall file the following:
    (1) An audited or unaudited financial statement, within 30 days of 
the end of each fiscal quarter in which the mortgagee experiences an 
operating loss of 20 percent of its net worth, and until the mortgagee 
demonstrates an operating profit for 2 consecutive quarters or until the 
next recertification, whichever is the longer period; and
    (2) A statement of net worth within 30 days of the commencement of 
voluntary or involuntary bankruptcy, conservatorship, receivership, or 
any transfer of control to a federal or state supervisory agency.
    (n) Net worth--(1) Applicability. The requirements of this section 
apply to

[[Page 136]]

approved supervised and nonsupervised lenders and mortgagees under Sec.  
202.6 and Sec.  202.7, and approved investing lenders and mortgagees 
under Sec.  202.9. For ease of reference, these institutions are 
referred to as ``approved lenders and mortgagees'' for purposes of this 
section. The requirements of this section also apply to applicants for 
FHA approval under Sec. Sec.  202.6, 202.7, and 202.9. For ease of 
reference, these entities are referred to as ``applicants'' for purposes 
of this section.
    (2) Phased-in net worth requirements for 2010 and 2011--(i) 
Applicants. Effective on May 20, 2010, applicants shall comply with the 
net worth requirements set forth in paragraph (n)(2)(iii) of this 
section.
    (ii) Approved mortgagees. Effective on May 20, 2011, each approved 
lender or mortgagee with FHA approval as of May 20, 2010 shall comply 
with the net worth requirements set forth in paragraphs (n)(2)(iii) or 
(n)(2)(iv) of this section, as applicable.
    (iii) Net worth requirements for non-small businesses. Each approved 
lender or mortgagee that exceeds the size standard for its industry 
classification established by the Small Business Administration at 13 
CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit 
Intermediation and Related Activities) shall have a required minimum net 
worth of not less than $1,000,000. No less than 20 percent of the 
approved lender or mortgagee's required minimum net worth must be liquid 
assets consisting of cash or its equivalent acceptable to the Secretary.
    (iv) Net worth requirements for small businesses. Each approved 
lender or mortgagee that meets the size standard for its industry 
classification established by the Small Business Administration at 13 
CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit 
Intermediation and Related Activities) shall have a required minimum net 
worth of not less than $500,000. No less than 20 percent of the approved 
lender or mortgagee's required minimum net worth must be liquid assets 
consisting of cash or its equivalent acceptable to the Secretary. If, 
based on the audited financial statement or other financial report that 
is required to be prepared at the end of its fiscal year and provided to 
HUD at the commencement of the new fiscal year, an approved lender or 
mortgagee no longer meets the Small Business Administration size 
standard for its industry classification, the approved lender or 
mortgagee shall meet the net worth requirements set forth in paragraph 
(n)(2)(iii) of this section for a non-small business approved lender or 
mortgagee by the last day of the fiscal year in which the audited 
financial statement or other financial report, as applicable, was 
submitted.
    (3) Net worth requirements for 2013 and subsequent years. Effective 
May 20, 2013:
    (i) Irrespective of size, each applicant and each approved lender or 
mortgagee, for participation solely under the FHA single family 
programs, shall have a net worth of not less than $1 million, plus an 
additional net worth of one percent of the total volume in excess of $25 
million of FHA single family insured mortgages originated, underwritten, 
purchased, or serviced during the prior fiscal year, up to a maximum 
required net worth of $2.5 million. No less than 20 percent of the 
applicant's or approved lender or mortgagee's required net worth must be 
liquid assets consisting of cash or its equivalent acceptable to the 
Secretary.
    (ii) Multifamily net worth requirements. Irrespective of size, each 
applicant for approval and each approved lender or mortgagee for 
participation solely under the FHA multifamily programs shall have a 
minimum net worth of not less than $1 million. For those multifamily 
approved lenders or mortgagees that also engage in mortgage servicing, 
an additional net worth of one percent of the total volume in excess of 
$25 million of FHA multifamily mortgages originated, purchased, or 
serviced during the prior fiscal year, up to a maximum required net 
worth of $2.5 million, is required. For multifamily approved lenders or 
mortgagees that do not perform mortgage servicing, an additional net 
worth of one half of one percent of the total volume in excess of $25 
million of FHA multifamily mortgages originated during the prior fiscal 
year, up to a maximum required net worth of $2.5 million, is required. 
No less than 20 percent of the applicant's

[[Page 137]]

or approved lender's or mortgagee's required net worth must be liquid 
assets consisting of cash or its equivalent acceptable to the Secretary.
    (iii) Dual participation net worth requirements. Irrespective of 
size, each applicant for approval and each approved lender or mortgagee 
that is a participant in both FHA single-family and multifamily programs 
must meet the net worth requirements as set forth in paragraph (n)(3)(i) 
of this section.

[75 FR 20732, Apr. 20, 2010; 75 FR 23582, May 4, 2010; 77 FR 51468, Aug. 
24, 2012; 78 FR 57060, Sept. 17, 2013]



               Subpart B_Classes of Lenders and Mortgagees



Sec.  202.6  Supervised lenders and mortgagees.

    (a) Definition. A supervised lender or mortgagee is a financial 
institution that is a member of the Federal Reserve System or an 
institution whose accounts are insured by the Federal Deposit Insurance 
Corporation or the National Credit Union Administration. A supervised 
mortgagee may submit applications for mortgage insurance. A supervised 
lender or mortgagee may originate, purchase, hold, service or sell loans 
or insured mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec.  202.5, a supervised lender or mortgagee shall meet 
the following requirements:
    (1) Net worth. The net worth requirements appear in Sec.  202.5(n).
    (2) Notification. A lender or mortgagee shall promptly notify the 
Secretary in the event of termination of its supervision by its 
supervising agency.
    (3) Fidelity bond. A Title II mortgagee shall have fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or have alternative 
insurance coverage, approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.
    (4) Audit report. Except as provided in paragraph (c) of this 
section, a lender or mortgagee must:
    (i) Comply with the financial reporting requirements in 24 CFR part 
5, subpart H. Audit reports shall be based on audits performed by a 
certified public accountant, or by an independent public accountant 
licensed by a regulatory authority of a State or other political 
subdivision of the United States on or before December 31, 1970, and 
shall include:
    (A) Financial statements in a form acceptable to the Secretary, 
including a balance sheet and a statement of operations and retained 
earnings, a statement of cash flows, an analysis of the lender's or 
mortgagee's net worth adjusted to reflect only assets acceptable to the 
Secretary, and an analysis of escrow funds; and
    (B) Such other financial information as the Secretary may require to 
determine the accuracy and validity of the audit report.
    (ii) Submit a report on compliance tests prescribed by the 
Secretary.
    (c) Financial statement requirements for small supervised lenders 
and mortgagees--(1) Definitions. For the purposes of this section, the 
following definitions apply:
    (i) Federal banking agency means the Board of Governors of the 
Federal Reserve System; the Federal Deposit Insurance Corporation; and 
the National Credit Union Administration; or any successor agency 
thereof.
    (ii) Small supervised lender or mortgagee means a supervised lender 
or mortgagee possessing consolidated assets below the threshold for 
required audited financial reporting as established by the federal 
banking agency that is responsible for the oversight of that supervised 
lender or mortgagee.
    (2) Financial statement requirements. Small supervised lenders and 
mortgagees shall not be subject to the requirement to submit a copy of 
an audited financial statement under Sec.  202.5(g) and the audit report 
requirements under paragraph (b)(4) of this section. Small supervised 
lenders and mortgagees are required, within 90 days of their fiscal year 
end, to furnish to the Secretary the unaudited financial regulatory 
report--a consolidated or fourth quarter Report of Condition and Income 
(Federal Financial Institutions Examination Council forms 031 and 041, 
also

[[Page 138]]

known as the ``Call Report''), a consolidated or fourth quarter Thrift 
Financial Report, or a consolidated or fourth quarter NCUA Call Report 
(NCUA Form 5300 or 5310), or such other financial regulatory report as 
may be required--that aligns with the small supervised lender's or 
mortgagee's fiscal year end and that the small supervised lender or 
mortgagee is required to submit to their respective federal banking 
agency.
    (3) Requirement for audited financial statement and other 
information based on determination of heightened risk to the FHA 
insurance fund. If the Secretary determines that a small supervised 
lender or mortgagee poses a heightened risk to the FHA insurance fund, 
the lender or mortgagee must provide, upon request, additional financial 
documentation, up to and including an audited financial statement, and 
other information as the Secretary determines necessary. The Secretary 
may determine that a small supervised lender or mortgagee poses a 
heightened risk to the FHA insurance fund based upon, but not limited 
to, one or more of the following factors:
    (i) Failing to provide required financial submissions under Sec.  
202.6(c)(2) within the required 90-day period following the lender's or 
mortgagee's fiscal year end;
    (ii) Maintaining insufficient adjusted net worth or unrestricted 
liquid assets as required by Sec.  202.5(n);
    (iii) Reporting opening cash and equity balances that do not agree 
with the prior year's reported cash and equity balances;
    (iv) Experiencing an operating loss of 20 percent or greater of the 
lender's or mortgagee's net worth for the annual reporting period as 
governed by Sec.  202.5(m)(1);
    (v) Experiencing an increase in loan volume over the prior 12-month 
period, determined by the Secretary to be significant;
    (vi) Undertaking significant changes to business operations, such as 
a merger or acquisition; and
    (vii) Other factors that the Secretary considers appropriate in 
indicating a heightened risk to the FHA insurance fund.

[75 FR 20734, Apr. 20, 2010, as amended by 78 FR 57060, Sept. 17, 2013]



Sec.  202.7  Nonsupervised lenders and mortgagees.

    (a) Definition. A nonsupervised lender or mortgagee is a lending 
institution which has as its principal activity the lending or investing 
of funds in real estate mortgages, consumer installment notes, or 
similar advances of credit, or the purchase of consumer installment 
contracts, and which is not approved under any other section of this 
part. A nonsupervised mortgagee may submit applications for mortgage 
insurance. A nonsupervised lender or mortgagee may originate, purchase, 
hold, service or sell insured loans or mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec.  202.5, a nonsupervised lender or mortgagee shall 
meet the following requirements:
    (1) Net worth and liquid assets. The net worth and liquidity 
requirements appear in Sec.  202.5(n).
    (2) Credit source--(i) Title I. A lender shall have and maintain a 
reliable warehouse line of credit or other funding program acceptable to 
the Secretary of not less than $500,000 for use in originating or 
purchasing Title I loans.
    (ii) Title II. Except for multifamily mortgagees, a mortgagee shall 
have a warehouse line of credit or other mortgage funding program 
acceptable to the Secretary which is adequate to fund the mortgagee's 
average 60 day origination operations, but in no event shall the 
warehouse line of credit or funding program be less than $1,000,000.
    (3) Audit report. (i) A lender or mortgagee must comply with the 
financial reporting requirements in 24 CFR part 5, subpart H. Audit 
reports shall be based on audits performed by a certified public 
accountant, or by an independent public accountant licensed by a 
regulatory authority of a State or other political subdivision of the 
United States on or before December 31, 1970, and shall include:
    (A) A financial statement in a form acceptable to the Secretary, 
including

[[Page 139]]

a balance sheet and a statement of operations and retained earnings, a 
statement of cash flows, an analysis of the mortgagee's net worth 
adjusted to reflect only assets acceptable to the Secretary, and an 
analysis of escrow funds; and
    (B) Such other financial information as the Secretary may require to 
determine the accuracy and validity of the audit report.
    (ii) A mortgagee must submit a report on compliance tests prescribed 
by the Secretary.
    (4) Fidelity bond. A Title II mortgagee shall have fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or alternative insurance 
coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.

[62 FR 20082, Apr. 24, 1997, as amended at 62 FR 65182, Dec. 10, 1997; 
63 FR 9742, Feb. 26, 1998; 63 FR 44361, Aug. 18, 1998; 67 FR 53451, Aug. 
15, 2002; 77 FR 51468, Aug. 24, 2012]



Sec.  202.8  Sponsored third-party originators.

    (a) Definitions--Sponsor. (1) With respect to Title I programs, a 
sponsor is a lender that holds a valid Title I Contract of Insurance and 
meets the net worth requirement for the class of lender to which it 
belongs.
    (2) With respect to Title II programs, a sponsor is a mortgagee that 
holds a valid origination approval agreement, is approved to participate 
in the Direct Endorsement program, and meets the net worth requirement 
for the class of mortgagee to which it belongs.
    (3) Each sponsor shall be responsible to the Secretary for the 
actions of its sponsored third-party originators or mortgagees in 
originating loans or mortgages, unless applicable law or regulation 
requires specific knowledge on the part of the party to be held 
responsible. If specific knowledge is required, the Secretary will 
presume that a sponsor has knowledge of the actions of its sponsored 
third-party originators or mortgagees in originating loans or mortgages 
and the sponsor is responsible for those actions unless it can rebut the 
presumption with affirmative evidence.
    Sponsored third-party originator. A sponsored third-party originator 
may hold a Title I Contract of Insurance or Title II Origination 
Approval Agreement if it is an FHA-approved lender or mortgagee. If the 
sponsored third-party originator is not an FHA-approved lender or 
mortgagee, then the sponsored third-party originator may not hold a 
Title I Contract of Insurance or Title II Origination Approval 
Agreement. A sponsored third-party originator is authorized to originate 
Title I direct loans or Title II mortgage loans for sale or transfer to 
a sponsor or sponsors, as defined in this section, that holds a valid 
Title I Contract of Insurance or Title II Origination Approval Agreement 
and is not under suspension, subject to the sponsor determining that the 
third-party originator has met the eligibility criteria of paragraph (b) 
of this section.
    (b) Eligibility to originate loans to be insured by FHA. A sponsored 
third-party originator may originate loans to be insured by FHA, 
provided that:
    (1) The sponsored third-party originator is working with and through 
an FHA-approved lender or mortgagee; and
    (2) The sponsored third-party originator or an officer, partner, 
director, principal, manager, supervisor, loan processor, or loan 
originator of the sponsored third-party originator has not been subject 
to the sanctions or administrative actions listed in Sec.  202.5(j), as 
determined and verified by the FHA-approved lender or mortgagee.

[75 FR 20734, Apr. 20, 2010, as amended at 77 FR 51468, Aug. 24, 2012]



Sec.  202.9  Investing lenders and mortgagees.

    (a) Definition. An investing lender or mortgagee is an organization 
that is not approved under any other section of this part. An investing 
lender or mortgagee may purchase, hold or sell Title I loans or Title II 
mortgages, respectively, but may not originate Title I loans or Title II 
mortgages in its own name or submit applications for the insurance of 
mortgages. An investing lender or mortgagee may not service Title I 
loans or Title II mortgages without prior approval of the Secretary.

[[Page 140]]

    (b) Additional requirements. In addition to the general approval 
requirements in Sec.  202.5, an investing lender or mortgagee shall meet 
the following requirements:
    (1) Funding arrangements. An investing lender or mortgagee shall 
have, or have made arrangements for, funds sufficient to support a 
projected investment of at least $1,000,000 in property improvement, 
manufactured home or real estate loans or mortgages.
    (2) Officers and staff. In lieu of the staffing and facilities 
requirements in Sec.  202.5(b), an investing lender or mortgagee shall 
have officers or employees who are capable of managing its activities in 
purchasing, holding, and selling Title I loans or Title II mortgages.
    (3) Fidelity bond. An investing mortgagee shall maintain fidelity 
bond coverage and errors and omissions insurance acceptable to the 
Secretary and in an amount required by the Secretary, or alternative 
insurance coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.

[62 FR 20082, Apr. 24, 1997, as amended at 63 FR 9742, Feb. 26, 1998; 75 
FR 20734, Apr. 20, 2010]



Sec.  202.10  Governmental institutions, Government-sponsored enterprises,
public housing agencies and State housing agencies.

    (a) Definition. A Federal, State or municipal governmental agency, a 
Federal Reserve Bank, a Federal Home Loan Bank, the Federal Home Loan 
Mortgage Corporation, or the Federal National Mortgage Association may 
be an approved lender or mortgagee. A mortgagee approved under this 
section may submit applications for Title II mortgage insurance. A 
lender or mortgagee approved under this section may originate, purchase, 
service or sell Title I loans and insured mortgages, respectively. A 
mortgagee or lender approved under this section is not required to meet 
a net worth requirement. A mortgagee shall maintain fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or alternative insurance 
coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee. There are no 
additional requirements beyond the general approval requirements in 
Sec.  202.5 or as provided under paragraph (b) of this section.
    (b) Public housing agencies and State housing agencies. Under such 
terms and conditions as the Secretary may prescribe and notwithstanding 
the general requirements of Sec.  202.5 or the requirements of paragraph 
(a) of this section, a public housing agency or its instrumentality or a 
State housing agency may be approved as a mortgagee for the purpose of 
originating and holding multifamily mortgages funded by issuance of tax 
exempt obligations by the agency.
    (c) Audit requirements. The insuring of loans and mortgages under 
the Act constitutes ``Federal financial assistance'' (as defined in 2 
CFR 200.40) for purposes of audit requirements set out in 2 CFR part 
200, subpart F. Non-Federal entities (as defined in 2 CFR 200.69) that 
receive insurance as lenders and mortgagees shall conduct audits in 
accordance with 2 CFR part 200, subpart F.

[62 FR 20082, Apr. 24, 1997, as amended at 80 FR 75936, Dec. 7, 2015]



          Subpart C_Title I and Title II Specific Requirements



Sec.  202.11  Title I.

    (a) Types of administrative action. In addition to termination of 
the Contract of Insurance, certain sanctions may be imposed under the 
Title I program. The administrative actions that may be applied are set 
forth in 24 CFR part 25. Civil money penalties may be imposed against 
Title I lenders and mortgagees pursuant to 24 CFR part 30.
    (b) Grounds for action. Administrative actions shall be based upon 
both the grounds set forth in 24 CFR part 25 and as follows:
    (1) Failure to properly supervise and monitor dealers under the 
provisions of part 201 of this title;
    (2) Exhaustion of the general insurance reserve established under 
part 201 of this title;

[[Page 141]]

    (3) Maintenance of a Title I claims/loan ratio representing an 
unacceptable risk to the Department; or
    (4) Transfer of a Title I loan to a party that does not have a valid 
Title I Contract of Insurance.

[75 FR 20734, Apr. 20, 2010]



Sec.  202.12  Title II.

    (a) Tiered pricing--(1) General requirements--(i) Prohibition 
against excess variation. The customary lending practices of a mortgagee 
for its single family insured mortgages shall not provide for a 
variation in mortgage charge rates that exceed 2 percentage points. A 
variation is determined as provided in paragraph (a)(6) of this section.
    (ii) Customary lending practices. The customary lending practices of 
a mortgagee include all single family insured mortgages originated by 
the mortgagee, including mortgages that were originated by the 
mortgagee's sponsored third-party originator(s).
    (iii) Basis for permissible variations. Any variations in the 
mortgage charge rate up to two percentage points under the mortgagee's 
customary lending practices must be based on actual variations in fees 
or cost to the mortgagee to make the mortgage loan, which shall be 
determined after accounting for the value of servicing rights generated 
by making the loan and other income to the mortgagee related to the 
loan. Fees or costs must be fully documented for each specific loan.
    (2) Area. For purposes of this section, an area is:
    (i) An area used by HUD for purposes of Sec.  203.18(a) of this 
chapter to determine the median 1-family house price for an area; or
    (ii) The area served by a HUD field office but excluding any area 
included in paragraph (a)(2)(i) of this section.
    (3) Mortgage charges. Mortgage charges include any charges under the 
mortgagee's control and not collected for the benefit of third parties. 
Examples are interest, discount points and origination fees.
    (4) Interest rate. Whenever a mortgagee offers a particular interest 
rate for a mortgage type in an area, it may not restrict the 
availability of the rate in the area on the basis of the principal 
amount of the mortgage. A mortgagee may not direct mortgage applicants 
to any specific interest rate category on the basis of mortgage size.
    (5) Mortgage charge rate. The mortgage charge rate is defined as the 
amount of mortgage charges for a mortgage expressed as a percentage of 
the initial principal amount of the mortgage.
    (6) Determining excess variations. Variation in mortgage charge 
rates for a mortgage type is determined by comparing all mortgage charge 
rates offered by the mortgagee within an area for the mortgage type for 
a designated day or other time period, including mortgage charge rates 
for all actual mortgage applications.
    (7) Mortgage type. A mortgage type for purposes of paragraph (a)(6) 
of this section will include those mortgages that are closely parallel 
in important characteristics affecting pricing and charges, such as 
level of risk or processing expenses. The Secretary may develop 
standards and definitions regarding mortgage types.
    (8) Recordkeeping. Mortgagees are required to maintain records on 
pricing information, satisfactory to the Secretary, that would allow for 
reasonable inspection by HUD for a period of at least 2 years. 
Additionally, many mortgagees are required to maintain racial, ethnic, 
and gender data under the regulations implementing the Home Mortgage 
Disclosure Act (12 U.S.C. 2801-2810).
    (b) Servicing. Any mortgagee that services mortgages must be 
approved by the Secretary under Sec.  202.6, Sec.  202.7 or Sec.  
202.10, or be specifically approved for servicing under Sec.  202.9(a).
    (c) Report and corrective plan requirements. If a mortgagee approved 
for participation in Title II programs is notified by the Secretary that 
it had a rate of defaults and claims on HUD-insured mortgages during the 
preceding year, or during recent years, which was higher than the normal 
rate, it shall submit a report, within 60 days, containing an 
explanation for the above-normal rate of defaults and claims, and, if 
required by the Secretary, a plan for corrective action with regard

[[Page 142]]

to mortgages in default and its mortgage processing system in general.

[62 FR 20082, Apr. 24, 1997, as amended at 75 FR 20734, Apr. 20, 2010; 
77 FR 51469, Aug. 24, 2012]



PART 203_SINGLE FAMILY MORTGAGE INSURANCE--Table of Contents



     Subpart A_Eligibility Requirements and Underwriting Procedures

          Direct Endorsement, Lender Insurance, and Commitments

Sec.
203.1 Underwriting procedures.
203.3 Approval of mortgagees for Direct Endorsement.
203.4 Approval of mortgagees for Lender Insurance.
203.5 Direct Endorsement process.
203.6 Lender Insurance process.
203.7 Commitment process.

                        Miscellaneous Regulations

203.9 Disclosure regarding interest due upon mortgage prepayment.
203.10 Informed consumer choice for prospective FHA mortgagors.
203.12 Mortgage insurance on proposed or new construction.
203.14 Builders' warranty.
203.15 Certification of appraisal amount.
203.16 Certificate and contract regarding use of dwelling for transient 
          or hotel purposes.
203.16a Mortgagor and mortgagee requirement for maintaining flood 
          insurance coverage.

                           Eligible Mortgages

203.17 Mortgage provisions.
203.18 Maximum mortgage amounts.
203.18a Solar energy system.
203.18b Increased mortgage amount.
203.18c One-time or up-front mortgage insurance premium excluded from 
          limitations on maximum mortgage amounts.
203.18d Minimum principal loan amount.
203.19 Qualified mortgage.
203.20 Agreed interest rate.
203.21 Amortization provisions.
203.22 Payment of insurance premiums or charges; prepayment privilege.
203.23 Mortgagor's payments to include other charges.
203.24 Application of payments.
203.25 Late charge.
203.26 Mortgagor's payments when mortgage is executed.
203.27 Charges, fees or discounts.
203.28 Economic soundness of projects.
203.29 Eligible mortgages in Alaska, Guam, Hawaii, or the Virgin 
          Islands.
203.30 Certificate of nondiscrimination by mortgagor.
203.31 Mortgagor of a principal residence in military service cases.

                           Eligible Mortgagors

203.32 Mortgage lien.
203.33 Relationship of income to mortgage payments.
203.34 Credit standing.
203.35 Disclosure and verification of Social Security and Employer 
          Identification Numbers.
203.36 [Reserved]

                           Eligible Properties

203.37 Nature of title to realty.
203.37a Sale of property.
203.38 Location of dwelling.
203.39 Standards for buildings.
203.40 Location of property.
203.41 Free assumability; exceptions.
203.42 Rental properties.
203.43 Eligibility of miscellaneous type mortgages.
203.43a Eligibility of mortgages covering housing in certain 
          neighborhoods.
203.43b [Reserved]
203.43c Eligibility of mortgages involving a dwelling unit in a 
          cooperative housing development.
203.43d Eligibility of mortgages in certain communities.
203.43e [Reserved]
203.43f Eligibility of mortgages covering manufactured homes.
203.43g Eligibility of mortgages in certain communities.
203.43h Eligibility of mortgages on Indian land insured pursuant to 
          section 248 of the National Housing Act.
203.43i Eligibility of mortgages on Hawaiian Home Lands insured pursuant 
          to section 247 of the National Housing Act.
203.43j Eligibility of mortgages on Allegany Reservation of Seneca 
          Nation of Indians.
203.44 Eligibility of advances.
203.45 Eligibility of graduated payment mortgages.
203.47 Eligibility of growing equity mortgages.
203.49 Eligibility of adjustable rate mortgages.
203.50 Eligibility of rehabilitation loans.
203.51 Applicability.
203.52 Acceptance of individual residential water purification 
          equipment.

                Insured Ten-Year Protection Plans (Plan)

203.200 Definitions.
203.201 Scope.
203.202 Plan acceptability and acceptance renewal criteria--general.
203.203 Issuance and nature of insured 10-year protection plans.

[[Page 143]]

203.204 Requirements and limitations of a plan.
203.205 Plan coverage.
203.206 Housing performance standards or criteria.
203.207 Designated area.
203.208 Insurance backing criteria.
203.209 Payments under a plan.

                             Effective Date

203.249 Effect of amendments.

                Subpart B_Contract Rights and Obligations

                               Definitions

203.251 Definitions.

                  Endorsement and Contract of Insurance

203.255 Insurance of mortgage.
203.256 Insurance of open-end advance.
203.257 Creation of the contract.
203.258 Substitute mortgagors.

                 Mortgage Insurance Premiums--In General

203.259 Method of payment of MIP.
203.259a Scope.

              Mortgage Insurance Premiums--Periodic Payment

203.260 Amount of mortgage insurance premium (periodic MIP).
203.261 Calculation of periodic MIP.
203.262 Due date of periodic MIP.
203.264 Payment of periodic MIP.
203.265 Mortgagee's late charge and interest.
203.266 Period covered by periodic MIP.
203.267 Duration of periodic MIP.
203.268 Pro rata payment of periodic MIP.
203.269 Method of payment of periodic MIP.

                Open-end Insurance Charges--All Mortgages

203.270 Open-end insurance charges.

              Mortgage Insurance Premiums--One-Time Payment

203.280 One-time or Up-front MIP.
203.281 Calculation of one-time MIP.
203.282 Mortgagee's late charge and interest.
203.283 Refund of one-time MIP.

   Calculation of Mortgage Insurance Premium on or After July 1, 1991

203.284 Calculation of up-front and annual MIP on or after July 1, 1991.
203.285 Fifteen-year mortgages: Calculation of up-front and annual MIP 
          on or after December 26, 1992.

                   Adjusted Mortgage Insurance Premium

203.288 Discontinuance of adjusted premium charge.

                          Voluntary Termination

203.295 Voluntary termination.

                    Termination of Insurance Contract

203.315 Termination by conveyance to other than Commissioner.
203.316 Termination by prepayment of mortgage.
203.317 Termination by voluntary agreement.
203.318 Notice of termination by mortgagee.
203.319 Pro rata payment of premiums and charges.
203.320 Notice and date of termination by Commissioner.
203.321 Effect of termination.

                         Default Under Mortgage

203.330 Definition of delinquency and requirement for notice of 
          delinquency to HUD.
203.331 Definition of default, date of default, and requirement of 
          notice of default to HUD.
203.332 [Reserved]
203.333 Reinstatement of defaulted mortgage.

                        Continuation of Insurance

203.340 Special forbearance.
203.341 Partial claim.
203.342 Mortgage modification.
203.343 Partial release, addition or substitution of security.

               Forebearance Relief For Military Personnel

203.345 Postponement of principal payments--mortgagors in military 
          service.
203.346 Postponement of foreclosure--mortgagors in military service.

                         Assignment of Mortgage

203.350 Assignment of mortgage.
203.351 Application for insurance benefits and fiscal data.
203.353 Certification by mortgagee.

                             Claim Procedure

203.355 Acquisition of property.
203.356 Notice of foreclosure and pre-foreclosure sale; reasonable 
          diligence requirements.
203.357 Deed in lieu of foreclosure.
203.358 Direct conveyance of property.
203.359 Time of conveyance to the Secretary.
203.360 Notice of property transfer or pre-foreclosure sale and 
          application for insurance benefits.

[[Page 144]]

203.361 Acceptance of property by Commissioner.
203.362 Conditions for withdrawal of application for insurance benefits.
203.363 Effect of noncompliance with regulations.
203.364 Mortgagee's liability for property expenditures.
203.365 Documents and information to be furnished the Secretary; claims 
          review.
203.366 Conveyance of marketable title.
203.367 Contents of deed and supporting documents.
203.368 Claims without conveyance procedure.
203.369 Deficiency judgments.
203.370 Pre-foreclosure sales.
203.371 Partial claim.

                          Condition of Property

203.375-203.376 [Reserved]
203.377 Inspection and preservation of properties.
203.378 Property condition.
203.379 Adjustment for damage or neglect.
203.380 Certificate of property condition.
203.381 Occupancy of property.
203.382 Cancellation of hazard insurance.

               Property Title Transfers and Title Waivers

203.385 Types of satisfactory title evidence.
203.386 Coverage of title evidence.
203.387 Acceptability of customary title evidence.
203.389 Waived title objections.
203.390 Waiver of title--mortgages or property formerly held by the 
          Secretary.
203.391 Title objection waiver with reduced insurance benefits.

                      Payment of Insurance Benefits

203.400 Method of payment.
203.401 Amount of payment--conveyed and non-conveyed properties.
203.402 Items included in payment--conveyed and non-conveyed properties.
203.402a Reimbursement for uncollected interest.
203.403 Items deducted from payment--conveyed and non-conveyed 
          properties.
203.404 Amount of payment--assigned mortgages.
203.405 Debenture interest rate.
203.406 Maturity of debentures.
203.407 Registration of debentures.
203.408 Form and amounts of debentures.
203.409 Redemption of debentures.
203.410 Issue date of debentures.
203.411 Cash adjustment.
203.412 Payment for foreclosure alternative actions.
203.413 [Reserved]
203.414 Amount of payment--partial claims.

                          Certificate of Claim

203.415 Delivery of certificate of claim.
203.416 Amount and items of certificate of claim.
203.417 Rate of interest of certificate of claim.

         Mutual Mortgage Insurance Fund and Distributive Shares

203.420 Nature of Mutual Mortgage Insurance Fund.
203.421 Allocation of Mutual Mortgage Insurance Fund income or loss.
203.422 Right and liability under Mutual Mortgage Insurance Fund.
203.423 Distribution of distributive shares.
203.424 Maximum amount of distributive shares.
203.425 Finality of determination.
203.426 Inapplicability to housing in older declining urban areas.
203.427 Statute of limitations on payment of distributive shares.

             Sale, Assignment and Pledge of Insured Mortgage

203.430 Sale of interests in insured mortgages.
203.431 Sale of insured mortgage to approved mortgagee.
203.432 Effect of sale of insured mortgage.
203.433 Assignments, pledges and transfers by approved mortgagee.
203.434 Declaration of trust.
203.435 Transfers of partial interests.

                       Graduated Payment Mortgages

203.436 Claim procedure--graduated payment mortgages.

                       Cooperative Unit Mortgages

203.437 Mortgages involving a dwelling unit in a cooperative housing 
          development.

              Mortgages on Property Located on Indian Land

203.438 Mortgages on Indian land insured pursuant to section 248 of the 
          National Housing Act.

          Mortgages on Property Located on Hawaiian Home Lands

203.439 Mortgages on Hawaiian home lands insured pursuant to section 247 
          of the National Housing Act.

     Mortgages on Property in Allegany Reservation of Seneca Indians

203.439a Mortgages on property in Allegany Reservation of Seneca Nation 
          of Indians authorized by section 203(q) of the National 
          Housing Act.

[[Page 145]]

                          Rehabilitation Loans

203.440 Definitions.
203.441 Insurance of loan.
203.442 Contract created by Insurance Certificate or by endorsement.
203.443 Insurance premium.
203.457 Voluntary termination of contract.
203.458 Termination by prepayment of loan.
203.459 Notice of termination by lender.
203.462 Pro rata payment of premium before termination.
203.463 Notice and date of termination by Commissioner.
203.464 Effect of termination.
203.466 Definition of delinquency and requirement for notice of 
          delinquency to HUD.
203.467 Definition of default, date of default, and requirement of 
          notice of default to HUD.
203.468 [Reserved]
203.469 Reinstatement of defaulted loan.
203.471 Special forbearance.
203.472 Relief for borrower in military service.
203.473 Claim procedure.
203.474 Maximum claim period.
203.476 Claim application and items to be filed.
203.477 Certificate by lender when loan assigned.
203.478 Payment of insurance benefits.
203.479 Debenture interest rate.
203.481 Maturity of debentures.
203.482 Registration of debentures.
203.483 Forms and amounts of debentures.
203.484 Redemption of debentures.
203.486 Issue date of debentures.
203.487 Cash adjustment.
203.488 Sale of interests in insured loans.
203.489 Sale of insured loan to approved lender.
203.491 Effect of sale of insured loan.
203.492 Assignments, pledges and transfers by approved lender.
203.493 Declaration of trust.
203.495 Transfers of partial interests.

                            Extension of Time

203.496 Actions to be taken by mortgagee or lender.

                               Amendments

203.499 Effect of amendments.

                  Subpart C_Servicing Responsibilities

                          General Requirements

203.500 Mortgage servicing generally.
203.501 Loss mitigation.
203.502 Responsibility for servicing.
203.508 Providing information.
203.510 Release of personal liability.
203.512 Free assumability; exceptions.

                     Payments, Charges and Accounts

203.550 Escrow accounts.
203.552 Fees and charges after endorsement.
203.554 Enforcement of late charges.
203.556 Return of partial payments.
203.558 Handling prepayments.

                    Mortgagee Action and Forbearance

203.600 Mortgage collection action.
203.602 Delinquency notice to mortgagor.
203.604 Contact with the mortgagor.
203.605 Loss mitigation performance.
203.606 Pre-foreclosure review.
203.608 Reinstatement.
203.610 Relief for mortgagor in military service.
203.614 Special forbearance.
203.616 Mortgage modification.

     Mortgages in Default on Property Located on Indian Reservations

203.664 Processing defaulted mortgages on property located on Indian 
          land.

     Mortgages in Default on Property Located on Hawaiian Home Lands

203.665 Processing defaulted mortgages on property located on Hawaiian 
          home lands.

 Assignment and Forbearance--Property in Allegany Reservation of Seneca 
                                 Indians

203.666 Processing defaulted mortgages on property in Allegany 
          Reservation of Seneca Nation of Indians.

                           Occupied Conveyance

203.670 Conveyance of occupied property.
203.671 Criteria for determining the Secretary's interest.
203.672 Residential areas.
203.673 Habitability.
203.674 Eligibility for continued occupancy.
203.675 Notice to occupants of pending acquisition.
203.676 Request for continued occupancy.
203.677 Decision to approve or deny a request.
203.678 Conveyance of vacant property.
203.679 Continued occupancy after conveyance.
203.680 Approval of occupancy after conveyance.
203.681 Authority of HUD Field Office Managers.

     Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, 1717z-21, 
and 1735d; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).

    Source: 36 FR 24508, Dec. 22, 1971, unless otherwise noted.

[[Page 146]]



     Subpart A_Eligibility Requirements and Underwriting Procedures

          Direct Endorsement, Lender Insurance, and Commitments



Sec.  203.1  Underwriting procedures.

    The three underwriting procedures for single family mortgages are:
    (a) Direct Endorsement. This procedure, which is described in Sec.  
203.5, is available for mortgagees that are eligible under Sec.  203.3.
    (b) Lender insurance. This procedure, which is described in Sec.  
203.6, is available for mortgagees that are eligible for the Direct 
Endorsement program under Sec.  203.5, and that are also approved 
according to Sec.  203.4.
    (c) Issuing of commitments through HUD offices. Processing through 
HUD offices as described in Sec.  203.7, with issuance of commitments, 
is available only for mortgages that are not eligible for Direct 
Endorsement processing under Sec.  203.5(b) or to the extent required in 
Sec.  203.3(b)(4), Sec.  203.3(d)(1), or as determined by the Secretary.

[62 FR 30225, June 2, 1997]



Sec.  203.3  Approval of mortgagees for Direct Endorsement.

    (a) Direct Endorsement approval. To be approved for the Direct 
Endorsement program set forth in Sec.  203.5, a mortgagee must be an 
approved mortgagee meeting the requirements of Sec. Sec.  202.13, 202.14 
or 202.17 and this section.
    (b) Special requirements. The mortgagee must establish that it meets 
the following qualifications.
    (1) The mortgagee has five years of experience in the origination of 
single family mortgages. The Secretary will approve a mortgagee with 
less than five years experience in the origination of single family 
mortgages if a principal officer has had a minimum of five years of 
managerial experience in the origination of single family mortgages.
    (2) The mortgagee has on its permanent staff an underwriter that is 
authorized by the mortgagee to bind the mortgagee on matters involving 
the origination of mortgages through the Direct Endorsement procedure 
and that is registered with the Secretary and such registration is 
maintained with the Secretary. The technical staff may be employees of 
the mortgagee or may be hired on a fee basis from a roster maintained by 
the Secretary. The mortgagee shall use appraisers permitted by Sec.  
203.5(e).
    (3) [Reserved]
    (4) The mortgagee must submit initially 15 mortgages processed in 
accordance with Sec. Sec.  203.5 and 203.255. Separate approval is 
required to originate mortgages under part 206 of this chapter through 
the Direct Endorsement program unless at least 50 mortgages closed by 
the mortgagee have been insured under part 206 of this chapter prior to 
September 15, 1995. Other mortgagees who have not closed at least 50 
mortgages under part 206 of this chapter must submit five (5) Home 
Equity Conversion Mortgages, processed in accordance with Sec. Sec.  
203.3 and 203.255. The documents required by Sec.  203.255 will be 
reviewed by the Secretary and, if acceptable, commitments will be issued 
prior to endorsement of the mortgages for insurance. If the underwriting 
and processing of these 15 mortgages (or the 5 Home Equity Conversion 
Mortgages) is satisfactory, then the mortgagee may be approved to close 
subsequent mortgages and submit them directly for endorsement for 
insurance in accordance with the process set forth in Sec.  203.255. 
Unsatisfactory performance by the mortgagee at this stage constitutes 
grounds for denial of participation in the program, or for continued 
pre-endorsement review of a mortgagee's submissions. If participation in 
the program is denied, such denial is effective immediately and may be 
appealed in accordance with the procedures set forth in paragraph (d)(2) 
of this section. Unsatisfactory performance solely with respect to 
mortgages under 24 CFR part 206 may, at the option of the Secretary, be 
grounds for denial of participation or for continued pre-endorsement 
review for 24 CFR part 206 mortgages without affecting the mortgagee's 
processing of mortgages under other parts.
    (5) The mortgagee shall promptly notify those HUD offices which have 
granted approval under this section of any changes that affect 
qualifications under this section.

[[Page 147]]

    (c) [Reserved]
    (d) Mortgagee sanctions. Depending upon the nature and extent of the 
noncompliance with the requirements applicable to the Direct Endorsement 
process, as determined by the Secretary, the Secretary may take any of 
the following actions:
    (1) Probation. The Secretary may place a mortgagee on Direct 
Endorsement probation for a specified period of time for the purpose of 
evaluating the mortgagee's compliance with the requirements of the 
Direct Endorsement procedure. Such probation is distinct from probation 
imposed by the Mortgagee Review Board under part 25 of this chapter. 
During the probation period specified by this section, the mortgagee may 
continue to process Direct Endorsement mortgages, subject to conditions 
required by the Secretary. The Secretary may require the mortgagee to:
    (i) Process mortgages in accordance with paragraph (b)(4) of this 
section;
    (ii) Submit to additional training;
    (iii) Make changes in the quality control plan required by Sec.  
202.5(h) of this chapter; and
    (iv) Take other actions, which may include, but are not limited to, 
periodic reporting to the Secretary, and submission to the Secretary of 
internal audits.
    (2) Termination of Direct Endorsement approval. (i) A mortgagee's 
approval to participate in the Direct Endorsement program may be 
terminated in a particular jurisdiction by the local HUD office or on a 
nationwide basis by HUD Central Office. The HUD office instituting the 
termination action shall provide the mortgagee with written notice of 
the grounds for the action and of the right to an informal hearing 
before the office initiating the termination action. Such hearing shall 
be expeditiously arranged, and the mortgagee may be represented by 
counsel. Any termination instituted under this section is distinct from 
withdrawal of mortgagee approval by the Mortgagee Review Board under 
part 25 of this title.
    (ii) After consideration of the materials presented, the decision 
maker shall advise the mortgagee in writing whether the termination is 
rescinded, modified or affirmed.
    (iii) The mortgagee may appeal such decision to the Deputy Assistant 
Secretary for Single Family Housing or his or her designee. A decision 
by the Deputy Assistant Secretary or designee shall constitute final 
agency action.
    (iv) Termination of an origination approval agreement under part 202 
of this chapter for a mortgagee or one or more branch offices 
automatically terminates Direct Endorsement approval for the mortgagee 
or the branch office or offices without any further requirement to 
comply with this paragraph.

(Approved by the Office of Management and Budget under control number 
2502-0005)

[57 FR 58345, Dec. 9, 1992, as amended at 60 FR 42758, Aug. 16, 1995; 61 
FR 2651, Jan. 26, 1996; 62 FR 20088, Apr. 24, 1997; 62 FR 65182, Dec. 
10, 1997]



Sec.  203.4  Approval of mortgagees for Lender Insurance.

    Each mortgagee that chooses to participate in the Lender Insurance 
program must use the Lender Insurance process to insure all of the 
mortgages that it underwrites, unless the mortgages are ineligible for 
the Direct Endorsement program as provided in Sec.  203.5(b), or unless 
HUD determines that the mortgages are ineligible for the Lender 
Insurance program.
    (a) Direct Endorsement approval. To be approved for the Lender 
Insurance program described in Sec.  203.6, a mortgagee must be 
unconditionally approved for the Direct Endorsement program as provided 
in Sec.  203.3.
    (b) Performance: Claim and default rate. (1) In addition to being 
unconditionally approved for the Direct Endorsement program, a mortgagee 
must have had an acceptable claim and default rate (as described in 
paragraph (b)(3) of this section) for at least 2 years prior to its 
application for participation in the Lender Insurance program, and must 
maintain such a claim and default rate in order to retain Lender 
Insurance approval.
    (2) HUD may approve a mortgagee that is otherwise eligible for 
Lender Insurance approval, but has an acceptable claim and default 
record of less than 2 years, if:

[[Page 148]]

    (i) The mortgagee is an entity created by a merger, acquisition, or 
reorganization completed less than 2 years prior to the date of the 
mortgagee's application for Lender Insurance approval;
    (ii) One or more of the entities participating in the merger, 
acquisition, or reorganization had Lender Insurance approval at the time 
of the merger, acquisition, or reorganization;
    (iii) All of the lending institutions participating in the merger, 
acquisition, or reorganization that had Lender Insurance approval at the 
time of the merger, acquisition, or reorganization had an acceptable 
claim and default record for the 2 years preceding the mortgagee's 
application for Lender Insurance approval; and
    (iv) The claim and default record of the mortgagee derived by 
aggregating the claims and defaults of the entities participating in the 
merger, acquisition, or reorganization, for the 2-year period prior to 
the mortgagee's application for Lender Insurance approval, constitutes 
an acceptable rate of claims and defaults, as defined by this section.
    (3) A mortgagee has an acceptable claim and default rate if its rate 
of claims and defaults is at or below 150 percent of the average rate 
for insured mortgages in the state(s) in which the mortgagee operates.
    (c) Reviews. HUD will monitor a mortgagee's eligibility to 
participate in the Lender Insurance program on an ongoing basis.
    (d) Termination of approval. (1) HUD may immediately terminate the 
mortgagee's approval to participate in the Lender Insurance program, in 
accordance with section 256(d) of the National Housing Act (12 U.S.C. 
1715z-21(d)), if the mortgagee:
    (i) Violates any of the requirements and procedures established by 
the Secretary for mortgagees approved to participate in HUD's Lender 
Insurance program, Direct Endorsement program, or the Title II Single 
Family mortgage insurance program; or
    (ii) If HUD determines that other good cause exists.
    (2) Such termination will be effective upon receipt of HUD's notice 
advising of the termination. Within 30 days after receiving HUD's notice 
of termination, a mortgagee may request an informal conference with the 
Deputy Assistant Secretary for Single Family Housing or designee. The 
conference will be conducted within 30 days after HUD receives a timely 
request for the conference. After the conference, the Deputy Assistant 
Secretary (or designee) may decide to affirm the termination action or 
to reinstate the mortgagee's Lender Insurance program approval. The 
decision will be communicated to the mortgagee in writing, will be 
deemed a final agency action, and, pursuant to section 256(d) of the 
National Housing Act (12 U.S.C. 1715z-21(d)), is not subject to judicial 
review.
    (3) Lender Insurance authority is automatically terminated for a 
mortgagee whose nationwide Direct Endorsement approval under Sec.  
203.3(d)(2) is terminated, without imposing any further requirement on 
the mortgagee to comply with this paragraph.
    (4) Any termination instituted under this section is distinct from 
withdrawal of mortgagee approval by the Mortgagee Review Board under 24 
CFR part 25.
    (e) Reinstatement. A mortgagee whose Lender Insurance authority is 
terminated under this section may apply for reinstatement if the Lender 
Insurance authority for the mortgagee has been terminated for at least 6 
months. In addition to addressing the criteria for Lender Insurance 
approval specified in paragraphs (a) and (b) of this section, the 
application for reinstatement must be accompanied by a corrective action 
plan addressing the issues resulting in the termination of the 
mortgagee's Lender Insurance authority, along with evidence that the 
mortgagee has implemented the corrective action plan. HUD may grant the 
mortgagee's application for reinstatement if the mortgagee's application 
is complete and HUD determines that the underlying causes for the 
termination have been satisfactorily remedied.

[62 FR 30226, June 2, 1997, as amended at 62 FR 65182, Dec. 10, 1997; 77 
FR 3604, Jan. 25, 2012]



Sec.  203.5  Direct Endorsement process.

    (a) General. Under the Direct Endorsement program, the Secretary 
does

[[Page 149]]

not review applications for mortgage insurance before the mortgage is 
executed or issue conditional or firm commitments, except to the extent 
required by Sec.  203.3(b)(4), Sec.  203.3(d)(1), or as determined by 
the Secretary. Under this program, the mortgagee determines that the 
proposed mortgage is eligible for insurance under the applicable program 
regulations, and submits the required documents to the Secretary in 
accordance with the procedures set forth in Sec.  203.255. This subpart 
provides that certain functions shall be performed by the Secretary (or 
Commissioner), but the Secretary may specify that a Direct Endorsement 
mortgagee shall perform such an action without specific involvement or 
approval by the Secretary, subject to statutory limitations. In each 
case, the Direct Endorsement mortgagee's performance is subject to pre-
endorsement and post-endorsement review by the Secretary under Sec.  
203.255 (c) and (e).
    (b) Eligible programs. (1) All single family mortgages authorized 
for insurance under the National Housing Act must be originated through 
the Direct Endorsement program, except the following:
    (i) Mortgages underwritten for insurance by mortgagees that have 
applied for participation in, and have been approved for, the Lender 
Insurance program;
    (ii) Mortgages authorized under sections 203(n), 203(p), 213(d), 
221(h), 221(i), 225, 233, 237, 809, or 810 of the National Housing Act, 
or any other insurance programs announced by Federal Register notice; or
    (iii) As provided in Sec.  203.1.
    (2) The provision contained in Sec.  221.55 of this chapter 
regarding deferred sales to displaced families is not available in the 
Direct Endorsement program.
    (c) Underwriter due diligence. A Direct Endorsement mortgagee shall 
exercise the same level of care which it would exercise in obtaining and 
verifying information for a loan in which the mortgagee would be 
entirely dependent on the property as security to protect its 
investment. Mortgagee procedures that evidence such due diligence shall 
be incorporated as part of the quality control plan required under Sec.  
202.5(h) of this chapter. The Secretary shall publish guidelines for 
Direct Endorsement underwriting procedures in a handbook, which shall be 
provided to all mortgagees approved for the Direct Endorsement 
procedure. Compliance with these guidelines is deemed to be the minimum 
standard of due diligence in underwriting mortgages.
    (d) Mortgagor's income. The mortgagee shall evaluate the mortgagor's 
credit characteristics, adequacy and stability of income to meet the 
periodic payments under the mortgage and all other obligations, and the 
adequacy of the mortgagor's available assets to close the transaction, 
and render an underwriting decision in accordance with applicable 
regulations, policies and procedures.
    (e) Appraisal. (1) A mortgagee shall have the property appraised in 
accordance with such standards and requirements as the Secretary may 
prescribe. A mortgagee must select an appraiser whose name is on the FHA 
Appraiser Roster, in accordance with 24 CFR part 200, subpart G.
    (2) The mortgagee shall not discriminate on the basis of race, 
color, religion, national origin, sex, age, or disability in the 
selection of an appraiser.
    (3) A mortgagee and an appraiser must ensure that an appraisal and 
related documentation satisfy FHA appraisal requirements, and both bear 
responsibility for the quality of the appraisal in satisfying such 
requirements. A Direct Endorsement Mortgagee that submits, or causes to 
be submitted, an appraisal or related documentation that does not 
satisfy FHA requirements is subject to administrative sanction by the 
Mortgagee Review Board pursuant to parts 25 and 30 of this title.

[57 FR 58346, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993, as amended at 59 
FR 50463, Oct. 3, 1994; 60 FR 42759, Aug. 16, 1995; 61 FR 36263, July 9, 
1996; 62 FR 20088, Apr. 24, 1997; 62 FR 30226, June 2, 1997; 69 FR 
43509, July 20, 2004; 77 FR 51469, Aug. 24, 2012]



Sec.  203.6  Lender Insurance process.

    Under the Lender Insurance program, a mortgagee approved for the 
program conducts its own pre-insurance review,

[[Page 150]]

insures the mortgage, and agrees to indemnify HUD in accordance with 
Sec.  203.255(f).

[62 FR 30226, June 2, 1997]



Sec.  203.7  Commitment process.

    For single family mortgage programs that are not eligible for Direct 
Endorsement processing under Sec.  203.5, or for Lender Insurance 
processing under Sec.  203.6, the mortgagee must submit an application 
for mortgage insurance in a form prescribed by the Secretary prior to 
making the mortgage loan. If:
    (a) A mortgage for a specified property has been accepted for 
insurance through issuance of a conditional commitment by the Secretary 
or a certificate of reasonable value by the Department of Veterans 
Affairs, and
    (b) A specified mortgagor and all other proposed terms and 
conditions of the mortgage meet the eligibility requirements for 
insurance as determined by the Secretary, the Secretary shall approve 
the application for insurance by issuing a firm commitment setting forth 
the terms and conditions of insurance.

[57 FR 58346, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993, as amended at 62 
FR 30226, June 2, 1997]

                        Miscellaneous Regulations



Sec.  203.9  Disclosure regarding interest due upon mortgage prepayment.

    Each mortgagee with respect to a mortgage under this part shall at 
or before closing with respect to any such mortgage, provide the 
mortgagor with written notice in a form prescribed by the Commissioner 
describing any requirements the mortgagor must fulfill upon prepayment 
of the principal amount of the mortgage to prevent the accrual of any 
interest on the principal amount after the date of such prepayment. This 
paragraph shall apply to any mortgage executed after August 22, 1991, 
and before January 21, 2015.

[56 FR 18947, Apr. 24, 1991, as amended at 79 FR 50837, Aug. 26, 2014]



Sec.  203.10  Informed consumer choice for prospective FHA mortgagors.

    (a) Mortgagee to provide disclosure notice. A mortgagee must provide 
a prospective FHA mortgagor with an informed consumer choice disclosure 
notice if, in the mortgagees's judgment, the prospective FHA mortgagor 
may qualify for similar conventional mortgage products offered by the 
mortgagee. The mortgagee should base this judgment on the mortgagee's 
initial assessment of the prospective FHA mortgagor's eligibility for a 
conventional mortgage product. If a mortgagee is unsure about a 
prospective FHA mortgagor's eligibility for a conventional mortgage 
product, the mortgagee should provide the prospective FHA mortgagor with 
an informed consumer choice disclosure notice.
    (b) Informed consumer choice disclosure notice--(1) Contents of 
notice. The informed consumer choice disclosure notice must:
    (i) Provide a one page generic analysis comparing the mortgage costs 
of an FHA-insured mortgage with the mortgage costs of similar 
conventional mortgage products offered by the mortgagee that the 
prospective FHA mortgagor may qualify for;
    (ii) Provide information about when the requirement to pay FHA 
mortgage insurance premiums terminates; and
    (iii) Meet the requirements of section 203(b)(2) of the National 
Housing Act (12 U.S.C. 1709(b)(2)).
    (2) Format of disclosure notice. The informed consumer choice 
disclosure notice must be provided in a format prescribed by the 
Commissioner. HUD has prepared a model informed consumer choice 
disclosure notice that represents this format and that meets the 
requirements of section 203(b)(2) of the National Housing Act (12 U.S.C. 
1709(b)(2)). The model informed consumer choice disclosure notice 
contains the minimum elements of an informed consumer choice disclosure 
notice. These elements must be included in a mortgagee's informed 
consumer choice disclosure notice. A mortgagee, however, may include 
additional elements in an informed consumer choice disclosure notice to 
better reflect the mortgagee's products or to provide information that 
the mortgagee believes is meaningful and helpful to the mortgagee's 
customers.
    (3) Availability of model disclosure notice. HUD's model informed 
consumer

[[Page 151]]

choice disclosure notice is made available to FHA-approved mortgagees 
through Mortgagee Letter and is available to the public through the 
internet at HUD's web site at http://www.hud.gov or by contacting: Home 
Mortgage Insurance Division, Office of Insured Single Family Housing, 
U.S. Department of Housing and Urban Development, 451 Seventh Street, 
SW, Washington, DC 20410-8000; telephone (202) 708-2700 (this is not a 
toll-free number), or the nearest HUD Homeownership Center (Atlanta, GA 
(888) 696-4687; Denver, CO (800) 543-9378; Philadelphia, PA (800) 440-
8647; or Santa Ana, CA (888) 827-5605). Hearing- or speech-impaired 
individuals may access these numbers via TTY by calling the toll-free 
Federal Information Relay Service at (800) 877-8339.
    (c) Timing. When required under paragraph (a) of this section, a 
mortgagee must provide an informed consumer choice disclosure notice to 
a prospective FHA mortgagor not later than three business days after the 
mortgagee receives the prospective FHA mortgagor's application.
    (d) Revision of notice. A mortgagee should revise its informed 
consumer choice disclosure notice periodically to reflect prevailing 
market conditions. To ensure that the informed consumer choice 
disclosure notice reflects prevailing market conditions, a mortgagee 
must revise its informed consumer choice disclosure notice at least once 
annually.
    (e) Applicability. This section applies to any application for 
mortgage insurance authorized under section 203(b) of the National 
Housing Act (12 U.S.C. 1709) that the mortgagee receives on or after 
September 2, 1999.
    (f) Definitions. As used in this section:
    Application means the submission of financial information in 
anticipation of a credit decision.
    Conventional mortgage means conventional mortgage as used in section 
305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 
1454(a)(2)) or section 302(b)(2) of the Federal National Mortgage 
Association Charter Act (12 U.S.C. 1717(b)(2)), as applicable.
    Mortgagee means mortgagee as defined in Sec.  202.2 of this chapter.
    Prospective FHA mortgagor means a person who submits an application 
to a mortgagee to obtain mortgage insurance authorized under section 
203(b) of the National Housing Act (12 U.S.C. 1709).

[64 FR 29765, June 2, 1999, as amended at 64 FR 34984, June 30, 1999]



Sec.  203.12  Mortgage insurance on proposed or new construction.

    (a) Applicability. This section applies to an application for 
insurance of a mortgage on a one-to four-family dwelling, unless the 
mortgage will be secured by a dwelling that:
    (1) Was completed more than one year before the date of the 
application for insurance or, under the Direct Endorsement Program, was 
completed more than one year before the date of the appraisal; or
    (2) Is being sold to a second or subsequent purchaser.
    (b) Procedures. (1) Applications for insurance to which this section 
applies will be processed in accordance with procedures prescribed by 
the Secretary. These procedures may only provide for endorsement for 
insurance of a mortgage covering a dwelling that is:
    (i) Approved under the Direct Endorsement Program or the Lender 
Insurance Program; or
    (ii) Located in a subdivision approved by the Rural Housing Service.
    (2) The mortgagee must submit a signed Builder's Certification of 
Plans, Specifications and Site (Builder's Certification). The Builder's 
Certification must be in a form prescribed by the Secretary and must 
cover:
    (i) Flood hazards;
    (ii) Noise;
    (iii) Explosive and flammable materials storage hazards;
    (iv) Runway clear zones/clear zones;
    (v) Toxic waste hazards;
    (vi) Other foreseeable hazards or adverse conditions (i.e., rock 
formations, unstable soils or slopes, high ground water levels, 
inadequate surface drainage, springs, etc.) that may affect the health 
and safety of the occupants or

[[Page 152]]

the structural soundness of the improvements. The Builder's 
Certification must be provided to the appraiser for reference before the 
performance of an appraisal on the property.
    (3) If a builder (or developer) intends to sell five or more 
properties in a subdivision, an Affirmative Fair Housing Marketing Plan 
(AFHMP) that meets the requirements of 24 CFR part 200, subpart M must 
be submitted and approved by HUD no later than the date of the first 
application for mortgage insurance in that subdivision. Thereafter, 
applications for insurance on other properties sold by the same builder 
(or developer) in the same subdivision may make reference to the 
existing previously approved AFHMP.

[64 FR 56110, Oct. 15, 1999]



Sec.  203.14  Builders' warranty.

    Applications relating to proposed construction must be accompanied 
by an agreement in form satisfactory to the Secretary, executed by the 
seller or builder or such other person as the Secretary may require, and 
agreeing that in the event of any sale or conveyance of the dwelling, 
within a period of one year beginning with the date of initial 
occupancy, the seller, builder, or such other person will at the time of 
such sale or conveyance deliver to the purchaser or owner of such 
property a warranty in form satisfactory to the Secretary warranting 
that the dwelling is constructed in substantial conformity with the 
plans and specifications (including amendments thereof or changes and 
variations therein which have been approved in writing by the Secretary) 
on which the Secretary has based on the valuation of the dwelling. Such 
agreement must provide that upon the sale or conveyance of the dwelling 
and delivery of the warranty, the seller, builder or such other person 
will promptly furnish the Secretary with a conformed copy of the 
warranty establishing by the purchaser's receipt thereon that the 
original warranty has been delivered to the purchaser in accordance with 
this section.

[57 FR 58346, Dec. 9, 1992]



Sec.  203.15  Certification of appraisal amount.

    An application with respect to insurance of mortgages must be 
accompanied by an agreement satisfactory to the Commissioner, executed 
by the seller, builder or such other person as may be required by the 
Commissioner, whereby the person agrees that before any sale of the 
dwelling, the person will deliver to the purchaser of the property a 
written statement, in a form satisfactory to the Commissioner, setting 
forth the amount of the appraised value of the property as determined by 
the Commissioner.

[58 FR 41001, July 30, 1993]



Sec.  203.16  Certificate and contract regarding use of dwelling for
transient or hotel purposes.

    Every application filed with respect to insurance of mortgages on a 
two-, three-, or four-family dwelling, or a single-family dwelling which 
is one of a group of 5 or more single-family dwellings held by the same 
mortgagor, must be accompanied by a contract in form satisfactory to the 
Commissioner, signed by the proposed mortgagor covenanting and agreeing 
that so long as the proposed mortgage is insured by the Commissioner the 
mortgagor will not rent the housing or any part thereof covered by the 
mortgage for transient or hotel purposes, together with the mortgagor's 
certification under oath that the housing or any part thereof covered by 
the proposed mortgage will not be rented for transient or hotel 
purposes. For the purpose of this subchapter rental for transient or 
hotel purposes shall mean (a) rental for any period less than 30 days or 
(b) any rental if the occupants of the housing accommodations are 
provided customary hotel services such as room service for food and 
beverages, maid service, furnishing and laundering of linen, and bellboy 
service.



Sec.  203.16a  Mortgagor and mortgagee requirement for maintaining
flood insurance coverage.

    (a) If the mortgage is to cover property improvements (dwelling and 
related structures/equipment essential to the value of the property and 
subject to flood damage) that:

[[Page 153]]

    (1) Are located in an area designated by the Federal Emergency 
Management Agency (FEMA) as a floodplain area having special flood 
hazards, or
    (2) Are otherwise determined by the Commissioner to be subject to a 
flood hazard, and if flood insurance under the National Flood Insurance 
Program (NFIP) is available with respect to these property improvements, 
the mortgagor and mortgagee shall be obligated, by a special condition 
to be included in the mortgage commitment, to obtain and to maintain 
NFIP flood insurance coverage on the property improvements during such 
time as the mortgage is insured.
    (b) No mortgage may be insured that covers property improvements 
located in an area that has been identified by FEMA as an area having 
special flood hazards, unless the community in which the area is 
situated is participating in the National Flood Insurance Program and 
such insurance is obtained by the mortgagor. Such requirement for flood 
insurance shall be effective one year after the date of notification by 
FEMA to the chief executive officer of a flood prone community that such 
community has been identified as having special flood hazards.
    (c) The flood insurance must be maintained during such time as the 
mortgage is insured in an amount at least equal to either the 
outstanding balance of the mortgage, less estimated land costs, or the 
maximum amount of the NFIP insurance available with respect to the 
property improvements, whichever is less.

[64 FR 56111, Oct. 15, 1999]

                           Eligible Mortgages



Sec.  203.17  Mortgage provisions.

    (a) Mortgage form. (1) The term mortgage as used in this part, 
except Sec.  203.43c, means a first lien as is commonly given to secure 
advances on, or the unpaid purchase price of, real estate under the laws 
of the jurisdiction where the property is located, and may refer both to 
a security instrument creating a lien, whether called a mortgage, deed 
of trust, security deed or another term used in a particular 
jurisdiction, as well as the credit instrument, or note, secured 
thereby.
    (2)(i) The mortgage shall be in a form meeting the requirements of 
the Commissioner. The Commissioner may prescribe complete mortgage 
instruments. For each case in which the Commissioner does not prescribe 
complete mortgage instruments, the Commissioner
    (A) Shall require specific language in the mortgage which shall be 
uniform for every mortgage, and
    (B) May also prescribe the language or substance of additional 
provisions for all mortgages as well as the language or substance of 
additional provisions for use only in particular jurisdictions or for 
particular programs.
    (ii) Each mortgage shall also contian any provisions necessary to 
create a valid and enforceable secured debt under the laws of the 
jurisdiction in which the property is located.
    (b) Mortgage multiples. A mortgage shall involve a principal 
obligation in a multiple of $1.
    (c) Payments. The mortgage shall:
    (1) Come due on the first of the month.
    (2) Contain complete amortization provisions satisfactory to the 
Secretary and an amortization period not in excess of the term of the 
mortgage.
    (3) Provide for payments to principal and interest to begin not 
later than the first day of the month following 60 days from the date 
the mortgage is executed (or the date a construction mortgage is 
converted to a permanent mortgage, if applicable).
    (d) Maturity. The mortgage shall have a term of not more than 30 
years from the date of the beginning of amortization.
    (e) Property Standards. The mortgage must be a first lien upon the 
property that conforms with property standards prescribed by the 
Commissioner.
    (f) Disbursement. The entire principal amount of the mortgage must 
have been disbursed to the mortgagor or to his or her creditors for his 
or her account and with his or her consent.

[36 FR 24508, Dec. 22, 1971, as amended at 45 FR 29278, May 2, 1980; 48 
FR 28804, June 23, 1983; 49 FR 21319, May 21, 1984; 53 FR 34281, Sept. 
6, 1988; 54 FR 39525, Sept. 27, 1989; 57 FR 58347, Dec. 9, 1992; 61 FR 
36263, July 9, 1996]

[[Page 154]]



Sec.  203.18  Maximum mortgage amounts.

    (a) Mortgagors of principal or secondary residences. The principal 
amount of the mortgage must not exceed the lesser of the following 
amounts that apply:
    (1) The dollar amount limitation that applies for the area under 
section 203(b)(2)(A) of the National Housing Act including any increase 
in the dollar limitation under Sec.  203.29, as announced in accordance 
with Sec.  203.18(h);
    (2)(i) The amount based on appraised value that is permitted by 
section 203(b)(10) of the National Housing Act, if that provision is in 
effect and applies to the mortgage; or
    (ii) If section 203(b)(10) is not in effect or otherwise does not 
apply to the mortgage, the lesser of the amounts based on appraised 
value that are permitted by section 203(b)(2)(B) of the National Housing 
Act and paragraph (g) of this section;
    (3) An amount equal to 90 percent of the appraised value, if the 
dwelling is a new home that was completed 1 year or less from the date 
of the mortgage insurance application and the dwelling is neither 
approved before the beginning of construction or covered by an 
acceptable consumer protection or warranty plan as provided in section 
203(b)(2)(B) of the National Housing Act; or
    (4) An amount equal to 85 percent of the appraised value if the 
mortgage covers a dwelling that is to be occupied as a secondary 
residence (as defined in paragraph (f)(2) of this section).
    (b) Veteran qualifications. The special veteran terms provided in 
section 203(b)(2) of the National Housing Act shall apply only if the 
mortgagor submits one of the following certifications:
    (1) A certification issued by the Secretary of Defense establishing 
that the veteran performed extra hazardous service while serving in the 
armed forces for a period of less than 90 days; or
    (2) A Certificate of Eligibility from the Department of Veterans 
Affairs establishing that the person served 90 days or more on active 
duty in the armed forces (U.S. Army, Navy, Marine Corps, Air Force, 
Coast Guard, the Army Reserve, the Naval Reserve, the Marine Corps 
Reserve, the Air Force Reserve, the Coast Guard Reserve, the National 
Guard of the United States, or the Air National Guard of the United 
States); that he or she enlisted before September 8, 1980; and that he 
or she was discharged or released under conditions other than 
dishonorable (a copy of the veteran's discharge papers or Form DD-214 
shall be submitted with the certificate); or
    (3) A Certificate of Eligibility from the Department of Veterans 
Affairs establishing that the person:
    (i)(A) Originally enlisted in a regular component of the armed 
forces after September 7, 1980; or entered on active duty after October 
16, 1981, and he or she had not previously completed a period of active 
duty of at least 24 months or been discharged or released from active 
duty under 10 U.S.C. 1171; and
    (B) Has completed, since enlistment or entering on active duty, 
either:
    (1) Twenty-four months of continuous active duty, or the full period 
for which he or she was called or ordered to active duty, whichever is 
shorter; or
    (2) Any other period of active duty if he or she was discharged or 
released from duty under 10 U.S.C. 1171 or 1173; was discharged or 
released from duty for disability incurred or aggravated in the line of 
duty; or has a disability which the Department of Veterans Affairs has 
determined to be compensable under 38 U.S.C. chap. 11; and
    (ii) Was discharged or released under conditions other than 
dishonorable (a copy of the veteran's discharge papers or Form DD-214 
shall be submitted with the certification).
    (c) Eligible non-occupant mortgagors. A mortgage may be executed by 
an eligible non-occupant mortgagor (as that term is defined in paragraph 
(f)(3) of this section) for up to an amount authorized for the 
appropriate loan type in paragraph (a) of this section except where a 
lesser amount is expressly provided for in this part.
    (d) Outlying area properties. A mortgage covering a single family 
residence located in an area in which the Commissioner finds that it is 
not practicable to obtain conformity with many of the requirements 
essential to the insurance of mortgages in built-up,

[[Page 155]]

urban areas; or a mortgage covering a single family dwelling that is to 
be used as a farm home on a plot of land that is two and one-half or 
more acres in size and adjacent to an all-weather public road, may not 
exceed:
    (1) In the case of a mortgagor who is to occupy the dwelling as a 
principal residence (as defined in paragraph (f)(1) of this section):
    (i) 75 percent of the dollar limitation under (a)(1).
    (ii) 97 percent of the appraised value of the property as of the 
date the mortgage is accepted for insurance, if:
    (A) The Commissioner approved the dwelling for insurance before the 
beginning of construction; or
    (B) Construction was completed more than one year before the date of 
the application for insurance; or
    (C) The Secretary of Veterans Affairs approved the dwelling for 
guaranty, insurance, or direct loan before the beginning of 
construction.
    (iii) If the property does not meet the requirements of paragraph 
(d)(1)(ii) of this section, 90 percent of the appraised value of the 
property as of the date the mortgage is accepted for insurance.
    (2) In the case of a mortgagor who is to occupy the dwelling as a 
secondary residence (as defined in paragraph (f)(2) of this section):
    (i) The amount permitted in paragraph (d)(1)(i) of this section, or
    (ii) 85 percent of the appraised value of the property as of the 
date the mortgage is accepted for insurance.
    (e) Disaster victims. A mortgage covering a single family dwelling, 
in an amount not in excess of the maximum dollar limitation specified in 
paragraph (a)(1) of this section (unless a higher maximum mortgage 
amount is authorized under Sec.  203.29), and not in excess of the 
lesser of 100 percent of the appraised value of the property or the cost 
of acquisition as of the date the mortgage is accepted for insurance, 
shall be eligible for insurance if:
    (1) The mortgage is executed by a mortgagor who is to occupy the 
dwelling as a principal residence (as defined in paragraph (f)(1) of 
this section);
    (2) The mortgagor establishes that the home which he or she 
previously occupied as owner or tenant was destroyed or damaged to such 
an extent that reconstruction or replacement is required as a result of 
a flood, fire, hurricane, earthquake, storm, riot or civil disorder or 
other catastrophe which the President has determined to be a major 
disaster; and
    (3) The application for insurance is filed within one year from the 
date of such presidential determination, or within such additional 
period of time as the period of federal assistance with respect to such 
disaster may be extended.
    (f) Definitions. As used in this section:
    (1) Principal residence means the dwelling where the mortgagor 
maintains (or will maintain) his or her permanent place of abode, and 
typically spends (or will spend) the majority of the calendar year. A 
person may have only one principal residence at any one time.
    (2) Secondary residence means a dwelling: (i) Where the mortgagor 
maintains or will maintain a part-time place of abode and typically 
spends (or will spend) less than a majority of the calendar year; (ii) 
which is not a vacation home; and (iii) which the Commissioner has 
determined to be eligible for insurance in order to avoid undue hardship 
to the mortgagor. A person may have only one secondary residence at a 
time.
    (3) Eligible non-occupant mortgagor means a mortgagor (or co-
mortgagor, as appropriate) who is not to occupy the dwelling as a 
principal residence or a secondary residence and who is--
    (i) A public entity, as provided in section 214 or 247 of the 
National Housing Act, or any other State or local government or agency 
thereof;
    (ii) A private nonprofit or public entity, as provided in section 
221(h) or 235(j) of the National Housing Act, or other private nonprofit 
organization that is exempt from taxation under section 501(c)(3) of the 
Internal Revenue Code of 1986 and intends to sell or lease the mortgaged 
property to low or moderate income persons, as determined by the 
Secretary;
    (iii) An Indian tribe, as provided in section 248 of the National 
Housing Act;
    (iv) A serviceperson who is unable to meet the occupancy requirement 
because of his or her duty assignment, as

[[Page 156]]

provided in section 216 of the National Housing Act or subsection (b)(4) 
or (f) of section 222 of the National Housing Act;
    (v) A mortgagor or co-mortgagor under subsection 203(k) of the 
National Housing Act; or
    (vi) A mortgagor who, pursuant to Sec.  203.43(c) of this part, is 
refinancing an existing mortgage insured under the National Housing Act 
for not more than the outstanding balance of the existing mortgage, if 
the amount of the monthly payment due under the refinancing mortgage is 
less than the amount due under the existing mortgage for the month in 
which the refinancing mortgage is executed.
    (4) Appraised value means the sum of:
    (i) The lesser of sales price (with any adjustments required by the 
Secretary) or the amount set forth in the written statement required 
under Sec.  203.15; and
    (ii) Borrower-paid closing costs allowed under Sec.  203.27(a)(1)-
(3), except that closing costs do not apply if section 203(b)(10) of the 
National Housing Act is in effect and neither sales price nor closing 
costs apply for purposes of paragraph (g) of this section.
    (5) Undue hardship means that affordable housing which meets the 
needs of the mortgagor is not available for lease, or within reasonable 
commuting distance from the mortgagor's home to his or her work place.
    (6) Vacation home means a dwelling that is used primarily for 
recreational purposes and enjoyment, and that is not a primary or 
secondary residence.
    (g) Maximum principal obligation. Except for mortgages meeting the 
requirements of Sec.  203.18(b), Sec.  203.18(e) or Sec.  203.50(f), and 
notwithstanding any other provision of this section, a mortgage may not 
involve a principal obligation in excess of 98.75 percent of the 
appraised value of the property (97.75 percent, in the case of a 
mortgage with an appraised value in excess of $50,000), plus the amount 
of the mortgage insurance premium paid at the time the mortgage is 
insured.
    (h) Notice of maximum mortgage amount. A maximum mortgage amount 
based on the 1-family median house price for an area under paragraph 
(a)(1) of this section may be made effective by:
    (1) Providing direct notice to affected mortgagees through an 
administrative issuance; or
    (2) Publishing a notice in the Federal Register.
    (i) Energy efficient mortgages. The principal amount of energy 
efficient mortgages may exceed the maximum amounts determined under 
paragraph (a)(1) of this section under conditions prescribed by the 
Secretary in accordance with section 106 of the Energy Policy Act of 
1992.

[36 FR 24508, Dec. 22, 1971]

    Editorial Note: For Federal Register citations affecting Sec.  
203.18, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec.  203.18a  Solar energy system.

    (a) The dollar limitation provided in Sec.  203.18(a) may be 
increased by up to 20 percent if such an increase is necessary to 
account for the increased cost of the residence due to the installation 
of a solar energy system.
    (b) Solar energy system is defined as any addition, alteration, or 
improvement to an existing or new structure which is designed to utilize 
wind energy or solar energy either of the active type based on 
mechanically forced energy transfer or of the passive type based on 
convective, conductive, or radiant energy transfer or some combination 
of these types to reduce the energy requirements of that structure from 
other energy sources and which is in conformity with such criteria and 
standards as shall be prescribed by the Secretary in consultation with 
the Secretary of Energy.

[45 FR 51770, Aug. 5, 1980]



Sec.  203.18b  Increased mortgage amount.

    (a) If any party believes that a mortgage limit established by the 
Secretary under Sec.  203.18(a)(1) does not accurately reflect the 
median house prices in an area, the party may submit documentation in 
support of an alternative mortgage limit. For purposes of this section, 
an area (1) must be at least the size of a county, whether or not the 
area is located within a metropolitan statistical area, as established 
by the Office of Management and Budget; and

[[Page 157]]

(2) may be an area for which the mortgage limits established under Sec.  
203.18(b)(1) apply.
    (b)(1) The documentation referred to in paragraph (a) of this 
section must consist of sufficient housing sales price data for the 
entire geographic area for which the request is made to justify an 
alternative mortgage limit. The documentation should include a listing 
of actual sales prices in the area for all or nearly all new and 
existing 1-family homes and condominiums, over a period of time varies 
with sales volume, as follows:
    (i) For 500 or more sales per month, a one-month reporting period;
    (ii) For 250 through 499 sales per month, a two-month reporting 
period.
    (iii) For less than 250 sales per month, a three-month reporting 
period.

The listing should contain a brief address for each property, its county 
location, its sale price, the month and year of its sale, and whether it 
is new or existing. In areas where the ratio of existing sales to new 
sales is three-to-one or greater, an increase in the mortgage limit may 
be based on 95 percent of the average of the new and the existing median 
sales prices. In these areas, the documentation referred to in this 
paragraph may also include separate median sales prices for both the new 
and existing homes.
    (2) Requests for an increased mortgage limit based upon 
documentation of median house prices for the area should be sent to the 
appropriate HUD field office.
    (c) In the case of an area where the Commissioner determines that 
the median one-family house price does not reasonably reflect the sales 
prices of newly constructed homes because of an existing stock whose 
value is static or declining, the Commissioner may give greater weight 
to the sales prices of new homes in determining median house price in 
such area. Without limiting the discretion of the Commissioner in 
fashioning appropriate methods of implementing the foregoing authority 
in particular circumstances based upon a demonstration of good cause 
satisfactory to the Commissioner, in areas where evidence satisfactory 
to the Commissioner indicates that existing home sales outnumber new 
home sales by three-to-one or better, the median sales price will be 
calculated as the greater of (1) the average of the median sales price 
for new and existing homes, and (2) the composite median price of all 
sales.

(Approved by the Office of Management and Budget under control number 
2502-0302)

[45 FR 76377, Nov. 18, 1980, as amended at 47 FR 917, Jan. 7, 1982; 49 
FR 12697, Mar. 30, 1984; 49 FR 14338, Apr. 11, 1984; 53 FR 8880, Mar. 
18, 1988; 56 FR 18947, Apr. 24, 1991; 58 FR 41002, July 30, 1993; 59 FR 
13882, Mar. 24, 1994; 60 FR 16033, Mar. 28, 1995]



Sec.  203.18c  One-time or up-front mortgage insurance premium excluded from limitations on maximum mortgage amounts.

    After determining any maximum insurable mortgage amount under the 
provisions of this subpart, the maximum insurable amount of any mortgage 
may be increased by the amount of any one-time or up-front mortgage 
insurance premium that will be financed as part of the mortgage.

[57 FR 15211, Apr. 24, 1992]



Sec.  203.18d  Minimum principal loan amount.

    A mortgagee may not require, as a condition of providing a loan 
secured by a mortgage insured under this part, that the principal amount 
of the mortgage exceed a minimum amount established by the mortgagee.

[53 FR 8880, Mar. 18, 1988]



Sec.  203.19  Qualified mortgage.

    (a) Definitions. As used in this section:
    (1) Average prime offer rate means an annual percentage rate that is 
derived from average interest rates, points, and other loan pricing 
terms currently offered to mortgagors by a representative sample of 
mortgagees for mortgage transactions that have low-risk pricing 
characteristics as published by the Consumer Financial Protection Bureau 
(CFPB) from time to time in accordance with the CFPB's regulations at 12 
CFR 1026.35, pertaining to prohibited acts or practices in connection 
with higher-priced mortgage loans.
    (2) Annual percentage rate is the measure of the cost of credit, 
expressed as a

[[Page 158]]

yearly rate, that relates the amount and timing of value received by the 
mortgagor to the amount and timing of payments made and is the rate 
required to be disclosed by the mortgagee under 12 CFR 1026.18, 
pertaining to disclosure of finance charges for mortgages.
    (3) Points and fees has the meaning given to ``points and fees'' in 
12 CFR 1026.32(b)(1) as of January 10, 2014. Any changes made by the 
CFPB to the points and fees definition may be adopted by HUD through 
publication of a notice and after providing FHA-approved mortgagees with 
time, as may be determined necessary, to implement.
    (b) Qualified mortgage. (1) Limit. For a single family mortgage to 
be insured under title II of the National Housing Act (12 U.S.C. 1701 et 
seq.), except for mortgages for manufactured housing and mortgages under 
paragraph (c) of this section, the total points and fees payable in 
connection with a loan used to secure a dwelling shall not exceed the 
CFPB's limit on points and fees for qualified mortgage in its 
regulations at 12 CFR 1026.43(e)(3) as of January 10, 2014. Any changes 
made by the CFPB to the limit on points and fees may be adopted by HUD 
through publication of a notice and after providing FHA-approved 
mortgagees with time, as may be determined necessary, to implement.
    (2) Rebuttable presumption qualified mortgage. (i) A single family 
mortgage insured under title II of the National Housing Act (12 U.S.C. 
1701 et seq.), except for mortgages for manufactured housing and 
mortgages under paragraph (c) of this section, that has an annual 
percentage rate that exceeds the average prime offer rate for a 
comparable mortgage, as of the date the interest rate is set, by more 
than the combined annual mortgage insurance premium and 1.15 percentage 
points for a first-lien mortgage is a rebuttable presumption qualified 
mortgage that is presumed to comply with the ability to repay 
requirements in 15 U.S.C. 1639c(a).
    (ii) To rebut the presumption of compliance, it must be proven that 
the mortgage exceeded the points and fees limit in paragraph (b)(1) of 
this section or that, despite the mortgage having been endorsed for 
insurance under the National Housing Act, the mortgagee did not make a 
reasonable and good-faith determination of the mortgagor's repayment 
ability at the time of consummation, by failing to evaluate the 
mortgagor's income, credit, and assets in accordance with HUD 
underwriting requirements.
    (3) Safe harbor qualified mortgage. (i) A mortgage for manufactured 
housing that is insured under Title II of the National Housing Act (12 
U.S.C. 1701 et seq.) is a safe harbor qualified mortgage that meets the 
ability to repay requirements in 15 U.S.C. 1639c(a); and
    (ii) A single family mortgage insured under title II of the National 
Housing Act (12 U.S.C. 1701 et seq.), except for mortgages under 
paragraph (c) of this section, that has an annual percentage rate that 
does not exceed the average prime offer rate for a comparable mortgage, 
as of the date the interest rate is set, by more than the combined 
annual mortgage insurance premium and 1.15 percentage points for a 
first-lien mortgage is a safe harbor qualified mortgage that meets the 
ability to repay requirements in 15 U.S.C. 1639c(a).
    (4) Effect of indemnification on qualified mortgage status. An 
indemnification demand or resolution of a demand that relates to whether 
the loan satisfied relevant eligibility and underwriting requirements at 
the time of consummation may result from facts that could allow a change 
to qualified mortgage status, but the existence of an indemnification 
does not per se remove qualified mortgage status.
    (c) Exempted transactions. The following transactions are exempted 
from the requirements in paragraph (b) of this section:
    (1) Home Equity Conversion Mortgages under section 255 of the 
National Housing Act (12 U.S.C. 1715z-20); and
    (2) Mortgage transactions exempted by the CFPB in its regulations at 
12 CFR 1026.43(a)(3) as of January 10, 2014. Any changes made by CFPB to 
the list of exempted transactions may be adopted by HUD through 
publication of a notice and after providing FHA-approved mortgagees with 
time, as may be determined necessary, to implement.

[[Page 159]]

    (d) Ability to make adjustments to this section by notice. The FHA 
Commissioner may make adjustments to this section, including the 
calculations of fees or the list of transactions excluded from 
compliance with the requirements of this section as the Commissioner 
determines necessary for purposes of meeting FHA's mission, after 
solicitation and consideration of public comments.

[78 FR 75237, Dec. 11, 2013]



Sec.  203.20  Agreed interest rate.

    (a) The mortgage shall bear interest at the rate agreed upon by the 
mortgagee and the mortgagor.
    (b) Interest shall be payable in monthly installments on the 
principal amount of the mortgage outstanding on the due date of each 
installment.

[36 FR 24508, Dec. 22, 1971, as amended at 49 FR 19457, May 8, 1984]



Sec.  203.21  Amortization provisions.

    The mortgage must contain complete amortization provisions 
satisfactory to the Commissioner, requiring monthly payments by the 
mortgagor not in excess of his reasonable ability to pay as determined 
by the Commissioner. The sum of the principal and interest payments in 
each month shall be substantially the same.



Sec.  203.22  Payment of insurance premiums or charges; prepayment
privilege.

    (a) Payment of periodic insurance premiums or charges. Except with 
respect to mortgages for which a one-time mortgage insurance premium is 
paid pursuant to Sec.  203.280, the mortgage may provide for monthly 
payments by the mortgagor to the mortgagee of an amount equal to one-
twelfth of the annual mortgage insurance premium payable by the 
mortgagee to the Commissioner. Such payments continue only so long as 
the contract of insurance shall remain in effect or for such shorter 
period as mortgage insurance premiums are payable by the mortgagee to 
the Commissioner.
    (b) Prepayment privilege. The mortgage shall contain a provision 
permitting the mortgagor to prepay the mortgage in whole or in part at 
any time and in any amount. The mortgage shall not provide for the 
payment of any charge on account of such prepayment.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 8661, Apr. 29, 1972; 48 
FR 28804, June 23, 1983; 50 FR 25914, June 24, 1985; 61 FR 36263, July 
9, 1996; 79 FR 50837, Aug. 26, 2014]



Sec.  203.23  Mortgagor's payments to include other charges.

    (a) The mortgage shall provide for such equal monthly payments by 
the mortgagor to the mortgagee as will amortize:
    (1) The ground rents, if any;
    (2) The estimated amount of all taxes;
    (3) Special assessments, if any;
    (4) Flood insurance premiums, if flood insurance is required by the 
Commissioner; and
    (5) Fire and other hazard insurance premiums, if any. The mortgage 
shall further provide that such payments shall be held by the mortgagee 
in a manner satisfactory to the Commissioner for the purpose of paying 
such ground rents, taxes, assessments, and insurance premiums before the 
same become delinquent, for the benefit and account of the mortgagor. 
The mortgage must also make provisions for adjustments in case the 
estimated amount of such taxes, assessments, and insurance premiums 
shall prove to be more, or less, than the actual amount thereof so paid 
by the mortgagor. Such payments shall be held in an escrow subject to 
Sec.  203.550.
    (b) The mortgagor shall not be required to pay premiums for fire or 
other hazard insurance which protects only the interests of the 
mortgagee, or for life or disability income insurance, or fees charged 
for obtaining information necessary for the payment of property taxes. 
The foregoing does not apply to charges made or penalties exacted by the 
taxing authority, except that a penalty assessed or interest charged by 
a taxing authority for failure to timely pay taxes or assessments shall 
not be charged by the mortgagee to the mortgagor if the mortgagee had 
sufficient funds in escrow for the account of the mortgagor to pay such 
taxes or assessments prior to the date on which penalty or interest 
charges are imposed.

[[Page 160]]

    (c) Mortgages involving a principal obligation not in excess of 
$9,000 may contain a provision requiring the mortgagor to pay to the 
mortgagee an annual service charge at such rate as may be agreed upon 
between the mortgagee and the mortgagor, but in no case shall such 
service charge exceed one-half of one percent per annum. Any such 
service charge shall be payable in monthly installments on the principal 
then outstanding. The provisions of this paragraph shall not apply to 
mortgages endorsed for insurance pursuant to applications received by 
the Commissioner on or after July 17, 1961.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 25231, Nov. 29, 1972; 
41 FR 47934, Nov. 10, 1976; 59 FR 53901, Oct. 26, 1994]



Sec.  203.24  Application of payments.

    (a) All monthly payments to be made by the mortgagor to the 
mortgagee shall be added together and the aggregate amount thereof shall 
be paid by the mortgagor each month in a single payment. The mortgagee 
shall apply the same to the following items in the order set forth:
    (1) Premium charges under the contract of insurance (other than a 
one-time or up-front mortgage insurance premium paid in accordance with 
Sec. Sec.  203.280, 203.284 and 203.285), charges for ground rents, 
taxes, special assessments, flood insurance premiums, if required, and 
fire and other hazard insurance premiums;
    (2) Interest on the mortgage;
    (3) Amortization of the principal of the mortgage; and
    (4) Late charges, if permitted under the terms of the mortgage and 
subject to such conditions as the Commissioner may prescribe.
    (b) Any deficiency in the amount of any such aggregate monthly 
payment shall, unless made good by the mortgagor prior to, or on, the 
due date of the next such payment, constitute an event of default under 
the mortgage.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 25231, Nov. 29, 1972; 
50 FR 25914, June 24, 1985; 61 FR 36263, July 9, 1996]



Sec.  203.25  Late charge.

    The mortgage may provide for the collection by the mortgagee of a 
late charge, not to exceed four per cent of the amount of each payment 
more than 15 days in arrears, to cover servicing and other costs 
attributable to the receipt of payments from mortgagors after the date 
upon which payment is due.

[41 FR 49734, Nov. 10, 1976]



Sec.  203.26  Mortgagor's payments when mortgage is executed.

    (a) The mortgagor must pay to the mortgagee, upon execution of the 
mortgage, a sum that will be sufficient to pay the ground rents, if any, 
the estimated taxes, special assessments, flood insurance premiums, if 
required, and fire and other hazard insurance premiums for the period 
beginning on the last date on which each such charge would have been 
paid under the normal lending practices of the lender and local custom 
(if each such date constitutes prudent lending practice), and ending on 
the due date of the first full installment payment under the mortgage, 
plus an amount sufficient to pay the mortgage insurance premium from the 
date of closing the loan to the date of the first monthly payment under 
the mortgage or, where applicable, the one-time mortgage insurance 
premium payable pursuant to Sec.  203.280.
    (b) The mortgagee may also collect from the mortgagor a sum not 
exceeding one-sixth of the estimated total amount of such taxes, special 
assessments, insurance premiums and other charges to be paid during the 
ensuing 12-month period.

[41 FR 49734, Nov. 10, 1976, as amended at 48 FR 28804, June 23, 1983]



Sec.  203.27  Charges, fees or discounts.

    (a) The mortgagee may collect from the mortgagor the following 
charges, fees or discounts:
    (1) [Reserved]
    (2) A charge to compensate the mortgagee for expenses incurred in 
originating and closing the loan, provided that the Commissioner may 
establish limitations on the amount of any such charge.
    (3) Reasonable and customary amounts, but not more than the amount 
actually paid by the mortgagee, for any of the following items:

[[Page 161]]

    (i) Recording fees and recording taxes or other charges incident to 
recordation;
    (ii) Credit Report;
    (iii) Survey, if required by mortgagee or mortgagor;
    (iv) Title examination; title insurance, if any;
    (v) Fees paid to an appraiser or inspector approved by the 
Commissioner for the appraisal and inspection, if required, of the 
property. Notwithstanding any limitations in this paragraph (a)(3) if 
the mortgagee is permitted by applicable regulations to use the services 
of staff appraisers and inspectors for processing mortgages, and does 
so, the mortgagee may collect from the mortgagor the reasonable and 
customary amounts for such appraisals and inspections.
    (vi) Such other reasonable and customary charges as may be 
authorized by the Commissioner.
    (4) Reasonable and customary charges in the nature of discounts.
    (5) Interest from the date of closing or the date on which the 
mortgagee disburses the mortgage proceeds to the account of the 
mortgagor or the mortgagor's creditors, whichever is later, to the date 
of the beginning of amortization.
    (b)-(c) [Reserved]
    (d) Before the insurance of any mortgage, the mortgagee shall 
furnish to the Secretary a signed statement in a form satisfactory to 
the Secretary listing any charge, fee or discount collected by the 
mortgagee from the mortgagor. All charges, fees or discounts are subject 
to review by the Secretary both before and after endorsement under Sec.  
203.255.
    (e) Nothing in this section will be construed as prohibiting the 
mortgagor from dealing through a broker who does not represent the 
mortgagee, if he prefers to do so, and paying such compensation as is 
satisfactory to the mortgagor in order to obtain mortgage financing.

[36 FR 24508, Dec. 22, 1971, as amended at 43 FR 19846, May 9, 1978; 45 
FR 30602, May 8, 1980; 45 FR 33966, May 21, 1980; 47 FR 29525, July 7, 
1982; 48 FR 11940, Mar. 22, 1983; 48 FR 28804, June 23, 1983; 49 FR 
19457, May 8, 1984; 57 FR 58347, Dec. 9, 1992; 58 FR 13537, Mar. 12, 
1993; 73 FR 68239, Nov. 17, 2008]



Sec.  203.28  Economic soundness of projects.

    The mortgage must be executed with respect to a project which, in 
the opinion of the Commissioner, is economically sound, except that this 
section shall not apply in each of the following instances:
    (a) To a mortgage of the character described in Sec.  203.18(d) and 
with respect to such a mortgage, the Commissioner shall determine that 
the mortgage is an acceptable risk giving consideration to the need for 
providing adequate housing for families of low and moderate income, 
particularly in suburban and outlying areas or small communities.
    (b) To a mortgage of the character described in Sec.  203.18 (e).
    (c) To a mortgage of the character described in Sec.  203.43a.
    (d) To a mortgage in a federally impacted area described in Sec.  
203.43e.
    (e) To a rehabilitation loan of the character described in Sec.  
203.50.

[36 FR 24508, Dec. 22, 1971, as amended at 42 FR 57434, Nov. 2, 1977; 45 
FR 33966, May 21, 1980; 53 FR 8880, Mar. 18, 1988]



Sec.  203.29  Eligible mortgages in Alaska, Guam, Hawaii, or the 
Virgin Islands.

    (a) When is an increased mortgage limit permitted for these areas? 
For Alaska, Guam, Hawaii or the Virgin Islands, the Commissioner may 
increase the maximum mortgage amount permitted by section 203(b)(2)(A) 
of the National Housing Act when authorized by section 214 of that Act, 
through the procedures described in Sec.  203.18(h).
    (b) If a party believes that the otherwise applicable mortgage limit 
needs to be increased to reflect the extent to which high costs make it 
infeasible to construct dwellings without sacrificing sound standards of 
construction, design or livability, the party may submit documentation 
in support of an alternative mortgage limit. This documentation should 
include actual or estimated costs of such items as design, construction, 
materials, and labor. In addition, actual sales prices of new homes may 
be submitted, together with any other documentation requested by the 
Commissioner. Requests

[[Page 162]]

for alternative mortgage limits, together with supporting documentation 
should be sent to the appropriate HUD field office. The field office 
will forward the request and supporting material, with the field 
office's recommendation, to the Commissioner for determination.
    (c) If the Alaska Housing Authority, or the Government of Guam, 
Hawaii, or the Virgin Islands or any agency or instrumentality of those 
entities, is the mortgagor or the mortgagee, or the mortgagor is 
regulated or restricted as to rents or sales, charges, capital 
structure, rate of return, and methods of operation to such an extent 
and in such manner as the Commissioner determines advisable to provide 
reasonable rental and sales prices and a reasonable return on the 
investment, any mortgage otherwise eligible for insurance under this 
subpart may be insured:
    (1) In any case where the Alaska Housing Authority, or the 
government of Guam, Hawaii, the Virgin Islands, or any agency or 
instrumentality of those entities, is the mortgagor, without regard to 
any requirement that the mortgagor occupy the dwelling as a principal 
residence or a secondary residence (as these terms are defined in Sec.  
203.18(f)), or meet loan-to-value or comparable limitations based on the 
failure of the mortgagor to meet this occupancy requirement;
    (2) Without regard to any requirement that the mortgagor has paid on 
account of the property a prescribed percentage of the appraised value 
of the property; or
    (3) Without regard to any requirement that the mortgagor certify 
that the mortgaged property is free and clear of all liens other than 
the mortgage offered for insurance and that there will not be any unpaid 
obligations contracted in connection with the mortgage transaction or 
the purchase of the mortgaged property.
    (d) The provisions of Sec.  203.28 requiring economic soundness 
shall not be applicable to mortgages covering property located in 
Alaska, in Guam, in Hawaii, or in the Virgin Islands, but the 
Commissioner shall find that the property or project is an acceptable 
risk, giving consideration to the acute housing shortage in Alaska, 
Guam, Hawaii, or the Virgin Islands.

(Approved by the Office of Management and Budget under control number 
2502-0302)

[36 FR 24508, Dec. 22, 1971, as amended at 49 FR 14338, Apr. 11, 1984; 
55 FR 34804, Aug. 24, 1990; 56 FR 18948, Apr. 24, 1991; 64 FR 14569, 
Mar. 25, 1999]



Sec.  203.30  Certificate of nondiscrimination by the mortgagor.

    The mortgagor shall certify to the Commissioner as to each of the 
following points:
    (a) That neither he, nor anyone authorized to act for him, will 
refuse to sell or rent, after the making of a bonafide offer, or refuse 
to negotiate for the sale or rental of, or otherwise make unavailable or 
deny the dwelling or property covered by the mortgage to any person 
because of race, color, religion, national origin, familial status 
(except as provided by law), or handicap.
    (b) That any restrictive covenant on such property relating to race, 
color, religion, or national origin is recognized as being illegal and 
void and is hereby specifically disclaimed.
    (c) That civil action for preventative relief may be brought by the 
Attorney General in any appropriate U.S. District Court against any 
person responsible for a violation of this certification.
    (d) That buildings having four (4) or more units, which were built 
for first occupancy after March 13, 1991, were constructed in compliance 
with the Fair Housing Act new construction requirements in 24 CFR 
100.205.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 58347, Dec. 9, 1992; 61 
FR 36264, July 9, 1996]



Sec.  203.31  Mortgagor of a principal residence in military service
cases.

    (a) A mortgage that is otherwise eligible for insurance under any of 
the provisions of this part may be insured without regard to any 
requirement contained in this part that the mortgagor occupy the 
dwelling as a principal residence (as defined in Sec.  203.18(f)(1)) at 
the time of insurance, or that the mortgagor meet loan-to-value or 
comparable limitations based

[[Page 163]]

on the failure of the mortgagor to meet an occupancy requirement, if:
    (1) The Commissioner is satisfied that the inability of the 
mortgagor to meet the occupancy requirement is by reason of his or her 
entry into military service after the filing of an application for 
insurance; and
    (2) The mortgagor expresses an intent (in such form as the 
Commissioner may prescribe), to meet the occupancy requirement upon his 
or her discharge from the service.
    (b) A serviceperson will also be considered to meet the occupancy 
requirement referred to in paragraph (a) of this section for mortgage 
insurance purposes, if the following conditions are satisfied:
    (1) The serviceperson and his or her family expect to meet the 
occupancy requirement referred to in paragraph (a) of this section for 
two or more years. The Commissioner may shorten this period to one year, 
if (i) the serviceperson's family will occupy the property for at least 
one year and (ii) the serviceperson is assigned to a combat zone or 
other hazardous duty area where the family cannot accompany him or her; 
and
    (2) The property is located in an area in which the prospects of 
resale are reasonable.

(Approved by the Office of Management and Budget under control number 
2502-0059)

[55 FR 34804, Aug. 24, 1990]

                           Eligible Mortgagors



Sec.  203.32  Mortgage lien.

    (a) Except as otherwise provided in this section, a mortgagor must 
establish that, after the mortgage offered for insurance has been 
recorded, the mortgaged property will be free and clear of all liens 
other than such mortgage, and that there will not be outstanding any 
other unpaid obligations contracted in connection with the mortgage 
transaction or the purchase of the mortgaged property, except 
obligations that are secured by property or collateral owned by the 
mortgagor independently of the mortgaged property.
    (b) With prior approval of the Secretary, the mortgaged property may 
be subject to a secondary mortgage or loan made or insured, or other 
secondary lien held, by a Federal, State, or local government agency or 
instrumentality, or an entity designated in the homeownership plan 
submitted by an applicant for an implementation grant under the 
Homeownership and Opportunity for People Everywhere (HOPE) program, or 
an eligible nonprofit organization as defined in Sec.  203.41(a)(5) of 
this part, provided that the required monthly payments under the insured 
mortgage and the secondary mortgage or lien shall not exceed the 
mortgagor's reasonable ability to pay as determined by the Secretary.
    (c) With the prior approval of the Secretary, the mortgaged property 
may be subject to a second mortgage held by a mortgagee not described in 
paragraph (b) of this section. Unless the mortgage is for the purpose 
described in paragraph (d) of this section, it shall meet the following 
requirements:
    (1) The required monthly payments under the insured mortgage and the 
second mortgage shall not exceed the mortgagor's reasonable ability to 
pay, as determined by the Commissioner;
    (2) Periodic payments, if any, shall be collected monthly and be 
substantially the same;
    (3) The sum of the principal amount of the insured mortgage and the 
second mortgage shall not exceed the loan-to-value limitation applicable 
to the insured mortgage, and shall not exceed the maximum mortgage limit 
for the area;
    (4) The repayment terms shall not provide for a balloon payment 
before ten years, or for such other term as the Commissioner may 
approve, except that the mortgage may become due and payable on sale or 
refinancing of the secured property covered by the insured mortgage; and
    (5) The mortgage shall contain a provision permitting the mortgagor 
to prepay the mortgage in whole or in part at any time, and shall not 
provide for the payment of any charge on account of such prepayment.
    (d)(1) With the prior approval of the Commissioner, the mortgaged 
property may be subject to a junior (second or

[[Page 164]]

third) mortgage securing the repayment of funds advanced to reduce the 
mortgagor's monthly payments on the insured mortgage following the date 
it is insured, if the junior mortgage meets the following requirements:
    (i) The junior mortgage shall not provide for any payment of 
principal or interest until the property securing the junior mortgage is 
sold or the insured mortgage is refinanced, at which time the junior 
mortgage shall become due and payable;
    (ii) The total amount of repayments under the junior mortgage shall 
not exceed the least of:
    (A) One-half of the mortgagor's equity interest in the property at 
the time of sale or refinancing;
    (B) Three times the amount of funds advanced to effect the interest 
rate buy-down; or
    (C) The sum of the original loan amount plus the total accrued 
interest on the junior mortgage at the time of repayment; and
    (iii) The junior mortgage shall contain a provision permitting the 
mortgagor to prepay the mortgage in whole or in part at any time, and 
shall not provide for the payment of any charge on account of such 
prepayment. Any full or partial prepayment will not be recoverable by 
the mortgagor if, by application of paragraph (d)(1)(ii) on sale or 
refinancing of the property, a lesser amount than the amount prepaid 
would have been due.
    (2) The sum of the principal amount of the insured mortgage, any 
second mortgage made under paragraph (b) or (c) of this section, and the 
mortgage securing the repayment of funds advanced to reduce the 
borrower's monthly payments (whether a second or third mortgage) may 
exceed the loan-to-value limitation applicable to the insured mortgage, 
but such sum may not exceed the maximum mortgage limit for the area.

[45 FR 19223, Mar. 25, 1980, as amended at 50 FR 20906, May 21, 1985; 56 
FR 4477, Feb. 4, 1991; 58 FR 42647, Aug. 11, 1993]



Sec.  203.33  Relationship of income to mortgage payments.

    (a) Adequacy of mortgagor's gross income. A mortgagor must 
establish, to the satisfaction of the Secretary, that his or her gross 
income is and will be adequate to meet (1) the periodic payments 
required by the mortgage submitted for insurance and (2) other long-term 
obligations.
    (b) Determinations of adequacy of mortgagor income under this 
section shall be made in a uniform manner without regard to race, color, 
religion, sex, national origin, familial status, handicap, marital 
status, actual or perceived sexual orientation, gender identity, source 
of income of the mortgagor, or location of the property.

[37 FR 16390, Aug. 12, 1972, as amended at 54 FR 38649, Sept. 20, 1989; 
59 FR 59648, Nov. 18, 1994; 77 FR 5675, Feb. 3, 2012]



Sec.  203.34  Credit standing.

    A mortgagor must have a general credit standing satisfactory to the 
Commissioner.



Sec.  203.35  Disclosure and verification of Social Security and Employer 
Identification Numbers.

    To be eligible for mortgage insurance under this part, the mortgagor 
must meet the requirements for the disclosure and verification of Social 
Security and Employer Identification Numbers, as provided by part 200, 
subpart U, of this chapter.

(Approved by the Office of Management and Budget under control numbers 
2502-0059, 2502-0159, and 2502-0268)

[54 FR 39693, Sept. 27, 1989]



Sec.  203.36  [Reserved]

                           Eligible Properties



Sec.  203.37  Nature of title to realty.

    A mortgage, to be eligible for insurance, must be on real estate 
held in fee simple, or on leasehold under a lease for not less than 99 
years which is renewable, or under a lease having a period of not less 
than 10 years to run beyond the maturity date of the mortgage.

[49 FR 21319, May 21, 1984]



Sec.  203.37a  Sale of property.

    (a) Sale by owner of record--(1) Owner of record requirement. To be 
eligible for a mortgage insured by FHA, the property must be purchased 
from the owner

[[Page 165]]

of record and the transaction may not involve any sale or assignment of 
the sales contract.
    (2) Supporting documentation. The mortgagee shall obtain 
documentation verifying that the seller is the owner of record and must 
submit this documentation to HUD as part of the application for mortgage 
insurance, in accordance with Sec.  203.255(b)(12). This documentation 
may include, but is not limited to, a property sales history report, a 
copy of the recorded deed from the seller, or other documentation (such 
as a copy of a property tax bill, title commitment, or binder) 
demonstrating the seller's ownership.
    (b) Time restrictions on re-sales--(1) General. The eligibility of a 
property for a mortgage insured by FHA is dependent on the time that has 
elapsed between the date the seller acquired the property (based upon 
the date of settlement) and the date of execution of the sales contract 
that will result in the FHA mortgage insurance (the re-sale date). The 
mortgagee shall obtain documentation verifying compliance with the time 
restrictions described in this paragraph and must submit this 
documentation to HUD as part of the application for mortgage insurance, 
in accordance with Sec.  203.255(b).
    (2) Re-sales occurring 90 days or less following acquisition. If the 
re-sale date is 90 days or less following the date of acquisition by the 
seller, the property is not eligible for a mortgage to be insured by 
FHA.
    (3) Re-sales occurring between 91 days and 180 days following 
acquisition. (i) If the re-sale date is between 91 days and 180 days 
following acquisition by the seller, the property is generally eligible 
for a mortgage insured by FHA.
    (ii) However, HUD will require that the mortgagee obtain additional 
documentation if the re-sale price is 100 percent over the purchase 
price. Such documentation must include an appraisal from another 
appraiser. The mortgagee may also document its loan file to support the 
increased value by establishing that the increased value results from 
the rehabilitation of the property.
    (iii) HUD may revise the level at which additional documentation is 
required under Sec.  203.37a(b)(3) at 50 to 150 percent over the 
original purchase price. HUD will revise this level by Federal Register 
notice with a 30 day delayed effective date.
    (4) Authority to address property flipping for re-sales occurring 
between 91 days and 12 months following acquisition. (i) If the re-sale 
date is more than 90 days after the date of acquisition by the seller, 
but before the end of the twelfth month after the date of acquisition, 
the property is eligible for a mortgage to be insured by FHA.
    (ii) However, HUD may require that the lender provide additional 
documentation to support the re-sale value of the property if the re-
sale price is 5 percent or greater than the lowest sales price of the 
property during the preceding 12 months (as evidenced by the contract of 
sale). At HUD's discretion, such documentation must include, but is not 
limited to, an appraisal from another appraiser. HUD may exclude re-
sales of less than a specific dollar amount from the additional value 
documentation requirements.
    (iii) If the additional value documentation supports a value of the 
property that is more than 5 percent lower than the value supported by 
the first appraisal, the lower value will be used to calculate the 
maximum mortgage amount under Sec.  203.18. Otherwise, the value 
supported by the first appraisal will be used to calculate the maximum 
mortgage amount.
    (iv) HUD will announce its determination to require additional value 
documentation through issuance of a Federal Register notice. The 
requirement for additional value documentation may be established either 
on a nationwide or regional basis. Further, the Federal Register notice 
will specify the percentage increase in the re-sale price that will 
trigger the need for additional documentation, and will specify the 
acceptable types of documentation. The Federal Register notice may also 
exclude re-sales of less than a specific dollar amount from the 
additional value documentation requirements. Any such Federal Register 
notice, and any subsequent revisions, will be issued at least thirty 
days before taking effect.
    (v) The level at which additional documentation is required under

[[Page 166]]

Sec.  203.37a(b)(4) shall supersede that under Sec.  203.37a(b)(3).
    (5) Re-sales occurring more than 12 months following acquisition. If 
the re-sale date is more than 12 months following the date of 
acquisition by the seller, the property is eligible for a mortgage 
insured by FHA.
    (c) Exceptions to the time restrictions on sales. The time 
restrictions on sales described in paragraph (b) of this section do not 
apply to:
    (1) Sales by HUD of Real Estate-Owned (REO) properties under 24 CFR 
part 291 and of single family assets in revitalization areas pursuant to 
section 204 of the National Housing Act (12 U.S.C. 1710);
    (2) Sales by another agency of the United States Government of REO 
single family properties pursuant to programs operated by these 
agencies;
    (3) Sales of properties by nonprofit organizations approved to 
purchase HUD REO single family properties at a discount with resale 
restrictions;
    (4) Sales of properties that were acquired by the sellers by 
inheritance;
    (5) Sales of properties purchased by an employer or relocation 
agency in connection with the relocation of an employee;
    (6) Sales of properties by state- and federally-chartered financial 
institutions and government-sponsored enterprises (GSEs);
    (7) Sales of properties by local and state government agencies; and
    (8) Only upon announcement by HUD through issuance of a notice, 
sales of properties located in areas designated by the President as 
federal disaster areas. The notice will specify how long the exception 
will be in effect.
    (d) Sanctions and indemnification. Failure of a mortgagee to comply 
with the requirements of this section may result in HUD requesting 
indemnification of the mortgage loan, or seeking other appropriate 
remedies under 24 CFR part 25.

[68 FR 23375, May 1, 2003, as amended at 69 FR 77116, Dec. 23, 2004; 71 
FR 33142, June 7, 2006]



Sec.  203.38  Location of dwelling.

    At the time a mortgage is insured there must be located on the 
mortgaged property one or more dwellings designed principally for 
residential use for not more than four families.

[61 FR 36264, July 9, 1996]



Sec.  203.39  Standards for buildings.

    The buildings on the mortgaged property must conform with the 
standards prescribed by the Commissioner.



Sec.  203.40  Location of property.

    The mortgaged property shall be located within the United States, 
Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern 
Mariana Islands, and American Samoa. The mortgaged property, if 
otherwise acceptable to the Commissioner, may be located in any 
community where the housing standards meet the requirements of the 
Commissioner.

[49 FR 12697, Mar. 30, 1984, as amended at 61 FR 36264, July 9, 1996]



Sec.  203.41  Free assumability; exceptions.

    (a) Definitions. As used in this section:
    (1) Low- or moderate-income housing means housing which is designed 
to be affordable, taking into account available financing, to 
individuals or families whose household income does not exceed 115 
percent of the median income for the area, as determined by the 
Secretary with adjustments for smaller and larger families. The 
Secretary may approve a higher percentage up to 140 percent.
    (2) Eligible governmental or nonprofit program means a program 
operated pursuant to a program established by Federal law, operated by a 
State or local government, or operated by an eligible nonprofit 
organization, if the program is designed to assist the purchase of low-
or moderate-income housing including rental housing.
    (3) Legal restrictions on conveyance means any provision in any 
legal instrument, law or regulation applicable to the mortgagor or the 
mortgaged property, including but not limited to a lease, deed, sales 
contract, declaration of covenants, declaration of condominium, option, 
right of first refusal, will, or trust agreement, that attempts to cause 
a conveyance (including a lease) made by the mortgagor to:

[[Page 167]]

    (i) Be void or voidable by a third party;
    (ii) Be the basis of contractual liability of the mortgagor for 
breach of an agreement not to convey, including rights of first refusal, 
pre-emptive rights or options related to mortgagor efforts to convey;
    (iii) Terminate or subject to termination all or a part of the 
interest held by the mortgagor in the mortgaged property if a conveyance 
is attempted;
    (iv) Be subject to the consent of a third party;
    (v) Be subject to limits on the amount of sales proceeds retainable 
by the seller; or
    (vi) Be grounds for acceleration of the insured mortgage or increase 
in the interest rate.
    (4) Tax-exempt bond financing means financing which is funded in 
whole or in part by the proceeds of qualified mortgage bonds described 
in section 143 of the Internal Revenue code of 1986, or any successor 
section, on which the interest is exempt from Federal income tax. The 
term does not include financing by qualified veterans' mortgage bonds as 
defined in section 143(b) of the Code.
    (5) Eligible nonprofit organization means an organization of the 
type described in section 501(c)(3) of the Internal Revenue Code of 1986 
as an organization exempt under section 501(a) of the Code, which has:
    (i) Two years experience as a provider of low- or moderate-income 
housing;
    (ii) A voluntary board; and
    (iii) No part of its net earnings inuring to the benefit of any 
member, founder, contributor or individual.
    (b) Policy of free assumability with no restrictions. A mortgage 
shall not be eligible for insurance if the mortgaged property is subject 
to legal restrictions on conveyance, except as permitted by this part.
    (c) Exception for eligible governmental or nonprofit programs. Legal 
restrictions on conveyance are acceptable if:
    (1) The restrictions are part of an eligible governmental or 
nonprofit program and are permitted by paragraph (d) of this section; 
and
    (2) The restrictions will automatically terminate if title to the 
mortgaged property is transferred by foreclosure or deed-in-lieu of 
foreclosure, or if the mortgage is assigned to the Secretary.
    (d) Exception for eligible governmental or nonprofit programs--
specific policies. For purposes of paragraph (c) of this section, 
restrictions of the following types are permitted for eligible 
governmental or nonprofit programs, provided that a violation of legal 
restrictions on conveyance may not be grounds for acceleration of the 
insured mortgaged or for an increase in the interest rate, or for 
voiding a conveyance of the mortgagor's interest in the property, 
terminating the mortgagor's interest in the property, or subjecting the 
mortgagor to contractual liability other than requiring repayment (at a 
reasonable rate of interest) of assistance provided to make the property 
affordable as low- or moderate-income housing:
    (1) Except as otherwise provided in the HOME Investment Partnerships 
(HOME) and the Homeownership and Opportunity for People Everywhere 
(HOPE) programs, the mortgagor may be prohibited from selling the 
property at a price greater than the price permitted under the program, 
or the mortgagor may be required to pay a portion of the sales proceeds 
to a governmental body or an eligible nonprofit organization, as long as 
the mortgagor is not prohibited from recovering:
    (i) The sum of the mortgagor's original purchase price, the 
mortgagor's reasonable costs of sale, the reasonable costs of 
improvements made by the mortgagor, and any negative amortization on a 
graduated payment mortgage insured under Sec.  203.45 of this part; and
    (ii) A reasonable share, as determined by the Secretary, of the 
appreciation in value which shall be the sales price reduced by the sum 
determined under paragraph (d)(1)(i) of this section.
    (2) Legal restrictions on conveyance may extend beyond the term of 
the mortgage, subject to paragraph (c)(2) of this section and any 
limitations applicable in the jurisdiction.
    (3) Except as otherwise required by the HOME and HOPE programs, 
rights under an option to purchase, pre-emptive rights to purchase or 
rights of first refusal shall only be held by a

[[Page 168]]

governmental body or eligible nonprofit organization, or another 
individual or organization approved by the Secretary, and shall be 
exercised by them (or an assignee who will purchase and occupy the 
property) only within a reasonable time after the event permitting 
exercise of the rights occurs, not to exceed a period of time determined 
by the Secretary. The Secretary may approve another individual or 
organization under the preceding sentence even if the restriction is not 
part of an eligible governmental or nonprofit program.
    (4) In addition to the restrictions stated in paragraph (d)(3) of 
this section, the purchase price under an option may not be less than 
the sum of the mortgagor's original purchase price, the mortgagor's 
reasonable costs of sale, the reasonable costs of improvements made by 
seller, and a reasonable share, as determined by the Secretary, of the 
appreciation in value.
    (5) The mortgagor may be required to continue to be an owner-
occupant.
    (6) The mortgagor may be limited in his or her ability to choose a 
purchaser for the property, but only to the extent necessary to ensure 
that the property is preserved as low- or moderate-income housing.
    (7) The mortgagor for a rehabilitation loan insured under Sec.  
203.50 of this part may hold title subject to a condition subsequent, 
provided that the holder of the right of entry for condition broken also 
executes the mortgage, and that the right is exercisable only for 
failure by the mortgagor to complete the rehabilitation or occupy the 
property as agreed by the mortgagor.
    (8) Property may be subject to a legal restriction on conveyance to 
the extent approved in writing by an authorized representative of the 
Secretary prior to September 10, 1993.
    (e) Exception for tax-exempt bond financing. A mortgage may be 
funded through tax-exempt bond financing and may include a due-on-sale 
provision in a form approved by the Secretary which permits the 
mortgagee to accelerate a mortgage that no longer meets Federal 
requirements for tax-exempt bond financing or for other reasons 
acceptable to the Secretary. Except as provided in this paragraph (e), a 
mortgage funded through tax-exempt bond financing shall comply with all 
form requirements prescribed under Sec.  203.17(a) of this part and 
shall contain no other provisions designed to enforce compliance with 
Federal or State requirements for tax-exempt bond financing. Other legal 
restrictions on conveyance are permitted as provided in other paragraphs 
of this section.
    (f) Exception for protective covenants excluding non-elderly. 
Mortgaged property may be subject to protective covenants which prohibit 
or restrict occupancy by, or transfer to, persons who are not elderly 
if:
    (1) The restrictions do not have an undue effect on marketability; 
and
    (2) The restrictions do not constitute illegal discrimination and 
are consistent with the Fair Housing Act and all other applicable 
nondiscrimination laws.
    (g) Exceptions for specific jurisdictions. Notwithstanding the 
provisions of paragraph (b) of this section, mortgages insured on 
certain Indian land or Hawaiian home lands under sections 247 and 248 of 
the National Housing Act and Sec. Sec.  203.43h and 203.43i of this 
part, or on property in the Northern Mariana Islands or American Samoa, 
shall not be ineligible for insurance under this section solely because 
applicable law does not permit free alienability of title to all 
persons.

[58 FR 42648, Aug. 11, 1993; 59 FR 15112, Mar. 31, 1994]



Sec.  203.42  Rental properties.

    (a) A mortgage on property upon which there is a dwelling to be 
rented by the mortgagor shall not be eligible for insurance if the 
property is a part of, or adjacent or contiguous to, a project, or group 
of similar rental properties, in which the mortgagor has a financial 
interest in eight or more dwelling units.
    (b) Paragraph (a) of this section shall not apply where:
    (1) A mortgage qualifies as a rehabilitation loan under Sec.  203.50 
of this part;
    (2) The mortgage is to be used for the rehabilitation of property 
located in a specific area or neighborhood that has

[[Page 169]]

been targeted by a State or local government for redevelopment, in 
accordance with a specific program that involves substantial public or 
private commitments in support of neighborhood improvement or 
redevelopment; and
    (3) The State or local government has approved, and has submitted to 
the Commissioner a plan describing the program of neighborhood 
redevelopment and revitalization, including the geographic area targeted 
for redevelopment, and the nature and proportion of public or private 
commitments that have been made in support of the redevelopment program.
    (c) No two-, three-, or four-family dwelling, and no single-family 
dwelling, if it is part of a group of five or more single-family 
dwellings held by the same mortgagor, or any part or unit thereof, shall 
be rented or offered for rent for transient or hotel purposes, as 
defined in Sec.  203.16, so long as the dwelling is subject to any 
insured mortgage.

[56 FR 27692, June 17, 1991, as amended at 61 FR 36264, July 9, 1996]



Sec.  203.43  Eligibility of miscellaneous type mortgages.

    (a) A mortgage which meets the requirements of this subpart, except 
as modified by this section, shall be eligible for insurance under this 
subpart subject to compliance with the additional requirements of this 
section.
    (b) The mortgage may be accepted for insurance if:
    (1) Executed in connection with the sale by the Government, or any 
agency or official thereof, of any housing acquired or constructed under 
Public Law 849, Seventy-sixth Congress, as amended; Public Law 781, 
Seventy-sixth Congress, as amended; or Public Law 9, 73 or 353, Seventy-
seventh Congress, as amended (including any property acquired, held or 
constructed in connection with such housing or to serve the inhabitants 
thereof); or
    (2) Executed in connection with the sale by the Public Housing 
Administration, or by any public housing agency with the approval of the 
said Administration, or any housing (including any property acquired, 
held or constructed in connection with such housing or to serve the 
inhabitants thereof) owned or financially assisted pursuant to the 
provisions of Public Law 671, Seventy-sixth Congress; or
    (3) Executed in connection with the sale by the Government, or any 
agency or official thereof, or any of the so-called Greenbelt towns, or 
parts thereof, including projects, or parts thereof, known as 
Greenhills, OH; Greenbelt, MD; and Greendale, WI, developed under the 
Emergency Relief Appropriation Act of 1935; or of any of the village 
properties or employee's housing under the jurisdiction of the Tennessee 
Valley Authority; or of any housing under the jurisdiction of the 
Department of the Interior located within the town area of Coulee Dam, 
WA, acquired by the United States for the construction, operation, and 
maintenance of Grand Coulee Dam and its appurtenant works or of any 
permanent housing under the jurisdiction of the Department of the 
Interior constructed under the Boulder Canyon Project Act of December 
21, 1928, as amended and supplemented, located within the Boulder City 
municipal area; or
    (4) Executed in connection with the sale by the Government, or any 
agency or official thereof, of any housing (including any property 
acquired, held, or constructed in connection therewith or to serve the 
inhabitants thereof) pursuant to the Atomic Energy Community Act of 
1955, as amended: Provided, That such insurance shall be issued without 
regard to any preferences or priorities except those prescribed by the 
National Housing Act or the Atomic Energy Community Act of 1955, as 
amended; or
    (5) Executed in connection with the sale by a State or municipality, 
or an agency, instrumentality, or political subdivision of either, of a 
project consisting of any permanent housing (including any property 
acquired, held or constructed in connection therewith or to serve the 
inhabitants thereof), constructed by or on behalf of such State, 
municipality, agency, instrumentality or political subdivision, for the 
occupancy of veterans (persons who have served in the active military or 
naval service of the United States at any time on or after September 16, 
1940, and prior to July 26, 1947, or on or after June 27, 1950, and 
prior to February 1,

[[Page 170]]

1955) their families and others: Provided, That the principal obligation 
of a mortgage referred to in this paragraph shall not exceed 90 percent 
of the appraised value of the mortgaged property; or
    (6) Executed in connection with the first resale, within two years 
from the date of its acquisition from the Government, of any portion of 
a project or property of the character described in paragraphs (b) (1), 
(2), (3), and (4) of this section.
    (c) The Commissioner may insure under this part, without regard to 
any limitation upon eligibility contained in the other provisions of 
this subpart, any mortgage given to refinance an existing mortgage 
insured under the National Housing Act. The refinancing mortgage must 
meet the following special requirements:
    (1)(i) Except as provided by paragraph (c)(1)(ii) of this section, 
the refinancing mortgage must be in an amount that does not exceed the 
least of (A) the original principal amount of the existing mortgage; (B) 
the sum of the outstanding principal balance of the existing mortgage, 
plus loan closing charges approved by the Commissioner; or (C) in the 
case of an eligible non-occupant mortgagor (as defined in Sec.  
203.18(f)), the outstanding balance of the existing mortgage.
    (ii) In the case of graduated payment mortgages insured under 
section 203 of the Act pursuant to section 245 (a) or (b) of the Act 
(Sec.  203.45 or Sec.  203.46 [as in effect immediately before its 
removal at 52 FR 32754, published August 28, 1987]), the refinancing 
mortgage must have a principal amount that does not exceed the 
outstanding balance of the existing mortgage.
    (iii) If a one-time mortgage insurance premium (MIP) was financed as 
part of the existing mortgage referred to in paragraphs (c)(1) (i) and 
(ii) of this section, the amount of the premium refund to which the 
mortgagor is entitled must be deducted in determining the original 
principal amount and the unpaid principal balance of the existing 
mortgage under paragraph (c)(1)(i) of this section and the outstanding 
balance of the existing mortgage under paragraph (c)(1)(ii) of this 
section. However, the maximum amount of the refinancing mortgage 
computed in accordance with this paragraph (c)(1) may be increased by 
the amount of the one-time MIP (if any) associated with the refinancing 
mortgage;
    (2) It must have a term which does not exceed the unexpired term of 
the existing mortgage, except that in any case where the Commissioner 
determines that an extension of the term of the mortgage will inure to 
the benefit of the applicable insurance fund, taking into consideration 
the outstanding insurance liability under the existing insured mortgage, 
the term may be extended to the lesser of (i) 30 years or (ii) the 
unexpired term of the existing mortgage, plus 12 years;
    (3) The mortgage must result in a reduction in regular monthly 
payments by the mortgagor, except:
    (i) When a fixed rate mortgage is given to refinance an adjustable 
rate mortgage held by a mortgagor who is to occupy the dwelling as a 
principal residence or secondary residence, as these terms are defined 
in Sec.  203.18(f); or
    (ii) When refinancing a mortgage for a shorter term will result in 
an increase in the mortgagor's regular monthly payments of no more than 
$50. In the case of a graduated payment mortgage, the reduction in 
regular monthly payments means a reduction from the payment due under 
the existing mortgage for the month in which the refinancing mortgage is 
executed.
    (4) It must be made by a mortgagor whose record of payment on the 
existing mortgage meets standards established by the Commissioner; and
    (5) The mortgagee may not require a minimum principal amount to be 
outstanding on the loan secured by the existing mortgage.
    (d)-(f) [Reserved]
    (g) The provisions of Sec.  203.28 shall not apply to mortgages 
insured under this section.
    (h) The provisions of Sec.  203.38 shall not apply to mortgages of 
the character described in paragraph (b) of this section and at the time 
any such mortgage is insured there must be located on the mortgaged 
property a dwelling unit designed principally for residential use for 
not more than eight families.
    (i)-(j) [Reserved]

[[Page 171]]

    (k) The Commissioner may insure under this part, without regard to 
any limitation upon eligibility contained in this subpart, any mortgage 
assigned to the Commissioner in connection with payment under a contract 
of mortgage insurance, or executed in connection with a sale by the 
Commissioner of any property acquired in the settlement of an insurance 
claim under any section or title of the National Housing Act.

[36 FR 24508, Dec. 22, 1971, as amended at 45 FR 30602, May 8, 1980; 47 
FR 29525, July 7, 1982; 52 FR 4139, Feb. 10, 1987; 52 FR 37287, Oct. 6, 
1987; 52 FR 44861, Nov. 23, 1987; 53 FR 8880, Mar. 18, 1988; 55 FR 
34805, Aug. 24, 1990; 55 FR 38033, Sept. 14, 1990; 61 FR 36264, July 9, 
1996]



Sec.  203.43a  Eligibility of mortgages covering housing in certain neighborhoods.

    (a) A mortgage financing the repair, rehabilitation, construction, 
or purchase of property located in an older declining urban area shall 
be eligible for insurance under this subpart subject to compliance with 
the additional requirements of this section.
    (b) The mortgage shall meet all of the requirements of this subpart, 
except such requirements as are judged to be not applicable on the basis 
of the following determinations to be made by the Commissioner:
    (1) That the conditions of the area in which the property is located 
prevent the application of certain eligibility requirements of this 
subpart.
    (2) That the area is reasonably viable, and there is a need in the 
area for adequate housing for families of low and moderate income.
    (3) That the mortgage to be insured is an acceptable risk.
    (c) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 223(e) of the National 
Housing Act. Such mortgages shall be insured under and be the obligation 
of the Special Risk Insurance Fund.
    (d) For restrictions against approving mortgage insurance for a 
certain category of newly legalized alien, see 24 CFR part 49.

[36 FR 24508, Dec. 22, 1971, as amended at 55 FR 18493, May 2, 1990]



Sec.  203.43b  [Reserved]



Sec.  203.43c  Eligibility of mortgages involving a dwelling unit in a
cooperative housing development.

    A mortgage involving a dwelling unit in a cooperative housing 
development which meets the requirements of this subpart, except as 
modified by this section, shall be eligible for insurance under section 
203(n) of the National Housing Act.
    (a) The provisions of Sec. Sec.  203.16a, 203.17, 203.18, 203.18a, 
203.23, 203.24, 203.26, 203.37, 203.38, 203.43h, 203.43i, 203.43j, 
203.44, 203.49, and 203.50 of this part do not apply to mortgages 
insured under section 203(n) of the National Housing Act.
    (b) As used in connection with the insurance of mortgages under this 
section and Sec.  203.437 of this part: (1) The term mortgage shall mean 
a first lien given to secure a loan made to finance the unpaid purchase 
price of a Corporate Certificate together with the applicable Occupancy 
Certificate of a cooperative ownership housing corporation in which the 
permanent occupancy of the dwelling units is restricted to members of 
such corporation, and may refer both to a security instrument creating a 
lien, whether called a mortgage, deed of trust, security deed or another 
term used in a particular jurisdiction, as well as the credit 
instrument, or note, secured thereby.
    (2) Corporation shall mean an organization which holds title to a 
cooperative housing development which is covered by a blanket mortgage 
or mortgages insured by FHA under the National Housing Act.
    (3) Corporate Certificate shall mean such stock certificates, 
membership certificates, or other instruments which the laws of the 
jurisdictions in which the cooperative housing development is located 
require to evidence ownership of a specified interest in the 
corporation.
    (4) Occupancy Certificate shall mean a written instrument provided 
by the corporation to each holder of a Corporate Certificate which 
grants an exclusive right of possession of a specific dwelling unit in 
the cooperative housing development.

[[Page 172]]

    (5) References in this subpart to a dwelling, residence or property 
which is sold, conveyed, covered by a mortgage or subject to a lien 
shall be construed to mean the Corporate Certificate together with the 
Occupancy Certificate, except that where such references when 
interpreted in light of section 203(n) of the National Housing Act 
clearly indicate the intent to be the dwelling unit, such reference 
shall mean the dwelling unit identified in the Occupancy Certificate.
    (c) The organizational documents of the cooperative corporation must 
provide that: (1) Either the Secretary or a mortgagee under a mortgage 
insured under this section shall be a member of the cooperative 
corporation for so long as either owns a Corporate Certificate;
    (2) A mortgage insured under this section shall be a first lien upon 
the property covered by the mortgage;
    (3) The Secretary may exercise the voting rights which are 
attributable to each Corporate Certificate owned by the Secretary;
    (4) The Secretary may designate as her proxy an agent for the 
purpose of exercising the voting rights of the Secretary which are 
attributable to the corporate Certificate or Certificates owned by the 
Secretary;
    (5) The Secretary may cease making monthly payments attributable to 
any dwelling unit for which the Secretary owns a Corporate Certificate 
six months after the Secretary notifies the corporation to sell the 
Corporate Certificate or upon default by the corporation on the blanket 
mortgage covering the dwelling unit;
    (6) The Secretary or a mortgagee shall not be obligated to make 
payments to the corporation for any amounts unpaid by a mortgagor under 
a mortgage insured under this section prior to the date the Secretary or 
the mortgagee becomes the owner of the Corporate Certificate.
    (d) The corporation shall have entered into an agreement with the 
Secretary and the mortgagee which: (1) Requires that the corporation 
shall furnish the Secretary with the most recent annual financial report 
certified to have been based on generally accepted accounting principles 
and the most recent monthly or quarterly financial report;
    (2) Waives any option or right of first refusal the corporation may 
have to purchase any Corporate Certificate covered by a mortgage insured 
under section 203(n) of the National Housing Act, unless the corporation 
pays the full amount due under such mortgage or pays the full amount of 
the Secretary's investment if the Secretary is the owner of the 
Corporate Certificate, whichever is greater.
    (3) Except with the approval of the Secretary, waives all authority 
the corporation may have to approve or reject the buyer of a Corporate 
Certificate owned by the Secretary or the buyer of a Corporate 
Certificate covered by a mortgage insured under Section 203(n) of the 
National Housing Act.
    (4) Requires the corporation on notice by the Secretary to act as 
her agent for a fee to be determined by the Secretary for the limited 
purposes of:
    (i) Selling all Corporate Certificates of the corporation owned by 
the Secretary;
    (ii) Renting and collecting rents on any dwelling unit for which the 
Secretary owns the Corporate Certificate.
    (5) Provides that the Secretary shall not be obligated to make 
payments to the corporation for outstanding debts of the mortgagor;
    (6) Requires the corporation to furnish to a mortgagee or to the 
Secretary, on request:
    (i) A statement, certified by the officer charged with maintenance 
of the Corporate Certificate Transfer Book, that such book currently 
shows that the mortgagee or the Secretary is the owner of any Corporate 
Certificate transferred to the mortgagee or the Secretary; and
    (ii) The Occupancy Certificate in the name of the mortgagee or the 
Secretary.
    (7) Requires the corporation to notify the mortgagee, whose name and 
address has been provided, of any default in corporation fee payments by 
the mortgagor within 15 days of such default;

[[Page 173]]

    (8) Requires the mortgagee to notify the corporation of any default 
in mortgage payments by the mortgagor within 15 days of such default;
    (9) Requires the corporation upon notice by the Secretary or the 
mortgagee, when the Secretary or the mortgagee is the owner of the 
Corporate Certificate, and for a fee to be determined by the Secretary 
to evict any person or persons from a dwelling unit identified in the 
Occupancy Certificate.
    (10) Contains such other provisions as the Secretary may require.
    (e) The mortgagee shall obtain such security and other undertakings 
as may be required to establish a first lien on the Corporate 
Certificate and the Occupancy Certificate under the laws of the State 
where the Cooperative Housing Development is located.
    (f) The mortgage involves a one-family dwelling unit in a 
cooperative housing development which is covered by a blanket mortgage 
or mortgages insured under the National Housing Act.
    (g) The mortgage shall not exceed the balance remaining after 
subtracting, from the amount determined under Sec. Sec.  203.18(a), 
203.18(g) and 203.18a of this part, an amount equal to the portion of 
the unpaid balance of the blanket mortgage covering the cooperative 
development which is attributable to the dwelling unit the mortgagor is 
entitled to occupy as of the date the mortgage is accepted for 
insurance.
    (h) The mortgage shall be executed upon a form conforming to the 
applicable provisions of this part and shall:
    (1) Involve a principal obligation in multiples of $50.
    (2) Come due on the first of the month.
    (3) Contain complete amortization provisions satisfactory to the 
Secretary and an amortization period not in excess of the term of the 
mortgage.
    (4) Be for a term not to exceed 30 years or the remaining term of 
the blanket mortgage covering the cooperative development or three-
quarters of the remaining economic life of the building improvements, 
whichever is less.
    (5) Provide for payments to principal and interest to begin not 
later than the first day of the month following 60 days from the date 
the mortgagee's certificate on the commitment was executed.
    (6) Contain a provision stating that the failure of the mortgagor to 
pay the mortgagor's share of the common expenses or assessments and 
charges imposed by the corporation as provided in the instruments 
establishing the cooperative shall be considered a default.
    (i) The entire principal amount of the mortgage must have been 
disbursed to the mortgagor or to his creditors for his account and with 
his consent.
    (j) The mortgage must be executed by a mortgagor who intends to be 
an occupant of the unit.
    (k) The mortgagee shall collect from the mortgagor upon the 
execution of the mortgage: (1) A sum that will be sufficient to pay the 
mortgage insurance premium for the period beginning on the date of the 
closing of the loan and ending on the date of the first monthly payment 
under the mortgage or (2), where applicable, the one-time mortgage 
insurance premium payable pursuant to Sec.  203.280.
    (l) The mortgagee shall upon application for a mortgage insurance 
commitment provide true copies of the following organizational documents 
of the cooperative corporation for examination and approval by the 
appropriate HUD Field Office:
    (1) Certificate of Incorporation;
    (2) Regulatory Agreement;
    (3) By-Laws as amended;
    (4) The financial statements required in paragraph (d)(1) of this 
section;
    (5) Proposed Occupancy Certificate;
    (6) Proposed Corporate Certificate;

Provided that one or more of the requirements of this paragraph may be 
waived by the Secretary if the documents have been approved by the 
Secretary and the mortgagee submits with the application a statement 
certified by an officer of the cooperative corporation that no changes 
have been made in the documents since such approval.

[42 FR 40431, Aug. 10, 1977, as amended at 45 FR 29278, May 2, 1980; 45 
FR 76377, Nov. 18, 1980; 48 FR 12085, Mar. 23, 1983; 48 FR 28804, June 
23, 1983; 49 FR 23584, June 6, 1984; 52 FR 48201, Dec. 21, 1987; 53 FR 
8881, Mar. 18, 1988; 53 FR 9869, Mar. 28, 1988; 53 FR 34282, Sept. 6, 
1988; 56 FR 24631, May 30, 1991; 58 FR 41002, July 30, 1993]

[[Page 174]]



Sec.  203.43d  Eligibility of mortgages in certain communities.

    Notwithstanding any other requirements of this subpart, a mortgage 
covering a one- to four-family dwelling occupied by the mortgagor as a 
principal residence (as defined in Sec.  203.18(f)(1)) is eligible for 
insurance if the following requirements are met:
    (a) The property is located in a community where the Secretary 
determines that:
    (1) Temporary adverse economic conditions exist throughout the 
community as a direct and primary result of outstanding claims to 
ownership of land in the community by an American Indian tribe, band, or 
Nation;
    (2) Such ownership claims are reasonably likely to be settled, by 
court action or otherwise;
    (3) As a direct result of the community's temporarily impaired 
economic condition, owners of homes in the community occupied as 
principal residences (as defined in Sec.  203.18(f)(1)) have been 
involuntarily unemployed or underemployed and have, thus, incurred 
substantial reductions in income that significantly impair their ability 
to continue timely payment of their mortgages;
    (4) As a result, widespread mortgage foreclosures and distress sales 
of homes are likely in the community; and
    (5) Fifty or more individuals were joined as parties defendant or 
were members of a defendant class prior to December 31, 1976 in 
litigation involving claims to ownership of land in the community by an 
American Indian tribe, band or Nation.
    (b) The mortgagor, as a direct result of the community's temporarily 
impaired economic condition, has been involuntarily unemployed or 
underemployed and has thus incurred a substantial reduction in income 
which significantly impairs the owners ability to continue timely 
payment of the mortgage.
    (c) The mortgagee certifies that the security instrument has been 
recorded and is a good and valid first lien on the property except for 
the claims specified in paragraph (a)(1) of this section.
    (d) The mortgagee agrees upon insurance of the mortgage to assign 
such mortgage to the Secretary within 30 days from the date of the 
issuance of the insurance certificate and if such assignment does not 
take place, the contract of insurance is terminated and becomes null and 
void.
    (e) Any individual, organization, institution or governmental agency 
shall be considered a mortgagee for the purposes of this section.
    (f) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 203(o) of the National 
Housing Act. Such mortgages shall be insured under and be the obligation 
of the Special Risk Insurance Fund.
    (g) The mortgage was executed and filed for record on or before 
October 12, 1977.

[42 FR 57434, Nov. 2, 1977, as amended at 55 FR 34805, Aug. 24, 1990]



Sec.  203.43e  [Reserved]



Sec.  203.43f  Eligibility of mortgages covering manufactured homes.

    A mortgage covering a one-family manufactured home (as defined in 24 
CFR 3280.2(a)(16)) that meets the requirements of this subpart, except 
as modified by this section, shall be eligible for insurance pursuant to 
this subpart.
    (a) The manufactured home, when erected on site, shall have floor 
space area of not less than four hundred square feet and shall have been 
constructed in conformance with the National Manufactured Home 
Construction and Safety Standards as evidenced by a certification label 
affixed thereto in accordance with 24 CFR 3280.8.
    (b) The mortgage shall cover the manufactured home and site, shall 
constitute a mortgage on a property classified and taxed as real estate, 
and shall have a term of not more than 30 years from the date of the 
beginning of amortization.
    (c) In the case of a manufactured home which has not been 
permanently erected on a site for more than one year prior to the date 
of the application for mortgage insurance:
    (i) The manufactured home shall be erected on a site-built permanent 
foundation that meets or exceeds applicable requirements of the Minimum 
Property Standards for One- and Two-Family

[[Page 175]]

Dwellings, 4900.1 (see 24 CFR 200.929(b)(1)) (MPS) and shall be 
permanently attached thereto by anchoring devices adequate for all loads 
identified in the MPS. The towing hitch or running gear, which includes 
axles, brakes, wheels and other parts of the chassis that operate only 
during transportation, shall have been removed. The finished grade level 
beneath the manufactured home shall be at or above the 100-year return 
frequency flood elevation. The site, site improvements, and all other 
features of the mortgaged property not addressed by the Manufactured 
Home Construction and Safety Standards shall meet or exceed applicable 
requirements of the MPS.
    (ii) The space beneath the manufactured home shall be enclosed by 
continuous foundation-type construction designed to resist all forces to 
which it is subject without transmitting forces to the building 
superstructure. The enclosure shall be adequately secured to the 
perimeter of the manufactured home and be constructed of materials that 
conform to MPS requirements for foundations.
    (iii) The manufactured home shall have an overall coefficient of 
heat transmission (``Uo'' value) calculated in accordance 
with the procedures of NFPA 501 BM-1976 (``Mobile Home Heating, Cooling 
Load Calculations'') that does not exceed the following for all 
locations within the following climatic zones:

Zone I...............................................................145
Zone II..............................................................099
Zone III \1\.........................................................087


NFPA 501 BM-1976 is incorporated by reference and is issued by and 
available from the National Fire Protection Association, Batterymarch 
Park, Quincy, MA 02269.
---------------------------------------------------------------------------

    \1\ Zone III includes Alaska, Montana, Wyoming, North and South 
Dakota, Minnesota, Wisconsin, Michigan, Maine, New Hampshire, and 
Vermont.
---------------------------------------------------------------------------

    (iv) The manufactured home shall be braced and stiffened before it 
leaves the factory to resist racking and potential damage during 
transportation.
    (v) The conditions of Sec.  203.18(a)(2) (i) and (ii) of this 
subpart shall not apply to construction of the manufactured home but 
shall be applicable to improvement of the site, including construction 
of the site-built foundation.
    (vi) Section 203.14 of this subpart is modified to the extent 
provided in this paragraph. Applications relating to insurance of 
mortgages under this paragraph (c) must be accompanied by an agreement 
in form satisfactory to the Commissioner executed by the seller or 
builder or such other person as the Commissioner may require agreeing 
that in the event of any sale or conveyance of the dwelling within a 
period of one year beginning with the date of initial occupancy, the 
seller, builder, or such other person will at the time of such sale or 
conveyance deliver to the purchaser or owner of such property the 
manufacturer's warranty on a form prescribed by the Commissioner, which 
shall provide that the manufacturer's warranty is in addition to and not 
in derogation of all other rights and remedies the purchaser or owner 
may have, and a warranty in form satisfactory to the Commissioner 
warranting that the manufactured home, the foundation, positioning and 
anchoring of the manufactured home to its permanent foundation, and all 
site improvements are constructed in substantial conformity with the 
plans and specifications (including amendments thereof or changes and 
variations therein which have been approved in writing by the 
Commissioner) on which the Commissioner has based his valuation of the 
dwelling. The warranty shall also include provisions that the 
manufactured home sustained no hidden damage during transportation, and 
if the manufactured home is a double-wide, that the sections were 
properly joined and sealed. Such agreement must provide that upon the 
sale or conveyance of the dwelling and delivery of the warranty, the 
seller, builder or such other person will promptly furnish the 
Commissioner with a conformed copy of the warranty establishing by the 
purchaser's receipt thereon that the original warranty has been 
delivered to the purchaser in accordance with this section.
    (d) In the case of a manufactured home which has been permanently 
erected on a site for more than one year prior to the dae of the 
application for mortgage insurance:

[[Page 176]]

    (i) The manufactured home shall be permanently anchored to and 
supported by permanent footings and shall have permanently installed 
utilities that are protected from freezing. The space beneath the 
manufactured home shall be a properly enclosed crawl space.
    (ii) The site, site improvements, and all other features of the 
mortgaged property not addressed by the Manufactured Home Construction 
and Safety Standards shall meet or exceed applicable requirements of the 
Requirements for Existing Housing--One to Four Family Living Units 
(Handbook 4905.1). The finished grade level beneath the manufactured 
home shall be at or above the 100-year return frequency flood elevation.
    (iii) The manufactured home shall have been occupied only at the 
location subject to the mortgage sought to be insured.

[48 FR 7735, Feb. 24, 1983, as amended at 61 FR 36264, July 9, 1996]



Sec.  203.43g  Eligibility of mortgages in certain communities.

    (a) A mortgage which meets the requirements of this subpart shall be 
eligible for insurance without regard to the limitation in this part 
relating to marketability of title under the following conditions:
    (1) The mortgagor is to occupy the dwelling as a principal residence 
(as defined in Sec.  203.18(f)(1)).
    (2) The defect or potential defect in title is a direct and primary 
result of outstanding claims to ownership of land in the community by an 
American Indian tribe, band, group or Nation.
    (3) Fifty or more individual owners were joined as parties defendant 
or were members of a defendant class before April 1, 1980 in litigation 
involving claims to ownership of land in the community in which the 
property is located by an American Indian tribe, band, group or Nation 
pursuant to a dispute involving the Articles of Confederation, the Trade 
and Intercourse Act of 1790 or any similar State or Federal law.
    (4) Such ownership claims are reasonably likely to be settled by 
court action or otherwise.
    (5) Temporary adverse economic conditions exist throughout the 
community as a direct and primary result of such claims.
    (b) Mortgages complying with the requirements of this subpart as 
modified by this section shall be the obligation of the Special Risk 
Insurance Fund.

[49 FR 21319, May 21, 1984, as amended at 55 FR 34805, Aug. 24, 1990]



Sec.  203.43h  Eligibility of mortgages on Indian land insured pursuant
to section 248 of the National Housing Act.

    A mortgage covering a one- to four-family residence located on 
Indian land shall be eligible for insurance pursuant to section 248 of 
the National Housing Act (12 U.S.C. 1715z-13), notwithstanding otherwise 
applicable requirements related to marketability of title, if the 
mortgage meets the requirements of this subpart as modified by this 
section and is made by an Indian Tribe or on a leasehold estate, by an 
Indian who will occupy it as a principal residence. Mortgage insurance 
on cooperative shares is not authorized under this section.
    (a) Exemptions. (1) The provisions of subparts I, J, and M of part 
200, and Sec.  203.30, shall not apply to approval of mortgagors for 
mortgages insured under this section if the Indian tribe to which the 
prospective mortgagor belongs is subject to the Indian Civil Rights Act.
    (2) In the case of an Indian tribe which is not subject to the 
Indian Civil Rights Act, the authorities cited in paragraph (a)(1) of 
this section shall apply, but any preference in the tribe's approval of 
the sale or assumption of a lease and mortgage under this section in 
favor of an eligible Indian over a non-Indian shall not be considered to 
be a violation of subpart I, J or M.
    (b) Eviction procedures. Before HUD will insure a mortgage on Indian 
land, the tribe having jurisdiction over such property must certify to 
the HUD Field Office that it has adopted and will enforce procedures for 
eviction of defaulted mortgagors where the insured mortgage has been 
foreclosed.
    (c) Approval of lease and mortgage. The lease must be on a form 
prescribed by HUD.

[[Page 177]]

    The mortgage must be on a form which meets the requirements of Sec.  
203.17(a)(2). Before HUD will insure any mortgage under this section, 
the mortgagee must demonstrate that the Bureau of Indian Affairs, U.S. 
Department of Interior, has approved both the lease and mortgage.
    (d) Construction advances. The Commissioner may issue a commitment 
for the insurance of advances made during construction and a Direct 
Endorsement mortgagee may request insurance of a mortgage that will 
involve the insurance of advances made during construction. The 
Commissioner will insure advances made by the mortgagee during 
construction if all of the following conditions are satisfied:
    (1) The mortgage shall be a first lien on the leasehold;
    (2) The mortgagor and the mortgagee execute a building loan 
agreement, approved by the Commissioner, setting forth the terms and 
conditions under which advances will be made;
    (3) The advances are made only as provided in the commitment or the 
approval by the Direct Endorsement underwriter;
    (4) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement;
    (5) The mortgage shall bear interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor; and
    (6) The Secretary had determined that no feasible financing 
alternative is available.
    (e) Assumption or sale of leasehold. The form of lease must contain 
a provision requiring tribal consent before any assumption of an 
existing lease, except where title to the leasehold interest is obtained 
by the Secretary through foreclosure of the insured mortgage. A 
mortgagee other than the Secretary must obtain tribal consent before 
obtaining title through a foreclosure sale. Tribal consent must be 
obtained on any subsequent transfer from the purchaser, including the 
Secretary, at foreclosure sale. The lease may not be terminated by the 
lessor without HUD's approval while the mortgage is insured or held by 
the Secretary.
    (f) First lien. The first lien requirement under this part is 
implemented where the mortgage is filed in the State recording system 
and is a first lien under that system, even though the leasehold 
interest securing the mortgage is located on Indian land and filed with 
Bureau of Indian Affairs, U.S. Department of the Interior. Any tribal 
government whose courts have jurisdiction to hear foreclosures must 
also:
    (1) Enact a law satisfactory to the Commissioner providing for the 
satisfaction of FHA-insured and Secretary-held mortgages before other 
obligations (other than tribal leasehold taxes against the property 
assessed after the property is mortgaged) are satisfied; or
    (2) Enact a law providing that State law shall determine the 
priority of liens against the property.
    (g) Definitions. As used in this section and elsewhere in this part, 
the term:
    (1) Indian means and individual member of any Indian tribe and that 
member's family.
    (2) Indian land means trust or otherwise restricted land (i) as 
defined by the Secretary of the Interior, over which an Indian tribe is 
recognized by the United States as having governmental jurisdiction; 
(ii) held in trust for the benefit of any Indian tribe or individual or 
held by any Indian tribe or individual subject to a restriction by the 
United States against alienation; or (iii) acquired by Alaska natives 
under the Alaska Native Claims Settlement Act or any other land acquired 
by Alaska natives pursuant to statute by virtue of their unique status 
as Alaska natives.
    (3) Indian tribe means any Indian or Alaska native tribe, band, 
nation, or other organized group or community of Indians or Alaskan 
natives recognized as eligible for the services provided to Indians or 
Alaska natives by the Secretary of the Interior because of its status as 
such an entity, or that is an eligible recipient under chapter 67 of 
title 31, United States Code. For purposes of engaging in section 248 
insured

[[Page 178]]

mortgage transactions under this section, an Indian tribe may act 
through its duly authorized representative.

(Approved by the Office of Management and Budget under control number 
2502-0340)

[51 FR 21871, June 16, 1986, as amended at 53 FR 34282, Sept. 6, 1988; 
57 FR 58347, Dec. 9, 1992; 61 FR 36264, July 9, 1996]



Sec.  203.43i  Eligibility of mortgages on Hawaiian Home Lands insured
pursuant to section 247 of the National Housing Act.

    (a) Eligibility. A mortgage on a homestead lease granted by the 
Department of Hawaiian Home Lands covering a one- to four-family 
residence located on Hawaiian home lands is eligible for insurance 
pursuant to section 247 of the National Housing Act (12 U.S.C. 1715z-12) 
if the mortgagor is a native Hawaiian who will occupy it as a principal 
residence, and if the mortgage meets the requirements of this subpart as 
modified by this section. Mortgage insurance on cooperative shares under 
Sec.  203.43c on homes in federally impacted areas under Sec.  203.43e 
is not authorized under this section.
    (b) Exemptions from other regulations. The provisions of subparts I, 
J, and M of part 200, and Sec.  203.30, to the extent that these 
provisions would otherwise prohibit preferences in favor of Native 
Hawaiians in the leasing, sale or other disposition of Hawaiian home 
lands, do not apply to mortgages insured pursuant to section 247 of the 
National Housing Act. The first lien requirement contained in Sec.  
203.17 also does not apply to mortgages insured pursuant to section 247 
of the National Housing Act.
    (c) Definitions. (1) Department of Hawaiian Home Lands (DHHL) is a 
Department of the State of Hawaii responsible for management of Hawaiian 
home lands for the benefit of native Hawaiians.
    (2) Hawaiian home lands means all lands given the status of Hawaiian 
home lands under section 204 of the Hawaiian Homes Commission Act of 
1920 (42 Stat. 110), or under the corresponding provision of the 
Constitution of the State of Hawaii adopted under section 4 of the Act 
entitled ``An Act to provide for the admission of the State of Hawaii 
into the Union,'' approved March 18, 1959 (73 Stat. 5).
    (3) Native Hawaiian means any descendant of not less than one-half 
part of the blood of the races inhabiting the Hawaiian islands before 
January 1, 1778, or, in the case of an individual who is awarded an 
interest in a lease of Hawaiian home lands through transfer or 
succession, such lower percentage as may be established for such 
transfer or succession under section 208 or 209 of the Hawaiian Homes 
Commission Act of 1920 (42 Stat.111), or under the corresponding 
provision of the Constitution of the State of Hawaii adopted under 
section 4 of the Act entitled ``An Act to provide for the admission of 
the State of Hawaii into the Union,'' approved March 18, 1959 (73 Stat. 
5).
    (d) Conditions for insurance. Mortgages will be eligible for 
insurance under this section, according to the procedures in Sec. Sec.  
203.5, 203.6, or 203.7 (as applicable), only where the Department of 
Hawaiian Home Lands:
    (1) Will be a comortgagor;
    (2) Guarantees or reimburse the Secretary for any mortgage insurance 
claim paid in connection with a property on Hawaiian home lands; or
    (3) Offers other security acceptable to the Secretary.
    (e) Acceptable security. Any agreement by the Secretary to accept 
alternative security under paragraph (d)(3) of this section must contain 
provisions designed to ensure that the insurance of mortgages under this 
section has a neutral impact on the appropriate insurance funds. These 
provisions may require the Department of Hawaiian Home Lands to make an 
initial deposit of funds with HUD and to maintain additional funds in 
reserve for subsequent deposits with HUD. The initial and subsequent 
deposits shall be used to pay obligations incurred by HUD in connection 
with the insurance of mortgages under this section and any associated 
costs, including refunds of insurance premiums to mortgagors. If the 
Department of Hawaiian Home Lands agrees to make deposits in amounts 
acceptable to HUD, then the Secretary may agree to use a portion of the 
premiums received for insurance of mortgages under this section solely 
for payment of such obligations and associated costs.

[[Page 179]]

    (f) Recordation. The mortgagee must certify that the mortgage has 
been recorded with the Department of Hawaiian Home Lands.
    (g) Construction advances. Advances made by the mortgagee during 
construction are eligible for insurance, according to the procedures in 
Sec. Sec.  203.5, 203.6, or 203.7 (as applicable), if the Secretary 
determines that no feasible financing alternative is available and if:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by the Secretary, setting forth the terms and 
conditions under which advances will be made;
    (2) The advances are made only as provided in the commitment or the 
approval by the Direct Endorsement or Lender Insurance underwriter;
    (3) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement; and
    (4) The mortgage bears interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor.
    (h) Form of lease. The form of lease must be approved by both HUD 
and the Department of Hawaiian Home Lands (DHHL). The lease may not be 
terminated by DHHL without the approval of the Secretary while the 
mortgage is insured or held by the Secretary.
    (i) Eligibility of mortgagor. In addition to the eligibility 
requirements contained in this subpart, possession of a lease of 
Hawaiian home lands issued under section 207(a) of the Hawaiian Homes 
Commission Act of 1920 (42 Stat.110) that has been certified by the 
Department of Hawaiian Home Lands as being valid, current, and not in 
default, shall be sufficient to certify eligibility to receive a 
mortgage to be insured under this section.

(Approved by the Office of Management and Budget under control number 
2502-0358)

[52 FR 8067, Mar. 16, 1987, and 52 FR 28470, July 30, 1987, as amended 
at 53 FR 8881, Mar. 18, 1988; 53 FR 34282, Sept. 6, 1988; 57 FR 58347, 
Dec. 9, 1992; 61 FR 36264, July 9, 1996; 62 FR 30226, June 2, 1997; 69 
FR 33525, June 15, 2004]



Sec.  203.43j  Eligibility of mortgages on Allegany Reservation of
Seneca Nation of Indians.

    A mortgage on a leasehold estate covering a one- to four-family 
residence located on the Allegany Reservation of the Seneca Nation of 
Indians in the State of New York is eligible for insurance if the 
mortgage meets the requirements of this subpart as modified by this 
section.
    (a) Title. This section applies only to a mortgage which:
    (1) Does not meet the requirements of Sec.  203.37;
    (2) Is on a leasehold under a lease with a termination date in 
February 1991, which provides for renewal in accordance with the Act of 
February 19, 1875 (18 Stat. 330) and the Act of September 30, 1890 (26 
Stat. 558).

A mortgage may not be on a leasehold created by a lease which is 
executed after the effective date of this section as a renewal or 
replacement of a lease described in paragraph (a)(2) of this section. A 
mortgage may not be secured by any other right of occupancy created in 
lieu of a leasehold after the effective date of this section by 
agreement of the Seneca Nation, court order, law or any other means.
    (b) Provisions of mortgage. The Secretary will prescribe special 
mortgage provisions in the form of a mortgage rider in order better to 
secure the mortgagee, including:
    (1) Authorization for the mortgagee to exercise the option of lease 
renewal if the mortgagor fails to do so, and to recover from the 
mortgagor authorized expenses incurred to obtain lease renewal; and
    (2) Making a mortgagor failure to take steps necessary for less 
renewal an event of default under the mortgage.
    (c) Secretary agreement with mortgagor. The mortgagor must enter 
into an agreement with the Secretary and such other parties as the 
Secretary may require regarding actions to be taken to obtain either a 
renewal of the lease or a new lease.
    (d) Certification. The borrower must certify that it has received 
disclosures, in a form prescribed by the Secretary, explaining the 
status of the lease and the consequences of nonrenewal. The

[[Page 180]]

disclosure shall include a discussion of the fact that a mortgagor who 
does not obtain a lease renewal and loses the right of occupancy will 
remain liable for the outstanding balance of the mortgage.
    (e) Purchase for principal residence. The mortgagor must be a 
purchaser who intends to occupy the property as a principal residence 
(as defined in Sec.  203.18(f)(1)), or a current owner-occupant 
refinancing a mortgage which is now due or which will become due before 
the lease termination date in February 1991.
    (f) Relationship of income to housing expense. For purposes of Sec.  
203.33(a), the total prospective housing expense shall include the 
Secretary's estimate of future lease payments during the term of the 
mortgage rather than lease payments in effect at the time of 
application.
    (g) Suspension of commitments. The Secretary may suspend the 
issuance of commitments to insure mortgages under this section, for the 
entire period during which commitments could otherwise be issued for 
insurance under this section (i.e., through February 18, 1991) or for 
such lesser period as the Secretary may specify, by providing thirty 
days notice of suspension in the Federal Register. Regardless of its 
duration, a suspension to be imposed prior to February 19, 1990, will be 
based on a determination by the Secretary that, for mortgages insured 
during a specified period, the rate of monetary defaults (as measured by 
90 day delinquencies) for mortgages insured under this section exceeds 
the rate of such monetary defaults for all insured mortgages on one- to 
four-family properties in the State of New York. A suspension to be 
imposed after February 18, 1990, will be based on a consideration by the 
Secretary of the probable costs to the Special Risk Insurance Fund of 
further commitments to insure under this section, as measured by such 
factors as the current and projected rate and amount of claims payments, 
together with other significant current and projected costs as 
determined by the Secretary, including a review of the actual and 
projected monetary default rate (as measured by 90 day delinquencies) 
and the actual and projected rate of lease renewal through negotiation 
and arbitration.

[52 FR 48201, Dec. 21, 1987, and 53 FR 9869, Mar. 28, 1988, as amended 
at 54 FR 32970, Aug. 11, 1989; 55 FR 34805, Aug. 24, 1990]



Sec.  203.44  Eligibility of advances.

    Mortgagees may not make open-end advances under section 225 of the 
National Housing Act (12 U.S.C. 1715p) in connection with the mortgages 
insured under this chapter.

[61 FR 36264, July 9, 1996]



Sec.  203.45  Eligibility of graduated payment mortgages.

    A mortgage containing provisions for varying rates of amortization 
corresponding to anticipated variations in family income shall be 
eligible for insurance under this subpart subject to compliance with the 
additional requirements of this section.
    (a) The mortgage may provide that any interest which accrues and 
which is unpaid pursuant to a financing plan approved by the Secretary, 
shall be added to the principal obligation of the mortgage.
    (b) The mortgage shall bear interest at the rate agreed upon by the 
mortgagee and the mortgagor.
    (c) The mortgage amount shall not exceed the lesser of:
    (1) The limits prescribed by Sec. Sec.  203.18, 203.18a, and 203.29; 
or,
    (2) An amount which, when added to all accrued mortgage interest 
which will be unpaid under a financing plan approved by the Secretary, 
shall not exceed 97 percent of the appraised value of the property 
covered by the mortgage as of the date the mortgage is accepted for 
insurance. However, if the mortgagor is a veteran, the mortgage amount, 
when added to all accrued mortgage interest which will be unpaid under a 
financing plan approved by the Secretary, shall not exceed the 
applicable limits prescribed for veterans in Sec.  203.18(a).
    (d) The mortgage must contain complete amortization provisions 
satisfactory to the Secretary requiring monthly payments by the 
mortgagor not in excess of his reasonable ability to pay as determined 
by the Secretary. The sum of the payments to principal and/

[[Page 181]]

or interest may increase annually for a period of five years at a rate 
of 2\1/2\ percent, 5 percent or 7\1/2\ percent or for a period of ten 
years at a rate of 2 percent or 3 percent. Any required increase in 
payments shall occur on the anniversary date of the beginning of 
amortization. On the termination of the period of annual increases of 
payments, the sum of the payments to principal and interest in each 
month shall be substantially the same.
    (e) The mortgagee shall fully explain to the mortgagor the nature of 
the obligation undertaken and the mortgagor shall certify that he or she 
fully understands the obligation.
    (f) Sections 203.21 and 203.44 shall not apply to this section.
    (g) This section applies only to mortgagors who are to occupy the 
dwelling as a principal residence (as defined in Sec.  203.18(f)(1)). It 
does not apply to a mortgage that meets the requirements of Sec. Sec.  
203.18(a)(4), 203.18 (c) through (e), 203.43, 203.43a, 203.43j, or 
203.49.
    (h) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 245 of the National 
Housing Act.

[41 FR 42949, Sept. 29, 1976, as amended at 45 FR 33966, May 21, 1980; 
45 FR 56341, Aug. 24, 1980; 49 FR 19453, 19458, May 8, 1984; 49 FR 
23584, June 6, 1984; 52 FR 48201, Dec. 21, 1987; 53 FR 8881, Mar. 18, 
1988; 53 FR 9869, Mar. 28, 1988; 55 FR 34805, Aug. 24, 1990; 58 FR 
41003, July 30, 1993]



Sec.  203.47  Eligibility of growing equity mortgages.

    A mortgage containing provisions for accelerated amortization 
corresponding to anticipated variations in family income shall be 
eligible for insurance under this subpart, subject to compliance with 
the additional requirements of this section.
    (a) The mortgage must contain complete amortization provisions, 
satisfactory to the Secretary, requiring monthly payments by the 
mortgagor not in excess of the mortgagor's reasonable ability to pay, as 
determined by the Secretary.
    (b) The mortgage must contain a provision setting forth the payments 
required for principal and interest in each year of the mortgage.
    (c) The monthly payments for principal and interest for the initial 
year, or such other initial period as the commissioner may approve, 
shall be determined on the basis of a 30-year level payment amortization 
schedule. Subsequent monthly payments for principal and interest may 
increase annually, biennially or at such other interval that is greater 
than one year, as the Commissioner may approve. The subsequent periodic 
increases may be up to five percent above the payments for principal and 
interest for the previous period.
    (d) No later than at the time that a loan application is offered to 
a prospective mortgagor, the mortgagee shall explain fully to the 
mortgagor the nature of the obligation undertaken and the mortgagor 
shall certify that he or she fully understands the obligation.
    (e) The mortgage amount shall not exceed the limits prescribed by 
Sec.  203.18, 203.18a, or 203.29.
    (f) Sections 203.21 and 203.44 shall not apply to this section.
    (g) This section shall not apply to a mortgage which meets the 
requirements of Sec.  203.43, Sec.  203.43a, or Sec.  203.49.
    (h) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 245(a) of the National 
Housing Act.

[49 FR 19453, May 8, 1984, as amended at 49 FR 23584, June 6, 1984; 53 
FR 8881, Mar. 18, 1988; 58 FR 41003, July 30, 1993]



Sec.  203.49  Eligibility of adjustable rate mortgages.

    A mortgage containing the provisions for periodic adjustments by the 
mortgagee in the effective rate of interest charged shall be eligible 
for insurance under this subpart subject to compliance with the 
additional requirements of this section. This section shall apply only 
to mortgage loans described under sections 203(b), 203(h) and 203(k) of 
the National Housing Act.
    (a) Types of mortgages insurable. The types of adjustable rate 
mortgages that are insurable are those for which the interest rate may 
be adjusted annually by the mortgagee, beginning after one, three, five, 
seven, or ten years from the date of the mortgagor's first debt service 
payment.

[[Page 182]]

    (b) Interest-rate index. Changes in the interest rate charged on an 
adjustable rate mortgage must correspond either to changes in the one-
year London Interbank Offered Rate (LIBOR) or to changes in the weekly 
average yield on U.S. Treasury securities, adjusted to a constant 
maturity of one year. Except as otherwise provided in this section, each 
change in the mortgage interest rate must correspond to the upward and 
downward change in the index.
    (c) Amortization provisions. The mortgage must contain amortization 
provisions satisfactory to the Secretary, allowing for periodic 
adjustments in the rate of interest charged corresponding to changes in 
the interest rate index.
    (d) Frequency of interest rate changes. (1) The interest rate 
adjustments must occur annually, calculated from the date of the 
mortgagor's first debt service payment, except that, for these types of 
mortgages, the first adjustment shall be no sooner or later than the 
following:
    (i) One-year adjustable rate mortgages--no sooner than 12 months or 
later than 18 months;
    (ii) Three-year adjustable rate mortgages--no sooner than 36 months 
or later than 42 months;
    (iii) Five-year adjustable rate mortgages--no sooner than 60 months 
or later than 66 months;
    (iv) Seven-year adjustable rate mortgages--no sooner than 84 months 
or later than 90 months; and
    (v) Ten-year adjustable rate mortgages--no sooner than 120 months or 
later than 126 months.
    (2) To set the new interest rate, the mortgagee will determine the 
change between the initial (i.e., base) index figure and the current 
index figure, or will add a specific margin to the current index figure. 
The initial index figure shall be the most recent figure available 
before the date of mortgage loan origination. The current index figure 
shall be the most recent index figure available 30 days before the date 
of each interest rate adjustment, except that for forward mortgages 
originated on or after January 10, 2015, 30 days shall mean 45 days.
    (e) Method of rate changes. Interest rate changes may only be 
implemented through adjustments to the mortgagor's monthly payments.
    (f) Magnitude of changes. The adjustable rate mortgage initial 
contract interest rate shall be agreed upon by the mortgagee and the 
mortgagor. The first adjustment to the contract interest rate shall take 
place in accordance with the schedule set forth under paragraph (d) of 
this section. Thereafter, for all adjustable rate mortgages, the 
adjustment shall be made annually and shall occur on the anniversary 
date of the first adjustment, subject to the following conditions and 
limitations:
    (1) For one- and three-year adjustable rate mortgages, no single 
adjustment to the interest rate shall result in a change in either 
direction of more than one percentage point from the interest rate in 
effect for the period immediately preceding that adjustment. Index 
changes in excess of one percentage point may not be carried over for 
inclusion in an adjustment for a subsequent year. Adjustments in the 
effective rate of interest over the entire term of the mortgage may not 
result in a change in either direction of more than five percentage 
points from the initial contract interest rate.
    (2) For five-, seven-, and ten-year adjustable rate mortgages, no 
single adjustment to the interest rate shall result in a change in 
either direction of more than two percentage points from the interest 
rate in effect for the period immediately preceding that adjustment. 
Index changes in excess of two percentage points may not be carried over 
for inclusion in an adjustment in a subsequent year. Adjustments in the 
effective rate of interest over the entire term of the mortgage may not 
result in a change in either direction of more than six percentage 
points from the initial contract rate.
    (3) At each adjustment date, changes in the index interest rate, 
whether increases or decreases, must be translated into the adjusted 
mortgage interest rate, except that the mortgage may provide for minimum 
interest rate change limitations and for minimum increments of interest 
rate changes.
    (g) Pre-Loan Disclosure. The mortgagee is required to make available 
to the mortgagor, at the time of loan application, a written explanation 
of the

[[Page 183]]

features of an adjustable rate mortgage consistent with the disclosure 
requirements applicable to variable rate mortgages secured by a 
principal dwelling under the Truth in Lending Act, 15 U.S.C. 1601 et 
seq.
    (h) Disclosures. The mortgagee of an adjustable rate mortgage shall 
provide mortgagors with the disclosures in the timing, content, and 
format required by the regulations implementing the Truth in Lending Act 
(15 U.S.C. 1601 et seq.) at 12 CFR 1026.20(c) and (d).
    (i) Cross-reference. Sections 203.21 (level payment amortization 
provisions) and 203.44 (open-end advances) do not apply to this section. 
This section does not apply to a mortgage that meets the requirements of 
Sec. Sec.  203.18(a)(4) (mortgagors of secondary residences), 203.18(c) 
(eligible non-occupant mortgagors), 203.18(d) (outlying area 
properties), 203.43 (miscellaneous type mortgages), 203.43c (mortgages 
involving a dwelling unit in a cooperative housing development), 203.43d 
(mortgages in certain communities), 203.43e (mortgages covering houses 
in federally impacted areas), 203.45 (graduated payment mortgages), or 
203.47 (growing equity mortgages).
    (j) Aggregate amount of mortgages insured. The aggregate number of 
adjustable rate mortgages insured pursuant to this section and 24 CFR 
part 234 in any fiscal year may not exceed 30 percent of the aggregate 
number of mortgages and loans insured by the Secretary under Title II of 
the National Housing Act during the preceding fiscal year.
    (k) Insurance authority. Mortgages complying with the requirements 
ofthis section shall be insured under this subpart pursuant to section 
251 of the National Housing Act.

[49 FR 23584, June 6, 1984, as amended at 53 FR 8881, Mar. 18, 1988; 54 
FR 111, Jan. 4, 1989; 55 FR 34805, Aug. 24, 1990; 61 FR 36264, July 9, 
1996; 69 FR 11501, Mar. 10, 2004; 70 FR 16082, Mar. 29, 2005; 72 FR 
40050, July 20, 2007; 79 FR 50840, Aug. 26, 2014]



Sec.  203.50  Eligibility of rehabilitation loans.

    A rehabilitation loan which meets the requirements of this subpart, 
except as modified by this section, shall be eligible for insurance 
under section 203(k) of the National Housing Act.
    (a) For the purpose of this section:
    (1) The term rehabilitation loan means a loan, advance of credit, or 
purchase of an obligation representing a loan or advancement of credit, 
made for the purpose of financing:
    (i) The rehabilitation of an existing one-to-four unit structure 
which will be used primarily for residential purposes;
    (ii) The rehabilitation of such a structure and refinancing of the 
outstanding indebtedness on such structure and the real property on 
which the structure is located; or
    (iii) The rehabilitation of such a structure and the purchase of the 
structure and the real property on which it is located; and
    (2) The term rehabilitation means the improvement (including 
improvements designed to meet cost-effective energy conservation 
standards prescribed by the Secretary and improvements for accessibility 
to the handicapped) or repair of a structure, or facilities in 
connection with a structure, and may include the provision of such 
sanitary or other facilities as are required by applicable codes, a 
community development plan, or a statewide property insurance plan to be 
provided by the owner or tenant of the project.
    (b) The provisions of Sec.  203.18 (except as otherwise provided in 
paragraphs (f) (1) and (2) of this section) and Sec.  203.43c shall not 
apply to loans insured under this section.
    (c) The loan shall cover a dwelling which was completed more than 
one year preceding the date of the application for mortgage insurance 
and which was approved for mortgage insurance prior to the beginning of 
rehabilitation.
    (d)(1) The buildings on the mortgaged property must, upon completion 
of rehabilitation, conform with standards prescribed by the Secretary.
    (2) Improvements or repairs made under this section must be designed 
to meet cost-effective energy conservation standards prescribed by the 
Secretary.
    (e) The loan transaction shall be an acceptable risk as determined 
by the Commissioner.

[[Page 184]]

    (f) The loan may not exceed an amount which, when added to any 
outstanding indebtedness of the borrower that is secured by the 
property, creates an outstanding indebtedness in excess of the lesser 
of:
    (1)(i) The limits prescribed in Sec. Sec.  203.18(a) (1) and (3) (in 
the case of a dwelling to be occupied as a principal residence, as 
defined in Sec.  203.18(f)(1)); (ii) the limits prescribed in Sec. Sec.  
203.18(a) (1) and (4) (in the case of a dwelling to be occupied as a 
secondary residence, as defined in Sec.  203.18(f)(2)); (iii) 85 percent 
of the limits prescribed in Sec.  203.18(c), or such higher limit, not 
to exceed the limits set forth in Sec. Sec.  203.18(a) (1) and (3), as 
the Secretary may prescribe (in the case of an eligible non-occupant 
mortgagor as defined in Sec.  203.18(f)(3)); (iv) the limits prescribed 
in Sec.  203.18a, based upon the sum of the estimated cost of 
rehabilitation and the Commissioner's estimate of the value of the 
property before rehabilitation; or
    (2) The limits prescribed in the authorities listed in this 
paragraph (f), based upon 110 percent of the Commissioner's estimate of 
the value of the property after rehabilitation.
    (g) The loan limitation prescribed by paragraph (f)(2) of this 
section shall not be applicable where a unit of local government 
demonstrates to the satisfaction of the Commissioner that:
    (1) The property is located within an area which is subject to a 
community sponsored program of concentrated redevelopment or 
revitalization, and,
    (2) The loan limitation prescribed by paragraph (f)(2) of this 
section, prevents the utilization of the program to accomplish 
rehabilitation in the subject area, and,
    (3) The interests of the mortgagor and the Commissioner are 
adequately protected.
    (h) Insurance may be available for advances made during 
rehabilitation or upon completion of rehabilitation, according to the 
procedures in Sec.  203.5, 203.6, or 203.7 (as applicable).
    (i) Rehabilitation loans which do not involve the insurance of 
advances, the refinancing of outstanding indebtedness or the purchase of 
the property need not be a first lien on the property but shall not be 
junior to any lien other than a first mortgage. The provisions of 
Sec. Sec.  203.15, 203.19, 203.23, 203.24, 203.26, and 203.43j shall not 
be applicable to such loans.
    (j) The Commissioner may insure advances made by the mortgagee 
during rehabilitation if the following conditions are satisfied:
    (1) The mortgage shall be a first lien on the property.
    (2) The mortgagor and the mortgagee shall execute a rehabilitation 
loan agreement, approved by the Commissioner, setting forth the terms 
and conditions under which advances will be made.
    (3) The advances shall be made as provided in the reliabilitation 
loan agreement.
    (4) The principal amount of the mortgage shall be held by the 
mortgagee in an interest bearing account, trust, or escrow for the 
benefit of the mortgagor pending advancement to the mortgagor or his 
creditors as provided in the rehabilitation loan agreement.
    (5) The loan shall bear interest at the rate prescribed in Sec.  
203.20 on the amount advanced to the mortgagor or its creditors, and the 
amount held in an account or trust for the benefit of the mortgagor.
    (6) If paragraph (k) of this section applies, the rehabilitation 
loan agreement shall restrict advancement to the mortgagor, or to 
creditors other than the mortgagee, so that any loan proceeds in excess 
of the 85 percent set forth in paragraph (f)(1)(iii) of this section 
shall not be advanced until the property is sold to a purchaser 
described in paragraph (k)(2) of this section.
    (k) In the case of a dwelling (1) to be occupied neither as a 
principal residence nor as a secondary residence and (2) where the loan 
is approved for a limit higher than the 85 percent set forth in 
paragraph (f)(1)(iii) of this section, the eligible non-occupant 
mortgagor (as defined in Sec.  203.18(f)(3)) shall certify to the 
Commissioner that:
    (1) The mortgagor will not rent (except for a rental term of not 
less than 30 days and not more than 60 days), sell (except where the 
insured mortgage is paid in full as an incident of the sale), or occupy 
the property before a due date approved by the Commissioner,

[[Page 185]]

except with the prior written approval of the Commissioner;
    (2) The mortgagor agrees that, if the property is not sold before a 
due date approved by the Commissioner to a purchaser, acceptable to the 
Commissioner, who will occupy the property, assume personal liability, 
and agree to pay the mortgage indebtedness, any amount held in escrow, 
trust, or special account under paragraph (j) of this section will be 
applied in reduction of the outstanding principal amount of the mortgage 
as of the due date approved by the Commissioner;
    (3) The mortgagee agrees that any portion of the fund held in 
escrow, trust, or special account, not applied to the mortgage in 
accordance with the provisions of this paragraph (k), shall be deducted 
from the amount of the insurance benefits to which the mortgagee would 
otherwise be entitled if a claim for insurance benefits is filed.
    (l) Rehabilitation loan consultants. HUD maintains a list of 
qualified consultants, in accordance with Sec. Sec.  200.190 through 
200.193 of this title. When the borrower elects to use the services of a 
consultant, the lender must select a consultant on the list to perform 
one or more of the following tasks:
    (1) Conduct a preliminary feasibility analysis before or after the 
submission of a sales contract;
    (2) Prepare the cost estimate, work write-up, and architectural 
exhibits required for the rehabilitation of the property;
    (3) Conduct a plan review; and
    (4) Conduct the draw inspections for the release of funds during the 
construction phase of the project.
    (m) With regard to loans under this section executed on or after 
December 27, 2005, the Commissioner shall charge an up-front and annual 
MIP in accordance with 24 CFR 203.284 or 203.285, whichever is 
applicable.

[45 FR 33966, May 21, 1980, as amended at 45 FR 76378, Nov. 18, 1980; 50 
FR 19926, May 13, 1985; 52 FR 48201, Dec. 21, 1987; 53 FR 8881, Mar. 18, 
1988; 53 FR 9869, Mar. 28, 1988; 55 FR 34806, Aug. 24, 1990; 57 FR 
58347, Dec. 9, 1992; 58 FR 41003, July 30, 1993; 59 FR 13882, Mar. 24, 
1994; 62 FR 30226, June 2, 1997; 67 FR 52381, Aug. 9, 2002; 70 FR 37156, 
June 28, 2005]



Sec.  203.51  Applicability.

    The provisions of Sec. Sec.  203.18 (a), (c), (d), (e)(1), and (f); 
Sec.  203.29(c); Sec.  203.31; Sec.  203.43(c); 203.43(k); Sec.  
203.43c(g); Sec.  203.43d(a), Sec.  203.43g(a)(1); Sec.  203.43j(e); 
Sec.  203.45(g); Sec.  203.49(h); Sec.  203.50(f); and Sec.  203.50(k) 
of this subpart apply to mortgages insured:
    (1) Pursuant to a conditional commitment or master conditional 
commitment issued on or after September 24, 1990; or
    (2) In accordance with the Direct Endorsement program, if the 
underwriter of the mortgagee signs the appraisal report or master 
appraisal report for the property on or after September 24, 1990; or
    (3) Pursuant to a certificate of reasonable value or master 
certificate of reasonable value issued by the Department of Veterans 
Affairs on or after September 24, 1990.

[55 FR 34806, Aug. 24, 1990, as amended at 57 FR 58347, Dec. 9, 1992; 61 
FR 36453, July 10, 1996]



Sec.  203.52  Acceptance of individual residential water purification equipment.

    If a property otherwise eligible for insurance under this part does 
not have access to a continuing supply of safe and potable water without 
the use of a water purification system, the requirements of this section 
must be complied with as a condition to acceptance of the mortgage for 
insurance. The mortgagee must provide appropriate documentation with the 
submission for insurance endorsement to address each of the requirements 
of this section.
    (a) Equipment. Water purification equipment must be approved by a 
nationally recognized testing laboratory acceptable to the local or 
state health authority.
    (b) Certification by local (or state) health authority. A local (or 
state) health authority certification must be submitted to HUD which 
certifies that:
    (1) A point-of-entry or point-of-use water purification system is 
currently in operation on the property. If the system in operation 
employs point-of-use equipment, the purification system must be employed 
on each water supply source (faucet) serving the property. Where point-
of-entry systems are

[[Page 186]]

used, separate water supply systems carrying untreated water for 
flushing toilets may be constructed.
    (2) The system is sufficient to assure an uninterrupted supply of 
safe and potable water adequate to meet household needs.
    (3) The water supply, when treated by the equipment, meets the 
requirements of the local (or state) health authority, and has been 
determined to meet local or state quality standards for drinking water. 
If neither state nor local standards are applicable, then quality shall 
be determined in accordance with standards set by the Environmental 
Protection Agency (EPA) pursuant to the Safe Drinking Water Act. (EPA 
standards are prescribed in the National Primary Drinking Water 
requirements, 40 CFR parts 141 and 142.)
    (4) There exists a Plan providing for the monitoring, servicing, 
maintenance, and replacement of the water equipment, which Plan meets 
the requirements of paragraph (f) of this section.
    (c) Mortgagor notice and certification. (1) The prospective 
mortgagor must have received written notification, before the mortgagor 
signed a sales contract, that the property has a hazardous water supply 
that requires treatment in order to remain safe and acceptable for human 
consumption. The notification to the mortgagor must identify specific 
contaminants in the water supply serving the property, and the related 
health hazard arising from the presence of those contaminants.
    (2) The mortgagor must have received, with the notification 
described in paragraph (c)(1) of this section, a written good faith 
estimate of the maintenance and replacement costs of the equipment 
necessary to assure continuing safe drinking water.
    (3) A copy of the notification statement (including cost estimates), 
dated before the date of the sales contract, and signed by the 
prospective mortgagor to acknowledge its receipt, must accompany the 
submission for insurance endorsement. If a sales contract is signed in 
advance of the disclosure required by this paragraph, another sales 
contract must be executed after the information is provided to the 
prospective mortgagor and he or she has acknowledged receipt of the 
disclosure.
    (4) The prospective mortgagor must sign a certification, 
substantially in the form set out in this paragraph (c)(4), at the time 
the application for mortgage credit approval is signed. This 
certification must be submitted to HUD:

    Mortgagor's Certificate. I hereby acknowledge and understand that 
the home I am purchasing has a water purification system which I am 
responsible for maintaining.
    I undertstand that the individual water supply is unsafe for 
consumption unless the system is operating properly. I am aware that if 
I do not properly maintain the system, the water supply will not be 
purified or treated properly, thereby rendering the water supply unsafe 
for consumption.
    I also understand that the Department of Housing and Urban 
Development does not warrant the condition of the property, will not 
give me any money for repairs to the water purification system, and has 
relied upon the local (or state) health authority to assure that the 
water supply, when processed by properly maintained equipment, is 
acceptable for human use and consumption.
________________________________________________________________________
[Mortgagor's signature and date]

    (d) Service contract. Before mortgage closing, the mortgagor must 
enter into a service contract with an organization or individual 
specifically approved by the local (or state) health authority to carry 
out the provisions of the required Plan for servicing, maintenance, 
repair and replacement of the water purification equipment. A copy of 
the signed service contract must be provided to HUD.
    (e) Escrow for maintenance and replacement. The mortgagee must 
establish and maintain an escrow account which provides for the 
accumulation of funds paid with the mortgagor's monthly mortgage payment 
adequate to assure proper servicing, maintenance, repair and replacement 
of the water purification equipment. The amount to be collected and 
escrowed by the mortgagee shall be based upon information provided by 
the manufacturer for the maintenance and replacement of the water 
purification equipment and for other charges anticipated by the service 
contractor. The initial monthly escrow amount shall be stated in the 
Plan. Disbursements from the

[[Page 187]]

account will be limited to costs associated with the normal servicing, 
maintenance, repair or replacement of the water purification equipment. 
Disbursements may only be made to the service contractor or its 
successor, to equipment suppliers, to the local (or state) health 
authority for the performance of testing or other required services, or 
to another entity approved by the health authority. So long as water 
purification remains necessary and the mortgage is insured by HUD, the 
mortgagee must maintain the escrow account.
    (f) Approved Plan. A Plan, in the form of a contract entered into by 
the mortgagor and mortgagee and approved by the local (or state) health 
authority, must set out conditions that must be met by the parties as a 
condition to insurance of the mortgage by HUD. To be approved by the 
health authority:
    (1) The Plan must set forth the respective responsibilities to be 
assumed by the mortgagor and the mortgagee, as well as the other 
entities who will implement the Plan, i.e., the health authority and the 
service contractor. In particular:
    (i) The Plan must set out the responsibilities of the health 
authority for monitoring and enforcing performance of the service 
contractor, including any successor contractor that the health authority 
may later have occasion to name. By its approval of the Plan, the health 
authority documents its acceptance of these responsibilities, and the 
Plan should so indicate;
    (ii) The Plan must provide for the monitoring of the operation of 
the water purification equipment, as well as for servicing (including 
disinfecting), and for repairing and replacing the system, as frequently 
as necessary, taking into consideration the system's design, anticipated 
use, and the type and level of contaminants present. Installation, 
servicing, repair and replacement of the water purification system must 
be performed by an individual or organization approved for the purpose 
by the local (or state) health authority and identified in the Plan. In 
meeting the requirements of paragraph (f)(1)(ii) of this section, the 
Plan may incorporate by reference specific terms and conditions of the 
service contract required under paragraph (d) of this section.
    (iii) Under the Plan, responsibility for monitoring the performance 
of the service contractor and for assuring that the water purification 
system is properly serviced, repaired, and replaced rests with the local 
(or state) health authority that has given its approval to the Plan. The 
Plan must confer on the health authority all powers necessary to effect 
compliance by the service contractor. The health authority's powers 
shall include the authority to notify the mortgagor of any noncompliance 
by the service contractor. The plan must provide that, upon any 
notification of noncompliance received from the health authority, the 
mortgagor shall have the right to discharge the service contractor for 
cause and to appoint a successor organization or individual as service 
contractor; and
    (iv) The Plan must provide for the mortgagor to make periodic escrow 
payments necessary for the servicing, maintenance, repair and 
replacement of the water purification system, and for the mortgagee to 
disburse funds from the escrow account as required, to the appropriate 
party or parties.
    (2) The Plan must provide that if the dwelling served by the water 
purification system is refinanced, or is sold or otherwise transferred 
with a HUD-insured mortgage, the Plan will:
    (i) Continue in full force and effect;
    (ii) Impose an obligation on the mortgagor to notify any subsequent 
purchaser or transferee of the necessity for the water purification 
system and for its proper maintenance, and of the obligation to make 
escrow payments; and
    (iii) Require the mortgagor to furnish the purchaser with a copy of 
the Plan, before any sales contract is signed.
    (g) Periodic analysis. Any Plan developed in accordance with this 
section must provide that an analysis of the water supply shall be 
obtained from the local (or state) health authority no less frequently 
than annually, but more frequently, if determined at any

[[Page 188]]

time to be necessary by the health authority or by the service 
contractor.

(Approved by the Office of Management and Budget under control number 
2502-0474)

[57 FR 9609, Mar. 19, 1992; 57 FR 27927, June 23, 1992]

                Insured Ten-Year Protection Plans (Plan)

    Source: Sections 203.200 through 203.209 appear at 55 FR 41021, Oct. 
5, 1990, unless otherwise noted.



Sec.  203.200  Definitions.

    As used in Sec.  203.201 through Sec.  203.209, the following terms 
shall have the meaning indicated:
    Coverage contract means a warranty certificate, insurance policy, or 
other document of similar purpose (including any endorsements), 
delivered to the homeowner at the time of closing or settlement which is 
issued by a State, a builder, a warranty company, or an insurance 
company and which defines the terms and conditions under which a Plan 
will provide warranty coverage of the covered property.
    Construction deficiencies are defects (not of a structural nature) 
in a dwelling covered by an insured ten-year protection plan that are 
attributable to poor workmanship or to the use of inferior materials 
which result in the impaired functioning of the dwelling or some part 
thereof. Defects resulting from homeowner abuse or from normal wear and 
tear are not considered construction deficiencies.
    Insurance backing (or insurance backer) means the direct insurance 
or reinsurance of potential Plan obligations by one or more insurance 
companies.
    Insured ten-year protection plan or Plan means an agreement between 
a homeowner and a Plan issuer which, among other things, contains 
warranties regarding the construction and structural integrity of the 
homeowner's one- to four-family dwelling covered by an FHA-insured 
mortgage. A Plan issuer may be a State, an insurance company, a warranty 
company, a Risk Retention Group as defined in 15 U.S.C. 3901a(4)(A)-(H) 
(Supp. IV 1986), a builder, or by any other HUD-approved entity with the 
required insurance backing. A Plan must specify in its coverage contract 
the obligations and duties of the Plan issuer to the homeowner (or to 
the homeowner's successor in interest) with respect to the warranties 
covering the dwelling.
    Plumbing means all components of piped on-site gas, fluid, or fluid-
based systems that are not separately covered by manufacturers' 
warranties, and includes any on-site water supply or sewage disposal 
systems.
    State includes the several States, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, American 
Samoa, and the Virgin Islands.
    Structural defect is actual physical damage to the designated load-
bearing portions of a home caused by failure of such load-bearing 
portions that affects their load-bearing functions to the extent that 
the home becomes unsafe, unsanitary, or otherwise unlivable. Load-
bearing components for the purpose of defining structural defects are 
defined as follows: Footing and foundation systems; beams; girders; 
lintels; columns; load-bearing walls and partitions; roof framing 
systems; and floor systems, including basement slabs in homes 
constructed in designated areas (see Sec.  203.207) containing expansive 
or collapsible soils. Damage to the following nonload-bearing portions 
of the home is not considered a structural defect: Roofing; drywall and 
plaster; exterior siding; brick, stone, or stucco veneer; floor covering 
material; wall tile and other wall coverings; nonload-bearing walls and 
partitions; concrete floors in attached garages; electrical; plumbing, 
heating, cooling and ventilation systems; appliances, fixtures and items 
of equipment; paint; doors and windows; trim, cabinets, hardware, and 
insulation. Repair of a structural defect is limited to:
    (1) The repair of damage to designated load-bearing portions of the 
home which is necessary to restore their load-bearing ability;
    (2) The repair of designated non-load-bearing portions, items or 
systems of the home, damaged by the structural defect, which make the 
home unsafe, unsanitary or otherwise unlivable (such as the repair of 
inoperable windows, doors and the restoration of functionality of 
damaged electrical,

[[Page 189]]

plumbing, heating, cooling, and ventilating systems); and
    (3) The repair and cosmetic correction of only those surfaces, 
finishes and coverings, original with the home, damaged by the 
structural defect, or which require removal and replacement attendant to 
repair of the structural defect, or to repair other damage directly 
attributable to the structural defect. It is the intent of this section 
to ensure the repair of a covered home to a condition approximately the 
condition just prior to the defect, not to a like new condition. It does 
not require refinishing of all interior or exterior surfaces if only one 
or two surfaces are damaged. It does not cover personal property items, 
not a part of the structure, which are damaged by the defect or as a 
result of the defect. It excludes damage covered by a homeowner's 
casualty insurance policy.
    Warranty company is an insurance company or other entity that 
provides insurance backing for an insured ten-year protection plan 
which, if the Plan issuer fails to meet its obligations to a covered 
homeowner, will assume the obligations and perform in accordance with 
the Plan's coverage contract with the homeowner.



Sec.  203.201  Scope.

    Effective August 6, 1991, the provisions and requirements set forth 
in Sec.  203.202 through Sec.  203.209 apply to one- to four-family 
dwellings covered by HUD mortgage insurance (including family units in a 
condominium where the units are insured under subpart A of part 234 of 
this chapter).



Sec.  203.202  Plan acceptability and acceptance renewal
criteria--general.

    (a) For a Plan to be acceptable to HUD, it must assure that:
    (1) If a builder, for any reason, fails to correct structural 
defects or construction deficiencies in a property covered by an insured 
10-year protection Plan during the term of any warranty offered by the 
builder on the property, the Plan issuer will effect the corrections in 
accordance with the terms of the Plan; and
    (2) If a Plan issuer, for any reason, fails to effect correction of 
these deficiencies or defects, or otherwise fails to honor the terms of 
its coverage, its insurance backer or, if the Plan issuer is an 
insurance company, the insurance company itself, will effect the 
corrections or otherwise honor the terms of the Plan.
    (b) In evaluating applications for renewal of Plan acceptance, HUD 
will take into consideration such reliable evidence, as is made 
available to the Department, of a Plan issuer's failure to fulfill its 
obligations. Where HUD has credible evidence of a Plan issuer's failure 
to correct covered homeowner problems, or there are justifiable 
homeowner complaints about untimely problem resolution by a Plan issuer, 
HUD will consider this as cause for termination of a Plan's acceptance 
and as grounds for initiation of sanctions against a Plan issuer or 
insurance backer, in accordance with 2 CFR part 2424. If HUD proposes to 
terminate a Plan's acceptance, the issuer of the Plan will be advised of 
the reason therefore, and the procedural safeguards of 2 CFR part 2424 
will apply.
    (c) Unless renewed, Plan acceptance by HUD expires automatically on 
the second anniversary date of acceptance. The Plan issuer must apply 
for acceptance renewal at least two months, but no more than three 
months, in advance of expiration to avoid automatic acceptance 
termination. Prior acceptance of a Plan will be continued beyond the 
date of automatic acceptance termination only by a written notification 
to the Plan issuer and only if the delay is caused by a lack of timely 
HUD processing of a renewal application. HUD will not extend the 
expiration date of a prior Plan acceptance if the Plan issuer has 
negligently provided incomplete information with its renewal 
application.
    (d) After a Plan has been accepted by HUD, there shall be no change 
in, or modification to, its provisions, or in its insurance backers or 
insurance contract(s), without prior written HUD acceptance of such 
change or modification, except that changes mandated by other applicable 
laws may not require HUD's prior approval. A violation of this condition 
may be cause for termination of a Plan's acceptance, and may be grounds 
for initiation of sanctions against the Plan issuer, in accordance

[[Page 190]]

with 2 CFR part 2424. Insofar as practicable, HUD will respond to a Plan 
issuer's request for acceptance of a change within 30 days of receipt of 
the request. Plan acceptance by HUD will be for a two-year period.
    (e) Requests for initial HUD acceptance or renewal of acceptance of 
a Plan should be made to the Deputy Assistant Secretary for Single 
Family Housing, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 20410. Requests must be accompanied by 
information and documentation evidencing Plan compliance with Sec.  
203.204. Acceptability of Plans will be determined by the Deputy 
Assistant Secretary for Single Family Housing who will notify applicants 
of his or her determination. If a Plan is rejected, the applicant will 
be advised of the reason for rejection. The applicant may appeal the 
rejection to the Assistant Secretary for Housing, at the above address, 
stating specifically why the Plan should be approved. The Assistant 
Secretary (whose decision is final) will, within a reasonable time, 
advise the applicant whether the rejection will be upheld or reversed. 
Each HUD field office will be advised of Plans determined to be 
acceptable, or Plans that have been rejected.
    (f) Existing Plans will be allowed a grace period of 9 months 
commencing from November 6, 1990 to make the necessary adjustments to 
comply with the provisions and requirements of Sec.  203.200 to Sec.  
203.209.
    (g) Each Plan issuer must submit a written certification addressed 
to the Deputy Assistant Secretary for Single Family Housing, 451 Seventh 
Street, SW., Washington, DC 20410, no later than three weeks before the 
anniversary date of the Plan's acceptance by HUD, that the insurance 
company backing its Plan is still an insurance carrier approved by the 
State insurance commission (or the equivalent entity) in each 
jurisdiction in which the Plan is offered, or is still a Risk Retention 
Group meeting the criteria of Sec.  203.208 of this part.

(Approved by the Office of Management and Budget under control number 
2502-0343)

[55 FR 41021, Oct. 5, 1990, as amended at 72 FR 73495, Dec. 27, 2007]



Sec.  203.203  Issuance and nature of insured 10-year protection plans.

    (a) Plans may be issued:
    (1) By a builder, warranty company, insurance company, or Risk 
Retention Group (see 15 U.S.C. 3901a(4)(A)-(H) (Supp. IV 1986); or
    (2) By a State that guarantees the builder's performance and the 
State's continuing financial backing throughout the Plan's coverage 
period.
    (b) All Plans must have insurance backing unless backed by the full 
faith and credit of a State.
    (c)(1) Plans backed by the full faith and credit of a State must be 
in compliance with Sec.  203.200 through Sec.  203.202, Sec.  203.204 
through Sec.  203.206, and Sec.  203.209 to be acceptable to HUD. HUD 
will evaluate these Plans to ensure their compliance with these 
sections.
    (2) HUD will not accept Plans backed by a State agency or a State 
insurance guaranty fund unless HUD is assured that the full faith and 
credit of the State is pledged to satisfy any and all obligations of the 
State agency or guaranty fund that may arise in connection with its 
financial backing of a Plan.
    (d) The functions of a Plan issuer and an insurance backer may be 
performed by a single corporate entity.



Sec.  203.204  Requirements and limitations of a plan.

    In addition to complying with the criteria set out in Sec.  203.202 
and Sec.  203.205, for a Plan to be acceptable to HUD, it must meet the 
following requirements:
    (a) A Plan must assure timely resolution of homeowners' complaints 
or claims covered under Sec.  203.205. Warranties set forth in a Plan 
must comply with section 2301(a)(1)-(13) of the Magnuson-Mass Warranty-
Federal Trade Commission Improvement Act (15 U.S.C. 2301-2312) along 
with the requirements and criteria set out in this section.
    (b) The entire cost to the homeowner for Plan coverage must be 
prepaid by the builder, or the Plan issuer must give irrevocable 
coverage, at the time of settlement. In the case of optional coverage 
beyond the coverage required under Sec.  203.205, the cost for the 
optional coverage may be paid by either the builder or the homeowner.

[[Page 191]]

    (c) Unexpired Plan coverage must be automatically transferred, 
without additional cost, to subsequent homeowners.
    (d) Issued Plan coverage must be noncancellable by a Plan issuer or 
by its insurance backer(s).
    (e) Exclusions from Plan coverage must not defeat coverage 
objectives stated in Sec.  203.202 and Sec.  203.205 and must permit 
normal homeowner use of the covered property, including normal 
maintenance and emergency property protection measures.
    (f) Unless prohibited by applicable law, Plans must, at a minimum, 
stipulate that all homeowner complaints covered by a Plan, including 
those regarding construction deficiencies and structural defects claims, 
will be settled in the amount of their actual cost to correct or for the 
original sales price of the property, whichever is the lesser, subject 
to a deductible not to exceed a total of $250 for all claims filed by a 
homeowner during the first two years of coverage and not to exceed a 
maximum of $250 per claim during the third through the tenth year of 
coverage.
    (1) In the case of claims filed by a condominium association, the 
deductible is limited to $250.00 per claim for each affected unit in the 
structure, not to exceed a maximum of $5,000.00 where the claim relates 
to the same event that affected several units. Recurrent claims for 
structural defects occasioned by a common cause shall be subject to the 
payment of no more than one deductible. In addition, a Plan covering a 
condominium must provide the condominium association with an additional 
warranty that allows for claims by homeowners involving the common 
elements of the building.
    (2) A homeowner shall be liable for a deductible only if a builder 
defaults on warranty performance and the Plan issuer has to make the 
covered corrections. When the builder performs corrections under the 
builder's warranty, no deductible that may be included in the Plan is 
applicable.
    (g) In the event of any dispute regarding a homeowner complaint or 
structural defect claim, Plans must, unless prohibited by applicable 
law, provide for binding arbitration proceedings arranged through a 
nationally recognized dispute settlement organization. The sharing of 
arbitration charges shall be as determined by the Plan. A Plan must 
contain pre-arbitration conciliation provisions at no cost to the 
homeowner, and provision for judicial resolution of disputes, but 
arbitration, which must be available to a homeowner during the entire 
term of the coverage contract, must be an assured recourse for a 
dissatisfied homeowner.
    (h) Where a State has a home protection act or other statutes or 
regulations that require its approval of Plans, a Plan issuer must 
demonstrate such approval to HUD as an additional prerequisite to HUD 
acceptance.
    (i) A Plan issuer must provide homeowners an executed coverage 
contract clearly describing--
    (1) The identity of the property covered;
    (2) The time at which coverage begins;
    (3) The maximum amount of Plan liability;
    (4) Noncancellability of the coverage contract by the Plan or its 
insurance backers;
    (5) No-cost transferability of unexpired coverage to successors in 
title;
    (6) The property coverage provided;
    (7) Any exclusions from coverage;
    (8) Performance standards for resolving homeowner complaints and 
claims (if standards for complaint and claim adjustment are promulgated 
as part of a Plan);
    (9) Dispute settlement procedures;
    (10) The names, addresses, and telephone numbers of the Plan issuer 
and its insurance backers; and
    (11) When, to whom, under what conditions, and to what address 
homeowners should submit any construction deficiency complaints or 
structural defects claims.
    (j) Plans will not be required to warrant that a covered property 
complies with:
    (1) Original dwelling plans and specifications;
    (2) Applicable building codes; or
    (3) Specific terms of a homeowner's contract to purchase a property.

[55 FR 41021, Oct. 5, 1990, as amended at 61 FR 36264, July 9, 1996]

[[Page 192]]



Sec.  203.205  Plan coverage.

    (a) Plan coverage must take effect at closing or settlement 
following the initial sale of the property to the homeowner.
    (b) During the first year of coverage, a Plan must provide for a 
warranty against defects in workmanship and materials resulting from the 
failure of the covered property to comply with standards of quality as 
measured by acceptable trade practices, as well as correct the problems 
with, or restore the reliable function of, appliances and equipment 
damaged during installation or improperly installed by the builder. The 
plan must also cover structural defects as defined in Sec.  203.200.
    (c) During the first and second year of coverage, a Plan must 
provide a warranty against defects in the wiring, piping and ductwork in 
the electrical, plumbing, heating, cooling, ventilating, and mechanical 
systems.
    (d) Basement slabs in designated areas must be covered by a warranty 
in the Plan against damage from the first through the fourth year.
    (e) From the first through the tenth year, structural defect (as 
defined in Sec.  203.200), except as provided in paragraph (d) of this 
section, must be covered by a warranty in the Plan.
    (f) A Plan must provide insurance coverage for builder default on 
any warranty obligation.

The coverage described in paragraph (b) through (f) of this section is 
the minimum level of coverage that HUD will find acceptable in a Plan.



Sec.  203.206  Housing performance standards or criteria.

    A Plan may contain housing performance standards or criteria for 
resolution of homeowner claims or complaints that are fair, reasonable, 
and consistent with the intent of the Plan, including Plan coverage 
under Sec.  203.205. If a Plan contains such criteria or standards, they 
must be acceptable to the Secretary.



Sec.  203.207  Designated area.

    The Secretary may designate any part of the country as a ``high risk 
area'' where construction practices allow basement slabs to be placed on 
expansive or collapsible soil. By virtue of this authority, the 
Secretary has designated the State of Colorado as a ``high risk area.''



Sec.  203.208  Insurance backing criteria.

    An insurance company backing or operating a Plan must be duly 
licensed or approved (and with the Plan filed and approved where 
appropriate) to market such insurance coverage by the proper regulatory 
agency in each State in which the Plan will operate. Any company 
operating under the Product Liability Risk Retention Act of 1981, as 
amended, will be regarded as having met licensing, filing, and approval 
requirements of all States, but must first demonstrate that it--
    (1) Meets licensing, filing and approval requirements in its 
domiciliary State; and
    (2) Meets each of the requirements of paragraphs (A) through (H) of 
section (a)(4) of the Liability Risk Retention Act of 1986 (15 U.S.C. 
3901(a)(4) (A) through (H), (Supp. IV 1986).

(Approved by the Office of Management and Budget under control number 
2502-0343)



Sec.  203.209  Payments under a plan.

    (a) If a Plan issuer or insurance backer elects to compensate a 
homeowner for damage suffered by the homeowner's property that is 
covered under a Plan in lieu of the Plan issuer's making repairs such 
compensation must be made jointly to the mortgagee and the homeowner.
    (b) If payment is to be made to the mortgagee and homeowner, the 
Plan issuer first must receive the mortgagee's assurance in witing that 
the mortgagee is satisfied, based on a showing by the homeowner, that 
the homeowner has made a binding commitment to have the necessary 
repairs made to restore the damaged property. It a homeowner elects not 
to repair his or her damaged property, then the mortgagee must apply the 
compensation in reduction of the outstanding indebtedness of the 
mortgage.

                             Effective Date



Sec.  203.249  Effect of amendments.

    The regulations in this subpart may be amended by the Secretary at 
any

[[Page 193]]

time and from time to time, in whole or in part, but such amendment will 
not adversely affect the interests of a mortgagee under the contract of 
insurance on any mortgage or loan already insured, and will not 
adversely affect the interest of a mortgagee on any mortgage or loan to 
be insured for which either the Direct Endorsement or Lender Insurance 
mortgagee has approved the mortgagor and all terms and conditions of the 
mortgage or loan, or the Secretary has issued a firm commitment. In 
addition, such amendment will not adversely affect the eligibility of 
specific property if such property is covered by a conditional 
commitment issued by the Secretary, a certificate of reasonable value 
issued by the Secretary of Veterans Affairs, or an appraisal report 
approved by a Direct Endorsement or Lender Insurance underwriter.

[62 FR 30226, June 2, 1997]



                Subpart B_Contract Rights and Obligations

                               Definitions



Sec.  203.251  Definitions.

    As used in this subpart, the following terms shall have the meaning 
indicated:
    (a) Commissioner means the Federal Housing Commissioner or his 
authorized representative.
    (b) Act means the National Housing Act, as amended.
    (c) FHA means the Federal Housing Administration.
    (d) Mortgage is defined at Sec.  203.17(a)(1).
    (e) Mortgagor means the original borrower under a mortgage and his 
heirs, executors, administrators and assigns.
    (f) Mortgagee means the original lender under a mortgage and its 
successors and such of its assigns as are approved by the Commissioner.
    (g)-(h) [Reserved]
    (i) Insured mortgage means a mortgage which has been insured as 
evidenced by the issuance of a Mortgage Insurance Certificate or by the 
endorsement of the credit instrument for insurance by the Commissioner.
    (j) Contract of Insurance means the agreement evidenced by the 
issuance of a Mortgage Insurance Certificate or by the endorsement of 
the Commissioner upon the credit instrument given in connection with an 
insured mortgage, incorporating by reference the regulations in this 
subpart and the applicable provisions of the Act.
    (k) MIP means the mortgage insurance premium paid by the mortgagee 
to the Commissioner in consideration of the contract of insurance.
    (l)-(m) [Reserved]
    (n) Open-end advance means an insured advance made by an approved 
mortgagee in connection with a previously insured mortgage, pursuant to 
an open-end provision in the mortgage.
    (o) Open-end insurance charge means the charge paid by the mortgagee 
to the Commissioner in consideration of the insurance of an open-end 
advance.
    (p) Beginning of amortization means the date one month prior to the 
date of the first monthly payment to principal and interest.
    (q) Maturity means the date on which the mortgage indebtedness would 
be extinguished if paid in accordance with periodic payments provided 
for in the mortgage.
    (r) Debentures means registered, transferable securities in 
certificated or book entry form which are valid and binding obligations, 
issued in the name of the Mutual Mortgage Insurance Fund in accordance 
with the provisions of this part; such debentures are the primary 
liability of the Mutual Mortgage Insurance Fund and are unconditionally 
guaranteed as to principal and interest by the United States.
    (s) State includes the several States, Puerto Rico, the District of 
Columbia, Guam, the Commonwealth of the Northern Mariana Islands, 
American Samoa, and the Virgin Islands.
    (t) TOTAL is an acronym that stands for ``Technology Open to 
Approved Lenders.'' TOTAL is a mortgage scorecard based on a 
mathematical equation that is to be used within an automated 
underwriting system (AUS). TOTAL is a tool to assist the mortgagee in 
managing its workflow and expediting the endorsement process, and is not 
a substitute for the mortgagee's reasonable consideration of risk and 
credit worthiness. Direct Endorsement mortgagees

[[Page 194]]

using TOTAL remain solely responsible for the underwriting decision.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 8661, Apr. 29, 1972; 41 
FR 49734, Nov. 10, 1976; 49 FR 12697, Mar. 30, 1984; 53 FR 34282, Sept. 
6, 1988; 59 FR 49815, Sept. 30, 1994; 61 FR 36265, July 9, 1996; 68 FR 
65826, Nov. 21, 2003]

                  Endorsement and Contract of Insurance



Sec.  203.255  Insurance of mortgage.

    (a) Mortgages with firm commitments. For applications for insurance 
involving mortgages not eligible to be originated under the Direct 
Endorsement program under Sec.  203.5, or under the Lender Insurance 
program under Sec.  203.6, the Secretary will either endorse the 
mortgage for insurance by issuing a Mortgage Insurance Certificate, 
provided that the mortgagee is in compliance with the firm commitment, 
or will electronically acknowledge that the mortgage has been insured.
    (b) Endorsement with Direct Endorsement processing. For applications 
for insurance involving mortgages originated under the Direct 
Endorsement program under Sec.  203.5, the mortgagee shall submit to the 
Secretary, within 60 days after the date of closing of the loan or such 
additional time as permitted by the Secretary, properly completed 
documentation and certifications as listed in this paragraph (b):
    (1) Property appraisal upon a form meeting the requirements of the 
Secretary (including, if required, any additional documentation 
supporting the appraised value of the property under Sec.  203.37a), or 
a HUD conditional commitment (for proposed construction only), or a 
Department of Veterans Affairs certificate of reasonable value, and all 
accompanying documents required by the Secretary;
    (2) An application for insurance of the mortgage in a form 
prescribed by the Secretary;
    (3) A certified copy of the mortgage and note executed upon forms 
which meet the requirements of the Secretary;
    (4) A warranty of completion, on a form prescribed by the Secretary, 
for proposed construction cases;
    (5) An underwriter certification, on a form prescribed by the 
Secretary, stating that the underwriter has personally reviewed the 
appraisal report and credit application (including the analysis 
performed on the worksheets) and that the proposed mortgage complies 
with HUD underwriting requirements, and incorporates each of the 
underwriter certification items that apply to the mortgage submitted for 
endorsement, as set forth in the applicable handbook or similar 
publication that is distributed to all Direct Endorsement mortgagees, 
except that where the TOTAL Mortgage Scorecard is used by the mortgagee, 
and the TOTAL Mortgage Scorecard has determined that the application 
represents an acceptable risk under terms and conditions agreed to by 
the FHA, a Direct Endorsement underwriter shall not be required to 
certify that the underwriter has personally reviewed the credit 
application (including the analysis performed on any worksheets). The 
following requirements are also applicable to the use of the TOTAL 
Mortgage Scorecard:
    (i) Mortgagees and vendors must certify to compliance with these 
requirements:
    (A) Permissible users. Only automatic underwriting systems (AUSs) 
developed, operated, owned, or used by FHA-approved Direct Endorsement 
mortgagees, Fannie Mae, or Freddie Mac, may access TOTAL, and only FHA-
approved mortgagees will be able to obtain risk-assessments using TOTAL;
    (B) Limitation on use. Results from TOTAL must not be used as the 
basis for rejecting any mortgage applicant. Mortgagees must provide full 
manual underwriting for mortgage applicants when TOTAL returns a 
``refer'' risk score.
    (C) Vendor and mortgagee requirements. Both mortgagees and vendors 
must:
    (1) Use TOTAL to process FHA and other loan products specified by 
the FHA Commissioner only and for no other purpose;
    (2) Implement quality control procedures for TOTAL usage and 
provide, at FHA's request, reports and loan samples that enable FHA to 
evaluate program operation;
    (3) Not use TOTAL to direct mortgagors into other non-FHA product 
offerings (this requirement does not relieve a mortgagee from its 
obligations under

[[Page 195]]

Sec.  203.10 concerning informed consumer choice for prospective FHA 
mortgagors);
    (4) Not disassemble, decompile, reverse engineer, derive or 
otherwise reproduce any part of the source code or algorithm in TOTAL;
    (5) Not provide feedback messages that conflict with the Equal 
Credit Opportunity Act; and
    (6) Comply with any additional HUD/FHA requirements or procedures 
that are applicable to the Scorecard and may be issued through 
handbooks, mortgagee letters, TOTAL User Guides, or TOTAL Developers 
Guide following appropriate advance notification, where applicable.
    (ii) Loss of privilege to use TOTAL. Mortgagees and AUS vendors 
found to violate the requirements applicable to the use of TOTAL may 
have their access to TOTAL and all associated privileges terminated upon 
appropriate notice in accordance with the following procedure:
    (A) Notice. HUD will provide a mortgagee or vendor with a 30-day 
notice of a violation and loss of privilege. The notice will state the 
nature of the violation, the effective date of the loss of the 
privilege, and the duration of the loss of the privilege. The notice 
will become effective on the date provided in the notice, unless the 
mortgagee or vendor appeals the violation and loss of privilege in 
accordance with paragraph (b)(5)(ii)(B) of this section.
    (B) Appeal. A party receiving a notice of violation may appeal to 
the Deputy Assistant Secretary for Single Family Housing (DAS-SFH), or 
his or her designee, before the effective date of the notice by 
providing evidence to refute the violation. The loss of privilege is 
stayed until the DAS-SFH, or designee, notifies the party that the loss 
of privilege has been affirmed, rescinded, or modified.
    (6) Where applicable, a certificate under oath and contract 
regarding use of the dwelling for transient or hotel purposes;
    (7) Where applicable, a certificate of intent to occupy by military 
personnel;
    (8) Where a mortgage for an existing property is to be insured under 
section 221(d)(2) of the National Housing Act, a letter from the 
appropriate local government official that the property meets applicable 
code requirements;
    (9) Where an individual water or sewer system is being used, an 
approval letter from the local health authority indicating approval of 
the system in accordance with Sec.  200.926d(f) of this chapter;
    (10) For proposed construction if the mortgage (excluding financed 
mortgage insurance premium) exceeds a 90 percent loan to value ratio, 
evidence that the mortgagee qualifies for a higher ratio loan under one 
of the applicable provisions in the appropriate regulations;
    (11) A mortgage certification on a form prescribed by the Secretary, 
stating that the authorized representative of the mortgagee who is 
making the certification has personally reviewed the mortgage documents 
and the application for insurance endorsement, and certifying that the 
mortgage complies with the requirements of paragraph (b) of this 
section. The certification shall incorporate each of the mortgagee 
certification items that apply to the mortgage loan submitted for 
endorsement, as set forth in the applicable handbook or similar 
publication that is distributed to all Direct Endorsement mortgagees;
    (12) For a Home Equity Conversion Mortgage under part 206 of this 
chapter, the additional documents required by Sec.  206.15 of this 
chapter; and
    (13) The documentation required under Sec.  203.37a providing that:
    (i) The seller is the owner of record; and
    (ii) That more than 90 days elapsed between the date the seller 
acquired the property (based upon the date of settlement) and the date 
of execution of the sales contract that will result in the FHA mortgage 
insurance.
    (14) Such other documents as the Secretary may require.
    (c) Pre-endorsement review for Direct Endorsement. Upon submission 
by an approved mortgagee of the documents required by paragraph (b) of 
this section, the Secretary will review the documents and determine 
that:
    (1) The mortgage is executed on a form which meets the requirements 
of the Secretary;

[[Page 196]]

    (2) The mortgage maturity meets the requirements of the applicable 
program;
    (3) The stated mortgage amount does not exceed the maximum mortgage 
amount for the area as most recently announced by the Secretary, except 
for mortgages under 24 CFR part 206;
    (4) All documents required by paragraph (b) of this section are 
submitted;
    (5) All necessary certifications are made in accordance with 
paragraph (b) of this section;
    (6) There is no mortgage insurance premium, late charge or interest 
due to the Secretary; and
    (7) The mortgage was not in default when submitted for insurance or, 
if submitted for insurance more than 60 days after closing whether the 
mortgage shows an acceptable payment history.

In addition, the Secretary is authorized to determine if there is any 
information indicating that any certification or required document is 
false, misleading, or constitutes fraud or misrepresentation on the part 
of any party, or that the mortgage fails to meet a statutory or 
regulatory requirement. If, following this review, the mortgage is 
determined to be eligible, the Secretary will endorse the mortgage for 
insurance by issuance of a Mortgage Insurance Certificate. If the 
mortgage is determined to be ineligible, the Secretary will inform the 
mortgagee in writing of this determination, and include the reasons for 
the determination and any corrective actions that may be taken.
    (d) Submission by mortgagee other than originating mortgagee. If the 
originating mortgagee assigns the mortgage to another approved mortgagee 
before pre-endorsement review under paragraph (c) of this section, the 
assignee may submit the required documents for pre-endorsement review in 
the name of the originating mortgagee. All certifications must be 
executed by the originating mortgagee (or its underwriter, if 
appropriate). The purchasing mortgagee may pay any required mortgage 
insurance premium, late charge and interest.
    (e) Post-Endorsement review for Direct Endorsement. Following 
endorsement for insurance, the Secretary may review all documents 
required by paragraph (b) of this section. If, following this review, 
the Secretary determines that the mortgage does not satisfy the 
requirements of the Direct Endorsement program, the Secretary may place 
the mortgagee on Direct Endorsement probation, or terminate the 
authority of the mortgagee to participate in the Direct Endorsement 
program pursuant to Sec.  203.3(d), or refer the matter to the Mortgagee 
Review Board for action pursuant to part 25 of this title.
    (f) Lender insurance--(1)Pre-insurance review. For applications for 
insurance involving mortgages originated under the Lender Insurance 
program under Sec.  203.6, the mortgagee is responsible for performing a 
pre-insurance review that would otherwise be performed by HUD under 
Sec.  203.255(c) on the documents that would otherwise be submitted to 
HUD under Sec.  203.255(b). The mortgagee's staff that performs the pre-
insurance review must not be the same staff that originated the mortgage 
or underwrote the mortgage for insurance.
    (2) Recordkeeping. Mortgagees must maintain records, including 
origination files, in a manner and for a time period to be prescribed by 
the Assistant Secretary for Housing--Federal Housing Commissioner, and 
must make them available to authorized HUD staff upon request.
    (3) Insuring the mortgage. If, following this review, the mortgage 
is determined to be eligible, the mortgagee will electronically submit 
all required data to HUD regarding the mortgage. HUD's electronic system 
will acknowledge that the mortgage has been insured. HUD's electronic 
system may also issue a notice to the mortgagee that the mortgage has 
been selected for post-insurance technical review, and that the HUD case 
binder must be sent to the identified HUD office.
    (g) Indemnification--(1)General. By insuring the mortgage, a Lender 
Insurance mortgagee agrees to indemnify HUD, in accordance with this 
paragraph.
    (2) Definition of origination. For purposes of indemnification under 
this paragraph, the term ``origination'' means the process of creating a 
mortgage, starting with the taking of the initial application, 
continuing with the

[[Page 197]]

processing and underwriting, and ending with the mortgagee endorsing the 
mortgage note for FHA insurance.
    (3) Serious and material violation. The mortgagee shall indemnify 
HUD for an FHA insurance claim paid within 5 years of mortgage insurance 
endorsement, if the mortgagee knew or should have known of a serious and 
material violation of FHA origination requirements, such that the 
mortgage loan should not have been approved and endorsed by the 
mortgagee and irrespective of whether the violation caused the mortgage 
default. Such a serious and material violation of FHA requirements in 
the origination of the mortgage may occur if the mortgagee failed to, 
among other actions:
    (i) Verify the creditworthiness, income, and/or employment of the 
mortgagor in accordance with FHA requirements;
    (ii) Verify the assets brought by the mortgagor for payment of the 
required down payment and/or closing costs in accordance with FHA 
requirements; or
    (iii) Address property deficiencies identified in the appraisal 
affecting the health and safety of the occupants or the structural 
integrity of the property in accordance with FHA requirements, or
    (iv) Ensure that the appraisal of the property serving as security 
for the mortgage loan satisfies FHA appraisal requirements, in 
accordance with Sec.  203.5(e).
    (4) Fraud or misrepresentation. The mortgagee shall indemnify HUD 
for an insurance claim if the mortgagee knew or should have known that 
fraud or misrepresentation was involved in connection with the 
origination of the mortgage, regardless of whether the fraud or 
misrepresentation caused the mortgage default and regardless of when an 
insurance claim is filed.
    (5) Demand for indemnification. The demand for indemnification will 
be made by either the Secretary or the Mortgagee Review Board. Under 
indemnification, the Lender Insurance mortgagee agrees to either abstain 
from filing an insurance claim, or reimburse FHA if a subsequent holder 
of the mortgage files an insurance claim and FHA suffers a financial 
loss.

[57 FR 58348, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993, as amended at 60 
FR 42759, Aug. 16, 1995; 61 FR 36265, July 9, 1996; 62 FR 30227, June 2, 
1997; 63 FR 29507, May 29, 1998; 68 FR 23376, May 1, 2003; 68 FR 65827, 
Nov. 21, 2003; 69 FR 5, Jan. 2, 2004; 77 FR 3605, Jan. 25, 2012; 77 FR 
51469, Aug. 24, 2012]



Sec.  203.256  Insurance of open-end advance.

    Insurance on an open-end advance will be evidenced by delivery of a 
certificate stating the amount of the advance, the date of insurance, 
and the regulations under which the advance is insured.



Sec.  203.257  Creation of the contract.

    The mortgage shall be an insured mortgage from the date of the 
issuance of a Mortgage Insurance Certificate, from the date of the 
endorsement of the credit instrument, or from the date of HUD's 
electronic acknowledgement to the mortgagee that the mortgage is 
insured, as applicable. The Commissioner and the mortgagee are 
thereafter bound by the regulations in this subpart with the same force 
and to the same extent as if a separate contract had been executed 
relating to the insured mortgage, including the provisions of the 
regulations in this subpart and of the Act.

[62 FR 30227, June 2, 1997]



Sec.  203.258  Substitute mortgagors.

    (a) Selling mortgagor. Except as provided in paragraph (d) of this 
section, the mortgagee may effect the release of a mortgagor from 
personal liability on the mortgage note, only if it obtains the 
Commissioner's approval of a substitute mortgagor, as provided by this 
section.
    (b) Purchasing mortgagor. (1) The Commissioner may approve a 
substitute mortgagor with respect to any mortgage insured under Sec.  
203.43h or Sec.  203.43i only if the mortgagor is to occupy the dwelling 
as a principal residence (as defined in Sec.  203.18(f)(1)).
    (2) The Commissioner may approve a substitute mortgagor with respect 
to any mortgage insured under this part (except a mortgage referred to 
in paragraph (b)(1) of this section), only if the

[[Page 198]]

substitute mortgagor is to occupy the dwelling as a principal residence 
or as a secondary residence (as these terms are defined in Sec.  
203.18(f)) or if the substitute mortgagor is an eligible non-occupant 
mortgagor (as defined in Sec.  203.18(f)).
    (3) With respect to any mortgage covering a dwelling to be occupied 
as a secondary residence, the loan to value ratio may not exceed 85 
percent of the greater of:
    (i) The appraised value of the property at the time the mortgage is 
accepted for insurance; or
    (ii) The appraised value of the property at the time approval of a 
substitute mortgagor is requested.
    (c) Applicability-current mortgages. Paragraph (b) of this section 
applies to the Commissioner's approval of a substitute mortgagor only if 
the mortgage executed by the original mortgagor was insured:
    (1) Pursuant to a conditional commitment or master conditional 
commitment issued on or after December 15, 1989; or
    (2) In accordance with the Direct Endorsement program, where the 
underwriter of the mortgagee signed the appraisal report or master 
appraisal report for the property on or after December 15, 1989;
    (3) Pursuant to a certificate of reasonable value or master 
certificate of reasonable value issued by the Department of Veterans 
Affairs on or after December 15, 1989.
    (d) Applicability--earlier mortgages. If the mortgage was insured:
    (1) Pursuant to a conditional commitment or master conditional 
commitment issued on or after February 5, 1988, but before December 15, 
1989; or
    (2) In accordance with the Direct Endorsement program, where the 
approved underwriter of the mortgagee signed the appraisal report or 
master appraisal report for the property on or after February 5, 1988, 
but before December 15, 1989, or
    (3) Pursuant to a certificate of reasonable value or master 
certificate of reasonable value issued by the Department of Veterans 
Affairs on or after February 5, 1988, but before December 15, 1989, the 
Commissioner may approve a substitute mortgagor with respect to the 
mortgage only if the substitute mortgagor is to occupy the dwelling as a 
principal residence or a secondary residence (as these terms are defined 
in Sec.  203.18(f)), or is an eligible non-occupant mortgagor (as 
defined in the following sentence), or if the mortgage has a principal 
balance that is not more than 75 percent of the greater of (i) the 
appraised value of the property at the time the mortgage is accepted for 
insurance, or (ii) the appraised value of the property at the time 
approval of a substitute mortgagor is requested. For purposes of this 
paragraph (d), the term eligible non-occupant mortgagor has the meaning 
given in Sec.  203.18(f), except that paragraph (d)(3)(ii)(A) and (B) of 
this section apply in place of Sec.  203.18(f)(3) (i) and (ii).
    (A) A public entity, as provided in section 214 or 247 of the 
National Housing Act; and
    (B) A private nonprofit or public entity, as provided in section 
221(h) or 235(j) of the National Housing Act.

If neither paragraph (b) nor the preceding portion of this paragraph (d) 
applies, the Commissioner may approve a substitute mortgagor without 
regard to whether the mortgagor is to occupy the dwelling.
    (e) Direct endorsement. Mortgagees approved for participation in the 
Direct Endorsement program under Sec.  203.3 may, subject to limitations 
established by the Commissioner, themselves approve an appropriate 
substitute mortgagor under this section for mortgages which they own or 
service, and need not obtain further specific approval from the 
Commissioner.
    (f) Definition. As used in this section, the term substitute 
mortgagor includes:
    (1) Persons who, upon the release by a mortgagee of a previous 
mortgagor from personal liability on the mortgage note, assume this 
liability and agree to pay the mortgage debt; and
    (2) Persons who purchase without assuming liability on the mortgage 
note or purchase where no release is given by the mortgagee to the 
previous mortgagor.

[55 FR 34806, Aug. 24, 1990, as amended at 57 FR 58349, Dec. 9, 1992; 58 
FR 13537, Mar. 12, 1993; 61 FR 36453, July 10, 1996]

[[Page 199]]

                 Mortgage Insurance Premiums--In General



Sec.  203.259  Method of payment of MIP.

    The payment of any MIP under this subpart shall be made to the 
Commissioner by the mortgagee either in cash or debentures at par plus 
accrued interest.

[48 FR 28805, June 23, 1983]



Sec.  203.259a  Scope.

    (a) The Commissioner shall charge a one-time MIP pursuant to Sec.  
203.280 for mortgages that:
    (1) Are insured pursuant to Sec.  203.43(c) (if the mortgage to be 
refinanced was executed prior to July 1, 1991 and the new mortgage is 
executed on or after April 24, 1992); or insured pursuant to Sec.  
203.43i; or
    (2)(i) Are obligations of the Mutual Mortgage Insurance Fund under 
this part (except insured open-end advances as provided by Sec.  
203.270);
    (ii) Are insured pursuant to: (A) An application for a conditional 
commitment received on or after September 1, 1983; or
    (B) An application for mortgage insurance endorsement under the 
single family Direct Endorsement program as provided in Sec.  203.255, 
where the property appraisal report is signed by the mortgagee's 
underwriter on or after September 1, 1983; and
    (iii) Are executed before July 1, 1991.
    (b) Except as provided in Sec.  203.284(h) or Sec.  203.285(d), the 
Commissioner shall charge an up-front MIP pursuant to Sec.  203.284 or 
Sec.  203.285 for mortgages executed on or after July 1, 1991 that are 
obligations of the Mutual Mortgage Insurance Fund. In the cases that the 
Commissioner deems appropriate, the Commissioner may require, by means 
of instructions communicated to all affected mortgages, that up-front 
MIP be remitted electronically.
    (c) The periodic MIP provision of Sec. Sec.  203.260 through 203.268 
shall not apply to mortgages referred to in paragraph (a) of this 
section, nor shall they apply to mortgages to which the provision of 
Sec.  203.284 or Sec.  203.285 apply.

[57 FR 15211, Apr. 24, 1992, as amended at 57 FR 46983, Oct. 14, 1992; 
58 FR 12902, Mar. 8, 1993; 58 FR 41003, July 30, 1993; 59 FR 13882, Mar. 
24, 1994; 60 FR 34138, June 30, 1995; 61 FR 36453, July 10, 1996]

              Mortgage Insurance Premiums--Periodic Payment



Sec.  203.260  Amount of mortgage insurance premium (periodic MIP).

    The mortgagee shall pay to the Commissioner an initial MIP in an 
amount equal to one-half of one percent of the average outstanding 
principal obligation of the mortgage for the first year of amortization. 
After payment of the initial MIP, the mortgagee shall pay to the 
Commissioner an amount equal to one-half of one percent of the average 
outstanding principal obligation of the mortgage for the 12-month period 
preceding each subsequent anniversary date of the beginning of 
amortization.

[48 FR 28805, June 23, 1983]



Sec.  203.261  Calculation of periodic MIP.

    The amount of any periodic MIP shall be calculated in accordance 
with the original amortization provisions of the mortgage, without 
taking into account delinquent payments, prepayments, agreements to 
postpone payments, or agreements to recast the mortgage.

[48 FR 28805, June 23, 1983]



Sec.  203.262  Due date of periodic MIP.

    The full initial and each annual MIP shall be due and payable to the 
Commissioner no later than the 10th day after the amortization 
anniversary date.

[61 FR 37801, July 19, 1996]



Sec.  203.264  Payment of periodic MIP.

    The mortgagee shall pay each MIP in twelve equal monthly 
installments. Each monthly installment shall be due and payable to the 
Commissioner no later than the tenth day of each month, beginning in the 
month in which the mortgagor is required to

[[Page 200]]

make the first monthly mortgage payment. This will be effective for 
amortization beginning on or after September 1, 1996.

[61 FR 42787, Aug. 19, 1996]



Sec.  203.265  Mortgagee's late charge and interest.

    (a) Periodic MIP which are received by the Commissioner after the 
payment dates prescribed by Sec. Sec.  203.262 and 203.264 shall include 
a late charge of four percent of the amount paid.
    (b) In addition to the late charge provided in paragraph (a) of this 
section, the mortgagee shall pay interest on any periodic MIP which are 
remitted to the Commissioner more than 20 days after the payment dates 
prescribed in Sec.  203.264. Such interest rate shall be paid at a rate 
set in conformity with the Treasury Financial Manual.

[48 FR 28805, June 23, 1983, as amended at 61 FR 36265, July 9, 1996; 61 
FR 37801, July 19, 1996]



Sec.  203.266  Period covered by periodic MIP.

    The initial MIP shall cover the period beginning with the date of 
the issuance of a Mortgage Insurance Certificate and ending on the next 
anniversary of the beginning of amortization. Subsequent premium 
payments shall cover the twelve-month period preceding each subsequent 
anniversary date.

[48 FR 28805, June 23, 1983]



Sec.  203.267  Duration of periodic MIP.

    The mortgagee shall pay the MIP to the Commissioner until the deed 
to the Commissioner is filed for record or the contract of insurance is 
terminated.

[48 FR 28805, June 23, 1983]



Sec.  203.268  Pro rata payment of periodic MIP.

    (a) If the insurance contract is terminated before the due date of 
the initial MIP, the mortgagee shall pay a portion of the MIP prorated 
from the beginning of amortization, as defined in Sec.  203.251, to the 
date of termination.
    (b) If the insurance contract is terminated after the due date of 
the initial MIP, the mortgagee shall pay a portion of the current annual 
MIP prorated from the due date of the last annual MIP to the date of 
termination.
    (c) A pro rata MIP shall not be due or payable where the mortgagee 
notifies the Commissioner that foreclosure or other action to acquire 
the property has been completed and that the property will not be 
conveyed to the Commissioner in exchange for insurance benefits. Any MIP 
due and paid after the institution of foreclosure or the date the 
property was otherwise acquired by the mortgagee will be refunded to the 
mortgagee upon receipt by the Commissioner of the notice from the 
mortgagee that the property will not be conveyed to the Commissioner.

[48 FR 28805, June 23, 1983, as amended at 61 FR 37801, July 19, 1996]



Sec.  203.269  Method of payment of periodic MIP.

    In cases that the Commissioner deems appropriate, the Commissioner 
may require, by means of instructions communicated to all affected 
mortgagees, that periodic MIP be remitted electronically.

[60 FR 34138, June 30, 1995]

                Open-end Insurance Charges--All Mortgages



Sec.  203.270  Open-end insurance charges.

    (a) Required charge. In the case of an insured open-end advance the 
mortgagee shall pay to the Commissioner an open-end insurance charge.
    (b) Payment of charge for mortgages with periodic MIP. The amount of 
any insured open-end advance shall be added to the average outstanding 
principal obligation of the mortgage for the purpose of determining the 
amount of periodic MIP as provided in Sec. Sec.  203.260 through 
203.268, except that the initial additional charge shall be prorated to 
cover the period beginning with the first day of the month following the 
issuance of a certificate evidencing the insurance of the open-end 
advance and ending on the due date of the next MIP.
    (c) Payment of charge for mortgages with one-time or up-front MIP. 
In the case of a mortgage with a one-time or up-front MIP pursuant to 
Sec.  203.280, Sec.  203.284, or Sec.  203.285 of this part, the 
insurance charge shall be in an amount

[[Page 201]]

equal to \1/2\ percent per annum of the outstanding principal obligation 
of the open-end advance. Sections 203.260 through 203.268 shall apply to 
the open-end charge on a mortgage with a one-time or up-front MIP, 
except that all references to amortization dates shall refer to 
amortization dates of the open-end advance, references to MIP shall 
refer to the open-end insurance charge, and references to outstanding 
principal obligation of the mortgage shall refer to outstanding 
principal obligation of the open-end advance.
    (d) Method of payment--all mortgages. The payment of any open-end 
insurance charge under this subpart shall be made to the Commissioner by 
the mortgagee either in cash or debentures issued by the Mutual Mortgage 
Insurance Fund at par plus accrued interest.

[48 FR 28806, June 23, 1983, as amended at 56 FR 24624, May 30, 1991; 57 
FR 15211, Apr. 24, 1992; 57 FR 46983, Oct. 14, 1992; 58 FR 41003, July 
30, 1993]

              Mortgage Insurance Premiums--One-Time Payment



Sec.  203.280  One-time or Up-front MIP.

    For mortgages for which a one-time or up-front MIP is to be charged 
in accordance with Sec. Sec.  203.259a, 203.284, or 203.285, the 
mortgagee shall, as a condition to the endorsement of the mortgage for 
insurance, pay to the Commissioner for the account of the mortgagor, in 
a manner prescribed by the Commissioner, a premium representing the 
total obligation for the insuring of the mortgage by the Commissioner or 
the up-front portion of the total obligation, as applicable, within 10 
calendar days after the date of loan closing or within 10 calendar days 
after the date of disbursement of the mortgage proceeds, whichever is 
later.

[70 FR 19669, Apr. 13, 2005]



Sec.  203.281  Calculation of one-time MIP.

    (a) The applicable premium percentage determined under paragraph (b) 
of this section assumes, for purposes of calculation, that the entire 
amount of the one-time MIP is added to the loan amount. The amount of 
the one-time MIP shall be determined by multiplying the loan amount 
otherwise insurable under this part by the applicable premium 
percentage, subject to adjustment for the portion of the MIP, if any, 
that is not to be included in the insured mortgage.
    (b)(1) The Commissioner shall determine the applicable premium 
percentage in accordance with sound financial and actuarial practice.
    (2) Application of the premium percentage determined under paragraph 
(b)(1) of this section shall not result in a MIP in excess of an amount 
equivalent to 1 per centum per annum of the amount of the principal 
obligation of the mortgage outstanding at any time, without taking into 
account delinquent payments or prepayments.
    (c) The applicable premium percentage will be published by notice at 
least annually in the Federal Register.

[48 FR 28806, June 23, 1983, as amended at 61 FR 36265, July 9, 1996]



Sec.  203.282  Mortgagee's late charge and interest.

    (a) Payment of a one-time or up-front MIP is late if not received by 
HUD within 10 calendar days after the date of loan closing or within 10 
calendar days after the date of disbursement of the mortgage proceeds, 
whichever is later. Late payments shall include a late charge of four 
percent of the amount of the MIP.
    (b) If payment of the MIP is not received by HUD within 30 days 
after the date of loan closing or within 30 calendar days after the date 
of disbursement of the mortgage proceeds, whichever is later, the 
mortgagee will be charged additional late fees until payment is received 
at an interest rate set in conformity with the Treasury Fiscal 
Requirements Manual.

[70 FR 19669, Apr. 13, 2005]



Sec.  203.283  Refund of one-time MIP.

    (a) The Commissioner shall provide for the refund to the mortgagor 
of a portion of the unearned MIP paid pursuant to Sec.  203.280 if the 
contract of insurance covering the mortgage is terminated:
    (1) By coveyance to one other than the Commissioner and a claim for 
the insurance benefits is not presented for payment (Sec.  203.315),

[[Page 202]]

    (2) By prepayment of the mortgage (Sec.  203.316), or
    (3) By voluntary agreement with the approval of the Commissioner 
(Sec.  203.317).
    (b) The Commissioner shall determine the amount of the premium 
refund by multiplying the amount the premium paid at the time the 
mortgage was insured by the applicable premium refund percentage for 
mortgages insured in the year the mortgage was endorsed for insurance. 
The Commissioner shall determine the applicable premium refund 
percentage for each year in an equitable manner and in accordance with 
sound financial and actuarial practice, taking into account: (1) 
Projected salaries and expenses, (2) prospective losses generated by 
insurance claims, and (3) expected future payments of premium refunds.

[48 FR 28806, June 23, 1983, as amended at 52 FR 1327, Jan. 13, 1987]

   Calculation of Mortgage Insurance Premium on or After July 1, 1991



Sec.  203.284  Calculation of up-front and annual MIP on or after July 1, 1991.

    Except for insured mortgages with a term of 15 or fewer years 
executed on or after December 26, 1992, (see Sec.  203.285 of this 
part), up-front and annual MIP will be calculated in accordance with 
this section.
    (a) Permanent provisions. Any mortgage executed on or after October 
1, 1994, that is an obligation of the Mutual Mortgage Insurance Fund, as 
well as any mortgage executed after December 27, 2005, which is insured 
under sections 203(k) or 234(c) of the National Housing Act (12 U.S.C. 
1709(k) and 12 U.S.C. 1715y(c)) shall be subject to the following 
requirements:
    (1) Up-Front. The Commissioner shall establish and collect a single 
premium payment in an amount not exceeding 2.25 percent of the amount of 
the original insured principal obligation of the mortgage.
    (2) Annual. In addition to the premium under paragraph (a)(1) of 
this section, the Commissioner shall establish and collect annual 
premium payments in an amount not exceeding .50 percent of the remaining 
insured principal balance (excluding the portion of the remaining 
balance attributable to the premium collected under paragraph (a)(1) of 
this section) for the following periods:
    (i) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a)(1) of this section) 
that is less than 90 percent of the appraised value of the property (as 
of the date of the mortgage is accepted for insurance), for the first 11 
years of the mortgage term.
    (ii) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a)(1) of this section) 
that is greater than or equal to 90 percent of the appraised value of 
the property (as of the date the mortgage is accepted for insurance), 
for the lesser of the mortgage term or the first 30 years of the 
mortgage term; except that, for any mortgage involving an original 
principal obligation (excluding any premium collected under paragraph 
(a)(1) of this section) that is greater than 95 percent of the appraised 
value, the annual premium collected during the period determined under 
this clause shall be in an amount not exceeding 0.55 percent of the 
remaining insured principal balance (excluding the portion of the 
remaining balance attributable to the premium collected under paragraph 
(a)(1) of this section).
    (b) Transition provisions; savings provision. Mortgages that are 
obligations of the Mutual Mortgage Insurance Fund and that were insured 
during Fiscal Years 1991-1994, are governed by 24 CFR 203.284(b) as in 
effect on April 1, 2003, (see 24 CFR parts 200-499 revised as of April 
1, 2003).
    (c) Refunds. With respect to any mortgage subject to premiums under 
this section, the Commissioner shall refund all of the unearned premium 
charges paid on a mortgage upon termination of insurance by voluntary 
agreement or upon payment in full of the principal obligation of the 
mortgage before the maturity date.
    (d)-(e) [Reserved]
    (f) Applicability of other sections. The provisions of Sec. Sec.  
203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268, 203.269, 
203.280, and 203.282 are applicable to

[[Page 203]]

mortgages subject to premiums under this section.
    (g) Definition. As used in this section the term remaining insured 
principal balance means the average outstanding principal obligation of 
the mortgage for the first year of amortization, or for a 12-month 
period preceding a subsequent anniversary date of the beginning of 
amortization.
    (h) Exception for streamline refinance. This section shall not apply 
to any mortgage insured pursuant to Sec.  203.43(c) if the mortgage to 
be refinanced was executed before July 1, 1991 and the new mortgage is 
executed on or after April 24, 1992. This exception does not have the 
effect of exempting streamline refinancing mortgages from the 
requirement that a one-time MIP be paid in accordance with Sec.  
203.259a(a).

[57 FR 15211, Apr. 24, 1992, as amended at 57 FR 46983, Oct. 14, 1992; 
58 FR 41003, July 30, 1993; 60 FR 34138, June 30, 1995; 61 FR 36265, 
July 9, 1996; 61 FR 37801, July 19, 1996; 70 FR 37156, June 28, 2005]



Sec.  203.285  Fifteen-year mortgages: Calculation of up-front and annual MIP on or after December 26, 1992.

    (a) Up-front. Any mortgage for a term of 15 or fewer years executed 
on or after December 26, 1992, that is an obligation of the Mutual 
Mortgage Insurance Fund, and any mortgage executed on or after December 
27, 2005, to be insured under sections 203(k) and 234(c) of the National 
Housing Act, shall be subject to a single up-front premium payment 
established and collected by the Commissioner in an amount not exceeding 
2.0 percent of the amount of the original insured principal obligation 
of the mortgage. Upon termination of insurance by voluntary agreement, 
or upon payment in full of the principal obligation of the mortgage 
before the maturity date, the Commissioner shall refund all of the 
unearned premium charges paid on the mortgage pursuant to this paragraph 
(a).
    (b) Annual. In addition to the premium under paragraph (a) of this 
section, the Commissioner shall establish and collect annual premium 
payments in amounts not exceeding the following percentages of the 
remaining insured principal balance (excluding the portion of the 
remaining balance attributable to the premium collected under paragraph 
(a) of this section) for the following periods:
    (1) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is less than 90 percent of the appraised value of the property (as 
of the date the mortgage is accepted for insurance), no annual premium 
will be charged.
    (2) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is greater than or equal to 90 percent of such value, but less than 
or equal to 95 percent of such value, an annual premium not exceeding 
.25 percent shall be collected for the first four years of the mortgage 
term.
    (3) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is greater than 95 percent of such value, an annual premium not 
exceeding .25 percent shall be collected for the first eight years of 
the mortgage term.
    (c) Applicability of certain provisions. The provisions of 
Sec. Sec.  203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 
203.268, 203.269, 203.280, 203.282, 203.284(c), and 203.284(g) are 
applicable to mortgages subject to premiums under this section.
    (d) Exception for streamline refinance. This section shall not apply 
to any mortgage insured pursuant to Sec.  203.43(c) if the mortgage to 
be refinanced was executed before July 1, 1991 and the new mortgage is 
executed on or after December 26, 1992.

[58 FR 41004, July 30, 1993, as amended at 60 FR 34138, June 30, 1995; 
61 FR 37801, July 19, 1996; 70 FR 37156, June 28, 2005]

                   Adjusted Mortgage Insurance Premium



Sec.  203.288  Discontinuance of adjusted premium charge.

    Notwithstanding any provision in the mortgage instrument, there 
shall be no adjusted mortgage insurance premium due the Commissioner on 
account of

[[Page 204]]

the prepayment of any mortgage on or after May 1, 1972.

[37 FR 8662, Apr. 29, 1972]

                          Voluntary Termination



Sec.  203.295  Voluntary termination.

    Upon request by the mortgagor and mortgagee the Commissioner may 
terminate the insurance contract on any mortgage under this part 
covering a 1-to-4 family residence. The mortgagee shall cancel the 
insurance endorsement on the mortgage insurance certificate or note upon 
receipt of notice from the Commissioner that the contract of insurance 
is terminated. Notwithstanding any provision in a mortgage instrument, 
there shall be no voluntary termination charge due the Commissioner on 
account of the voluntary termination of any mortgage insurance contract 
where the request for termination is received by the Commissioner on or 
after May 1, 1972.

[37 FR 8662, Apr. 29, 1972]

                    Termination of Insurance Contract



Sec.  203.315  Termination by conveyance to other than Commissioner.

    (a) For those mortgages to which the provisions of Sec.  203.368 
apply, the contract of insurance shall be terminated under the following 
circumstances:
    (1) The mortgagee notifies the Commissioner that it will not convey 
title to the Commissioner and will not file a claim for the insurance 
benefits when:
    (i) The mortgagee either acquires the property by any means, or
    (ii) Acquires the property and gives such notice during the 
redemption period; or
    (2) The mortgagee notifies the Commissioner that it will not file a 
claim for the insurance benefits when:
    (i) The property is bid in and acquired at foreclosure by a party 
other than the mortgagee, or
    (ii) After foreclosure of the mortgaged property by the mortgagee 
the property is redeemed.
    (b) For those mortgages to which the provisions as set forth in 
Sec.  203.368 do not apply, the contract of insurance shall be 
terminated under the following circumstances:
    (1) The mortgagee acquires the mortgaged property but does not 
convey it to the Commissioner;
    (2) The property is bid in and acquired at a foreclosure sale by a 
party other than the mortgagee;
    (3) After foreclosure the property is redeemed;
    (4) After foreclosure and during the redemption period the mortgagee 
gives notice that it will not tender the property to the Commissioner.

[52 FR 1327, Jan. 13, 1987]



Sec.  203.316  Termination by prepayment of mortgage.

    The contract of insurance shall be terminated if the mortgage is 
paid in full prior to its maturity.



Sec.  203.317  Termination by voluntary agreement.

    The contract of insurance shall be terminated if the mortgagor and 
mortgagee jointly request termination.



Sec.  203.318  Notice of termination by mortgagee.

    No contract of insurance shall be terminated until the mortgagee has 
given written notice thereof to the Commissioner within 15 calendar days 
from the occurrence of one of the approved methods of termination set 
forth in this subpart.

[45 FR 31716, May 14, 1980]



Sec.  203.319  Pro rata payment of premiums and charges.

    No contract of insurance shall be terminated until the mortgagee has 
paid to the Commissioner the pro rata portion of the current annual MIP 
or open-end insurance charge as set forth in this subpart.

[37 FR 8662, Apr. 29, 1972]



Sec.  203.320  Notice and date of termination by Commissioner.

    The Commissioner shall notify the mortgagee that the contract of 
insurance has been terminated and the effective termination date. The 
termination date shall be the last day of the month in which one of the 
following events has occurred:
    (a)(1) For those mortgages to which the provisions of Sec.  203.368 
apply, the

[[Page 205]]

date foreclosure proceedings were instituted by the mortgagee, or the 
property was otherwise acquired by the mortgagee or a party other than 
the mortgagee (including the mortgagor or other party as redemptor) if 
the mortgagee notifies the Commissioner that title will not be conveyed 
to the Commissioner and a claim for the insurance benefits will not be 
presented for payment.
    (2) For those mortgages to which the provisions of Sec.  203.368 do 
not apply, the date foreclosure proceedings were instituted, or the 
property was otherwise acquired by the mortgagee, if the mortgagee 
notifies the Commissioner that title will not be conveyed to the 
Commissioner.
    (b) The date the mortgage was prepaid in full.
    (c) The date a voluntary termination request is received by the 
Commissioner.

[36 FR 24508, Dec. 22, 1971, as amended at 52 FR 1327, Jan. 13, 1987]



Sec.  203.321  Effect of termination.

    Upon termination of the contract of insurance, the obligation to pay 
any subsequent periodic MIP or open-end insurance charge shall cease and 
all rights of the mortgagor and mortgagee shall be terminated, except as 
otherwise provided in this part.

[48 FR 28807, June 23, 1983]

                         Default Under Mortgage



Sec.  203.330  Definition of delinquency and requirement for notice
of delinquency to HUD.

    (a) A mortgage account is delinquent any time a payment is due and 
not paid.
    (b) Once each month on a day prescribed by HUD, the mortgagee shall 
report to HUD all mortgages insured under this part that were delinquent 
on the last day of the month, or that were reported as delinquent the 
previous month. The report shall be made in a manner prescribed by HUD.

[71 FR 16234, Mar. 31, 2006]



Sec.  203.331  Definition of default, date of default, and requirement
of notice of default to HUD.

    (a) Default. If the mortgagor fails to make any payment or to 
perform any other obligation under the mortgage, and such failure 
continues for a period of 30 days, the mortgage shall be considered in 
default for the purposes of this subpart.
    (b) Date of default. For the purposes of this subpart, the date of 
default shall be considered as 30 days after:
    (1) The first uncorrected failure to perform any obligation under 
the mortgage; or
    (2) The first failure to make a monthly payment that subsequent 
payments by the mortgagor are insufficient to cover when applied to the 
overdue monthly payments in the order in which they became due.
    (c) Notice of default. Once each month, on a day prescribed by HUD, 
the mortgagee shall report to HUD all mortgages that were in default on 
the last day of the month, or that were reported as in default the 
previous month. The report shall be made in a manner prescribed by HUD.
    (d) Number of days in month. For the purposes of this section, each 
month shall be considered to have 30 days.

[71 FR 16234, Mar. 31, 2006]



Sec.  203.332  [Reserved]



Sec.  203.333  Reinstatement of defaulted mortgage.

    If after default and prior to the completion of foreclosure 
proceedings the mortgagor shall cure the default, the insurance shall 
continue as if a default had not occurred, provided the mortgagor pays 
to the mortgagee such expenses as the mortgagee has incurred in 
connection with the foreclosure proceedings and the mortgagee gives 
written notice of reinstatement to the Commissioner.

                        Continuation of Insurance



Sec.  203.340  Special forbearance.

    (a) If the conditions of Sec.  203.614 are met and special 
forbearance relief is granted pursuant to that section, the contract of 
insurance shall continue in

[[Page 206]]

force except as otherwise provided in this subpart.
    (b) The contract of insurance shall continue in force, except as 
otherwise provided in this subpart, when the conditions of this section 
which were effective prior to January 1, 1977, have been met and special 
forbearance relief is granted pursuant thereto prior to January 1, 1977.

[41 FR 49735, Nov. 10, 1976]



Sec.  203.341  Partial claim.

    If the conditions of Sec.  203.371 are met and a partial claim is 
paid pursuant to that section, the contract of insurance shall continue 
in force, except as otherwise provided in this subpart.

[62 FR 60129, Nov. 6, 1997]



Sec.  203.342  Mortgage modification.

    If a mortgage is recast pursuant to Sec.  203.616, the principal 
amount of the mortgage, as modified, shall be considered to be the 
``original principal balance of the mortgage'' as that term is used in 
Sec.  203.401.

[62 FR 60129, Nov. 6, 1997]



Sec.  203.343  Partial release, addition or substitution of security.

    (a) Except as provided in Sec.  203.389(n), a mortgagee shall not 
release the security or any part thereof, while the mortgage is insured, 
without the prior consent of the Commissioner.
    (b) A mortgagee may, with the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot under the following conditions:
    (1) The mortgagee obtains a good and valid first lien on the 
property to which the dwelling is removed.
    (2) All damages to the structure are repaired without cost to HUD.
    (3) The property to which the dwelling is removed is in an area 
known to be reasonably free from natural hazards or, if in a flood zone, 
the mortgagor will insure or reinsure under the Federal Flood Insurance 
Program.
    (c) A mortgagee may, without the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot under the following conditions.
    (1) The dwelling has survived an earthquake or other disaster with 
little damage, but continued location on the property might be 
hazardous.
    (2) The conditions stated in paragraph (b) of this section exist.
    (3) Immediately following the emergency removal the mortgagee 
notifies the Commissioner of the reasons for removal.

[41 FR 49735, Nov. 10, 1976]

                Forbearance Relief for Military Personnel



Sec.  203.345  Postponement of principal payments--mortgagors in
military service.

    In addition to the special forbearance relief afforded by Sec. Sec.  
203.340 through 203.342, if the mortgagor is a person in the military 
service (as defined in the Soldiers' and Sailors' Civil Relief Act of 
1940), the mortgagee may, by written agreement with the mortgagor, 
postpone for the period of military service and three months thereafter 
any part of the monthly payment which represents amortization of 
principal. The agreement shall contain a provision for the resumption of 
monthly payments after such period in amounts which will completely 
amortize the mortgage debt within the maturity as provided in the 
original mortgage. The agreement shall in no way affect the amount of 
the annual MIP which will continue to be calculated in accordance with 
the original amortization provisions of the mortgage.



Sec.  203.346  Postponement of foreclosure--mortgagors in military
service.

    If at any time during default the mortgagor is a ``Person in 
military service,'' as such term is defined in the Soldiers' and 
Sailors' Civil Relief Act of 1940, the period during which the mortgagor 
is in such service shall be excluded in computing the period within 
which the mortgagee shall commence foreclosure or acquire the property 
by other means as provided in Sec.  203.355 of this subpart. No 
postponement or delay in the prosecution of

[[Page 207]]

foreclosure proceedings during the period the mortgagor is in such 
military service shall be construed as failure on the part of the 
mortgagee to exercise reasonable diligence in prosecuting such 
proceedings to completion as required by this subpart.

[36 FR 24508, Dec. 22, 1971, as amended at 61 FR 36265, July 9, 1996]

                         Assignment of Mortgage



Sec.  203.350  Assignment of mortgage.

    (a) Assignment of modified mortgages pursuant to section 230, 
National Housing Act. HUD may accept an assignment of any mortgage 
covering a one-to-four family residence if the following requirements 
are met:
    (1) The mortgage was in default;
    (2) The mortgagee has modified the mortgage under Sec.  203.616 to 
cure the default and to provide for mortgage payments within the 
reasonable ability of the mortgagor to pay, at an interest rate not 
exceeding current market interest rates; and
    (3) Such other conditions that HUD may prescribe, which may include 
the requirement that the mortgagee continue to be responsible for 
servicing the mortgage.
    (b) Assignments pursuant to section 248, National Housing Act. 
Notwithstanding the provisions of paragraph (a), the Commissioner shall, 
upon application by the mortgagee, approve the assignment to the 
Commissioner of any mortgage insured pursuant to section 248 of the 
National Housing Act (see Sec.  203.43h) where the mortgagor has been in 
default for more than 90 days. The mortgagee may not request the 
Commissioner to accept an assignment until the mortgagee has submitted 
documents to the Commissioner showing that the requirements of Sec.  
203.604 have been met. HUD shall then notify the mortgagee of its 
approval of the mortgagee's actions under Sec.  203.604 and that the 
mortgagee may assign the mortgage to the Secretary, or HUD will specify 
what further action the mortgagee must take to meet the requirements of 
Sec.  203.604.
    (c) Assignment of mortgages insured pursuant to section 247, 
National Housing Act. Notwithstanding the provisions of paragraph (a) of 
this section, the Secretary will, upon application by the mortgagee, 
agree to accept an assignment of any mortgage insured pursuant to 
section 247 of the National Housing Act (Sec.  203.43i of this part) 
where the mortgagor has been in default for more than 180 days, provided 
that the requirements of Sec.  203.665 are satisfied.
    (d) Assignment of mortgages authorized by section 203(q), National 
Housing Act. Notwithstanding the provisions of paragraph (a) of this 
section, the Secretary will, upon application by the mortgagee, agree to 
accept assignment of any mortgage authorized by section 203(q) of the 
National Housing Act (Sec.  203.43j of this part) if
    (1) The mortgagor has been in default for more than 90 days for 
failure to make a monthly payment,
    (2) The requirements of Sec.  203.666 are satisfied, and
    (3) The date of default occurs before the mortgagor and the lessor 
execute a lease renewal or a new lease with a term of not less than five 
years beyond the maturity date of the mortgage, or with a term 
established by an arbitration award.

If the default is non-monetary, the date of default occurs prior to an 
action described in paragraph (d)(3) of this section, the requirements 
of Sec.  203.666 are satisfied, and the mortgagor has been in default 
for more than 30 days, the Secretary may in his or her discretion, upon 
application by the mortgagee, agree to accept an assignment of the 
mortgage. If the leasehold estate has terminated before the mortgage has 
been assigned, or title to the property conveyed, to the Secretary, and 
the mortgage is in default for any reason for more than 30 days, the 
Secretary will, upon application by the mortgagee, agree to accept an 
assignment of the mortgage.
    (e) Filing assignment for record. Within 30 days of the Secretary's 
written agreement to accept assignment of a

[[Page 208]]

defaulted mortgage, or within such additional time as the Secretary 
authorizes in writing, the mortgagee must file the assignment for 
record.

(Information collection requirements in paragraph (b) were approved by 
the Office of Management and Budget under control number 2502-0169)

[51 FR 21872, June 16, 1986, as amended at 52 FR 48202, Dec. 21, 1987; 
53 FR 9869, Mar. 28, 1988; 53 FR 13404, Apr. 25, 1988; 55 FR 282, Jan. 
4, 1980; 61 FR 35018, July 3, 1996]



Sec.  203.351  Application for insurance benefits and fiscal data.

    On the date the assignment of the mortgage is filed for record, the 
mortgagee shall forward to the Commissioner the prescribed application 
for insurance benefits and fiscal data pertaining to the mortgage 
transaction, together with the receipts covering all disbursements, as 
required by the fiscal data form. In addition, the following 
requirements shall be met:
    (a) Items to be included with application. The following items shall 
be forwarded to the Commissioner with the application:
    (1) Credit and security instrument. The original credit and security 
instruments assigned without recourse or warranty, except that no act or 
omission of the mortgagee shall have impaired the validity and priority 
of the mortgage.
    (2) Recorded assignment instrument. The original of the recorded 
assignment of mortgage. If the original of the assignment is not 
available, a copy shall be furnished and the original forwarded as soon 
as possible.
    (3) Hazard insurance. All hazard insurance policies held in 
connection with the mortgaged property, together with a copy of the 
mortgagee's notification to the carrier authorizing the amendment of the 
loss payable clause substituting the Commissioner as the mortgagee.
    (4) Rights and interests. An assignment of all rights and interests 
arising under the mortgage, and all claims of the mortgagee against the 
mortgagor or others arising out of the mortgage transaction.
    (5) Property. All property of the mortgagor held by the mortgagee or 
to which it is entitled (other than the cash items which are to be 
retained by the mortgagee).
    (6) Records and accounts. All records, ledger cards, documents, 
books, papers and accounts relating to the mortgage transaction.
    (7) Additional information. Any additional information or data which 
the Commissioner may require.
    (8) Title evidence. All title evidence held by the mortgagee. It 
need not be extended to include the recordation of the assignment. If a 
mortgagee's title policy is furnished, the Commissioner shall be a named 
insured under such policy.
    (b) Items to be retained by mortgagee. The mortgagee shall retain 
all cash amounts held or deposited for the account of the mortgagor or 
to which it is entitled under the mortgage transaction that have not 
been applied in reduction of the principal mortgage indebtedness.
    (c) Title evidence for mortgages insured under Sec.  203.43d as set 
forth in Sec.  203.385 shall accompany the application for insurance 
benefits.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 7693, Apr. 10, 1972; 42 
FR 57435, Nov. 2, 1977]



Sec.  203.353  Certification by mortgagee.

    At the time of assignment of the mortgage, the mortgagee shall 
certify to the Commissioner that:
    (a) Priority of mortgage to liens. The mortgage is prior to all 
mechanics' and materialmen's liens filed of record, regardless of when 
such liens attach, and prior to all liens and encumbrances, or defects 
which may arise except such liens or other matters as may have been 
approved by the Commissioner;
    (b) Amount due. The amount stated in the instrument of assignment is 
actually due and owing under the mortgage;
    (c) Offsets or counterclaims. There are no offsets or counterclaims 
thereto and the mortgagee has a good right to assign.

                             Claim Procedure



Sec.  203.355  Acquisition of property.

    (a) In general. Upon default of a mortgage, except as provided in 
paragraphs (b) through (i) of this section, the


[[Page 209]]

mortgagee shall take one of the following actions within nine months 
from the date of default, or within any additional time approved by the 
Secretary or authorized by Sec. Sec.  203.345 or 203.346. For mortgages 
where the date of default is on or after February 1, 1998, the mortgagee 
shall take one or a combination of the following actions within six 
months of the date of default or within such additional time approved by 
HUD or authorized by Sec. Sec.  203.345 or 203.346:
    (1) Obtain a deed-in-lieu of foreclosure (see Sec. Sec.  203.357, 
203.389 and 203.402(f) of this part) with title being taken in the name 
of the mortgagee or the Secretary;
    (2) Commence foreclosure;
    (3) Enter into a special forbearance agreement under Sec.  203.614;
    (4) Complete a modification of the mortgage under Sec.  203.616;
    (5) Complete a refinance of the mortgage under Sec.  203.43(c);
    (6) Complete an assumption under Sec.  203.512;
    (7) File a partial claim under Sec.  203.371; or
    (8) Initiate a pre-foreclosure sale under Sec.  203.370.
    (b) Vacant or abandoned property. With respect to defaulted 
mortgages on vacant or abandoned property, if the mortgagee discovers, 
or should have discovered, that the property is vacant or abandoned, the 
mortgagee must commence foreclosure within the later of 120 days after 
the date the property became vacant, or 60 days after the date the 
property is discovered, or should have been discovered, to be vacant or 
abandoned; but no later than the number of months from the date of 
default as provided in paragraph (a) of this section. The mortgagee must 
not delay foreclosure on vacant or abandoned property because of the 
requirements of Sec.  203.606.
    (c) Prohibition of foreclosure within time limits. If the laws of 
the State in which the mortgaged property is located, or Federal 
bankruptcy law:
    (1) Do not permit the commencement of foreclosure within the time 
limits described in paragraphs (a), (b), (g), (h) and (i) of this 
section, the mortgagee must commence foreclosure within 90 days after 
the expiration of the time during which foreclosure is prohibited; or
    (2) Require the prosecution of a foreclosure to be discontinued, the 
mortgagee must recommence the foreclosure within 90 days after the 
expiration of the time during which foreclosure is prohibited.
    (d) Property located on Indian land. Upon default of a mortgage on 
property located on Indian land insured pursuant to section 248 of the 
National Housing Act (see Sec.  203.43h of this part), the mortgagee 
must comply with Sec. Sec.  203.350(b) and 204.664 of this part.
    (e) Property located on Hawaiian home lands. Upon default of a 
mortgage on property located on Hawaiian home lands insured pursuant to 
section 247 of the National Housing Act (see Sec.  203.43i of this 
part), the mortgagee must comply with Sec. Sec.  203.350(c) and 203.665 
of this part.
    (f) Property located on the Allegany Reservation of the Seneca 
Nation of Indians. Upon default of a mortgage on property located on the 
Allegany Reservation of the Seneca Nation of Indians authorized by 
section 203(q) of the National Housing Act (see Sec.  203.43j of this 
part), the mortgagee must comply with Sec. Sec.  203.350(d) and 203.666 
of this part, unless the mortgagor and the lessor have executed a lease 
renewal or a new lease either with a term of not less than five years 
beyond the maturity date of the mortgage, or with a term established by 
arbitration award. If a lease renewal or new lease has been executed, 
the mortgagee must comply with paragraph (a) of this section.
    (g) Pre-foreclosure sale procedure. Within 90 days of the end of a 
mortgagor's participation in the pre-foreclosure sale procedure, or 
within the time limit described in paragraph (a) of this section, 
whichever is later, if no closing of an approved pre-foreclosure sale 
has occurred, the mortgagee must obtain a deed in lieu of foreclosure, 
with title being taken in the name of the mortgagee or the Secretary, or 
undertake one of the actions listed at Sec.  203.355(a). The end-of-
participation date is defined as:
    (1) Four months after the date of commencement of participation, if 
there is no signed Contract of Sale at


[[Page 210]]

that time, unless extended by the Commissioner;
    (2) Six months after the date of commencement of participation, if 
there is a signed contract but settlement has not occurred by that date, 
unless extended by the Commissioner;
    (3) The date the mortgagee is notified of the mortgagor's withdrawal 
from the Pre-foreclosure Sale procedure; or
    (4) The date of the letter sent by the mortgagee to the mortgagor 
prior to the expiration of the customary participation period, 
terminating the mortgagor's opportunity to participate in the Pre-
foreclosure Sale procedure.
    (h) Special forbearance. If the mortgagor fails to meet the 
requirements of a special forbearance under Sec.  203.614 and the 
failure continues for 60 days, the mortgagee must undertake one of the 
actions listed at Sec.  203.355(a) within the time limit described in 
paragraph (a) of this section or 90 days after the mortgagor's failure 
to meet the special forbearance requirements, whichever is later.
    (i) Modification under Sec.  203.616, refinance under Sec.  
203.43(c), or assumption under Sec.  203.512. Provided that the 
mortgagee has established the mortgagor's eligibility within the time 
frame provided in Sec.  203.355(a), if a mortgagee enters into a loss 
mitigation relief measure (i.e., modification under Sec.  203.616, 
refinance under Sec.  203.43(c), or assumption under Sec.  203.512) and 
it fails, the six-month period provided in Sec.  203.355(a) is extended 
by an additional 90 days to allow the mortgagee to try another loss 
mitigation tool or go to foreclosure.

[57 FR 47970, Oct. 20, 1992, as amended at 59 FR 50143, Sept. 30, 1994; 
60 FR 57678, Nov. 16, 1995; 61 FR 35018, July 3, 1996; 62 FR 60129, Nov. 
6, 1997]



Sec.  203.356  Notice of foreclosure and pre-foreclosure sale;
reasonable diligence requirements.

    (a) Notice of foreclosure and pre-foreclosure sale. The mortgagee 
must give notice to the Secretary, in a format prescribed by the 
Secretary, within 30 days after the institution of foreclosure 
proceedings. The mortgagee must give notice to the Secretary, in a 
format prescribed by the Secretary, within the time-frame prescribed by 
the Secretary, of the acceptance of any mortgagor into the pre-
foreclosure sale procedure.
    (b) Reasonable diligence. The mortgagee must exercise reasonable 
diligence in prosecuting the foreclosure proceedings to completion and 
in acquiring title to and possession of the property. A time frame that 
is determined by the Secretary to constitute ``reasonable diligence'' 
for each State is made available to mortgagees.

[61 FR 36265, July 9, 1996]



Sec.  203.357  Deed in lieu of foreclosure.

    (a) Mortgagors owning one property. In lieu of instituting or 
completing a foreclosure, the mortgagee may acquire property from one 
other than a corporate mortgagor by voluntary conveyance from the 
mortgagor who certifies that he does not own any other property subject 
to a mortgage insured or held by FHA. Conveyance of the property by deed 
in lieu of foreclosure is approved subject to the following 
requirements:
    (1) The mortgage is in default at the time the deed is executed and 
delivered;
    (2) The credit instrument is cancelled and surrendered to the 
mortgagor;
    (3) The mortgage is satisfied of record as a part of the 
consideration for such conveyance;
    (4) The deed from the mortgagor contains a covenant which warrants 
against the acts of the grantor and all claiming by, through, or under 
him and conveys good marketable title;
    (5) The mortgagee transfers to the Commissioner good marketable 
title accompanied by satisfactory title evidence.
    (b) Corporate mortgagors. A mortgagee may accept a deed in lieu of 
foreclosure from a corporate mortgagor in compliance with the 
requirements of paragraph (a) of this section, if the mortgagee obtains 
the prior written consent of the Commissioner.
    (c) Mortgagors owning more than one property. The mortgagee may 
accept a deed in lieu of foreclosure in compliance with the provisions 
of paragraph (a) of this section, from an individual who owns more than 
one property which is subject to a mortgage insured or held by the FHA 
if the mortgagee


[[Page 211]]

obtains the prior written consent of the Commissioner.



Sec.  203.358  Direct conveyance of property.

    In acquiring the property or conveying the property to the 
Commissioner the mortgagee may arrange for the deed to be made directly 
to the Commissioner from the mortgagor or other grantor. The mortgagee 
shall be responsible for determining that such conveyance will comply 
with all of the provisions of this part conveying good marketable title 
and satisfactory title evidence.



Sec.  203.359  Time of conveyance to the Secretary.

    (a) For mortgages insured under firm commitments issued prior to 
November 19, 1992 or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's approved underwriter 
prior to November 19, 1992. After acquiring good marketable title to and 
possession of the property the mortgagee must transfer the property to 
the Secretary:
    (1) Within 30 days after acquiring possession of the mortgaged 
property by foreclosure or other means; or
    (2) Within such further time as may be necessary to complete the 
title examination and perfect the title.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992--(1) Conveyance by the mortgagee. The mortgagee must 
acquire good marketable title and transfer the property to the Secretary 
within 30 days of the later of:
    (i) Filing for record the foreclosure deed;
    (ii) Recording date of deed in lieu of foreclosure;
    (iii) Acquiring possession of the property;
    (iv) Expiration of the redemption period; or
    (v) Such further time as the Secretary may approve in writing.
    (2) Direct conveyance. In cases where the mortgagee arranges for a 
direct conveyance of the property to the Secretary, the mortgagee must 
ensure that the property is transferred to the Secretary within 30 days 
of the reasonable diligence time frame specified in Sec.  203.356 of 
this part.

[57 FR 47971, Oct. 20, 1992, as amended at 61 FR 36453, July 10, 1996]



Sec.  203.360  Notice of property transfer or pre-foreclosure sale
and application for insurance benefits.

    (a) On the date the deed is filed for record the mortgagee shall 
notify the Commissioner on a form prescribed by him of the filing of 
such conveyance and shall assign, without recourse or warranty any or 
all claims which the mortgagee has acquired in connection with the 
mortgage transaction, and as a result of the foreclosure proceedings or 
other means by which the mortgagee acquired or conveyed such property, 
except such claims as may have been released with the approval of the 
Commissioner.
    (b) Within 30 days of the closing of an approved pre-foreclosure 
sale, the mortgagee shall notify the Commissioner on a form prescribed 
by him of the pre-foreclosure sale.

[36 FR 24508, Dec. 22, 1971, as amended at 59 FR 50144, Sept. 30, 1994]



Sec.  203.361  Acceptance of property by Commissioner.

    Upon receipt of notice of property transfer the Commissioner shall 
accept title to and possession of the property as of the date of the 
filing for record of the deed to the Commissioner, subject to compliance 
with the regulations in this part.



Sec.  203.362  Conditions for withdrawal of application for insurance 
benefits.

    With the consent of the Commissioner, a mortgagee may withdraw an 
application for insurance benefits if the mortgagee agrees that it will:
    (a) Accept a reconveyance of the property under a deed which 
warrants against the acts of the Commissioner and all claiming by, 
through, or under him; and
    (b) Promptly file a reconveyance for record; and
    (c) Accept without continuation the title evidence which it 
furnished the Commissioner; and

[[Page 212]]

(d) Reimburse the Commissioner for property expenditures as set forth in 
Sec.  203.364.



Sec.  203.363  Effect of noncompliance with regulations.

    (a) For mortgages insured under firm commitments issued prior to 
November 19, 1992 or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's approved underwriter 
prior to November 19, 1992. If, for any reason, the mortgagee fails to 
comply with the regulations in this subpart, the Secretary may hold 
processing of the application for insurance benefits in abeyance for a 
reasonable time in order to permit the mortgagee to comply, or, in the 
alternative, the Secretary may reconvey title to the property to the 
mortgagee, in which event the application for insurance benefits shall 
be considered as cancelled without prejudice to the rights of the 
mortgagee to reapply for insurance benefits at a subsequent date.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992. If, for any reason, the mortgagee fails to comply 
with the regulations in this subpart, the Secretary may hold processing 
of the application for insurance benefits in abeyance for a reasonable 
time in order to permit the mortgagee to comply. In the alternative to 
holding processing in abeyance, the Secretary may reconvey title to the 
property to the mortgagee, in which event the application for insurance 
benefits shall be considered as cancelled and the mortgagee shall refund 
the insurance benefits to the Secretary as well as other funds required 
by Sec.  203.364 of this part. The mortgagee may reapply for insurance 
benefits at a subsequent date; provided, however, that the mortgagee may 
not be reimbursed for any expenses incurred in connection with the 
property after it has been reconveyed by the Secretary, or paid any 
debenture interest accrued after the date of initial conveyance or after 
the date conveyance was required by Sec.  203.359 of this part, 
whichever is earlier, and there will be deducted from the insurance 
benefits any reduction in the Secretary's estimate of the value of the 
property occurring from the time of reconveyance to the time of 
reapplication.

[57 FR 47971, Oct. 20, 1992, as amended at 61 FR 36453, July 10, 1996]



Sec.  203.364  Mortgagee's liability for property expenditures.

    Where the Secretary acquires a property and thereafter it becomes 
necessary for the Secretary to reconvey the property to the mortgagee 
due to the mortgagee's noncompliance with these regulations or the 
application for insurance benefits is withdrawn with the consent of the 
Secretary, the mortgagee shall reimburse the Secretary for all expenses 
incurred in connection with such acquisition and reconveyance. The 
reimbursement shall include interest on the amount of insurance benefits 
refunded by the mortgagee from the date the insurance benefits were paid 
to the date of refund at an interest rate set in conformity with the 
Treasury Fiscal Requirements Manual, and the Secretary's cost of holding 
the property, accruing on a daily basis, from the date the deed to the 
Secretary was filed for record to the date of reconveyance. These costs 
are based on the Secretary's estimate of the taxes, maintenance and 
operating expenses of the property, and administrative expenses. 
Appropriate adjustments shall be made by the Secretary on account of any 
income received from the property.

[57 FR 47971, Oct. 20, 1992]



Sec.  203.365  Documents and information to be furnished the Secretary;
claims review.

    (a) Items to be furnished the Secretary. Within 45 days after the 
deed is filed for record, in the case of a conveyance claim; or, in the 
case of a claim arising from a pre-foreclosure sale, within 30 days 
after the closing of the pre-foreclosure sale, unless extended by the 
Commissioner, the mortgagee must forward to the Secretary:
    (1) A copy of the deed to the Secretary that has been filed for 
record and the title evidence continued so as to include recordation of 
the deed; or

[[Page 213]]

evidence, as prescribed by the Secretary, of the closing of the pre-
foreclosure sale.
    (2) Fiscal data pertaining to the mortgage transaction.
    (3) Any additional information or data that the Secretary may 
require.
    (b) Items to be retained by mortgagee. The mortgagee must retain all 
cash amounts, held or deposited for the account of the mortgagor or to 
which it is entitled under the mortgage transaction, that have not been 
applied in reduction of the principal mortgage indebtedness.
    (c) Claim file to be maintained by mortgagee. (1) The Secretary may 
verify the accuracy of information regarding the insurance claim either 
before payment of the claim or after payment by periodic reviews of the 
mortgagee's records. Mortgagees must reimburse the Secretary for any 
claim and interest overpaid because of incorrect, unsupported, or 
inappropriate information provided by the mortgagee, or because of 
failure to provide correct information.
    (2) Mortgagees must maintain a claim file containing documentation 
supporting all information submitted for claim payment for at least 
three years after a claim has been paid. All claim files for claims paid 
during a period relating to an unresolved or ongoing claim review must 
be maintained until final resolution of such review. Information to be 
maintained in the claim file includes receipts covering all 
disbursements as required by the fiscal data form, ledger cards covering 
the mortgage transaction, and any additional information or data 
relevant to the mortgage transaction or insurance claim.
    (3) The Secretary may review any claim file at any time during the 
three-year period after the claim has been paid. Denial of access to any 
files will be grounds for withdrawal of the mortgagee's approved lender 
status, debarment by the Secretary, or immediate suspension of all claim 
payments.
    (4) Within 24 hours of a request by the Secretary, a mortgagee must 
make available for review, or forward to the Secretary, hard copies of 
identified claim files.
    (d) Statistical sampling. HUD may use statistical sampling in 
selecting claims to be reviewed and in determining the amount due the 
Secretary because of overpayment.

[57 FR 47972, Oct. 20, 1992, as amended at 59 FR 50144, Sept. 30, 1994]



Sec.  203.366  Conveyance of marketable title.

    (a) Satisfactory conveyance of title and transfer of possession. The 
mortgagee shall tender to the Commissioner a satisfactory conveyance of 
title and transfer of possession of the property. The deed or other 
instrument of conveyance shall convey good marketable title to the 
property, which shall be accompanied by title evidence satisfactory to 
the Commissioner.
    (b) Conveyance of property without good marketable title. (1) For 
mortgages insured under firm commitments issued on or after November 19, 
1992, or under direct endorsement processing where the credit worksheet 
was signed by the mortgagee's underwriter on or after November 19, 1992, 
if the title to the property conveyed by the mortgagee to the Secretary 
is not good and marketable, the mortgagee must correct any title defect 
within 60 days after receiving notice from the Secretary, or within such 
further time as the Secretary may approve in writing.
    (2) If the defect is not corrected within 60 days, or such further 
time as the Secretary approves in writing, the mortgagee must reimburse 
the Secretary for HUD's costs of holding the property, accruing on a 
daily basis, and interest on the amount of insurance benefits paid to 
the mortgagee at an interest rate set in conformity with the Treasury 
Fiscal Requirements Manual from the date of such notice to the date the 
defect is corrected or until the Secretary reconveys the property to the 
mortgagee, as described in paragraph (b)(3) of this section. The daily 
holding costs to be charged a mortgagee shall include the costs 
specified in Sec.  203.364 of this part.
    (3) If the title defect is not corrected within a reasonable time, 
as determined by HUD, the Secretary will, after notice, reconvey the 
property to the mortgagee and the mortgagee must

[[Page 214]]

reimburse the Secretary in accordance with Sec. Sec.  203.363 and 
203.364 of this part.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 47972, Oct. 20, 1992; 
61 FR 36453, July 10, 1996]



Sec.  203.367  Contents of deed and supporting documents.

    The deed and supporting accompanying documents shall be as follows:
    (a) Deed. A deed conveying the property to the Federal Housing 
Commissioner. The deed shall:
    (1) Contain covenants which warrant title against acts of the 
grantor, and all claiming by, through, or under said grantor, if the 
grantor is the mortgagee or mortgagor; if the grantor is a party other 
than the mortgagee or mortgagor, the special warranty covenants may be 
limited or amended to accord with the law of the particular 
jurisdiction.
    (2) Recite nominal consideration, if such recital is adequate under 
the laws of the State in which the property is located or such other 
consideration as may be necessary to support the deed.
    (b) Maps or survey. A map or diagram showing property location with 
reference to public streets or roads or a survey, if available. When a 
part of the property has been taken by condemnation proceedings or 
conveyance in lieu of condemnation, a map or diagram showing the part 
taken and the property remaining is required.
    (c) Credit documents. The original credit and security instruments, 
if available or a deficiency judgment, if any, duly assigned or endorsed 
by the mortgagee, without recourse, to the Commissioner.



Sec.  203.368  Claims without conveyance procedure.

    (a)(1) The requirements of this section apply to any insured 
mortgage subject to this subpart which was either insured pursuant to:
    (i) A conditional commitment issued on or after November 30, 1983 
or, as appropriate,
    (ii) An application for mortgage insurance endorsement under the 
Single Family Direct Endorsement Program, as provided in Sec.  
203.255(b), where the property appraisal report was signed by the 
mortgagee's underwriter on or after November 30, 1983.
    (2) The requirements of this section shall also apply to any other 
mortgages subject to this subpart where the mortgagee elects to provide 
the notice to HUD required by paragraph (d) of this section.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
the requirements of this section do not apply if the mortgaged property 
has been damaged as set out in Sec.  203.378.
    (c) Nothing in this section shall affect any rights or obligations 
arising under the procedures set forth in subpart C of this part.
    (d) After initiating proceedings to foreclose an insured mortgage 
within the coverage of paragraph (a)(1) of this section by judicial, 
statutory, or other means authorized by the mortgage instrument, the 
mortgagee shall furnish notice of the foreclosure to the Commissioner, 
containing such information as shall be prescribed by the Commissioner, 
together with a copy of the notice of sale, on or before the date of 
first publication, posting, or other notice. The mortgagee foreclosing 
an insured mortgage subject to this subpart and within the coverage of 
paragraph (a)(2) of this section may elect to become subject to this 
section by providing such notices to the Commissioner in accordance with 
the preceding sentence.
    (e) Where notice of the foreclosure sale is provided pursuant to 
paragraph (d) of this section, the Commissioner may elect to cause the 
mortgaged property to be appraised and to give written notice to the 
mortgagee, not less than five days prior to the date of the foreclosure 
sale, of the Commissioner's estimate of the fair market value of the 
mortgaged property, less adjustments as the Commissioner may deem 
appropriate (which may include, without limitation, the Commissioner's 
estimate of holding costs and resale costs that would be incurred if 
title to the mortgaged property were conveyed to the Commissioner). Such 
amount is referred to hereafter as the ``Commissioner's adjusted fair 
market value.''

[[Page 215]]

    (f) If the Commissioner fails to provide notice of the 
Commissioner's adjusted fair market value to the mortgagee not less than 
five days prior to the scheduled date of foreclosure sale, this section 
shall have no further application and Sec. Sec.  203.355 through 203.367 
shall apply: Provided, that a mortgagee which receives the 
Commissioner's notice at any time prior to the foreclosure sale may 
waive late receipt by so notifying the Commissioner, in which case this 
section shall apply.
    (g) If the Commissioner provides notice of the Commissioner's 
adjusted fair market value in accordance with paragraph (e) of this 
section the following shall be applicable:
    (1) The mortgagee shall tender a bid at the foreclosure sale in the 
amount of the Commissioner's adjusted fair market value.
    (2) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid at foreclosure sale in an amount equal to the 
Commissioner's adjusted fair market value, the mortgagee may elect to 
retain title to the property and to file a claim for the insurance 
benefits computed as provided in Sec.  203.401(b).
    (3) If a party other than the mortgagee acquires title to the 
mortgaged property either pursuant to a bid at foreclosure sale or 
through the redemption of the property in an amount not less than the 
Commissioner's adjusted fair market value, the mortgagee may file a 
claim for the insurance benefits computed as provided in Sec.  
203.401(b).
    (4) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid at foreclosure sale in an amount in excess of the 
Commissioner's adjusted fair market value, the mortgagee is deemed to 
have elected to retain title to the property and is limited to filing a 
claim for the insurance benefits computed as provided in Sec.  
203.401(b). In the event the mortgagee can show good cause for having 
bid an amount in excess of the Commissioner's adjusted fair market 
value, the Commissioner may, at his discretion, waive the provisions of 
this subparagraph and allow the mortgagee to convey title to the 
Commissioner and file a claim for the insurance benefits computed as 
provided in Sec.  203.401(a). A mortgagee which has elected to follow 
the provisions of this section pursuant to paragraph (a)(2) of this 
section and bids an amount in excess of the Commissioner's adjusted fair 
market value shall not be subject to the provisions of this 
subparagraph, and may elect to retain or convey title in filing a claim 
for the insurance benefits.
    (5) In any other case, the mortgagee may file a claim for insurance 
benefits only upon conveyance of title to the mortgaged property to the 
Commissioner.
    (h) If the Commissioner provides timely notice of the Commissioner's 
adjusted fair market value in accordance with paragraph (e), the 
Commissioner may require the mortgagee to advertise the upcoming sale in 
addition to the standard legal notices which may be required by state 
law.
    (i) Where a mortgagee files a claim for the insurance benefits 
without conveying title to the property to the Commissioner, as 
authorized by this section:
    (1) Sections 203.358 through 203.367 shall not be applicable.
    (2) The mortgagee shall assign to the Commissioner, without recourse 
or warranty, any or all claims which the mortgagee has acquired in 
connection with the mortgage transaction and as a result of the 
foreclosure proceedings or other means by which the mortgagee or party 
other than the mortgagee acquired such property, except such claims as 
may have been released with the approval of the Commissioner.
    (3) The mortgagee shall forward to the Commissioner:
    (i) Fiscal data pertaining to the mortgage transaction;
    (ii) The original credit and security instruments, if available, or 
a deficiency judgment, if any, duly assigned or endorsed by the 
mortgagee, without recourse, to the Commissioner; and
    (iii) Any additional information or data which the Commissioner may 
require.
    (4) The mortgagee shall retain all cash amounts held or deposited 
for the account of the mortgagor or to which the mortgagee is entitled 
under the mortgage transaction that have not been applied in reduction 
of the principal mortgage indebtedness. Cash

[[Page 216]]

amounts shall be itemized and deducted from the claim pursuant to Sec.  
203.403. Receipts for disbursements are to be retained by the mortgagee 
and are to be made available upon request by the Commissioner.
    (5) The mortgagee shall file its claim:
    (i) Within 30 days after the mortgagee acquired good marketable 
title to the property; or
    (ii) Within 30 days after a party other than the mortgagee acquired 
good marketable title to the property; or
    (iii) In redemption States, within 30 days after the mortgagor or 
another party redeemed the property or the redemption period has 
expired; or
    (iv) Within such other time as may be determined by the 
Commissioner.
    (6) In any case in which the insurance benefits paid include, 
pursuant to Sec.  203.402(c), hazard insurance premiums paid by the 
mortgagee, the portion of the hazard insurance premium allocable to the 
period after acquisition of title by the mortgagee or a third party 
shall be deducted from the mortgage insurance benefits otherwise 
payable.

(Approved by the Office of Management and Budget under control number 
2502-0347)

[52 FR 1327, Jan. 13, 1987, as amended at 61 FR 36453, July 10, 1996]



Sec.  203.369  Deficiency judgments.

    (a) Mortgages insured on or after March 28, 1988. (1) For mortgages 
insured pursuant to firm commitments issued on or after March 28, 1988, 
or pursuant to direct endorsement processing where the credit worksheet 
was signed by the mortgagee's underwriter on or after March 28, 1988, 
the Secretary may require the mortgagee diligently to pursue a 
deficiency judgment in connection with any foreclosure. With respect to 
claims filed for insurance benefits on such mortgages, any judgment 
obtained by the mortgagee must be assigned to the Secretary.
    (2) In cases where the Secretary requires the pursuit of a 
deficiency judgment and provides the mortgagee with the Secretary's 
estimate of the fair market value of the property, less adjustments, in 
accordance with Sec.  203.368(e) of this part, the mortgagee must tender 
a bid at the foreclosure sale in that amount, and must take all other 
appropriate steps in accordance with State law to obtain a deficiency 
judgment.
    (b) Mortgages insured before March 28, 1988. For mortgages insured 
pursuant to firm commitments issued before March 28, 1988, or pursuant 
to direct endorsement processing where the credit worksheet was signed 
by the mortgagee's underwriter before March 28, 1988, the Secretary may 
request that the mortgage diligently pursue a deficiency judgment in 
connection with the foreclosure. With respect to claims filed for 
insurance benefits on such mortgages, any judgment obtained by the 
mortgagee must be assigned to the Secretary.
    (c) In cases where pursuit of a deficiency judgment is requested or 
required under this section, the Commissioner, where the Commissioner 
determines it appropriate under State law requirements, may extend the 
otherwise applicable period of time within which a deficiency judgment 
(and other claims against the mortgagor) and related credit documents 
must be assigned to the Commissioner under Sec.  203.360, Sec.  203.367 
or Sec.  203.368 of this subpart.
    (d) In addition to meeting the requirements of Sec.  203.356, in 
cases where the Commissioner determines it necessary because of State 
law requirements, the Commissioner may also require (or request, as the 
Commissioner may determine) the mortgagee to provide the Commissioner 
with notice of the mortgagee's intent to institute foreclosure 
proceedings a reasonable amount of time before proceedings are 
instituted, in order that the Commissioner may be able effectively to 
require or request the mortgagee, in appropriate cases, to seek a 
deficiency judgment.

(The information collection requirements contained in this section have 
been approved by the Office of Management and Budget under control 
number 2535-0093)

[53 FR 4387, Feb. 16, 1988, as amended at 57 FR 47972, Oct. 20, 1992; 61 
FR 36453, July 10, 1996]



Sec.  203.370  Pre-foreclosure sales.

    (a) General. HUD will pay FHA insurance benefits to mortgagees in 
cases where, in accordance with all regulations and procedures 
applicable to pre-

[[Page 217]]

foreclosure sales, the mortgaged property is sold by the mortgagor, 
after default and prior to foreclosure, at its current fair market value 
(less adjustments as the Commissioner may deem appropriate) but for less 
than the mortgage loan amount currently outstanding.
    (b) Notification of mortgagor. The mortgagee shall give notice, 
according to prescribed procedures, of the opportunity to be considered 
for the pre-foreclosure sale procedure to each mortgagor in default. All 
notices to mortgagors must be in an accessible format, if requested, or 
if required by the person's known disability, as required by 24 CFR part 
9.
    (c) Eligibility for the Pre-foreclosure Sale Procedure. In order to 
be considered for the pre-foreclosure sale procedure, a mortgagor:
    (1) Must be an owner occupant in a single family residence that is 
security for a mortgage insured under this part, unless otherwise 
prescribed by the Secretary.
    (2) Must have an account in default, for such period as determined 
by the Secretary, which default is the result of an adverse and 
unavoidable financial situation.
    (3) Must have, at the time application is made to pursue a pre-
foreclosure sale, a mortgaged property whose current fair market value, 
compared to the amount needed to discharge the mortgage, meets the 
criterion established by the Secretary, unless a variance is granted by 
the Secretary.
    (4) Must have received an appropriate disclosure, as prescribed by 
the Secretary.

[59 FR 50144, Sept. 30, 1994, as amended at 61 FR 35018, July 3, 1996; 
72 FR 56161, Oct. 2, 2007]



Sec.  203.371  Partial claim.

    (a) General. Notwithstanding the conveyance, sale or assignment 
requirements for payment of a claim elsewhere in this part, HUD will pay 
partial FHA insurance benefits to mortgagees after a period of 
forbearance, the maximum length of which HUD will prescribe, and in 
accordance with this section.
    (b) Requirements. The following conditions must be met for payment 
of a partial claim:
    (1) The mortgagor has been delinquent for at least 4 months or such 
other time prescribed by HUD;
    (2) The amount of the arrearage has not exceeded the equivalent of 
12 monthly mortgage payments;
    (3) The mortgagor is able to resume making full monthly mortgage 
payments;
    (4) The mortgagor is not financially able to make sufficient 
additional payments to repay the arrearage within a time frame specified 
by HUD;
    (5) The mortgagor is not financially qualified to support monthly 
mortgage payments on a modified mortgage or on a refinanced mortgage in 
which the total arrearage is included; and
    (6) The mortgagor must have made a minimum number of monthly 
payments as prescribed by the Secretary on a case-by-case basis.
    (c) Repayment of the subordinate lien. The mortgagor must execute a 
mortgage in favor of HUD with terms and conditions acceptable to HUD for 
the amount of the partial claim under Sec.  203.414(a). HUD may require 
the mortgagee to be responsible for servicing the subordinate mortgage 
on behalf of HUD.
    (d) Application for insurance benefits. Along with the prescribed 
application for partial claim insurance benefits, the mortgagee shall 
provide HUD with the original credit instrument no later than 60 days 
after execution. The mortgagee shall provide HUD with the original 
security instrument, required by paragraph (c) of this section, no later 
than 6 months following the date of execution. If the mortgagee 
experiences a delay from the recording authority, it may request an 
extension of time, in writing, from HUD. If the mortgagee does not 
provide the original of the note and security instrument within the 
prescribed deadlines, the mortgagee shall be required to reimburse the 
amount of the claim paid, including the incentive.

[61 FR 35018, July 3, 1996, as amended at 62 FR 60130, Nov. 6, 1997; 72 
FR 56161, Oct. 2, 2007]

[[Page 218]]

                          Condition of Property



Sec. Sec.  203.375-203.376  [Reserved]



Sec.  203.377  Inspection and preservation of properties.

    The mortgagee, upon learning that a property subject to a mortgage 
insured under this part is vacant or abandoned, shall be responsible for 
the inspection of such property at least monthly, if the loan thereon is 
in default. When a mortgage is in default and a payment thereon is not 
received within 45 days of the due date, and efforts to reach the 
mortgagor by telephone within that period have been unsuccessful, the 
mortgagee shall be responsible for a visual inspection of the security 
property to determine whether the property is vacant. The mortgagee 
shall take reasonable action to protect and preserve such security 
property when it is determined or should have been determined to be 
vacant or abandoned until its conveyance to the Secretary, if such 
action does not constitute an illegal trespass. ``Reasonable action'' 
includes the commencement of foreclosure within the time required by 
Sec.  203.355(b) of this part.

[57 FR 47972, Oct. 20, 1992]



Sec.  203.378  Property condition.

    (a) Condition at time of transfer. When the property is transferred, 
or a mortgage is assigned to the Commissioner, the property shall be 
undamaged by fire, earthquake, flood, or tornado, except as set forth in 
this subpart.
    (b) Damage to property by waste. The mortgagee shall not be liable 
for damage to the property by waste committed by the mortgagor, its 
heirs, successors or assigns in connection with mortgage insurance 
claims paid on or after July 2, 1968.
    (c) Mortgagee responsibility. The mortgagee shall be responsible 
for:
    (1) Damage by fire, flood, earthquake, hurricane, or tornado;
    (2) Damage to or destruction of security properties on which the 
loans are in default and which properties are vacant or abandoned, when 
such damage or destruction is due to the mortgagee's failure to take 
reasonable action to inspect, protect and preserve such properties as 
required by Sec.  203.377 of this part, as to all mortgages insured on 
or after January 1, 1977; and
    (3) As to all mortgages insured under firm commitments issued on or 
after November 19, 1992, or under direct endorsement processing where 
the credit worksheet was signed by the mortgagee's underwriter on or 
after November 19, 1992, any damage of whatsoever nature that the 
property has sustained while in the possession of the mortgage if the 
property is conveyed to the Secretary without notice to and approval by 
the Secretary as required by Sec.  203.379 of this part.
    (d) Limitation. The mortgagee's responsibility for property damage 
shall not exceed the amount of its insurance claim as to a particular 
property.

[36 FR 34508, Dec. 22, 1971. Redesignated and amended at 41 FR 49735, 
Nov. 10, 1976; 57 FR 47973, Oct. 20, 1992; 58 FR 32057, June 8, 1993; 61 
FR 36265, July 9, 1996; 61 FR 36453, July 10, 1996]



Sec.  203.379  Adjustment for damage or neglect.

    (a) If the property has been damaged by fire, flood, earthquake, 
hurricane, or tornado, or, for mortgages insured on or after January 1, 
1977, the property has suffered damage because of the mortgagee's 
failure to take action as required by Sec.  203.377, the damage must be 
repaired before conveyance of the property or assignment of the mortgage 
to the Secretary, except under the following conditions:
    (1) If the prior approval of the Secretary is obtained, there will 
be deducted from the insurance benefits the Secretary's estimate of the 
cost of repairing the damage or any insurance recovery received by the 
mortgagee, whichever is greater.
    (2) If the property has been damaged by fire and was not covered by 
fire insurance at the time of the damage, or the amount of insurance 
coverage was inadequate to repair fully the damage, only the amount of 
insurance recovery received by the mortgagee, if any, will be deducted 
from the insurance benefits, provided the mortgagee certifies, at the 
time that a claim is filed for insurance benefits, that:
    (i) At the time the mortgage was insured, the property was covered 
by fire insurance in an amount at least equal

[[Page 219]]

to the lesser of 100 percent of the insurable value of the improvements, 
or the principal loan balance of the mortgage; and
    (ii) The insurer later cancelled this coverage or refused to renew 
it for reasons other than nonpayment of premium; and
    (iii) The mortgagee made diligent though unsuccessful efforts within 
30 days of any cancellation or non-renewal of hazard insurance, and at 
least annually thereafter, to secure other coverage or coverage under a 
FAIR Plan, in an amount described in paragraph (a)(2)(i) of this 
section, or if coverage to such an extent was unavailable at a 
reasonable rate, the greatest extent of coverage that was available at a 
reasonable rate; and
    (iv) The extent of coverage obtained by the mortgagee in accordance 
with paragraph (a)(2)(iii) of this section was the greatest available at 
a reasonable rate, or if the mortgagee was unable to obtain insurance, 
none was available at a reasonable rate; and
    (v) The mortgagee took the actions required by Sec.  203.377 of this 
part.
    (3) The certification requirements set out in paragraph (a)(2) of 
this section apply to any mortgage insured by HUD on or after September 
22, 1980, for which a claim has not been filed before September 30, 
1986. Any mortgage insured on or after September 22, 1980, for which a 
claim has been filed before September 30, 1986, but the claim has not 
been settled before that date, will be governed by Sec.  203.379(b) 
(1986) Edition as it existed immediately before September 30, 1986.
    (4)(i) As used in this section, reasonable rate means a rate that is 
not in excess of the rate or advisory rate set by the principal State-
licensed rating organization for essential property insurance in the 
voluntary market, or if coverage is available under a FAIR Plan, the 
FAIR Plan rate.
    (ii) If a State has neither a FAIR Plan nor a State-licensed rating 
organization for essential property insurance in the voluntary market, 
the mortgagee must provide to the HUD Field Office having jurisdiction, 
information concerning the lowest rates available from an insurer for 
the types of coverage involved, with a request for a determination of 
whether the rate is reasonable. HUD will determine the rate to be 
reasonable if it approximates the rate assessed for comparable insurance 
coverage applicable to similarly situated properties in a State that 
offers a FAIR Plan or maintains a State-licensed rating organization.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992, the provisions of paragraph (a) of this section apply 
and, in addition, if the property has been damaged during the time of 
the mortgagee's possession by events other than fire, flood, earthquake, 
hurricane, or tornado, or if it was damaged notwithstanding reasonable 
action by the mortgagee as required by Sec.  203.377 of this part, the 
mortgagee must provide notice of such damage to the Secretary and may 
not convey until directed to do so by the Secretary. The Secretary will 
either:
    (1) Allow the mortgagee to convey the property damaged; or
    (2) Require the mortgagee to repair the damage before conveyance, 
and the Secretary will reimburse the mortgagee for reasonable payments 
not in excess of the Secretary's estimate of the cost of repair, less 
any insurance recovery.
    (c) In the event the damaged property is conveyed to the Secretary 
without prior notice or approval as provided in paragraphs (a) or (b) of 
this section, the Secretary may:
    (1) After notice, reconvey the property to the mortgagee and the 
mortgagee must reimburse the Secretary in accordance with Sec. Sec.  
203.363 and 203.364 of this part, or
    (2) Require the mortgagee to reimburse the Secretary for the greater 
of the Secretary's estimate of the cost of repair or any insurance 
recovery.

[57 FR 47973, Oct. 20, 1992, as amended at 61 FR 36265, July 9, 1996]



Sec.  203.380  Certificate of property condition.

    (a) The mortgagee shall either:
    (1) Certify that as of the date of the filing of deed for record, or 
assignment

[[Page 220]]

of the mortgage to the Secretary, the property was:
    (i) Undamaged by fire, flood, earthquake, hurricane or tornado; and
    (ii) As to mortgages insured or for which commitments to insure were 
issued on or after January 2, 1977, undamaged due to failure of the 
mortgagee to take action as required by Sec.  203.377; and
    (iii) As to mortgages insured under firm commitments issued on or 
after November 19, 1992, or under direct endorsement processing where 
the credit worksheet was signed by the mortgagee's underwriter on or 
after November 19, 1992, undamaged while the property was in the 
possession of the mortgage; or
    (2) Attach to its claim a copy of the Secretary's authorization to 
convey the property in damaged condition.
    (b) In the absence of evidence to the contrary, the mortgagee's 
certificate or description of the damage shall be accepted by the 
Secretary as establishing the condition of the property, as of the date 
of the filing of the deed or assignment of the mortgage.

[57 FR 47973, Oct. 20, 1992, as amended at 61 FR 36265, July 9, 1996; 61 
FR 36453, July 10, 1996]



Sec.  203.381  Occupancy of property.

    The mortgagee shall certify that the property is vacant and contains 
no personal property as of the date of filing for record of the deed to 
the Secretary or that the Secretary has consented to accept the property 
occupied.

[45 FR 59563, Sept. 10, 1980]



Sec.  203.382  Cancellation of hazard insurance.

    The mortgagee shall cancel any hazard insurance policy as of the 
date of the filing for record of the deed to the Commissioner subject to 
the following conditions:
    (a) The amount of the return premium due the mortgagee because of 
such cancellation may be calculated on a ``short-rate'' basis and 
reported on fiscal data supporting the application for debentures and 
the amount shall be deducted from the total amount claimed.
    (b) If the mortgagee's calculation of the return premium is less 
than the actual return, the amount of the difference between the actual 
refund and the calculated amount shall be remitted to the Commissioner, 
accompanied by the carrier's or agent's statement.
    (c) If the mortgagee's calculation of the return premium is more 
than the actual return, the mortgagee may file with the Commissioner a 
claim, supported by the carrier's or agent's statement of the amount of 
the refund, whereupon the Commissioner shall issue a check to the 
mortgagee in settlement of the claim.

               Property Title Transfers and Title Waivers



Sec.  203.385  Types of satisfactory title evidence.

    The following types of title evidence shall be satisfactory to the 
Commissioner:
    (a) Fee or owner's title policy. A fee or owner's policy of title 
insurance, a guaranty or guarantee of title, or a certificate of title, 
issued by a title company, duly authorized by law and qualified by 
experience to issue such instruments. If an owner's policy of title 
insurance is furnished, it shall show title in the Commissioner and 
inure to the benefit of his successors in office.
    (b) Mortgagee's policy of title insurance. A mortgagee's policy of 
title insurance supplemented by an Abstract and an Attorney's 
Certificate of Title covering the period subsequent to the date of the 
mortgage, the terms of the policy shall be such that the liability of 
the title company will continue in favor of the Commissioner after title 
is conveyed to him. The policy may be drawn in favor of the mortgagee 
and the Federal Housing Commissioner, ``as their interests may appear'', 
with the consent of the title company endorsed thereon;
    (c) Abstract and legal opinion. An abstract of title prepared by an 
abstract company or individual engaged in the business of preparing 
abstracts of title and accompanied by the legal opinion as to the 
quality of such title signed by an attorney at law experienced in 
examination of titles. If title evidence

[[Page 221]]

consists of an Abstract and an Attorney's Certificate of Title, the 
search shall extend for at least forty years prior to the date of the 
Certificate to a well recognized source of good title;
    (d) Torrens of similar certificate. A Torrens or similar title 
certificate; or
    (e) Title standard of U.S. or State government. Evidence of title 
conforming to the standards of a supervising branch of the Government of 
the United States or of any State or Territory thereof.



Sec.  203.386  Coverage of title evidence.

    Evidence of title shall be executed as of a date to include the 
recordation of the deed to the Commissioner. The evidence of title shall 
show that according to the public records, there are not, at such date, 
any outstanding prior liens, including any past-due and unpaid ground 
rents, general taxes or special assessments.



Sec.  203.387  Acceptability of customary title evidence.

    If the title and title evidence are such as to be acceptable to 
prudent lending institutions and leading attorneys generally in the 
community in which the property is situated, such title and title 
evidence shall be satisfactory to the Secretary and shall be considered 
as good and marketable. In cases of disagreement, the Secretary will 
make the final decision.

[57 FR 47974, Oct. 20, 1992]



Sec.  203.389  Waived title objections.

    The Commissioner shall not object to title by reason of the 
following matters:
    (a) Violations of a restriction based on race, color or creed, even 
where such restriction provides for a penalty of reversion or forfeiture 
of title or a lien for liquidated damage.
    (b)(1) Aviation easements, which were approved by the Secretary at 
the time of the origination of the mortgage, and other customary 
easements for public utilities, party walls, driveways, and other 
purposes.
    (2) Easements for public utilities along one or more of the property 
lines and extending not more than 10 feet therefrom and for drainage or 
irrigation ditches along the rear 10 feet of the property, provided the 
exercise of the rights thereunder do not interfere with any of the 
buildings or improvements located on the subject property.
    (c) Easements for underground conduits which are in place and do not 
extend under any buildings on the subject property;
    (d) Mutual easements for joint driveways constructed partly on the 
subject property and partly on adjoining property, provided the 
agreements creating such easements are of record;
    (e) Encroachments on the subject property by improvements on 
adjoining property where such encroachments do not exceed 1 foot, 
provided such encroachments do not touch any buildings or interfere with 
the use of any improvements on the subject property;
    (f) Encroachments on adjoining property by eaves and overhanging 
projections attached to improvements on subject property where such 
encroachments do not exceed 1 foot.
    (g) Encroachments on adjoining property by hedges, wooden or wire 
fences belonging to the subject property;
    (h) Encroachments on adjoining property by driveways belonging to 
subject property where such encroachments do not exceed 1 foot, provided 
there exists a clearance of at least 8 feet between the buildings on the 
subject property and the property line affected by the encroachment;
    (i) Variations between the length of the subject property lines as 
shown on the application for insurance and as shown by the record or 
possession lines, provided such variations do not interfere with the use 
of any of the improvements on the subject property and do not involve a 
deficiency of more than 2 percent with respect to the length of the 
front line or more than 5 percent with respect to the length of any 
other line;
    (j) Encroachments by garages or improvements other than those which 
are attached to or a portion of the main dwelling structure over 
easements for public utilities, provided such encroachment does not 
interfere with the use of the easement or the exercise of the rights of 
repair and maintenance in connection therewith;

[[Page 222]]

    (k) Violations of cost or set back restrictions which do not provide 
a penalty of reversion or forfeiture of title, or a lien for liquidated 
damages which may be superior to the lien of the insured mortgage. 
Violations of such restrictions which do provide for such penalties, 
provided such penalty rights have been duly released or subordinated to 
the lien of the insured mortgage, or provided a policy of title 
insurance is furnished expressly insuring the Commissioner against loss 
by reason of such penalties.
    (l) Customary building and use restrictions which:
    (1) Are coupled with a reversionary clause, provided there has been 
no violation prior to the date of the deed to the Commissioner; or
    (2) Are not coupled with a reversionary clause and have not been 
violated to a material extent.
    (m) Outstanding oil, water or mineral rights (or damage caused by 
the exercise of such rights) which are customarily waived by prudent 
leading institutions and leading attorneys in the community.
    (n) The voluntary or involuntary conveyance of a part of the subject 
property pursuant to condemnation proceedings or in lieu of condemnation 
proceedings, if:
    (1) The part conveyed does not exceed 10 percent by area of the 
property;
    (2) No damage to existing structures, improvements, or unrepaired 
damage to sewage, water, or paving has been suffered;
    (3) All of the payment received as compensation for the taking by 
condemnation or conveyance in lieu of condemnation has been applied to 
reduction of the mortgage indebtedness;
    (4) The conveyance occurred subsequent to insurance of the mortgage; 
and
    (5) There is included with the documents and information furnished 
the Commissioner with the application for insurance benefits, a 
statement by the mortgagee that the requirements of this paragraph have 
been met.
    (o) Federal tax liens and rights of redemption arising therefrom if 
the following conditions are observed. If the mortgagee acquires the 
property by foreclosure the mortgagee shall give notice to the Internal 
Revenue Service (IRS) of the foreclosure action. The Commissioner will 
not object to an outstanding right of redemption in IRS if: (1) The 
Federal tax lien was perfected subsequent to the date of the mortgage 
lien, and (2) The mortgagee has bid an amount sufficient to make the 
mortgagee whole if the property is in fact redeemed by the IRS.

[36 FR 34508, Dec. 22, 1971, as amended at 41 FR 49736, Nov. 10, 1976; 
72 FR 56161, Oct. 2, 2007]



Sec.  203.390  Waiver of title--mortgages or property formerly held by
the Secretary.

    (a) Mortgages sold by the Secretary. (1) If the Secretary sells a 
mortgage and such mortgage is later reassigned to him or the property 
covered by such mortgage is later conveyed to him, he will not object to 
title by reason of any lien or other adverse interest that was senior to 
the mortgage on the date of the original sale of such mortgage.
    (2) The Secretary will accept an assignment of a mortgage previously 
sold by him, where the mortgagee is unable to complete foreclosure 
because of a defect in the mortgage instrument, a defect in the mortgage 
transaction, or a defect in title which existed at or prior to the time 
the mortgage assignment was filed for record. In such instances, the 
Secretary will not object to title by reason of any such defect.
    (b) Property sold by the Secretary. (1) If a property held by the 
Secretary is sold by the Secretary who also insures a mortgage financing 
the sale, and the mortgage is later reassigned to the Secretary or the 
property covered by the mortgage is later conveyed to the Secretary, the 
Secretary will not object to title by reason of any lien or other 
adverse interest that was senior to the mortgage on the date the 
mortgage was filed for record, except where the lien or other adverse 
interest arose from a lien or interest that had already been recorded 
against the mortgagor.
    (2) The Secretary will accept an assignment of a mortgage executed 
in connection with the sale of property by the Secretary, where the 
mortgagee is unable to complete foreclosure because of a defect in the 
mortgage instrument, a defect in the mortgage transaction,

[[Page 223]]

or a defect in title which existed at or prior to the time the mortgage 
was filed for record, except where the defect arose from a lien or 
interest that had already been recorded against the mortgagor on the 
date that the mortgage was filed for record. Except for the case of a 
lien or interest that had already been recorded against the mortgagor, 
the Secretary will not object to title by reason of any of the above 
defects.

[36 FR 24508, Dec. 22, 1971, as amended at 58 FR 35370, July 1, 1993; 61 
FR 36265, July 9, 1996]



Sec.  203.391  Title objection waiver with reduced insurance benefits.

    Payment of an insurance claim will not automatically be refused 
solely because the title evidence reveals a condition of title not taken 
into consideration in the original appraisal and not covered by the 
provisions of Sec.  203.389 of this part, or not otherwise waived in 
writing by the Secretary. In such instances, the Secretary may, at his 
or her option, approve the payment of a claim if the mortgagee agrees to 
accept a reduction in insurance benefits considered adequate by the 
Secretary to compensate for any anticipated loss to the Mutual Mortgage 
Insurance Fund as a result of the existence of the title condition at 
the time of claim.

[57 FR 47974, Oct. 20, 1992]

                      Payment of Insurance Benefits



Sec.  203.400  Method of payment.

    (a) If the application for insurance benefits is acceptable to the 
Commissioner, payment of the insurance claim shall be made in cash, in 
debentures, or in a combination of both, as determined by the 
Commissioner either at, or prior to, the time of payment.
    (b) An insurance claim paid on a mortgage insured under section 
223(e) of the National Housing Act shall be paid in cash from the 
Special Risk Insurance Fund.

[80 FR 51468, Aug. 25, 2015]



Sec.  203.401  Amount of payment--conveyed and non-conveyed properties.

    (a) Conveyed properties. Where a claim for the insurance benefits is 
filed in accordance with this subpart, based on the conveyance of title 
to the mortgaged property to the Commissioner, the amount of the 
insurance benefits shall be computed by adding to the original principal 
balance of the mortgage (as increased by the amount of open-end advances 
made by the mortgagee and approved by the Commissioner) which was unpaid 
on the date of the institution of foreclosure proceedings, on the date 
of the acquisition of the property otherwise after default, or on the 
date the property was acquired by the Commissioner under a direct 
conveyance by the mortgagor, the amount of all payments made by the 
mortgagee and allowances for items set forth in Sec.  203.402, less all 
applicable items set forth in Sec.  203.403.
    (b) Claims without conveyance of title. (1) If the mortgagee 
acquires title to the mortgaged property pursuant to a bid amount equal 
to the Commissioner's adjusted fair market value and the mortgagee 
elects to retain title as provided in Sec.  203.368(g)(2), or if the 
mortgagee acquires title pursuant to a bid in excess of the 
Commissioner's adjusted fair market value (see Sec.  203.368(g)(4)), the 
amount of the insurance benefits shall be determined by deducting the 
amount bid at the sale from the original principal balance of the 
mortgage (as increased by the amount of open-end advances made by the 
mortgagee and approved by the Commissioner) which was unpaid on the date 
of institution of the foreclosure proceedings, and adding to the 
difference, if any, all applicable items set forth in Sec.  203.402 and 
subtracting therefrom all applicable items set forth in Sec.  203.403; 
provided however, that appropriate adjustment shall be made for any such 
items covered by proceeds of the foreclosure sale.
    (2) If a party other than the mortgagee acquires title to the 
mortgaged property pursuant to a bid at foreclosure sale not less in 
amount than the Commissioner's adjusted fair market value, the amount of 
the insurance benefits shall be determined by deducting the proceeds of 
the foreclosure sale distributed to the mortgagee from the original 
principal balance of the mortgage (as increased by the amount of

[[Page 224]]

open-end advances made by the mortgagee and approved by the 
Commissioner) which was unpaid on the date of the foreclosure 
proceedings, and adding to the difference, if any, all applicable items 
set forth in Sec.  203.402 and subtracting therefrom all applicable 
items set forth in Sec.  203.403; provided, however, that appropriate 
adjustment shall be made for any such items covered by the proceeds of 
the foreclosure sale.
    (3) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid not less in amount than the Commissioner's adjusted 
fair market value, and the mortgagor or another party redeems the 
property, the amount of the insurance benefits shall be determined by 
deducting the amount paid to redeem the property and received by the 
mortgagee from the original principal balance of that mortgage (as 
increased by the amount of open-end advances made by the mortgagee and 
approved by the Commissioner) which was unpaid on the date of the 
institution of foreclosure proceedings, and adding to the difference, if 
any, all applicable items set forth in Sec.  203.402 and subtracting 
therefrom all applicable items set forth in Sec.  203.403; provided 
however, that appropriate adjustments shall be made for any such items 
covered by that amount paid by the mortgagor or other party to redeem 
the property.
    (c) Pre-foreclosure Sales. Where a claim for insurance benefits is 
filed in accordance with this subpart, based on a pre-foreclosure sale 
approved by or on behalf of the Secretary (under the provisions of Sec.  
203.370), the amount of insurance benefits shall be computed by adding 
to the original principal balance of the mortgage (as increased by the 
amount of open-end advances made by the mortgagee and approved by the 
Commissioner) which was unpaid on the date of closing of the pre-
foreclosure sale, the amount of all applicable items set forth in Sec.  
203.402; provided however that appropriate adjustment shall be made for 
any such items covered by proceeds of the pre-foreclosure sale.
    (d) Final Payment. (1) The mortgagee may not file for any additional 
payments of its mortgage insurance claim after six months from payment 
by the Commissioner of the final payment except for:
    (i) Cases where the Commissioner requests or requires a deficiency 
judgment.
    (ii) Other cases where the Commissioner determines it appropriate 
and expressly authorizes an extension of time.
    (2) For the purpose of this section, the term final payment shall 
mean, in the case of claims filed for conveyed properties, the payment 
under subpart B of this part which is made by the Commissioner based 
upon the submission by the mortgagee of all required documents and 
information filed pursuant to Sec.  203.365. In the case of claims filed 
under claims without conveyance of title, final payment shall mean the 
payment which is made by the Commissioner based upon submission by the 
mortgagee of all required documents and information filed pursuant to 
Sec. Sec.  203.368 and 203.401(b). In the case of claims filed pursuant 
to pre-foreclosure sales, final payment shall mean the payment which is 
made by the Commissioner based upon submission by the mortgagee of all 
required documents and information filed pursuant to Sec. Sec.  203.370 
and 203.401(d).

[52 FR 1328, Jan. 13, 1987, as amended at 56 FR 3215, Jan. 29, 1991; 59 
FR 50144, Sept. 30, 1994]



Sec.  203.402  Items included in payment--conveyed and non-conveyed
properties.

    The insurance benefits paid in connection with foreclosed 
properties, whether or not conveyed to the Commissioner; and those 
properties conveyed to the Commissioner as a result of a deed in lieu of 
foreclosure; and those properties sold under an approved pre-foreclosure 
sale shall include the following items:
    (a) Taxes, ground rents, water rates, and utility charges that are 
liens prior to the mortgage.
    (b) Special assessments, which are noted on the application for 
insurance or which become liens after the insurance of the mortgage.
    (c) Hazard insurance premiums on the mortgaged property not in 
excess of a reasonable rate as defined in Sec.  203.379(a)(4).

[[Page 225]]

    (d) Periodic MIP or open-end insurance charges;
    (e) Taxes imposed upon any deeds or other instruments by which said 
property was acquired by the mortgagee and transferred or conveyed to 
the Commissioner, or was acquired by the mortgagee and retained pursuant 
to Sec.  203.368;
    (f) Foreclosure costs or costs of acquiring the property otherwise 
(including costs of acquiring the property by the mortgagee and of 
conveying and evidencing title to the property to HUD, but not including 
any costs borne by the mortgagee to correct title defects) actually paid 
by the mortgagee and approved by HUD, in an amount not in excess of two-
thirds of such costs or $75, whichever is the greater. For mortgages 
insured on or after February 1, 1998, the Secretary will reimburse a 
percentage of foreclosure costs or costs of acquiring the property, 
which percentage shall be determined in accordance with such conditions 
as the Secretary shall prescribe. Where the foreclosure involves a 
mortgage sold by the Secretary on or after August 1, 1969, or a mortgage 
executed in connection with the sale of property by the Secretary on or 
after such date, the mortgagee shall be reimbursed (in addition to the 
amount determined under the foregoing) for any extra costs incurred in 
the foreclosure as a result of a defect in the mortgage instrument, or a 
defect in the mortgage transaction or a defect in title which existed at 
or prior to the time the mortgage (or its assignment by the Secretary) 
was filed for record, if the mortgagee establishes to the satisfaction 
of the Commissioner that such extra costs are over and above those 
customarily incurred in the area.
    (g)(1) For mortgages insured under firm commitments issued before 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter before 
November 19, 1992, reasonable payments made by the mortgagee, with the 
approval of the Secretary, for the purpose of protecting, operating, or 
preserving the property, or removing debris from the property.
    (2) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992, reasonable payments made by the mortgagee, with the 
approval of the Secretary, for the purpose of protecting, operating, or 
preserving the property, or removing debris from the property prior to 
the time of conveyance required by Sec.  203.359 of this part.
    (3) Reasonable costs for performing the inspections required by 
Sec.  203.377 of this part and to determine if the property is vacant or 
abandoned are considered to be costs of protecting, operating or 
preserving the property.
    (h) Any uncollected mortgage interest allowed pursuant to an 
approved forbearance plan;
    (i) An amount which the Commissioner finds to be sufficient to 
compensate the mortgagee for any loss which it may have sustained on 
account of interest on debentures and the payment of any MIP and open-
end insurance charge by reason of its having postponed the institution 
of foreclosure proceedings or the acquisition of the property by other 
means under a mortgage to which the provisions of sections 302 and 306 
of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, 
apply during any part or all of the period of the mortgagor's military 
service and three months thereafter;
    (j) Charges for the administration, operation, maintenance, or 
repair of community-owned property or the maintenance or repair of the 
mortgaged property, paid by the mortgagee for the purpose of discharging 
an obligation arising out of a covenant filed for record prior to the 
issuance of the mortgage; and charges for the repair or maintenance of 
the mortgaged property required by, and in an amount approved by, the 
Secretary under Sec.  203.379 of this part.
    (k)(1) Except as provided in paragraphs (k)(1)(i) and (ii) of this 
section, for properties conveyed to the Secretary and endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date such 
payment is made, on the portion of the insurance benefits paid in

[[Page 226]]

cash, if such portion had been paid in debentures, and for properties 
conveyed to the Secretary and endorsed for insurance after January 23, 
2004, debenture interest at the rate specified in Sec.  203.405(b) from 
the date specified in Sec.  203.410, as applicable, to the date of claim 
payment, on the portion of the insurance benefits paid in cash.
    (i) When the mortgagee fails to meet any one of the applicable 
requirements of Sec. Sec.  203.355, 203.356(b), 203.359, 203.360, 
203.365, 203.606(b)(l), or 203.366 within the specified time and in a 
manner satisfactory to the Secretary (or within such further time as the 
Secretary may approve in writing), the interest allowance in such cash 
payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended;
    (ii) When the mortgagee fails to meet the requirements of Sec.  
203.356(a) within the specified time and in a manner satisfactory to the 
Secretary (or within such further time as the Secretary may specify in 
writing), the interest allowance in such cash payment shall be computed 
to a date set administratively by the Secretary.
    (2)(i) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  203.368 
and was endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned from the date 
the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property to the date when payment of 
the claim is made, on the portion of the insurance benefits paid in cash 
if such portion had been paid in debentures, except that if the 
mortgagee fails to meet any of the applicable requirements of Sec. Sec.  
203.355, 203.356, and 203.368(i)(3) and (5) within the specified time 
and in a manner satisfactory to the Commissioner (or within such further 
time as the Commissioner may approve in writing), the interest allowance 
in such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (ii) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  203.368 
and was endorsed for insurance after January 23, 2004, an amount 
equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date 
that the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date the mortgagee or a person other than the mortgagee 
acquires good marketable title to the mortgaged property to the date 
when payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any of 
the applicable requirements of Sec. Sec.  203.355, 203.356, and 
203.368(i)(3) and (5) of this chapter within the specified time and in a 
manner satisfactory to the Commissioner (or within such further time as 
the Commissioner may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended.
    (3)(i) Where a claim for insurance benefits is being paid following 
a pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date of the closing of the pre-foreclosure

[[Page 227]]

sale on an amount equal to the amount by which an insurance claim 
determined in accordance with Sec.  203.401(a) exceeds the amount of the 
actual claim being paid in debentures; plus
    (B) The debenture interest that would have been earned, from the 
date of the closing of the pre-foreclosure sale to the date when payment 
of the claim is made, on the portion of the insurance benefits paid in 
cash, if such portion had been paid in debentures; except that if the 
mortgagee fails to meet any of the applicable requirements of Sec.  
203.365 within the specified time and in a manner satisfactory to the 
Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid following a 
pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner, in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance after January 23, 2004, an amount equivalent to 
the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date of 
the closing of the pre-foreclosure sale, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date of the closing of the pre-foreclosure sale to the date 
when the payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any of 
the applicable requirements of Sec.  203.365 within the specified time 
and in a manner satisfactory to the Commissioner (or within such further 
time as the Commissioner may approve in writing), the interest allowance 
in such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (l) Reasonable costs of appraisal under Sec.  203.368(e) or pursuant 
to Sec.  203.370;
    (m) Costs of additional advertising under 203.368(h);
    (n) Costs of foreclosure as computed in paragraph (f) of this 
section where the acquiring party is one other than the mortgagee, as 
provided in Sec.  203.368;
    (o) In any case in which the Commissioner, pursuant to Sec.  
203.369, requires or requests that the mortgagee seek a deficiency 
judgment, an amount necessary to reimburse the mortgagee for those 
additional costs incurred that exceed the costs of foreclosure. In those 
jurisidictions that require the initiation of a judicial foreclosure 
action in order to obtain a deficiency judgment, a mortgagee shall 
receive full reimbursement for the costs of the foreclosure action, 
where, but for the requested deficiency judgment, judicial foreclosure 
would not have been necessary.
    (p) An amount approved by HUD and paid to the mortgagor as 
consideration for the execution of a deed in lieu of foreclosure and, if 
authorized by HUD, an administrative fee approved by HUD paid to the 
mortgagee for its role in facilitating a successful deed in lieu of 
foreclosure, not to be subject to the payment of debenture interest 
thereon.
    (q) Reasonable costs incurred in evicting occupants and in removing 
personal property from acquired properties;
    (r) Notwithstanding any other provision in this section, the 
mortgagee will not be reimbursed for any expenses incurred in connection 
with the property after a reconveyance from the Secretary to the 
mortgagee as provided in Sec.  203.363(b) of this part.
    (s) Reasonable costs of the title search ordered by the mortgagee, 
in accordance with procedures prescribed by HUD, to determine the status 
of a mortgagor meeting all other criteria for approval to participate in 
the pre-foreclosure sale procedure, or to determine if a mortgagor meets 
the criteria for approval of the mortgagee's acceptance of a deed in 
lieu of foreclosure.
    (t) The administrative fee as authorized by the Secretary and 
payable to the mortgagee for its role in facilitating a successful pre-
foreclosure sale,

[[Page 228]]

said fee not to be subject to the payment of debenture interest thereon.

[36 FR 34508, Dec. 22, 1971, as amended at 41 FR 49736, Nov. 10, 1976; 
45 FR 56801, Aug. 6, 1980; 48 FR 28806, June 23, 1983; 51 FR 28551, Aug. 
8, 1986; 52 FR 1329, Feb. 13, 1987; 53 FR 4388, Feb. 16, 1988; 57 FR 
47974, Oct. 20, 1992; 59 FR 50145, Sept. 30, 1994; 61 FR 35018, July 3, 
1996; 61 FR 36266, July 9, 1996; 61 FR 36453, July 10, 1996; 62 FR 
60130, Nov. 6, 1997; 71 FR 35993, June 22, 2006; 72 FR 56161, Oct. 2, 
2007]



Sec.  203.402a  Reimbursement for uncollected interest.

    The mortgagee shall be entitled to receive an allowance in the 
insurance settlement for unpaid mortgage interest if the mortgagor fails 
to meet the requirements of a forbearance agreement entered into 
pursuant to Sec.  203.614 and this failure continues for a period of 60 
days. The interest allowance shall be computed to:
    (a) The earliest of the applicable following dates, except as 
provided in paragraph (b) of this section:
    (1) The date of the initiation of foreclosure;
    (2) The date of the acquisition of the property by the mortgagee by 
means other than foreclosure;
    (3) The date the property was acquired by the Commissioner under a 
direct conveyance from the mortgagor;
    (4) Ninety days following the date the mortgagor fails to meet the 
requirements of the forbearance agreement, or such other date as the 
Commissioner may approve in writing prior to the expiration of the 90-
day period; or
    (5) The date the mortgagee sends the mortgagor notice of eligibility 
to participate in the Pre-Foreclosure Sale procedure; or
    (b) The date foreclosure is initiated or a deed in lieu is obtained, 
or the date such actions were required by Sec.  203.355(c), whichever is 
earlier, if the commencement of foreclosure within the time limits 
described in Sec.  203.355(a), (b), (g), or (h) is precluded by:
    (1) The laws of the State in which the mortgaged property is 
located; or
    (2) Federal bankruptcy law.

[60 FR 57678, Nov. 16, 1995, as amended at 61 FR 35019, July 3, 1996]



Sec.  203.403  Items deducted from payment--conveyed and non-conveyed
properties.

    There shall be deducted from the total of the added items in 
Sec. Sec.  203.401 and 203.402 the following cash items:
    (a) All amounts received by the mortgagee on account of the mortgage 
after the institution of foreclosure proceedings or the acquisition of 
the property by direct conveyance or otherwise after default.
    (b) All amounts received by the mortgagee from any source relating 
to the property on account of rent or other income after deducting 
reasonable expenses incurred in handling the property.
    (c) All cash retained by the mortgagee including amounts held or 
deposited for the account of the mortgagor or to which it is entitled 
under the mortgage transaction that have not been applied in reduction 
of the principal mortgage indebtedness.
    (d) With regard to claims filed pursuant to successful pre-
foreclosure sales, all amounts received by the mortgagee relating to the 
sale of the property.

[36 FR 24508, Dec. 22, 1971, as amended at 52 FR 1329, Jan. 13, 1987; 59 
FR 50145, Sept. 30, 1994]



Sec.  203.404  Amount of payment--assigned mortgages.

    Upon an acceptable assignment of a mortgage, the Commissioner shall 
pay to the mortgagee the unpaid principal balance of the loan at the 
time of assignment and an amount determined by:
    (a) Adding the following items:
    (1) Any accrued and unpaid mortgage interest.
    (2) Any advances made under the mortgage and approved by the 
Commissioner.
    (3) Reimbursement for such costs and attorney's fees as HUD finds 
were properly incurred in connection with the defaulted mortgage and its 
modification and assignment to HUD.
    (4) For mortgages endorsed for insurance on or before January 23, 
2004, an amount equivalent to the debenture interest that would have 
been earned on the portion of the insurance benefits

[[Page 229]]

paid in cash, as of the date such payment is made, and for mortgages 
endorsed for insurance after January 23, 2004, debenture interest at the 
rate specified in Sec.  203.405(b), from the date specified in Sec.  
203.410 to the date of claim payment on the portion of the insurance 
benefits paid in cash, except that when the mortgagee fails to meet any 
one of the requirements of Sec. Sec.  203.350(e), 203.351, and 203.353 
of this chapter within the specified time and in a manner satisfactory 
to the Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (5) An administrative fee to the mortgagee for modifying the 
mortgage.
    (6) A fee for servicing the mortgage assigned to HUD, if HUD 
requires such servicing.
    (b) Deducting all cash retained by the mortgagee, including amounts 
held or deposited for the account of the mortgagor or to which it is 
entitled under the mortgage transaction that have not been applied in 
reduction of the principal mortgage indebtedness.
    (c) The mortgagee may not file for any additional payments of its 
mortgage insurance claim after six months from final payment by the 
Commissioner. For the purpose of this section, the term final payment 
shall mean the payment which is made by the Commissioner based upon the 
submission by the mortgagee of all required documents and information 
pursuant to Sec.  203.351 of this part.

[36 FR 24508, Dec. 22, 1971, as amended at 55 FR 283, Jan. 4, 1990; 56 
FR 3215, Jan. 29, 1991; 61 FR 35019, July 3, 1996; 71 FR 35994, June 22, 
2006]



Sec.  203.405  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year at the rate in effect as of the day the commitment was issued, 
or as of the date the mortgage was endorsed for insurance, whichever 
rate is higher. For applications involving mortgages originated under 
the single family Direct Endorsement program, debentures shall bear 
interest from the date of issue, payable semiannually on the first day 
of January and on the first day of July of each year at the rate in 
effect as of the date the mortgage was endorsed for insurance;
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average yield, 
for the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 years.

[71 FR 35994, June 22, 2006]



Sec.  203.406  Maturity of debentures.

    Debentures shall mature 20 years from the date of issue.



Sec.  203.407  Registration of debentures.

    Debentures shall be registered as to principal and interest.



Sec.  203.408  Form and amounts of debentures.

    Debentures issued under this part shall be in such form and amounts; 
and shall be subject to such term and conditions; and shall include such 
provisions for redemption, if any, as may be prescribed by the 
Secretary, with the approval of the Secretary of the Treasury; and may 
be in book entry or certificated registered form, or such other form as 
the Secretary by regulation may prescribe.

[59 FR 49816, Sept. 30, 1994]



Sec.  203.409  Redemption of debentures.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment date on three 
months' notice of redemption given in such manner as the Commissioner 
shall prescribe. The debenture interest on the debentures called for 
redemption shall cease on the semiannual interest payment date 
designated in the call notice. The Commissioner may include with the 
notice of redemption an offer to purchase the debentures at par plus 
accrued interest

[[Page 230]]

at any time during the period between the notice of redemption and the 
redemption date. If the debentures are purchased by the Commissioner 
after such call and prior to the named redemption date, the debenture 
interest shall cease on the date of purchase.



Sec.  203.410  Issue date of debentures.

    (a) Conveyed properties, claims without conveyance, pre-foreclosure 
sales-- Where the property is conveyed to the Commissioner, or the 
mortgagee or other party acquires title to the property under the claim 
without conveyance procedure or the pre-foreclosure sale procedure, 
debenture shall be dated:
    (1) If issued prior to September 2, 1964, or issued on or after such 
date and a certificate of claim is also issued, as of one of the dates 
as follows:
    (i) The foreclosure proceedings were instituted;
    (ii) The property was otherwise acquired by the mortgagee after 
default;
    (iii) The property was acquired by the Commissioner, if directly 
conveyed to the Commissioner from the mortgagor; or
    (iv) The property was acquired after default by a third party under 
the pre-foreclosure sale procedure.
    (2) If issued on or after September 2, 1964, and a certificate of 
claim is not issued, as of the date of default as defined in this part.
    (3) As of the day after the date to which mortgage interest is 
computed as specified in Sec.  203.402a, if the insurance settlement 
includes an allowance for uncollected interest in connection with a 
special forbearance.
    (b) Assigned mortgages. Where the mortgage is assigned to the 
Commissioner, debentures shall be dated as of the date of the 
assignment.
    (c) Notwithstanding paragraph (a) of this section, in connection 
with conveyed properties and claims without conveyance, debentures 
issued as reimbursement for expenditures made by a mortgagee after the 
date of default shall be dated as of the date the expenditure is 
actually made by the mortgagee.

[36 FR 24508, Dec. 22, 1971, as amended at 50 FR 3892, Jan. 29, 1985; 52 
FR 1329, Jan. 13, 1987; 59 FR 50145, Sept. 30, 1994; 60 FR 57678, Nov. 
16, 1995]



Sec.  203.411  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the mortgagee and the total amount of the mortgagee's 
claim, as approved by the Commissioner, may be adjusted by the issuance 
of a check in payment thereof.

[59 FR 49816, Sept. 30, 1994]



Sec.  203.412  Payment for foreclosure alternative actions.

    Notwithstanding the conveyance, sale, or assignment requirements for 
payment of a claim elsewhere in this part, HUD may pay the mortgagee, in 
accordance with procedures prescribed by HUD, for the following 
foreclosure alternative actions, in such amounts as HUD determines:
    (a) Assumptions under Sec.  203.512;
    (b) Special forbearance under Sec. Sec.  203.471 and 203.614;
    (c) Recasting or modification of defaulted mortgages under Sec.  
203.616, where the mortgagee is not reimbursed under Sec.  203.405(a);
    (d) Refinancing under Sec.  203.43(c).

[61 FR 35019, July 3, 1996]



Sec.  203.413  [Reserved]



Sec.  203.414  Amount of payment--partial claims.

    (a) Claim amount. Where a claim for partial insurance benefits is 
filed in accordance with Sec.  203.371, the amount of the insurance 
benefits shall consist of the arrearage not to exceed an amount 
equivalent to 12 monthly mortgage payments, and any costs prescribed by 
HUD related to the default.
    (b) Servicing fee. The claim may also include a payment for 
activities, such as servicing the subordinate mortgage, which HUD may 
require.

[61 FR 35019, July 3, 1996, as amended at 62 FR 60130, Nov. 6, 1997]

                          Certificate of Claim



Sec.  203.415  Delivery of certificate of claim.

    (a) If the mortgage was accepted for insurance pursuant to a 
commitment issued prior to September 2, 1964, the

[[Page 231]]

mortgagee may, by filing a written request with the application for 
debentures, receive in addition to the debentures and the cash 
adjustment check, a certificate of claim issued in accordance with 
section 204(e) of the Act. This certificate shall become payable (if at 
all) as prescribed in section 204(f) of the Act.
    (b) If the mortgage was accepted for insurance pursuant to a 
commitment issued on or after September 2, 1964, or under the Direct 
Endorsement, Lender Insurance, or Coinsurance programs, no certificate 
of claim will be issued.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 58349, Dec. 9, 1992; 62 
FR 30227, June 2, 1997]



Sec.  203.416  Amount and items of certificate of claim.

    The certificate shall be for an amount which the Commissioner 
determines to be sufficient to pay all amounts due under the mortgage 
and not covered by the amount of debentures and cash adjustment check. 
The certificate shall include a reasonable amount for necessary expenses 
incurred by the mortgagee in connection with the foreclosure proceedings 
or the acquisition of the mortgaged property otherwise and the 
conveyance thereof to the Commissioner, including reasonable attorneys' 
fees, unpaid interest, and cost of repairs to the property made by the 
mortgagee to remedy the waste.



Sec.  203.417  Rate of interest of certificate of claim.

    Each certificate of claim shall provide that there shall accrue to 
the holder thereof with respect to the face amount of such certificate, 
an increment at the rate of 3 percent per annum.

         Mutual Mortgage Insurance Fund and Distributive Shares



Sec.  203.420  Nature of Mutual Mortgage Insurance Fund.

    The Mutual Mortgage Insurance Fund shall consist of the General 
Surplus Account and the Participating Reserve Account.



Sec.  203.421  Allocation of Mutual Mortgage Insurance Fund income or loss.

    For any semiannual period in which Mutual Mortgage Insurance 
operations shall result in a net income, or loss, the Commissioner shall 
allocate, after taking into account the actuarial status of the entire 
Mutual Mortgage Insurance Fund, such net income or such loss to the 
General Surplus Account and/or to the Participating Reserve Account as 
the Commissioner may determine to be in accord with sound actuarial and 
accounting practice. In determining net income or loss, the Commissioner 
shall take into consideration all income received from fees, premiums 
and earnings on investments of the fund, operating expenses and 
provision for losses to the fund.

[56 FR 18948, Apr. 24, 1991]



Sec.  203.422  Right and liability under Mutual Mortgage Insurance Fund.

    No mortgagor or mortgagee shall have any vested right in a credit 
balance in either the General Surplus Account or the Participating 
Reserve Account. No mortgagor or mortgagee shall be subject to any 
liability arising under the mutuality of the Mutual Mortgage Insurance 
Fund.



Sec.  203.423  Distribution of distributive shares.

    (a) The Commissioner may provide for the distribution to the 
mortgagor of a share of the participating reserve account if the 
contract of insurance is terminated by:
    (1) Conveyance to one other than the Commissioner and a claim for 
the insurance benefits is not presented by the mortgage (Sec.  203.315), 
provided, however, in the case of a mortgage insured pursuant to an 
application for a conditional commitment received on or after May 19, 
1988, (or, as appropriate, an application for mortgage insurance 
endorsement under the Single Family Direct Endorsement program, as 
provided in Sec.  203.255, where the property appraisal report is signed 
by the mortgagee's underwriter on or after May 19, 1988, no distribution 
shall be made if the mortgagee forecloses the mortgage or accepts a 
deed-in-lieu of foreclosure;

[[Page 232]]

    (2) Prepayment of the mortgage (Sec.  203.316); or
    (3) Voluntary agreement of the mortgagor and mortgagees (Sec.  
203.317).
    (b) The Commissioner shall determine the amount of the distributive 
share by multiplying the amount of the premium or premiums paid by the 
applicable distributive share percentage for mortgages insured in the 
year the mortgage was endorsed for insurance. The Commissioner shall 
determine the applicable distributive share percentage in an equitable 
manner and in accordance with sound financial and actuarial practice, 
taking into account the cumulative actual financial and actuarial 
experiences through the end of the most recent calendar year.

[48 FR 28806, June 23, 1983, as amended at 52 FR 1329, Jan. 13, 1987; 53 
FR 10530, Apr. 1, 1988; 61 FR 36453, July 10, 1996]



Sec.  203.424  Maximum amount of distributive shares.

    In no event shall a distributive share of the Participating Reserve 
Account exceed the aggregate scheduled annual premiums of the mortgagor 
to the year of termination of the insurance.



Sec.  203.425  Finality of determination.

    The determination of the Commissioner as to the amount to be paid to 
any mortgagor from the Mutual Mortgage Insurance Fund shall be final and 
conclusive.



Sec.  203.426  Inapplicability to housing in older declining urban areas.

    The provisions of Sec. Sec.  203.420 through 203.425 shall not apply 
to mortgages financing housing in declining urban areas meeting the 
requirements of Sec.  203.43a.



Sec.  203.427  Statute of limitations on payment of distributive shares.

    The Commissioner shall not distribute any distributive share to an 
eligible mortgagor under Sec.  203.423 beginning on the date which is 
six years after the date the Commissioner first transmitted written 
notification of eligibility to the last known address of the mortgagor, 
unless the mortgagor has applied in accordance with procedures 
prescribed by the Commissioner for payment of the share within the six-
year period. The Commissioner shall transfer any amounts no longer 
eligible for distribution under this section from the Participating 
Reserve Account to the General Surplus Account.

[59 FR 49816, Sept. 30, 1994]

             Sale, Assignment and Pledge of Insured Mortgage



Sec.  203.430  Sale of interests in insured mortgages.

    No mortgagee may sell or otherwise dispose of any insured mortgage, 
or group of insured mortgages, or any partial interest in such mortgage 
or mortgages by means of any agreement, arrangement or device except 
pursuant to this subpart.



Sec.  203.431  Sale of insured mortgage to approved mortgagee.

    An insured mortgage may be sold to another approved mortgagee. The 
seller shall notify HUD of the sale within 15 calendar days, on a form 
prescribed by HUD and acknowledged by the buyer.

[45 FR 27929, Apr. 25, 1980]



Sec.  203.432  Effect of sale of insured mortgage.

    When an insured mortgage is sold to another approved mortgagee, the 
buyer shall thereupon succeed to all the rights and become bound by all 
the obligations of the seller under the contract of insurance and the 
seller shall be released from its obligations under the contract, 
provided that the seller shall not be relieved of its obligation to pay 
mortgage insurance premiums until the notice required by Sec.  203.431 
is received by HUD.

[45 FR 27929, Apr. 25, 1980]



Sec.  203.433  Assignments, pledges and transfers by approved mortgagee.

    (a) An assignment, pledge, or transfer of an insured mortgage or 
group of insured mortgages, not constituting a final sale, may be made 
by an approved mortgagee to another approved mortgagee provided the 
following requirements are met:

[[Page 233]]

    (1) The assignor, pledgor or transferor shall remain the mortgagee 
of record.
    (2) The Commissioner shall have no obligation to recognize or deal 
with any party other than the mortgagee of record with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.
    (b) An assignment or transfer of an insured mortgage or group of 
insured mortgages may be made by an approved mortgagee to other than an 
approved mortgagee provided the requirements under paragraphs (a)(1) and 
(2) of this section are met and the following additional requirements 
are met:
    (1) The assignee or transferee shall be a corporation, trust or 
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved mortgagee that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to hold an insured mortgage or group of 
insured mortgages.
    (2) The assignment or transfer shall be made pursuant to an 
agreement under which the transferor or assignor is obligated to take 
one of the following alternate courses of action within 1 year from the 
date of the assignment or within such additional period of time as may 
be approved by the Commissioner:
    (i) The transferor or assignor shall repurchase and accept a 
reassignment of such mortgage or group of mortgages.
    (ii) The transferor or assignor shall obtain a sale and transfer of 
such mortgage or group of mortgages to an approved mortgagee.
    (c) Notice to or approval of the Commissioner is not required in 
connection with assignments, pledges or transfers pursuant to this 
section.



Sec.  203.434  Declaration of trust.

    A sale of a beneficial interest in a group of insured mortgages, 
where the interest to be acquired is related to all of the mortgages as 
an entirety, rather than an interest in a specific mortgage shall be 
made only pursuant to a declaration of trust, which has been approved by 
the Commissioner prior to any such sale.



Sec.  203.435  Transfers of partial interests.

    A partial interest in an insured mortgage may be transferred under a 
participation agreement without obtaining the approval of the 
Commissioner, if the following conditions are met:
    (a) Principal mortgagee. The insured mortgage shall be held by an 
approved mortgagee which, for the purposes of this section, shall be 
referred to as the principal mortgagee.
    (b) Interest of principal mortgagee. The principal mortgagee shall 
retain and hold for its own account a financial interest in the insured 
mortgage.
    (c) Qualification for holding partial interest. A partial interest 
in an insured mortgage shall be issued to and held only by:
    (1) A mortgagee approved by the Commissioner; or
    (2) A corporation, trust or organization (including, but not limited 
to any pension fund, pension trust, or profit-sharing plan) which 
certifies to the principal mortgagee that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to acquire a partial interest in an 
insured mortgage.
    (d) Participation agreement provisions. The participation agreement 
shall include provisions that:
    (1) The principal mortgagee shall retain title to the mortgage and 
remain the mortgagee of record under the contract of mortgage insurance.
    (2) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the principal mortgagee with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.
    (3) The mortgage documents shall remain in the custody of the 
principal mortgagee.
    (4) The responsibility for servicing the insured mortgages shall 
remain with the principal mortgagee.

[[Page 234]]

                       Graduated Payment Mortgages



Sec.  203.436  Claim procedure--graduated payment mortgages.

    All of the provisions of this subpart are applicable to mortgages 
insured under the provisions of Sec.  203.45 except as provided in this 
section.
    (a) Beginning of Amortization means the date one month prior to the 
date of the first monthly payment to principal or interest.
    (b) The phrases unpaid principal balance of the loan or principal of 
the mortgage which was unpaid as used in this subpart, shall be 
construed to refer to the outstanding mortgage amount as increased by 
any accrued mortgage interest which was unpaid pursuant to a financing 
plan approved by the Secretary.

[41 FR 42949, Sept. 29, 1976]

                       Cooperative Unit Mortgages



Sec.  203.437  Mortgages involving a dwelling unit in a cooperative
housing development.

    (a) The provisions of Sec. Sec.  203.251(d), 203.366 and 203.440 
through 203.495 shall not apply to mortgages insured pursuant to section 
203(n) of the National Housing Act.
    (b) References in this subpart to the term deed and deed in lieu of 
foreclosure, or the word property when found in the phrases conveyance 
of property, acquisition of property, or other phrases indicating 
transfer of property, shall be construed to mean the assignment of the 
Corporate Certificate and Occupancy Certificate. However, when the use 
of such terms, as interpreted in light of section 203(n) of the National 
Housing Act, clearly indicates that reference to the dwelling unit is 
intended, such terms shall mean the dwelling unit identified in the 
Occupancy Certificate.
    (c) In addition to the requirements of Sec.  203.365, the mortgagee 
shall forward to the Secretary within 45 days after the transfer of the 
Corporate Certificate:
    (1) A statement certified by the officer of the corporation charged 
with maintenance of the Corporate Certificate Transfer Book that such 
book currently shows that the Secretary is the owner of the Corporate 
Certificate; and,
    (2) The Occupancy Certificate in the name of the Secretary.
    (d) The mortgagee shall tender to the Secretary good and marketable 
title to the Corporate Certificate and the exclusive right of permanent 
possession of the dwelling unit.
    (e) In lieu of the types of title evidence provided in Sec.  
203.385, the Secretary will accept a legal opinion signed by an attorney 
at law experienced in the examination of titles that the Secretary has 
good and marketable title to the Corporate Certificate and the exclusive 
right of possession of the dwelling unit.
    (f) The Secretary may accept assignment of mortgages insured under 
this part if it is determined by the Secretary that it is in the 
Department's interest to do so provided that the blanket mortgage is in 
default and the holder of such mortgage has announced an intention to 
foreclose.

[42 FR 40432, Aug. 10, 1977; 42 FR 57435, Nov. 2, 1977]

              Mortgages on Property Located on Indian Land



Sec.  203.438  Mortgages on Indian land insured pursuant to section 248
of the National Housing Act.

    (a) Exemptions. The provisions of Sec.  203.366 shall not apply to 
mortgages insured pursuant to section 248 of the National Housing Act.
    (b) Claim procedure. In addition to other actions which the 
mortgagee may take pursuant to this subpart in order to receive 
insurance benefits, a mortgagee shall be entitled to receive such 
benefits on a mortgage insured under Sec.  203.43h when (1) the 
mortgagor is more than 90 days in default; (2) the mortgagee has 
submitted appropriate documentation to the Secretary in accordance with 
Sec.  203.350(b); and (3) the Secretary has approved the assignment of 
the mortgage.
    (c) Foreclosure by HUD. HUD may initiate foreclosure proceedings 
with respect to any mortgage acquired under this section in a tribal 
court, a court of competent jurisdiction or Federal district court. If 
the mortgagor remains on the property following foreclosure,

[[Page 235]]

HUD may seek an eviction order from the court hearing the foreclosure 
action.

[51 FR 21872, June 16, 1986, as amended at 61 FR 35019, July 3, 1996]

          Mortgages on Property Located on Hawaiian Home Lands



Sec.  203.439  Mortgages on Hawaiian home lands insured pursuant to
section 247 of the National Housing Act.

    (a) Exemptions. The provisions of Sec. Sec.  203.351(a)(8), 
203.353(a), and 203.368, do not apply to mortgages insured pursuant to 
section 247 of the National Housing Act.
    (b) Claim procedure. Where the mortgage is 180 days or more in 
default, the mortgagee may assign the mortgage to the Secretary and file 
its claim for insurance benefits in accordance with the provisions of 
this subpart. No claim on an insured mortgage will be paid other than 
through assignment of the mortgage.
    (c) Notice of delinquency. Once each month on a day prescribed by 
HUD, the mortgagee shall notify the Department of Hawaiian Home Lands of 
all mortgages insured pursuant to section 247 of the National Housing 
Act on leaseholds of Hawaiian home lands that are delinquent on the last 
day of the month, or that were reported as delinquent the previous 
month. The notice is in addition to the requirement in Sec. Sec.  
203.330 and 203.331.

[52 FR 8068, Mar. 16, 1987, as amended at 52 FR 9989, Mar. 27, 1987 and 
52 FR 28470, July 30, 1987, and amended at 55 FR 283, Jan. 4, 1990; 71 
FR 16234, Mar. 31, 2006]

     Mortgages on Property in Allegany Reservation of Seneca Indians



Sec.  203.439a  Mortgages on property in Allegany Reservation of 
Seneca Nation of Indians authorized by section 203(q) of the National
Housing Act.

    (a) Applicability. This section shall apply to mortgages authorized 
by section 203(q) of the National Housing Act (Sec.  203.43j of this 
part) only when the date of default occurs before the mortgagor and the 
lessor execute a lease renewal or a new lease either with a term of not 
less than five years beyond the maturity date of the mortgage, or with a 
term established by an arbitration award.
    (b) Claims. In addition to other actions which the mortgagee may 
take pursuant to this subpart in order to receive insurance benefits, a 
mortgagee shall be entitled to receive such benefits when the Secretary 
has agreed to accept assignment of a mortgage in accordance with Sec.  
203.350(d) and the mortgagee has complied with Sec. Sec.  203.351 and 
203.353.
    (c) Exceptions. Notwithstanding Sec.  203.366, title to a leasehold 
estate conveyed to the Commissioner is not required to be marketable as 
to the term of the lease, provided that the mortgagee has taken any 
actions required by the Secretary to attempt to obtain a long-term 
renewal of the lease. Title evidence will be required in a form 
satisfactory to the Commissioner (see Sec.  203.385) unless the 
Commissioner agrees to accept title to a leasehold estate without title 
evidence.

[52 FR 48202, Dec. 21, 1987, and 53 FR 9869, Mar. 28, 1988]

                          Rehabilitation Loans



Sec.  203.440  Definitions.

    All of the definitions contained in Sec.  203.50 of this subchapter 
shall apply to Sec. Sec.  203.440 et seq. In addition the following 
terms shall have the meaning indicated:
    (a) Insured loan means a loan which has been insured as evidenced by 
the issuance of an Insurance Certificate or by the endorsement of the 
note for insurance by the Commissioner.
    (b) Contract of insurance means the agreement evidenced by the 
issuance of an Insurance Certificate or by the endorsement of the 
Commissioner upon the note given in connection with an insured loan, 
incorporating by reference the regulations in Sec. Sec.  203.440 et seq. 
and the applicable provisions of the Act.
    (c) Insurance premium means the loan insurance premium paid by the 
financial institution to the Commissioner in consideration of the 
contract of insurance.
    (d) Beginning of amortization means the date one month prior to the 
date of the first monthly payment to principal and interest.

[[Page 236]]

    (e) Maturity means the date on which the loan indebtedness would be 
extinguished if paid in accordance with periodic payments provided for 
in the original note and security instrument.
    (f) Debentures means registered, transferable securities in book 
entry or certificated form which are valid and binding obligations, 
unconditionally guaranteed as to principal and interest by the United 
States.

[36 FR 24508, Dec. 22, 1971, as amended at 59 FR 49816, Sept. 30, 1994]



Sec.  203.441  Insurance of loan.

    Under compliance with the commitment, or as provided in Sec.  
203.255(b) with respect to mortgages processed under the Direct 
Endorsement program, the Commissioner shall insure the loan evidencing 
the insurance by the issuance of an insurance certificate which will 
identify the regulations under which the loan is insured and the date of 
insurance.

[57 FR 58349, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993]



Sec.  203.442  Contract created by Insurance Certificate or by endorsement.

    The loan is insured from the date of the issuance of an Insurance 
Certificate or from the date of the endorsement of the note. The 
Commissioner and the lender shall thereafter be bound by the Act and the 
regulations in Sec. Sec.  203.440 et seq. with the same force and to the 
same extent as if a separate contract had been executed relating to the 
insured loan.



Sec.  203.443  Insurance premium.

    All of the provisions of Sec. Sec.  203.260 through 203.269 \1\ 
concerning mortgage insurance premiums, apply to loans insured under 
Sec.  203.50.
---------------------------------------------------------------------------

    \1\ Section 203.269 was removed at 48 FR 35089, Aug. 3, 1983.

[47 FR 30753, July 15, 1982]



Sec.  203.457  Voluntary termination of contract.

    Upon request by the borrower and lender the Commissioner may 
terminate the insurance contract on the loan. The lender shall cancel 
the insurance endorsement on the insurance certificate or note upon 
receipt of notice from the Commissioner that the contract of insurance 
is terminated.

[37 FR 8662, Apr. 29, 1972]



Sec.  203.458  Termination by prepayment of loan.

    The contract of insurance shall be terminated if the loan is paid in 
full prior to its maturity.



Sec.  203.459  Notice of termination by lender.

    No contract of insurance shall be terminated until the lender has 
given written notice thereof to the Commissioner within 15 calendar days 
from the occurrence of one of the approved methods of termination set 
forth in this subpart.

[45 FR 31716, May 14, 1980]



Sec.  203.462  Pro rata payment of premium before termination.

    No contract of insurance shall be terminated until the lender has 
paid to the Commissioner the pro rata portion of the current annual 
insurance premium.



Sec.  203.463  Notice and date of termination by Commissioner.

    The Commissioner shall notify the lender that the contract of 
insurance has been terminated and the effective termination. The 
termination date shall be the last day of the month in which:
    (a) The loan was prepaid; or
    (b) A voluntary termination request is received by the Commissioner, 
or
    (c) The contract of insurance is otherwise terminated with the 
consent of the Commissioner.



Sec.  203.464  Effect of termination.

    Upon termination of the contract of insurance, the obligation to pay 
any subsequent insurance premium shall cease and all rights of the 
borrower and lender shall be terminated.



Sec.  203.466  Definition of delinquency and requirement for notice
of delinquency to HUD.

    (a) A mortgage account is delinquent any time a payment is due and 
not paid.

[[Page 237]]

    (b) Once each month on a day prescribed by HUD, the mortgagee shall 
report to HUD all mortgages insured under this part that were delinquent 
on the last day of the month, or that were reported as delinquent the 
previous month. The report shall be made in a manner prescribed by HUD.

[71 FR 16234, Mar. 31, 2006]



Sec.  203.467  Definition of default, date of default, and requirement
of notice of default to HUD.

    (a) Default. If the mortgagor fails to make any payment or to 
perform any other obligation under the mortgage, and such failure 
continues for a period of 30 days, the mortgage shall be considered in 
default for the purposes of this subpart.
    (b) Date of default. For the purposes of this subpart, the date of 
default shall be considered as 30 days after:
    (1) The first uncorrected failure to perform any obligation under 
the mortgage; or
    (2) The first failure to make a monthly payment that subsequent 
payments by the borrower are insufficient to cover when applied to the 
overdue monthly payments in the order in which they became due.
    (c) Notice of default. Once each month, on a day prescribed by HUD, 
the mortgagee shall report to HUD all mortgages that were in default on 
the last day of the month, or that were reported as in default the 
previous month. The report shall be made on a form prescribed by HUD.
    (d) Number of days in month. For the purposes of this section, each 
month shall be considered to have 30 days.

[71 FR 16234, Mar. 31, 2006]



Sec.  203.468  [Reserved]



Sec.  203.469  Reinstatement of defaulted loan.

    If after default and prior to assignment by the lender of the loan 
to the Commissioner, the borrower shall pay to the lender all monthly 
payments in default, written notice shall be given to the Commissioner 
within 30 days and the insurance shall continue as if such default had 
not occurred.



Sec.  203.471  Special forbearance.

    If the mortgagee finds that a default is due to circumstances beyond 
the mortgagor's control, as defined by the Secretary, the mortgagee may 
grant special forbearance relief to the mortgagor in accordance with the 
conditions prescribed by the Secretary.

[61 FR 35019, July 3, 1996]



Sec.  203.472  Relief for borrower in military service.

    If the borrower is a person in military service, as defined in the 
Soldiers' and Sailors' Civil Relief Act of 1940, the lender may, by 
written agreement with the borrower, postpone for the period of military 
service, and 3 months thereafter, any part of the monthly payment, which 
represents amortization of principal. The agreement shall contain a 
provision for the resumption of monthly payments thereafter in amounts 
which will completely amortize the obligation within its original 
maturity. The agreement shall in no way affect the amount of the annual 
insurance premium which shall continue to be calculated in accordance 
with the original amortization provisions of the loan.



Sec.  203.473  Claim procedure.

    (a) A claim for insurance benefits on a loan secured by a first 
mortgage shall be made, and insurance benefits shall be paid, as 
provided in Sec. Sec.  203.350 through 203.414.
    (b) A claim for insurance benefits on a loan secured by other than a 
first mortgage shall be made, and insurance benefits shall be paid, as 
provided in Sec. Sec.  203.474 through 203.478. However, the lender may 
not, except with the approval of the Commissioner, proceed against the 
security and also make claim under the contract of insurance, but shall 
elect which method it desires to pursue.

[49 FR 21319, May 21, 1984, as amended at 61 FR 35019, July 3, 1996]



Sec.  203.474  Maximum claim period.

    A claim for insurance benefits on a loan secured by other than a 
first mortgage shall be filed within one year from the date of default, 
or within such

[[Page 238]]

additional period of time as may be approved by the Commissioner.

[49 FR 21319, May 21, 1984]



Sec.  203.476  Claim application and items to be filed.

    The claim for reimbursement on a loan secured by other than a first 
mortgage shall be made upon an application form prescribed by the 
Commissioner. The application shall be accompanied by:
    (a) The fiscal data pertaining to the loan transaction as required 
by the fiscal data form;
    (b) Receipts covering all disbursements as required by the fiscal 
data form;
    (c) The original note and the security held, assigned to the 
Commissioner without recourse of warranty, except that no act or 
omission of the lender shall have impaired the validity and priority of 
such security;
    (d) Any hazard insurance policies held on property serving as 
security for the loan, together with a copy of the lender's notification 
to the carrier authorizing the amendment of the loss payable clause 
substituting the Commissioner as the holder of the security;
    (e) The assignment to the Commissioner of all rights and interests 
arising under the loan, and all claims of the lender against the 
borrower or others arising out of the loan transaction;
    (f) Any title evidence held by the lender;
    (g) All property of the borrower held by the lender or to which it 
is entitled and, if the Commissioner elects to make payments in 
debentures, all cash held by the lender or to which it is entitled, 
including deposits made for the account of the borrower and which have 
not been applied in reduction of the principal loan indebtedness;
    (h) All records, ledger cards, documents, books, papers and accounts 
relating to the loan transaction;
    (i) Any additional information or data which the Commissioner may 
require.

(Approved by the Office of Management and Budget under control number 
2502-0051)

[36 FR 24508, Dec. 22, 1971, as amended at 49 FR 21319, May 21, 1984; 80 
FR 51468, Aug. 25, 2015]



Sec.  203.477  Certificate by lender when loan assigned.

    At the time of the assignment of the loan, the lender shall certify 
to the Commissioner that:
    (a) The amount stated in the instrument of assignment is actually 
due and owing on the loan;
    (b) There are no offsets of counterclaims thereto, and the financial 
institution has a good right to assign.
    (c) The mortgage transaction did not involve a first mortgage and 
the mortgage is prior to all mechanics' and materialmen's liens filed of 
record, regardless of when such liens attach, and prior to all liens and 
encumbrances other than a first mortgage, or defects which may arise 
except such liens or other matters as may have been approved by the 
Commissioner.

[36 FR 34508, Dec. 22, 1971, as amended at 45 FR 33967, May 21, 1980; 49 
FR 21320, May 21, 1984]



Sec.  203.478  Payment of insurance benefits.

    (a) Claim computation, items included. Upon acceptable assignment of 
the note and security instruments, the Commissioner shall pay the lender 
an amount equal to the unpaid principal balance of the loan, plus:
    (1) Any accrued interest due as of the date of execution of the 
assignment of the loan to the Commissioner.
    (2) Any advances made previously under the provisions of the loan 
instrument and approved by the Commissioner.
    (3) Reimbursement for such reasonable collection costs, court costs 
and attorney's fees as may be approved by the Commissioner.
    (4) Reimbursement for premiums paid on any hazard insurance policies 
held on the property.
    (5)(i) If payment is made in cash on a mortgage endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date insurance 
settlement occurs, except that where the lender fails to meet any one of 
the requirements of Sec. Sec.  203.476 and 203.477 and such failure 
continues for more than 30 days (or such further time as the 
Commissioner may approve in writing), the debenture

[[Page 239]]

interest shall be computed for 30 days or the extended period;
    (ii) If payment is made in cash on a mortgage endorsed for insurance 
after January 23, 2004, debenture interest at the rate specified in 
Sec.  203.479 from the date specified in Sec.  203.486 to the date 
insurance settlement occurs, except that where the lender fails to meet 
any one of the requirements of Sec. Sec.  203.476 and 203.477 and such 
failure continues for more than 30 days (or such further time as the 
Commissioner may approve in writing), the debenture interest shall be 
computed for 30 days or the extended period.
    (b) Claim computation, items deducted. If the lender is to receive 
cash, there shall be deducted from the total of the added items in 
paragraph (a) of this section any cash held by the lender or to which it 
is entitled including deposits made for the account of the borrower and 
which have not been applied in reduction of the principal loan 
indebtedness.
    (c) Method of payment. Payment of an insurance claim shall be made 
in cash, in debentures, or in a combination of both, as determined by 
the Commissioner either at, or prior to, the time of payment.
    (d) Special provision--payment in debentures. All of the provisions 
of Sec. Sec.  203.479 through 203.487 of this subpart shall be 
applicable in connection with the payment in debentures of insurance 
benefits under this subpart.

[36 FR 24508, Dec. 22, 1971, as amended at 71 FR 35994, June 22, 2006; 
80 FR 51468, Aug. 25, 2015]



Sec.  203.479  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and on the first day of July 
every year at the rate in effect as of the date the commitment was 
issued, or as of the date the loan was endorsed for insurance, whichever 
rate is higher. The applicable rates of interest will be published twice 
each year as a notice in the Federal Register.
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average yield, 
for the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 years.

[71 FR 35994, June 22, 2006]



Sec.  203.481  Maturity of debentures.

    Debentures shall mature 10 years from the date of issue.



Sec.  203.482  Registration of debentures.

    Debentures shall be registered as to principal and interest.



Sec.  203.483  Forms and amounts of debentures.

    Debentures issued under this part shall be in such form and amounts; 
and shall be subject to such terms and conditions; and shall include 
such provisions for redemption, if any, as may be prescribed by the 
Secretary, with the approval of the Secretary of the Treasury; and may 
be in book entry or certificated registered form, or such other form as 
the Secretary by regulation may prescribe.

[59 FR 49816, Sept. 30, 1994]



Sec.  203.484  Redemption of debentures.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment date on 3 months' 
notice of redemption given in such manner as the Commissioner shall 
prescribe. The debenture interest on the debentures called for 
redemption shall cease on the semiannual interest payment date 
designated in the call notice. The Commissioner may include with the 
notice of redemption an offer to purchase the debentures at par plus 
accrued interest at any time during the period between the notice of 
redemption and the redemption date. If the debentures are purchased by 
the Commissioner after such call and prior to the named redemption date, 
the debenture interest shall cease on the date of purchase.

[[Page 240]]



Sec.  203.486  Issue date of debentures.

    The debentures shall be issued as of the date of the execution of 
the assignment of the loan in accordance with the requirements of Sec.  
203.476(c).



Sec.  203.487  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a check 
in payment thereof.

[59 FR 49816, Sept. 30, 1994]



Sec.  203.488  Sale of interests in insured loans.

    No lender may sell or otherwise dispose of any insured loan or group 
of insured loans, or any partial interest in such loan or loans by means 
of any agreement, arrangement or device except pursuant to this subpart.



Sec.  203.489  Sale of insured loan to approved lender.

    An insured loan may be sold to another approved lender. The seller 
shall notify HUD of the sale within 15 calendar days, on a form 
prescribed by HUD and acknowledged by the buyer.

[45 FR 27929, Apr. 25, 1980]



Sec.  203.491  Effect of sale of insured loan.

    When an insured loan is sold to another approved lender, the buyer 
shall thereupon succeed to all the rights and become bound by all the 
obligations of the seller under the contract of insurance and the seller 
shall be released from its obligations under the contract, provided that 
the seller shall not be relieved of its obligation to pay insurance 
premiums until the notice required by Sec.  203.489 is received by HUD.

[45 FR 27929, Apr. 25, 1980]



Sec.  203.492  Assignments, pledges and transfers by approved lender.

    (a) An assignment, pledge or transfer of an insured loan or group of 
insured loans, not constituting a final sale, may be made by an approved 
lender to another approved lender provided the following requirements 
are met:
    (1) The assignor, pledgor or transferor shall remain the lender of 
record.
    (2) The Commissioner shall have no obligation to recognize or deal 
with any party other than the lender of record with respect to the 
rights, benefits and obligations of the lender under the contract of 
insurance.
    (b) An assignment or transfer of an insured loan or group of insured 
loans may be made by an approved lender to other than an approved lender 
provided the requirements under paragraphs (a) (1) and (2) of this 
section are met and the following additional requirements are met:
    (1) The assignee or transferee shall be a corporation, trust or 
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved lender that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to hold an insured loan or group of 
insured loans.
    (2) The assignment or transfer shall be made pursuant to an 
agreement under which the transferor or assignor is obligated to take 
one of the following alternate courses of action within one year from 
the date of the assignment or within such additional period of time as 
may be approved by the Commissioner:
    (i) The transferor or assignor shall repurchase and accept a 
reassignment of such loan or group of loans.
    (ii) The transferor or assignor shall obtain a sale and transfer of 
such loan or group of loans to an approved lender.
    (c) Notice to or approval of the Commissioner is not required in 
connection with assignments, pledges or transfers pursuant to this 
section.



Sec.  203.493  Declaration of trust.

    A sale of a beneficial interest in a group of insured loans, where 
the interest to be acquired is related to all of the loans as an 
entirety, rather than an interest in a specific loan, shall be made only 
pursuant to a declaration of trust, which has been approved by the 
Commissioner prior to any such sale.

[[Page 241]]



Sec.  203.495  Transfers of partial interests.

    A partial interest in an insured loan may be transferred under a 
participation agreement without obtaining the approval of the 
Commissioner, if the following conditions are met:
    (a) Principal mortgagee. The insured loan shall be held by an 
approved lender which, for the purposes of this section, shall be 
referred to as the principal lender.
    (b) Interest of principal lender. The principal lender shall retain 
and hold for its own account a financial interest in the insured loan.
    (c) Qualification for holding partial interest. A partial interest 
in an insured loan shall be issued to and held only by:
    (1) A lender approved by the Commissioner; or
    (2) A corporation, trust or organization (including, but not limited 
to any pension fund, pension trust, or profit-sharing plan) which 
certifies to the principal lender that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to acquire a partial interest in an 
insured loan.
    (d) Participation agreement provisions. The participation agreement 
shall include provisions that:
    (1) The principal lender shall retain title to the loan and remain 
the lender of record under the contract of loan insurance.
    (2) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the principal lender with respect to the rights, 
benefits, and obligations of the lender under the contract of insurance.
    (3) The loan documents shall remain in the custody of the principal 
lender.
    (4) The responsibility for servicing the insured loans shall remain 
with the principal lender.

                            Extension of Time



Sec.  203.496  Actions to be taken by mortgagee or lender.

    With respect to any action required by the mortgagee or lender 
within a period of time prescribed by this subpart the Commissioner may 
extend such period.

                               Amendments



Sec.  203.499  Effect of amendments.

    The regulations in this subpart may be amended by the Secretary at 
any time and from time to time, in whole or in part, but such amendment 
will not adversely affect the interests of a mortgagee under the 
contract of insurance on any mortgage or loan already insured, and will 
not adversely affect the interest of a mortgagee on any mortgage or loan 
to be insured for which either the Direct Endorsement or Lender 
Insurance mortgagee has approved the mortgagor and all terms and 
conditions of the mortgage or loan, or the Secretary has issued a firm 
commitment. In addition, such amendment will not adversely affect the 
eligibility of specific property if such property is covered by a 
conditional commitment issued by the Secretary, a certificate of 
reasonable value issued by the Secretary of Veterans Affairs, or an 
appraisal report approved by a Direct Endorsement or Lender Insurance 
underwriter.

[62 FR 30227, June 2, 1997]



                  Subpart C_Servicing Responsibilities

    Source: 41 FR 49736, Nov. 10, 1976, unless otherwise noted.

                          General Requirements



Sec.  203.500  Mortgage servicing generally.

    This subpart identifies servicing practices of lending institutions 
that HUD considers acceptable for mortgages insured by HUD. Failure to 
comply with this subpart shall not be a basis for denial of insurance 
benefits, but failure to comply will be cause for imposition of a civil 
money penalty, including a penalty under Sec.  30.35(c)(2), or 
withdrawal of HUD's approval of a mortgagee. It is the intent of the 
Department that no mortgagee shall commence foreclosure or acquire title 
to a property until the requirements of this subpart have been followed.

[70 FR 21578, Apr. 26, 2005]

[[Page 242]]



Sec.  203.501  Loss mitigation.

    Mortgagees must consider the comparative effects of their elective 
servicing actions, and must take those appropriate actions which can 
reasonably be expected to generate the smallest financial loss to the 
Department. Such actions include, but are not limited to, deeds in lieu 
of foreclosure under Sec.  203.357, pre-foreclosure sales under Sec.  
203.370, partial claims under Sec.  203.414, assumptions under Sec.  
203.512, special forbearance under Sec. Sec.  203.471 and 203.614, and 
recasting of mortgages under Sec.  203.616. HUD may prescribe conditions 
and requirements for the appropriate use of these loss mitigation 
actions, concerning such matters as owner-occupancy, extent of previous 
defaults, prior use of loss mitigation, and evaluation of the 
mortgagor's income, credit and property.

[59 FR 50145, Sept. 30, 1994, as amended at 61 FR 35019, July 3, 1996]



Sec.  203.502  Responsibility for servicing.

    (a) After January 10, 1994, servicing of insured mortgages must be 
performed by a mortgagee that is approved by HUD to service insured 
mortgages. The servicer must fully discharge the servicing 
responsibilities of the mortgagee as outlined in this part. The 
mortgagee shall remain fully responsible to the Secretary for proper 
servicing, and the actions of its servicer shall be considered to be the 
actions of the mortgagee. The servicer also shall be fully responsible 
to the Secretary for its actions as a servicer.
    (b) Whenever servicing of any mortgage is transferred from one 
mortgagee or servicer to another, notice of the transfer of service 
shall be delivered:
    (1) By the transferor mortgagee or servicer to the mortgagor. The 
notification shall be delivered not less than 15 days before the 
effective date of the transfer and shall contain the information 
required in Sec.  3500.21(e)(2) of this title; and
    (2) By the transferee mortgagee or servicer:
    (i) To the mortgagor. The notification shall be delivered not less 
than 15 days before the effective date of the transfer and shall contain 
the information required in Sec.  3500.21(e)(2) of this title; and
    (ii) To the Secretary. This notification shall be delivered within 
15 days of the transfer, in a format prescribed by the Secretary.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 47974, Oct. 20, 1992; 
57 FR 58349, Dec. 9, 1992; 59 FR 65448, Dec. 19, 1994; 61 FR 36266, July 
9, 1996]



Sec.  203.508  Providing information.

    (a) Mortgagees shall provide loan information to mortgagors and 
arrange for individual loan consultation on request. The mortgagee must 
establish written procedures and controls to assure prompt responses to 
inquiries. One or more of the following means of making information 
readily available to mortgagors is required:
    (1) An office staffed with competent personnel located within 200 
miles of the property, capable of providing timely responses to requests 
for information. Complete records need not be maintained in such an 
office if the staff is able to secure needed information and pass it on 
to the mortgagor.
    (2) Toll-free telephone service at an office capable of providing 
needed information.
    (b) All mortgagors must be informed of the system available for 
obtaining answers to loan inquiries, the office from which needed 
information may be obtained and reminded of the system at least 
annually. Toll-free telephone service need not be provided to a 
mortgagor other than at the office designated to serve the mortgagor nor 
other than from the immediate vicinity of the security property.
    (c) Within thirty days after the end of each calendar year, the 
mortgagee shall furnish to the mortgagor a statement of the interest 
paid, and of the taxes disbursed from the escrow account during the 
preceding year. At the mortgagor's request, the mortgagee shall furnish 
a statement of the escrow account sufficient to enable the mortgagor to 
reconcile the account.
    (d) Mortgagees must respond to HUD requests for information 
concerning individual accounts.
    (e) Each servicer of a mortgage shall deliver to the mortgagor a 
written notice of any assignment, sale, or transfer of the servicing of 
the mortgage. The notice must be sent in accordance

[[Page 243]]

with the provisions of Sec.  3500.21(e)(1) of this title and shall 
contain the information required by Sec.  3500.21(e)(2) of this title. 
Servicers must respond to mortgagor inquiries pertaining to the transfer 
of servicing in accordance with Sec.  3500.21(f) of this title.

(The information collection requirements contained in paragraph (c) were 
approved by the Office of Management and Budget under control number 
2502-0235)

[41 FR 49736, Nov. 10, 1976, as amended at 48 FR 28986, June 24, 1983; 
59 FR 65448, Dec. 19, 1994]



Sec.  203.510  Release of personal liability.

    (a) Procedures. The mortgagee shall release a selling mortgagor from 
any personal liability for payment of the mortgage debt, if release is 
permitted by Sec.  203.258 of this part, in accordance with the 
following procedures:
    (1) The mortgagee receives a request for a creditworthiness 
determination for a prospective purchaser of all or part of the 
mortgaged property;
    (2) The mortgagee or servicer performs a creditworthiness 
determination under Sec.  203.512(b)(1) of this part if the mortgagee or 
servicer is approved for participation in the Direct Endorsement 
program, or the mortgagee requests a creditworthiness determination by 
the Secretary;
    (3) The prospective purchaser is determined to be creditworthy under 
the standards applicable when a release of the selling mortgagor is 
intended;
    (4) The prospective purchaser assumes personal liability by agreeing 
to pay the mortgage debt; and
    (5) The mortgagee provides the selling mortgagor with a release of 
personal liability on a form approved by the Secretary.
    (b) Release after 5 years. (1) If a selling mortgagor is not 
released under the procedures described in paragraph (a) of this 
section, either because no request for a creditworthiness determination 
is submitted under paragraph (a)(1) of this section, or because there is 
no affirmative determination of creditworthiness under paragraph (a)(3) 
of this section, then the selling mortgagor is automatically released 
from any personal liability for payment of the mortgage debt because of 
section 203(r) of the National Housing Act if:
    (i) The purchasing mortgagor has assumed personal liability by 
agreeing to pay the mortgage debt;
    (ii) Five years have elapsed after the assumption; and
    (iii) The purchasing mortgagor is not in default under the mortgage 
at the end of the five-year period.
    (2) If the conditions of this paragraph (b) for a release are 
satisfied, the mortgagee shall provide a written release upon request to 
the selling mortgagor.
    (3) This paragraph (b) only applies to a mortgage originated 
pursuant to an application by the mortgagor on or after December 1, 1986 
on a form approved by the Secretary.
    (c) Mortgagee to provide notice. A mortgagee shall inform mortgagors 
(including prospective mortgagors seeking information) about the 
procedures for release of personal liability by providing a notice 
approved by the Secretary when required by the Secretary.

[58 FR 42649, Aug. 11, 1993]



Sec.  203.512  Free assumability; exceptions.

    (a) Policy of free assumability with no restrictions. A mortgagee 
shall not impose, agree to or enforce legal restrictions on conveyance, 
as defined in Sec.  203.41(a)(3) of this part, or restrictions on 
assumption of the insured mortgage, unless specifically permitted by 
this part or contained in a junior lien granted to the mortgagee after 
settlement on the insured mortgage.
    (b) Credit review. If approval is required by the mortgage, the 
mortgagee shall not approve the sale or other transfer of all or part of 
the mortgaged property, or the sale or transfer of a beneficial interest 
in a trust owning all or part of the property, whether or not any person 
acquires personal liability under the mortgage in connection with the 
sale or other transfer, unless:
    (1) At least one of the persons acquiring ownership is determined to 
be creditworthy under applicable standards prescribed by the Secretary;
    (2) The selling mortgagor retains an ownership interest in the 
property; or
    (3) The transfer is by devise or descent.
    (c) Investors and secondary residences. The mortgagee shall not 
approve the

[[Page 244]]

sale of other transfer or mortgaged property to a person who cannot be 
approved as a substitute mortgagor as provided in Sec.  203.258 of this 
part because the property will not be a primary residence or a secondary 
residence permitted by that section.
    (d) Due-on-sale clause. Each mortgage shall contain a due-on-sale 
clause permitting acceleration, in a form prescribed by the Secretary. 
If a sale or other transfer occurs without mortgagee approval and a 
prohibition in paragraphs (b) or (c) of this section applies, a 
mortgagee shall enforce this section by requesting approval from the 
Secretary to accelerate the mortgage, provided that acceleration is 
permitted by applicable law. The mortgagee shall accelerate if approval 
is granted. This paragraph applies only if the application by the 
mortgagor on a form approved by the Secretary is dated on or after 
December 1, 1986.

[58 FR 42649, Aug. 11, 1993; 59 FR 15112, Mar. 31, 1994]

                     Payments, Charges and Accounts



Sec.  203.550  Escrow accounts.

    (a) It is the mortgagee's responsibility to make escrow 
disbursements before bills become delinquent. Mortgagees must establish 
controls to insure that bills payable from the escrow fund or the 
information needed to pay such bills is obtained on a timely basis. 
Penalties for late payments for items payable from the escrow account 
must not be charged to the mortgagor unless it can be shown that the 
penalty was the direct result of the mortgagor's error or omission. The 
mortgagee shall use the procedures set forth in Sec.  3500.17 of this 
title, implementing Section 10 of the Real Estate Settlement Procedures 
Act (12 U.S.C. 2609), to compute the amount of the escrow, the methods 
of collection and accounting, and the payment of the bills for which the 
money has been escrowed.
    (b) [Reserved]
    (c) In the case of escrow accounts created for purposes of Sec.  
203.52 or Sec.  234.64 of this chapter, mortgagees may estimate escrow 
requirements based on the best information available as to probable 
payments that will be required to be made from the account on a periodic 
basis throughout the period during which the account is maintained.
    (d) The mortgagee shall not institute foreclosure when the only 
default of the mortgagor occupant is a present inability to pay a 
substantial escrow shortage, resulting from an adjustment pursuant to 
this section, in a lump sum.
    (e) When the contract of mortgage insurance is terminated 
voluntarily or because of prepayment in full, sums in the escrow account 
to pay the mortgage insurance premiums shall be remitted to HUD with a 
form approved by the Secretary for reporting the voluntary termination 
of prepayment. Upon prepayment in full sums held in escrow for taxes and 
hazard insurance shall be released to the mortgagor promptly.

(Approved by the Office of Management and Budget under control number 
2502-0474)

[41 FR 49736, Nov. 10, 1976, as amended at 57 FR 9611, Mar. 19, 1992; 57 
FR 27927, June 23, 1992; 59 FR 53901, Oct. 26, 1994; 60 FR 8812, Feb. 
15, 1995]



Sec.  203.552  Fees and charges after endorsement.

    (a) The mortgagee may collect reasonable and customary fees and 
charges from the mortgagor after insurance endorsement only as provided 
below. The mortgagee may collect these fees or charges from the 
mortgagor only to the extent that the mortgagee is not reimbursed for 
such fees by HUD.
    (1) Late charges as set forth in Sec.  203.25;
    (2) Charges for processing or reprocessing a check returned as 
uncollectible; (Where bank policy permits, the mortgagee must deposit a 
check for collection a second time before assessing a bad check charge);
    (3) Fees for processing a change of ownership of the mortgaged 
property;
    (4) Fees and charges for arranging a substitution of liability under 
the mortgage in connection with the sale or transfer of the property;
    (5) Charges for processing a request for credit approval of an 
assumptor or substitute mortgagor;
    (6) Charges for substitution of a hazard insurance policy at other 
than the

[[Page 245]]

expiration of term of the existing hazard insurance policy;
    (7) Charges for modification of the mortgage involving a recorded 
agreement for extension of term or reamortization;
    (8) Fees and charges for processing a partial release of the 
mortgaged property;
    (9) Attorney's and trustee's fees and expenses actually incurred 
(including the cost of appraisals pursuant to Sec.  203.368(e) and cost 
of advertising pursuant to Sec.  203.368(h)) when a case has been 
referred for foreclosure in accordance with the provisions of this part 
after a firm decision to foreclose if foreclosure is not completed 
because of a reinstatement of the account. (No attorney's fee may be 
charged for the services of the mortgagee's or servicer's staff attorney 
or for the services of a collection attorney other than the attorney 
handling the foreclosure.)
    (10) The service charge provided for by Sec.  203.23(c) and escrow 
charges in accordance with Sec.  203.23(a);
    (11) A trustee's fee if the security instrument in deed-of-trust 
states provides for payment of such a fee for execution of a 
satisfactory, release, or trustee's deed when the deed of trust is paid 
in full; and
    (12) Such other reasonable and customary charges as may be 
authorized by the Secretary. (This shall not include:
    (i) Charges for servicing activities of the mortgagee or servicer;
    (ii) Fees charged by independent tax servicer organizations which 
contract to furnish data and information necessary for the payment of 
property taxes,
    (iii) Satisfaction, termination, or reconveyance fees when a 
mortgage is paid in full (other than as provided in paragraph (a)(11) of 
this section), or
    (iv) The fee for recordation of a satisfaction of the mortgage in 
states where recordation is the responsibility of the mortgagee.)
    (13) Where permitted by the security instrument, attorney's fees and 
expenses actually incurred in the defense of any suit or legal 
proceeding wherein the mortgagee shall be made a party thereto by reason 
of the mortgage; (No attorney's fee may be charged for the services of 
the mortgagee's or servicer's staff attorney.)
    (14) Property preservation expenses incurred pursuant to Sec.  
203.377.
    (b) reasonable and customary fees must be predicated upon the actual 
cost of the work performed including out-of-pocket expenses. Directors 
of HUD Area and Insuring Offices are authorized to establish maximum 
fees and charges which are reasonable and customary in their areas. 
Except as provided in this part, no fee or charge shall be based on a 
percentage of either the face amount of the mortgage or the unpaid 
principal balance due on the mortgage.

[41 FR 49736, Nov. 10, 1976, as amended at 52 FR 1330, Jan. 13, 1987; 61 
FR 35019, July 3, 1996; 62 FR 60130, Nov. 6, 1997]



Sec.  203.554  Enforcement of late charges.

    (a) A mortgagee shall not commence foreclosure when the only default 
on the part of the mortgagor is the failure to pay a late charge or 
charges (Sec.  203.25), except as provided in Sec.  203.556.
    (b) A late charge attributable to a particular installment payment 
due under the mortgage shall not be deducted from that installment. 
However, if the mortgagee thereafter notifies the mortgagor of his 
obligation to pay a late charge, such a charge may be deducted from any 
subsequent payment or payments submitted by the mortgagor or on his 
behalf if this is not inconsistent with the terms of the mortgage. 
Partial payments shall be treated as provided in Sec.  203.556.
    (c) A payment may be returned because of failure to include a late 
charge only if the mortgagee notifies the mortgagor before imposition of 
the charge of the amount of the monthly payment, the date when the late 
charge will be imposed and either the amount of the late charge or the 
total amount due when the late charge is included.
    (d) During the 60-day period beginning on the effective date of 
transfer of the servicing of a mortgage, a late charge shall not be 
imposed on the mortgagor with respect to any payment on the loan. No 
payment shall be treated as late for any other purpose if

[[Page 246]]

the payment is received by the transferor servicer, rather than the 
transferee servicer that should receive the payment, before the due date 
(including any applicable grace period allowed under the mortgage 
documents) applicable to such payment.

[42 FR 15680, Mar. 23, 1977, as amended at 59 FR 65448, Dec. 19, 1994]



Sec.  203.556  Return of partial payments.

    (a) For the purpose of this section, a partial payment is a payment 
of any amount less than the full amount due under the terms of the 
mortgage at the time the payment is tendered, including late charges.
    (b) Except as provided in this section, the mortgagee shall accept 
any partial payment and either apply it to the mortgagor's account or 
identify it with the mortgagor's account and hold it in a trust account 
pending disposition. When partial payments held for disposition 
aggregate a full monthly installment they shall be applied to the 
mortgagor's account, thus advancing the date of the oldest unpaid 
installment but not the date on which the account first became 
delinquent.
    (c) If the mortgage is not in default, a partial payment may be 
returned to the mortgagor with a letter of explanation.
    (d) If the mortgage is in default, a partial payment may be returned 
to the mortgagor with a letter of explanation in any of the following 
circumstances:
    (1) When payment aggregates less than 50 percent of the amount then 
due;
    (2) The payment is less than the amount agreed to in a forbearance 
plan, whether or not reduced to writing;
    (3) The property is occupied by a tenant who is paying rent and the 
rentals are not being applied to the mortgage payments;
    (4) Foreclosure has been commenced. (Foreclosure is commenced when 
the first action required for foreclosure under applicable law is 
taken.)
    (e) Under the following circumstances the mortgagee may return any 
partial payment received more than 14 days after the mortgagee has 
mailed to the mortgagor a statement of the full amount due, including 
late charges, and a notice of intention to return any payment less than 
such amount.
    (1) Four or more monthly installments are due and unpaid, or
    (2) A delinquency of any amount has continued for at least six 
months since the account first became delinquent.

[42 FR 15680, Mar. 23, 1977]



Sec.  203.558  Handling prepayments.

    (a) Handling prepayments for FHA-insured mortgages closed on or 
after January 21, 2015. With respect to FHA-insured mortgages closed on 
or after January 21, 2015, notwithstanding the terms of the mortgage, 
the mortgagee shall accept a prepayment at any time and in any amount. 
The mortgagee shall not require 30 days' advance notice of prepayment, 
even if the mortgage instrument purports to require such notice. Monthly 
interest on the debt must be calculated on the actual unpaid principal 
balance of the loan as of the date the prepayment is received, and not 
as of the next installment due date.
    (b) Handling prepayments for FHA-insured mortgages closed before 
January 21, 2015. (1) With respect to FHA mortgages insured before 
August 2, 1985, if a prepayment is offered on other than an installment 
due date, the mortgagee may refuse to accept the prepayment until the 
first day of the month following expiration of the 30-day notice period 
as provided in the mortgage, or may require payment of interest to that 
date, but only if the mortgagee so advises the mortgagor, in a form 
approved by the Commissioner, in response to the mortgagor's inquiry, 
request for payoff figures, or tender of prepayment. If the installment 
due date (the first day of the month) falls on a nonbusiness day, the 
mortgagor's notice of intention to prepay or the prepayment shall be 
timely if received on the next business day.
    (2) With respect to FHA mortgages insured on or after August 2, 
1985, but closed before January 21, 2015, the mortgagee shall not 
require 30 days' advance notice of prepayment, even if the mortgage 
instrument purports to require such notice. If the prepayment is offered 
on other than an installment

[[Page 247]]

due date, the mortgagee may refuse to accept the prepayment until the 
next installment due date (the first day of the month), or may require 
payment of interest to that date, but only if the mortgagee so advises 
the mortgagor, in a form approved by the Commissioner, in response to 
the mortgagor's inquiry, request for payoff figures, or tender of 
prepayment.
    (3) If the mortgagee fails to meet the full disclosure requirements 
of paragraphs (b)(1) and (b)(2) of this section, the mortgagee may be 
subject to forfeiture of that portion of the interest collected for the 
period beyond the date that prepayment in full was received and to such 
other actions as are provided in part 25 of this title.
    (c) Mortgagee annual notice to mortgagors. Each mortgagee, with 
respect to a mortgage under this part, shall provide to each of its 
mortgagors not less frequently than annually a written notice, in a form 
approved by the Commissioner, containing a statement of the amount 
outstanding for prepayment of the principal amount of the mortgage. With 
respect to FHA-insured mortgages closed before January 21, 2015, the 
notice shall describe any requirements the mortgagor must fulfill to 
prevent the accrual of any interest on the principal amount after the 
date of any prepayment. This paragraph shall apply to any outstanding 
mortgage insured on or after August 22, 1991.

[79 FR 50837, Aug. 26, 2014]

                    Mortgagee Action and Forbearance



Sec.  203.600  Mortgage collection action.

    Subject to the requirements of this subpart, mortgagees shall take 
prompt action to collect amounts due from mortgagors to minimize the 
number of accounts in a delinquent or default status. Collection 
techniques must be adapted to individual differences in mortgagors and 
take account of the circumstances peculiar to each mortgagor.



Sec.  203.602  Delinquency notice to mortgagor.

    The mortgagee shall give notice to each mortgagor in default on a 
form supplied by the Secretary or, if the mortgagee wishes to use its 
own form, on a form approved by the Secretary, no later than the end of 
the second month of any delinquency in payments under the mortgage. If 
an account is reinstated and again becomes delinquent, the delinquency 
notice shall be sent to the mortgagor again, except that the mortgagee 
is not required to send a second delinquency notice to the same 
mortgagor more often than once each six months. The mortgagee may issue 
additional or more frequent notices of delinquency at its option.



Sec.  203.604  Contact with the mortgagor.

    (a) [Reserved]
    (b) The mortgagee must have a face-to-face interview with the 
mortgagor, or make a reasonable effort to arrange such a meeting, before 
three full monthly installments due on the mortgage are unpaid. If 
default occurs in a repayment plan arranged other than during a personal 
interview, the mortgagee must have a face-to-face meeting with the 
mortgagor, or make a reasonable attempt to arrange such a meeting within 
30 days after such default and at least 30 days before foreclosure is 
commenced, or at least 30 days before assignment is requested if the 
mortgage is insured on Hawaiian home land pursuant to section 247 or 
Indian land pursuant to section 248 or if assignment is requested under 
Sec.  203.350(d) for mortgages authorized by section 203(q) of the 
National Housing Act.
    (c) A face-to-face meeting is not required if:
    (1) The mortgagor does not reside in the mortgaged property,
    (2) The mortgaged property is not within 200 miles of the mortgagee, 
its servicer, or a branch office of either,
    (3) The mortgagor has clearly indicated that he will not cooperate 
in the interview,
    (4) A repayment plan consistent with the mortgagor's circumstances 
is entered into to bring the mortgagor's account current thus making a 
meeting unnecessary, and payments thereunder are current, or
    (5) A reasonable effort to arrange a meeting is unsuccessful.
    (d) A reasonable effort to arrange a face-to-face meeting with the 
mortgagor shall consist at a minimum of

[[Page 248]]

one letter sent to the mortgagor certified by the Postal Service as 
having been dispatched. Such a reasonable effort to arrange a face-to-
face meeting shall also include at least one trip to see the mortgagor 
at the mortgaged property, unless the mortgaged property is more than 
200 miles from the mortgagee, its servicer, or a branch office of 
either, or it is known that the mortgagor is not residing in the 
mortgaged property.
    (e)(1) For mortgages insured pursuant to section 248 of the National 
Housing Act, the provisions of paragraphs (b), (c) and (d) of this 
section are applicable, except that a face-to-face meeting with the 
mortgagor is required, and a reasonable effort to arrange such a meeting 
shall include at least one trip to see the mortgagor at the mortgaged 
property, notwithstanding that such property is more than 200 miles from 
the mortgagee, its servicer, or a branch office of either. In addition, 
the mortgagee must document that it has made at least one telephone call 
to the mortgagor for the purpose of trying to arrange a face-to-face 
interview. The mortgagee may appoint an agent to perform its 
responsibilities under this paragraph.
    (2) The mortgagee must also:
    (i) Inform the mortgagor that HUD will make information regarding 
the status and payment history of the mortgagor's loan available to 
local credit bureaus and prospective creditors;
    (ii) Inform the mortgagor of other available assistance, if any;
    (iii) Inform the mortgagor of the names and addresses of HUD 
officials to whom further communications may be addressed.

(Approved by the Office of Management and Budget under control number 
2502-0340)

[41 FR 49736, Nov. 10, 1976, as amended at 51 FR 21873, June 16, 1986; 
52 FR 48202, Dec. 21, 1987; 53 FR 9869, Mar. 28, 1988; 61 FR 35019, July 
3, 1996; 61 FR 36266, July 9, 1996]



Sec.  203.605  Loss mitigation performance.

    (a) Duty to mitigate. Before four full monthly installments due on 
the mortgage have become unpaid, the mortgagee shall evaluate on a 
monthly basis all of the loss mitigation techniques provided at Sec.  
203.501 to determine which is appropriate. Based upon such evaluations, 
the mortgagee shall take the appropriate loss mitigation action. 
Documentation must be maintained for the initial and all subsequent 
evaluations and resulting loss mitigation actions. Should a claim for 
mortgage insurance benefits later be filed, the mortgagee shall maintain 
this documentation in the claim review file under the requirements of 
Sec.  203.365(c).
    (b) Assessment of mortgagee's loss mitigation performance. (1) HUD 
will measure and advise mortgagees of their loss mitigation performance 
through the Tier Ranking System (TRS). Under the TRS, HUD will analyze 
each mortgagee's loss mitigation efforts portfolio-wide on a quarterly 
basis, based on 12 months of performance, by computing ratios involving 
loss mitigation attempts, defaults, and claims. Based on the ratios, HUD 
will group mortgagees in four tiers (Tiers 1, 2, 3, and 4), with Tier 1 
representing the highest or best ranking mortgagees and Tier 4 
representing the lowest or least satisfactory ranking mortgagees. The 
precise methodology for calculating the TRS ratios and for determining 
the tier stratification (or cutoff points) will be provided through 
Federal Register notice. Notice of future TRS methodology or 
stratification changes will be published in the Federal Register and 
will provide a 30-day public comment period.
    (2) Before HUD issues each quarterly TRS notice, HUD will review the 
number of claims paid to the mortgagee. If HUD determines that the 
lender's low TRS score is the result of a small number of defaults or a 
small number of foreclosure claims, or both, as defined by notice, HUD 
may determine not to designate the mortgagee as Tier 3 or Tier 4, and 
the mortgagee will remain unranked.
    (3) Within 30 calendar days after the date of the TRS notice, a 
mortgagee that scored in Tier 4 may appeal its ranking to the Deputy 
Assistant Secretary for Single Family or the Deputy Assistant 
Secretary's designee and request an informal HUD conference. The only 
basis for appeal by the Tier 4 mortgagee is disagreement with the data 
used by HUD to calculate the

[[Page 249]]

mortgagee's ranking. If HUD determines that the mortgagee's Tier 4 
ranking was based on incorrect or incomplete data, the mortgagee's 
performance will be recalculated and the mortgagee will receive a 
corrected tier ranking score.
    (c) Assessment of civil money penalty. A mortgagee that is found to 
have failed to engage in loss mitigation as required under paragraph (a) 
of this section shall be liable for a civil money penalty as provided in 
Sec.  30.35(c) of this title.

[70 FR 21578, Apr. 26, 2005]



Sec.  203.606  Pre-foreclosure review.

    (a) Before initiating foreclosure, the mortgagee must ensure that 
all servicing requirements of this subpart have been met. The mortgagee 
may not commence foreclosure for a monetary default unless at least 
three full monthly installments due under the mortgage are unpaid after 
application of any partial payments that may have been accepted but not 
yet applied to the mortgage account. In addition, prior to initiating 
any action required by law to foreclose the mortgage, the mortgagee 
shall notify the mortgagor in a format prescribed by the Secretary that 
the mortgagor is in default and the mortgagee intends to foreclose 
unless the mortgagor cures the default.
    (b) If the mortgagee determines that any of the following conditions 
has been met, the mortgagee may initiate foreclosure without the delay 
in foreclosure required by paragraph (a) of this section:
    (1) The mortgaged property has been abandoned, or has been vacant 
for more than 60 days.
    (2) The mortgagor, after being clearly advised of the options 
available for relief, has clearly stated in writing that he or she has 
no intention of fulfilling his or her obligation under the mortgage.
    (3) The mortgaged property is not the mortgagor's principal 
residence and it is occupied by tenants who are paying rent, but the 
rental income is not being applied to the mortgage debt.
    (4) The property is owned by a corporation or partnership.

[52 FR 6915, Mar. 5, 1987, as amended at 61 FR 35020, July 3, 1996]



Sec.  203.608  Reinstatement.

    The mortgagee shall permit reinstatement of a mortgage, even after 
the institution of foreclosure proceedings, if the mortgagor tenders in 
a lump sum all amounts required to bring the account current, including 
foreclosure costs and reasonable attorney's fees and expenses properly 
associated with the foreclosure action, unless: (a) The mortgagee has 
accepted reinstatement after the institution of foreclosure proceedings 
within two years immediately preceding the commencement of the current 
foreclosure action, (b) reinstatement will preclude foreclosure 
following a subsequent default, or (c) reinstatement will adversely 
affect the priority of the mortgage lien.



Sec.  203.610  Relief for mortgagor in military service.

    The mortgagee shall specifically give consideration to affording the 
mortgagor the benefit of relief authorized by Sec. Sec.  203.345 and 
203.346, if the mortgagor is person in the military service as that term 
is defined in the Soldiers and Sailors Civil Relief Act of 1940, as 
amended.



Sec.  203.614  Special forbearance.

    If the mortgagee finds that a default is due to circumstances beyond 
the mortgagor's control, as defined by HUD, the mortgagee may grant 
special forbearance relief to the mortgagor in accordance with the 
conditions prescribed by HUD.

[61 FR 35020, July 3, 1996]



Sec.  203.616  Mortgage modification.

    The mortgagee may modify a mortgage for the purpose of changing the 
amortization provisions by recasting the total unpaid amount due for a 
term not exceeding 360 months. The mortgagee must notify HUD of such 
modification in a format prescribed by HUD within 30 days of the 
execution of the modification agreement.

[62 FR 60130, Nov. 6, 1997]

[[Page 250]]

     Mortgages in Default on Property Located on Indian Reservations



Sec.  203.664  Processing defaulted mortgages on property located on
Indian land.

    Before a mortgagee requests that the Secretary accept assignment 
under Sec.  203.350(b) of a mortgage insured pursuant to section 248 of 
the National Housing Act (Sec.  203.43h), the mortgagee must submit 
documents showing that the requirements of Sec.  203.604 have been met.

[61 FR 35020, July 3, 1996]

     Mortgages in Default on Property Located on Hawaiian Home Lands



Sec.  203.665  Processing defaulted mortgages on property located on
Hawaiian home lands.

    Before a mortgagee requests the Secretary to accept assignment under 
Sec.  203.350(c) of a mortgage insured pursuant to section 247 of the 
National Housing Act (Sec.  203.43i), the mortgagee must submit 
documents showing that the requirements of Sec.  203.604 have been met.

[61 FR 35020, July 3, 1996]

 Assignment and Forbearance--Property in Allegany Reservation of Seneca 
                                 Indians



Sec.  203.666  Processing defaulted mortgages on property in Allegany 
Reservation of Seneca Nation of Indians.

    (a) Applicability. This section applies to mortgages authorized by 
section 203(q) of the National Housing Act (Sec.  203.43j) only if the 
default occurred before the mortgagor and the lessee execute a lease 
renewal or a new lease either with a term of not less than five years 
beyond the maturity date of the mortgage, or with a term established by 
an arbitration award.
    (b) Claims through assignment. Before a mortgagee requests the 
Secretary to accept assignment under Sec.  203.350(d) the mortgagee must 
submit documents showing that the requirements of Sec.  203.604 have 
been met.

[53 FR 13405, Apr. 25, 1988, as amended at 61 FR 35020, July 3, 1996]

                           Occupied Conveyance



Sec.  203.670  Conveyance of occupied property.

    (a) It is HUD's policy to reduce the inventory of acquired 
properties in a manner that expands homeownership opportunities, 
strengthens neighborhoods and communities, and ensures a maximum return 
to the mortgage insurance fund.
    (b) The Secretary will accept conveyance of an occupied property 
containing one to four residential units if the Secretary finds that:
    (1) An individual residing in the property suffers from a temporary, 
permanent, or long-term illness or injury that would be aggravated by 
the process of moving from the property, and that the individual meets 
the eligibility criteria in Sec.  203.674(a);
    (2) State or local law prohibits the mortgagee from evicting a 
tenant residing in the property who is making regular monthly payments 
to the mortgagor, or prohibits eviction for other similar reasons beyond 
the control of the mortgagee; or
    (3) It is in the Secretary's interest to accept conveyance of the 
property occupied under Sec.  203.671, the property is habitable as 
defined in Sec.  203.673, and, except for conveyances under Sec.  
203.671(d), each occupant who intends to remain in the property after 
the conveyance meets the eligibility criteria in Sec.  203.674(b).
    (c) HUD consents to accept good marketable title to occupied 
property where 90 days have elapsed since the mortgagee notified HUD of 
pending acquisition, the Department has notified the mortgagee that it 
was considering a request for continued occupancy, and no subsequent 
notification from HUD has been received by the mortgagee.

[53 FR 874, Jan. 14, 1988, as amended at 56 FR 46967, Sept. 16, 1991; 58 
FR 54246, Oct. 20, 1993; 61 FR 36266, July 9, 1996]



Sec.  203.671  Criteria for determining the Secretary's interest.

    It is in the Secretary's interest to accept occupied conveyance when 
one or more of the following are met:
    (a) Occupancy of the property is essential to protect it from 
vandalism

[[Page 251]]

from time of acquisition to the time of preparation for sale.
    (b) The average time in inventory for HUD's unsold inventory in the 
residential area in which the property is located exceeds six months.
    (c) With respect to multi-unit properties, the marketability of the 
property would be improved by retaining occupancy of one or more units.
    (d) The high cost of eviction or relocation expenses makes eviction 
impractical.

[45 FR 59563, Sept. 10, 1980, as amended at 56 FR 46967, Sept. 16, 1991; 
58 FR 54246, Oct. 20, 1993]



Sec.  203.672  Residential areas.

    (a) For the purposes of occupied conveyance considerations, a 
residential area is any area which constitutes a local economic market 
for the purchase and sale of residential real estate. In making 
determinations of residential areas, substantial weight shall be given 
to delineations of such areas commonly used by persons active in the 
real estate industry in the affected area.
    (b) HUD shall establish such residential areas within six (6) months 
of the publication of these regulations when HUD's current established 
patterns of dealing with the disposition of its acquired home property 
inventory and related recordkeeping does not coincide with paragraph (a) 
of this section. Under such circumstances the Secretary shall apply such 
established patterns in defining residential areas until the standards 
in paragraph (a) of this section are implemented.

[45 FR 59563, Sept. 10, 1980]



Sec.  203.673  Habitability.

    (a) For purposes of Sec.  203.670, a property is habitable if it 
meets the requirements of this section in its present condition, or will 
meet these requirements with the expenditure of not more than five 
percent of the fair market value of the property. The cost of hazard 
reduction or abatement of lead-based paint hazards in the property, as 
required by the Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 
4821-4846), and the Residential Lead-Based Paint Hazard Reduction Act of 
1992 (42 U.S.C. 4851-4856), and implementing regulations in part 35 of 
this title, is excluded from these repair cost limitations.
    (b)(1) Each residential unit must contain:
    (i) Heating facilities adequate for healthful and comfortable living 
conditions, taking into consideration the local climate;
    (ii) Adequate electrical supply for lighting and for equipment used 
in the residential unit;
    (iii) Adequate cooking facilities;
    (iv) A continuing supply of hot and cold water; and
    (v) Adequate sanitary facilities and a safe method of sewage 
disposal.
    (2) The property shall be structurally sound, reasonably durable, 
and free from hazards that may adversely affect the health and safety of 
the occupants or may impair the customary use and enjoyment by the 
occupants. Unacceptable hazards include, but are not limited to, 
subsidence, erosion, flood, exposure to the elements, exposed or unsafe 
electrical wiring, or an accumulation of minor hazards, such as broken 
stairs.
    (c) If repairs, including lead-based paint hazard reduction or 
abatement, are to be made while the property is occupied, the occupant 
must hold the Secretary and the Department harmless against any personal 
injury or property damage that may occur during the process of making 
repairs. If temporary relocation of the occupant is necessary during 
repairs, no reimbursement for relocation expenses will be provided to 
the occupant.

[53 FR 874, Jan. 14, 1988, as amended at 64 FR 50225, Sept. 15, 1999]



Sec.  203.674  Eligibility for continued occupancy.

    (a) Occupancy because of temporary, permanent, or long-term illness 
or injury of an individual residing in the property will be limited to a 
reasonable time, to be determined by the Secretary on a case-by-case 
basis, and will be permitted only if all the conditions in this 
paragraph (a) are met:
    (1) A timely request is made in accordance with Sec.  203.676, 
including the submittal of documents required in Sec.  203.675(b)(4).

[[Page 252]]

    (2) The occupant agrees to execute a month-to-month lease, at the 
time of acquisition of the property by the Secretary and on a form 
prescribed by HUD, and to pay a fair market rent as determined by the 
Secretary. The rental rate shall be established on the basis of rents 
charged for other properties in comparable condition after completion of 
repairs (if any).
    (3) The occupant's total housing cost (rent plus utility costs to be 
paid by the occupant) will not exceed 38 percent of the occupant's net 
effective income (gross income less Federal income taxes). However, a 
higher percentage may be permitted if the occupant has been paying at 
least the required rental amount for the dwelling, or if there are other 
compensating factors (e.g., where the occupant is able to rely on cash 
savings or on contributions from family members to cover total housing 
costs).
    (4) The occupant agrees to allow access to the property (during 
normal business hours and upon a minimum of two days advance notice) by 
HUD Field Office staff or by a HUD representative, so that the property 
may be inspected and any necessary repairs accomplished, or by a sales 
broker.
    (5) The occupant discloses and verifies Social Security Numbers, as 
provided by part 200, subpart T, of this chapter.
    (b) An occupant who does not meet the illness or injury criteria in 
paragraph (a) of this section is eligible for continued occupancy only 
if all the conditions in this paragraph (b) are met:
    (1) A timely request is made in accordance with Sec.  203.676.
    (2) The occupant agrees to execute a month-to-month lease, at the 
time of acquisition of the property by the Secretary and on a form 
prescribed by HUD, to pay fair market rent as determined by the 
Secretary, and to pay the rent for the first month in advance at the 
time the lease is executed. The rental rate shall be established on the 
basis of rents charged for other properties in comparable condition 
after completion of repairs (if any).
    (3) The occupant will have been in occupancy at least 90 days before 
the date the mortgagee acquires title to the property.
    (4) The occupant's total housing cost (rent plus utility costs to be 
paid by the occupant) will not exceed 38 percent of the occupant's net 
effective income (gross income less Federal income taxes). However, a 
higher percentage may be permitted if the occupant has been paying at 
least the required rental amount for the dwelling, or if there are other 
compensating factors (e.g., where the occupant is able to rely on cash 
savings or on contributions from family members to cover total housing 
costs).
    (5) The occupant agrees to allow access to the property (during 
normal business hours and upon a minimum of two days advance notice) by 
HUD Field Office staff or by a HUD representative, so that the property 
may be inspected and any necessary repairs accomplished, or by a sales 
broker.
    (6) The occupant discloses and verifies Social Security Number, as 
provided by part 200, subpart T, of this chapter.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 874, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
54 FR 39693, Sept. 27, 1989; 56 FR 46967, Sept. 16, 1991]



Sec.  203.675  Notice to occupants of pending acquisition.

    (a) At least 60 days, but not more than 90 days, before the date on 
which the mortgagee reasonably expects to acquire title to the property, 
the mortgagee shall notify the mortgagor and each head of household who 
is actually occupying a unit of the property of its potential 
acquisition by HUD. The mortgagee shall send a copy of this notification 
to the appropriate HUD Field Office.
    (b) The notice shall provide a brief summary of the conditions under 
which continued occupancy is permissible and advise them that:
    (1) Potential acquisition of the property by the Secretary is 
pending;
    (2) The Secretary requires that properties be vacant at the time of 
conveyance to the Secretary, unless the mortgagor or other occupant can 
meet the conditions for continued occupany in Sec.  203.670, the 
habitability criteria in

[[Page 253]]

Sec.  203.673, and the eligibility criteria in Sec.  203.674;
    (3) An occupant may request permission to remain in occupancy in the 
event of acquisition of the property by the Secretary by notifying the 
HUD Field Office in writing, with any required documentation, within 20 
days of the date of the mortgagee's notice to the occupant;
    (4) If an occupant seeks to qualify for continued occupancy under 
the illness or injury provisions of Sec.  203.674(a), the occupant shall 
provide to the HUD Field Office, at the time of the occupant's request 
for permission to remain in occupancy, documentation to support this 
claim. Documentation shall include an estimate of the time when the 
patient could be moved without severely aggravating the illness or 
injury, and a statement by a State-certified physician establishing the 
validity of the occupant's claim. HUD may require more than one medical 
opinion or may arrange an examination by a physician approved by HUD; 
and
    (5) If an occupant fails to make a timely request, the property must 
be vacated before the scheduled time of acquisition.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
58 FR 54246, Oct. 20, 1993]



Sec.  203.676  Request for continued occupancy.

    An occupant may request permission to continue to occupy the 
property following conveyance to the Secretary by notifying the HUD 
Field Office in writing, within 20 days after the date of the 
mortgagee's notice of pending acquisition. Verification of illness or 
injury as described in Sec.  203.675(b)(4) shall be submitted within 
this time period if an occupant seeks to qualify for continued occupancy 
under the provisions of Sec.  203.674(a). The HUD Field Office will 
notify the mortgagee in writing that an occupied conveyance has been 
requested.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
58 FR 54246, Oct. 20, 1993]



Sec.  203.677  Decision to approve or deny a request.

    (a) The HUD Field Office will provide written notification of its 
decision to an occupant who makes a timely request to continue to occupy 
the property. The decision of the HUD Field Office on this matter will 
be made by the Chief, Property Disposition. If the decision is to deny 
the request, the notice to the occupant will include a statement of the 
reason or reasons for the decision and of the occupant's right to 
appeal. The occupant may appeal HUD's decision within 20 days after the 
date of HUD's notice. The appeal must be addressed to the Field Office 
Manager and be in writing, and the occupant may provide documentation 
intended to refute the reasons given for HUD's decision. The occupant 
may also request an informal conference with a representative of the HUD 
Field Office Manager. A request for an informal conference must be made 
in writing within 10 days after the date of HUD's notice. The occupant 
may be represented at the conference by counsel or by other persons with 
pertinent expert knowledge or experience.
    (b) After notification that HUD has denied a request for continued 
occupancy, the occupant, on his or her request, shall be permitted to 
review all relevant material in HUD's possession (including a copy of 
the inspection report if the request is denied because the property is 
not habitable as defined in Sec.  203.673). Only material in HUD's 
possession that directly pertains to conditions for continued occupancy 
under Sec. Sec.  203.670, 203.673, and 203.674 may be considered 
material relevant for an occupant's review under this paragraph. This 
review shall be limited to a review of material for purposes of the 
informal conference or the appeal of the Department's decision. The 
information will only be provided after request for an informal 
conference or appeal has been submitted to HUD.

[[Page 254]]

    (c) After consideration of an appeal, the HUD Field Office will 
notify the applicant in writing of HUD's final decision. This final 
decision will be made by the HUD Field Office Manager or a 
representative of the Field Office Manager (other than the Chief, 
Property Disposition). If the decision is to deny the occupant's 
request, the notice to the occupant will reflect consideration of the 
issues raised by the occupant.
    (d) If, after consideration of an appeal, the Field Office Manager 
denies the request for new or additional reasons, the occupant will be 
afforded an opportunity to request that the Field Office Manager 
reconsider its decision under the provisions of paragraph (c) of this 
section.

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec.  203.678  Conveyance of vacant property.

    (a) HUD will require that the property be conveyed vacant if the 
occupant fails to request permission to continue to occupy within the 
time period specified in Sec.  203.676, or fails to request a conference 
or to appeal a decision to deny occupied conveyance within the time 
period specified in Sec.  203.677(a).
    (b) If the mortgagee has not been notified by HUD, within 45 days of 
the date of the mortgagee's notification of pending acquisition, that a 
request for continued occupancy is under consideration, the mortgagee 
shall convey the property vacant, unless otherwise directed by HUD.

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec.  203.679  Continued occupancy after conveyance.

    (a) Occupancy of HUD-acquired property is temporary in all cases and 
is subject to termination when necessary to facilitate preparing the 
property for sale and completing the sale.
    (b) HUD will notify the occupant to vacate the property and, if 
necessary, will take appropriate eviction action in any of the following 
situations:
    (1) Failure of the occupant to execute the lease required by Sec.  
203.674 (a)(2) and (b)(2), or failure to pay the rental amount required, 
including the initial payment at the time of execution of the lease, or 
to comply with the terms of the lease;
    (2) Failure of the occupant to allow access to the property upon 
request in accordance with Sec.  203.674 (a)(4) and (b)(5);
    (3) Necessity to prepare the property for sale; or
    (4) Assignment of the property by the Secretary to a different use 
or program.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988; 61 FR 36266, 
July 9, 1996]



Sec.  203.680  Approval of occupancy after conveyance.

    When an occupied property is conveyed to HUD before HUD has had an 
opportunity to consider continued occupancy (e.g., where HUD has taken 
more than 90 days to make a final decision on continued occupancy in 
accordance with Sec.  203.670(c)), a determination regarding continued 
occupancy will be made in accordance with the conditions for the initial 
approval of occupied conveyance. Any such determination shall be in 
accordance with HUD's obligations under the terms of any month-to-month 
lease that has been executed.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec.  203.681  Authority of HUD Field Office Managers.

    Field Office Managers shall act for the Secretary in all matters 
relating to assignment and occupied conveyance determinations. The 
decision of the Field Office Manager under Sec.  203.677 will be final 
and not be subject to further administrative review.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



PART 204_COINSURANCE--Table of Contents



    Authority: 12 U.S.C. 1715z-9; 42 U.S.C. 3535(d).



Sec.  204.1  Termination of program.

    Effective December 29, 1994, of final rule the authority to coinsure 
mortgages under this part is terminated, except that the Department will 
honor

[[Page 255]]

legally binding and validly issued borrower approvals issued by lenders 
before the termination date. This part 204, as it existed immediately 
before the termination date, will continue to govern the rights and 
obligations of coinsured lenders, mortgagors, and the Department of 
Housing and Urban Development with respect to loans coinsured under this 
part.

[59 FR 39957, Aug. 5, 1994]



PART 206_HOME EQUITY CONVERSION MORTGAGE INSURANCE--Table of Contents



                            Subpart A_General

Sec.
206.1 Purpose.
206.3 Definitions.
206.7 Effect of amendments.
206.8 Preemption.

                   Subpart B_Eligibility; Endorsement

206.9 Eligible mortgagees.
206.13 Disclosure of available HECM program options.
206.15 Insurance.

                           Eligible Mortgages

206.17 Eligible mortgages: general.
206.19 Payment options.
206.21 Interest rate.
206.23 Shared appreciation.
206.25 Calculation of disbursements.
206.26 Change in payment option.
206.27 Mortgage provisions.
206.31 Allowable charges and fees.
206.32 No outstanding unpaid obligations.

                           Eligible Borrowers

206.33 Age of borrower.
206.34 Limitation on number of mortgages.
206.35 Title of property which is security for HECM.
206.36 Seasoning requirements for existing non-HECM liens.
206.37 Credit standing.
206.39 Principal residence.
206.40 Disclosure, verification and certifications.
206.41 Counseling.
206.43 Information to borrower.
206.44 Monetary investment for HECM for Purchase program.

                           Eligible Properties

206.45 Eligible properties.
206.47 Property standards; repair work.
206.51 Eligibility of mortgages involving a dwelling unit in a 
          condominium.
206.52 Eligible sale of property--HECM for Purchase.

        Refinancing of Existing Home Equity Conversion Mortgages

206.53 Refinancing a HECM loan.

                   Deferral of Due and Payable Status

206.55 Deferral of due and payable status for Eligible Non-Borrowing 
          Spouses.
206.57 Cure provision enabling reinstatement of Deferral Period.
206.59 Obligations of mortgagee.
206.61 HECM proceeds during a Deferral Period.

                Subpart C_Contract Rights and Obligations

                       Sale, Assignment and Pledge

206.101 Sale, assignment and pledge of insured mortgages.
206.102 Insurance Funds.

                       Mortgage Insurance Premiums

206.103 Payment of MIP.
206.105 Amount of MIP.
206.107 Mortgagee election of assignment or shared premium option.
206.109 Amount of mortgagee share of premium.
206.111 Due date of MIP.
206.113 Late charge and interest.
206.115 Insurance of mortgage.
206.116 Refunds.

                     HUD Responsibility to Borrowers

206.117 General.
206.119 [Reserved]
206.121 Commissioner authorized to make payments.

                             Claim Procedure

206.123 Claim procedures in general.
206.125 Acquisition and sale of the property.
206.127 Application for insurance benefits.
206.129 Payment of claim.

                              Condominiums

206.131 Contract rights and obligations for mortgages on individual 
          dwelling units in a condominium.

                    Termination of Insurance Contract

206.133 Termination of insurance contract.

                         Additional Requirements

206.134 Partial release, addition or substitution of security.
206.135 Application for insurance benefits and fiscal data.
206.136 Conditions for assignment.
206.137 Effect of noncompliance with regulations.

[[Page 256]]

206.138 Mortgagee's liability for certain expenditures.
206.140 Inspection and preservation of properties.
206.141 Property condition.
206.142 Adjustment for damage or neglect.
206.143 Certificate of property condition.
206.144 Final payment.
206.145 Items deducted from payment.
206.146 Debenture interest rate.

                  Subpart D_Servicing Responsibilities

206.201 Mortgage servicing generally; sanctions.
206.203 Providing information.
206.205 Property charges.
206.207 Allowable charges and fees after endorsement.
206.209 Prepayment.
206.211 Determination of principal residence and contact information.

                     Subpart E_HECM Counselor Roster

206.300 General.
206.302 Establishment of the HECM Counselor Roster.
206.304 Eligibility for placement on the HECM Counselor Roster.
206.306 Removal from the HECM Counselor Roster.
206.308 Continuing education requirements of counselors listed on the 
          HECM Counselor Roster.

    Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d)

    Source: 82 FR 7117, Jan. 19, 2017, unless otherwise noted.



                            Subpart A_General



Sec.  206.1  Purpose.

    The purposes of the Home Equity Conversion Mortgage (HECM) Insurance 
program are set out in section 255(a) of the National Housing Act, 
Public Law 73-479, 48 Stat. 1246 (12 U.S.C. 1715z-20) (``NHA'').



Sec.  206.3  Definitions.

    As used in this part, the following terms shall have the meaning 
indicated.
    Bona fide tenant means a tenant of the property who is not a 
mortgagor, borrower, a spouse or child of a mortgagor or borrower, or 
any other member of a mortgagor's or borrower's family.
    Borrower means a mortgagor who is an original borrower under the 
HECM Loan Agreement and Note. The term does not include successors or 
assigns of a borrower.
    Borrower's Advance means the funds advanced to the borrower at the 
closing of a fixed interest rate HECM in accordance with Sec.  206.25.
    CMT Index means the U.S. Constant Maturity Treasury Index.
    Commissioner means the Federal Housing Commissioner or the 
Commissioner's authorized representative.
    Contract of insurance means the agreement evidenced by the issuance 
of a Mortgage Insurance Certificate or by the endorsement of the 
Commissioner upon the credit instrument given in connection with an 
insured mortgage, incorporating by reference the regulations in subpart 
C of this part and the applicable provisions of the National Housing 
Act.
    Day means calendar day, except where the term business day is used.
    Deferral Period means the period of time following the death of the 
last surviving borrower during which the due and payable status of a 
HECM is deferred for an Eligible Non-Borrowing Spouse provided that the 
Qualifying Attributes and all other FHA requirements continue to be 
satisfied.
    Eligible Non-Borrowing Spouse means a Non-Borrowing Spouse who meets 
all Qualifying Attributes for a Deferral Period.
    Estate planning service firm means an individual or entity that is 
not a mortgagee approved under part 202 of this chapter or a 
participating agency approved under subpart B of 24 CFR part 214 and 
that charges a fee that is:
    (1) Contingent on the prospective borrower obtaining a mortgage loan 
under this part, except the origination fee authorized by Sec.  206.31 
or a fee specifically authorized by the Commissioner; or
    (2) For information that borrowers and Eligible and Ineligible Non-
Borrowing Spouses, if applicable, must receive under Sec.  206.41, 
except a fee by:
    (i) A participating agency approved under subpart B of 24 CFR part 
214; or
    (ii) An individual or company, such as an attorney or accountant, in 
the bona fide business of generally providing tax or other legal or 
financial advice; or

[[Page 257]]

    (3) For other services that the provider of the services represents 
are, in whole or in part, for the purpose of improving a prospective 
borrower's access to mortgages covered by this part, except where the 
fee is for services specifically authorized by the Commissioner.
    Expected average mortgage interest rate means the interest rate used 
to calculate the principal limit established at closing. For fixed 
interest rate HECMs, the expected average mortgage interest rate is the 
same as the fixed mortgage (Note) interest rate and is set 
simultaneously with the fixed interest rate. For adjustable interest 
rate HECMs, it is either the sum of the mortgagee's margin plus the 
weekly average yield for U.S. Treasury securities adjusted to a constant 
maturity of 10 years, or it is the sum of the mortgagee's margin plus 
the 10-year LIBOR swap rate, depending on which interest rate index is 
chosen by the borrower. The margin is determined by the mortgagee and is 
defined as the amount that is added to the index value to compute the 
expected average mortgage interest rate. The index type (CMT or LIBOR) 
used to calculate the expected average mortgage interest rate must be 
the same index type used to calculate mortgage interest rate 
adjustments--commingling of index types is not allowed. The mortgagee's 
margin is the same margin used to determine the initial interest rate 
and the periodic adjustments to the interest rate. Mortgagees, with the 
agreement of the borrower, may simultaneously lock in the expected 
average mortgage interest rate and the mortgagee's margin prior to the 
date of loan closing or simultaneously establish the expected average 
mortgage interest rate and the mortgagee's margin on the date of loan 
closing.
    First 12-Month Disbursement Period means the period beginning on the 
day of loan closing and ending on the day before the loan closing 
anniversary date. When the day before the anniversary date of loan 
closing falls on a Federally-observed holiday, Saturday, or Sunday, the 
end period will be on the next business day after the Federally-observed 
holiday, Saturday or Sunday.
    HECM means a Home Equity Conversion Mortgage.
    HECM counselor means an independent third party who is currently 
active on FHA's HECM Counselor Roster and who is not, either directly or 
indirectly, associated with or compensated by, a party involved in 
originating, servicing, or funding the HECM, or the sale of annuities, 
investments, long-term care insurance, or any other type of financial or 
insurance product who provides statutorily required counseling to 
prospective borrowers who may be eligible for or interested in obtaining 
an FHA-insured HECM. This counseling assists elderly prospective 
borrowers who seek to convert equity in their homes into income that can 
be used to pay for home improvements, medical costs, living expenses, or 
other expenses.
    Ineligible Non-Borrowing Spouse means a Non-Borrowing Spouse who 
does not meet all Qualifying Attributes for a Deferral Period.
    Initial Disbursement Limit means the maximum amount of funds that 
can be advanced to a borrower of an adjustable interest rate HECM 
allowed at loan closing and during the First 12-Month Disbursement 
Period in accordance with Sec.  206.25.
    Insured mortgage means a mortgage which has been insured as 
evidenced by the issuance of a Mortgage Insurance Certificate.
    LIBOR means the London Interbank Offered Rate.
    Loan documents mean the credit instrument, or Note, secured by the 
lien, and the loan agreement.
    Mandatory Obligations are fees and charges incurred in connection 
with the origination of the HECM that are requirements for loan approval 
and which will be paid at closing or during the First 12-Month 
Disbursement Period in accordance with Sec.  206.25.
    Maximum claim amount means the lesser of the appraised value of the 
property, as determined by the appraisal used in underwriting the loan; 
the sales price of the property being purchased for the sole purpose of 
being the principal residence; or the national mortgage limit for a one-
family residence under subsections 255(g) or (m) of the National Housing 
Act (as adjusted

[[Page 258]]

where applicable under section 214 of the National Housing Act) as of 
the date of loan closing. The initial mortgage insurance premium must 
not be taken into account in the calculation of the maximum claim 
amount. Closing costs must not be taken into account in determining 
appraised value.
    MIP means the mortgage insurance premium paid by the mortgagee to 
the Commissioner in consideration of the contract of insurance.
    Mortgage means a first lien on real estate under the laws of the 
jurisdiction where the real estate is located. If the dwelling unit is 
in a condominium, the term mortgage means a first lien covering a fee 
interest or eligible leasehold interest in a one-family unit in a 
condominium project, together with an undivided interest in the common 
areas and facilities serving the project, and such restricted common 
areas and facilities as may be designated. The term refers to a security 
instrument creating a lien, whether called a mortgage, deed of trust, 
security deed, or another term used in a particular jurisdiction.
    Mortgagee means original lender under a mortgage and its successors 
and assigns, as are approved by the Commissioner.
    Mortgagor means each original mortgagor under a HECM mortgage and 
his heirs, executors, administrators, and assigns.
    Non-Borrowing Spouse means the spouse, as defined by the law of the 
state in which the spouse and borrower reside or the state of 
celebration, of the HECM borrower at the time of closing and who is also 
not a borrower.
    Participating agency means all housing counseling and intermediary 
organizations participating in HUD's Housing Counseling program, 
including HUD-approved agencies, and affiliates and branches of HUD-
approved intermediaries, HUD-approved multi-state organizations (MSOs), 
and state housing finance agencies.
    Principal limit means the maximum amount calculated, taking into 
account the age of the youngest borrower or Eligible Non-Borrowing 
Spouse, the expected average mortgage interest rate, and the maximum 
claim amount. The principal limit is calculated for the first month that 
a mortgage could be outstanding using factors provided by the 
Commissioner. It increases each month thereafter at a rate equal to one-
twelfth of the mortgage interest rate in effect at that time, plus one-
twelfth of the annual mortgage insurance rate. For an adjustable 
interest rate HECM, the principal limit increase may be made available 
to the borrower each month thereafter except that the availability 
during the First 12-Month Disbursement Period may be restricted. 
Although the principal limit of a fixed interest rate HECM will continue 
to increase at the rate provided by the Commissioner, no further funds 
may be made available for the borrower to draw against after closing. 
The principal limit may decrease because of insurance or condemnation 
proceeds applied to the outstanding loan balance under Sec.  206.209(b).
    Principal residence means the dwelling where the borrower and, if 
applicable, Non-Borrowing Spouse, maintain their permanent place of 
abode, and typically spend the majority of the calendar year. A person 
may have only one principal residence at any one time. The property 
shall be considered to be the principal residence of any borrower who is 
temporarily in a health care institution provided the borrower's 
residency in a health care institution does not exceed twelve 
consecutive months. The property shall be considered to be the principal 
residence of any Non-Borrowing Spouse, who is temporarily in a health 
care institution, as long as the property is the principal residence of 
his or her borrower spouse, who physically resides in the property. 
During a Deferral Period, the property shall continue to be considered 
to be the principal residence of any Non-Borrowing Spouse, who is 
temporarily in a health care institution, provided he or she qualified 
as an Eligible Non-Borrowing Spouse and physically occupied the property 
immediately prior to entering the health care institution and his or her 
residency in a health care institution does not exceed twelve 
consecutive months.

[[Page 259]]

    Property charges means, unless otherwise specified, obligations of 
the borrower that include property taxes, hazard insurance premiums, any 
applicable flood insurance premiums, ground rents, condominium fees, 
planned unit development fees, homeowners' association fees, and any 
other special assessments that may be levied by municipalities or state 
law.
    Qualifying Attributes means the requirements which must be met by a 
Non-Borrowing Spouse in order to be an Eligible Non-Borrowing Spouse.



Sec.  206.7  Effect of amendments.

    The regulations in this part may be amended by the Commissioner at 
any time and from time to time, in whole or in part, but amendments to 
subparts B and C of this part will not adversely affect the interests of 
a mortgagee on any mortgage to be insured for which either the Direct 
Endorsement mortgagee or Lender Insurance mortgagee has approved the 
borrower and all terms and conditions of the mortgage, or the 
Commissioner has made a commitment to insure. Such amendments will not 
adversely affect the interests of a borrower in the case of a default by 
a mortgagee where the Commissioner makes payments to the borrower.



Sec.  206.8  Preemption.

    (a) Lien priority. The full amount secured by the mortgage shall 
have the same priority over any other liens on the property as if the 
full amount had been disbursed on the date the initial disbursement was 
made, regardless of the actual date of any disbursement. The amount 
secured by the mortgage shall include all direct payments by the 
mortgagee to the borrower and all other loan advances permitted by the 
mortgage for any purpose, including loan advances for interest, property 
charges, mortgage insurance premiums, required repairs, servicing 
charges, counseling charges, and costs of collection, regardless of when 
the payments or loan advances were made. The priority provided by this 
section shall apply notwithstanding any State constitution, law, or 
regulation.
    (b) Second mortgage. If the Commissioner holds a second mortgage, it 
shall have a priority subordinate only to the first mortgage (and any 
senior liens permitted by paragraph (a) of this section).



                   Subpart B_Eligibility; Endorsement



Sec.  206.9  Eligible mortgagees.

    (a) Statutory requirements. See sections (b)(2), (c), and 255(d)(1) 
of the NHA.
    (b) HUD approved mortgagees. Any mortgagee authorized under 
paragraph (a) of this section and approved under part 202 of this 
chapter, except an investing mortgagee approved under Sec.  202.9 of 
this chapter, is eligible to apply for insurance. A mortgagee approved 
under Sec. Sec.  202.6, 202.7, 202.9 or 202.10 of this chapter may 
purchase, hold and sell mortgages insured under this part without 
additional approval.



Sec.  206.13  Disclosure of available HECM program options.

    At the time of initial contact, the mortgagee shall inform the 
prospective HECM borrower, in a manner acceptable to the Commissioner, 
of all products, features, and options of the HECM program that FHA will 
insure under this part, including: fixed interest rate mortgages with 
the Single Lump Sum payment option; adjustable interest rate mortgages 
with tenure, term, and line of credit disbursement options, or a 
combination of these; any other FHA insurable disbursement options; and 
initial mortgage insurance premium options, and how those affect the 
availability of other mortgage and disbursement options.



Sec.  206.15  Insurance.

    Mortgages originated under this part must be endorsed through the 
Direct Endorsement program under Sec.  203.5 of this chapter, except 
that any references to Sec.  203.255 in Sec.  203.5 shall mean Sec.  
206.115. The mortgagee shall submit the information as described in 
Sec.  206.115(b) for the Direct Endorsement program; the certificate of 
housing counseling as described in Sec.  206.41; a copy of the title 
insurance commitment satisfactory to the Commissioner (or other 
acceptable title evidence if the Commissioner has determined not to 
require title insurance under

[[Page 260]]

Sec.  206.45(a)); the mortgagee's election of either the assignment or 
shared premium option under Sec.  206.107; and any other documentation 
required by the Commissioner. If the mortgagee has complied with the 
requirements of Sec. Sec.  203.3 and 203.5, except that any reference to 
Sec.  203.255 in these sections shall mean Sec.  206.115 for purposes of 
this section, and other requirements of this part, and the mortgage is 
determined to be eligible, the Commissioner will endorse the mortgage 
for insurance by issuing a Mortgage Insurance Certificate.

                           Eligible Mortgages



Sec.  206.17  Eligible mortgages: general.

    (a) [Reserved]
    (b) Interest rate and payment options. A HECM shall provide for 
either fixed or adjustable interest rates in accordance with Sec.  
206.21.
    (1) Fixed interest rate mortgages shall use the Single Lump Sum 
payment option (Sec.  206.19(e)).
    (2) Adjustable interest rate mortgages shall initially provide for 
the term (Sec.  206.19(a)), the tenure (Sec.  206.19(b)), the line of 
credit (Sec.  206.19(c)), or a modified term or modified tenure (Sec.  
206.19(d)) payment option, subject to a later change in accordance with 
Sec.  206.26.
    (c) Shared appreciation. A mortgage may provide for shared 
appreciation in accordance with Sec.  206.23.



Sec.  206.19  Payment options.

    (a) Term payment option. Under the term payment option, equal 
monthly payments are made by the mortgagee to the borrower for a fixed 
term of months chosen by the borrower in accordance with this section 
and Sec.  206.25(e), unless the mortgage is prepaid in full or becomes 
due and payable earlier under Sec.  206.27(c).
    (b) Tenure payment option. Under the tenure payment option, equal 
monthly payments are made by the mortgagee to the borrower in accordance 
with this section and with Sec.  206.25(f), unless the mortgage is 
prepaid in full or becomes due and payable under Sec.  206.27(c).
    (c) Line of credit payment option. Under the line of credit payment 
option, payments are made by the mortgagee to the borrower at times and 
in amounts determined by the borrower as long as the amounts do not 
exceed the payment amounts permitted by Sec.  206.25.
    (d) Modified term or modified tenure payment option. Under the 
modified term or modified tenure payment options, equal monthly payments 
are made by the mortgagee and the mortgagee shall set aside a portion of 
the principal limit to be drawn down as a line of credit as long as the 
amounts do not exceed the payment amounts permitted by Sec.  206.25.
    (e) Single Lump Sum payment option. Under the Single Lump Sum 
payment option, the Borrower's Advance will be made by the mortgagee to 
the borrower in an amount that does not exceed the payment amount 
permitted in Sec.  206.25. The Single Lump Sum payment option will be 
available only for fixed interest rate HECMs. Set asides requiring 
disbursements after close may be offered in accordance with paragraphs 
(f)(1) through (3) of this section.
    (f) Principal limit set asides--(1) Repair Set Aside. When repairs 
required by Sec.  206.47 will be completed after closing, the mortgagee 
shall set aside a portion of the principal limit equal to 150 percent of 
the Commissioner's estimated cost of repairs, plus the repair 
administration fee.
    (2) Property Charge Set Aside--(i) Life Expectancy Set Aside (LESA). 
When required by Sec.  206.205(b)(1) or selected by the borrower under 
Sec.  206.205(b)(2)(i)(B), the mortgagee shall set aside a portion of 
the principal limit, consistent with the requirements of Sec.  206.205, 
for payment of the following property charges: property taxes including 
special assessments levied by municipalities or state law, and flood and 
hazard insurance premiums.
    (ii) Borrower elects to have mortgagee pay property charges--(A) 
First year property charges. When required by Sec.  206.205(d), the 
mortgagee shall set aside a portion of the principal limit for payment 
of the following property charges that must be paid during the First 12-
Month Disbursement Period: property taxes including special assessments 
levied by municipalities or state law, and flood and hazard insurance 
premiums. The mortgagee's estimate

[[Page 261]]

of withholding amount shall be based on the best information available 
as to probable payments which will be required to be made for property 
charges in the coming year. The mortgagee may not require the 
withholding of amounts in excess of the current estimated total annual 
requirement, unless expressly requested by the borrower. Each month's 
withholding for property charges shall equal one-twelfth of the annual 
amounts as reasonably estimated by the mortgagee.
    (B) Property charges for subsequent years. For subsequent year 
property charges, the mortgagee's estimate of withholding amount shall 
be based on the best information available as to probable payments which 
will be required to be made for property charges in the coming year. If 
actual disbursements during the preceding year are used as the basis, 
the resulting estimate may deviate from those disbursements by as much 
as ten percent. The mortgagee may not require the withholding of amounts 
in excess of the current estimated total annual requirement, unless 
expressly requested by the borrower. Each month's withholding for 
property charges shall equal one-twelfth of the annual amounts as 
reasonably estimated by the mortgagee.
    (3) Servicing Fee Set Aside. When servicing charges will be made as 
permitted by Sec.  206.207(b), the mortgagee shall set aside a portion 
of the principal limit sufficient to cover charges through a period 
equal to the payment term which would be used to calculate tenure 
payments under Sec.  206.25(f).
    (g) Interest accrual and repayment. The interest charged on the 
outstanding loan balance shall begin to accrue from the funding date and 
shall be added to the outstanding loan balance monthly as provided in 
the mortgage. Under all payment options, repayment of the outstanding 
loan balance is deferred until the mortgage becomes due and payable 
under Sec.  206.27(c).
    (h) Disbursement limits. (1) For all HECMs, no disbursements shall 
be made under any of the payment options, notwithstanding anything to 
the contrary in this section or in Sec.  206.25, in an amount which 
shall cause the outstanding loan balance after the payment to exceed any 
maximum mortgage amount stated in the security instruments or to 
otherwise exceed the amount secured by a first lien.
    (2) For adjustable interest rate HECMs:
    (i) No disbursements shall be made under any of the payment options 
during the First 12-Month Disbursement Period in excess of the Initial 
Disbursement Limit.
    (ii) If the borrower makes a partial prepayment of the outstanding 
loan balance during the First 12-Month Disbursement Period, the 
mortgagee shall apply the funds from the partial prepayment in 
accordance with the Note.
    (3) For fixed interest rate HECMs, if the borrower makes a partial 
prepayment of the outstanding loan balance any time after loan closing 
and before the contract of insurance is terminated, the mortgagee shall 
apply the funds from the partial prepayment in accordance with the Note. 
Any increase in the available principal limit by the amount applied 
towards the outstanding loan balance shall not be available for the 
borrower to draw against.



Sec.  206.21  Interest rate.

    (a) Fixed interest rate. A fixed interest rate is agreed upon by the 
borrower and mortgagee.
    (b) Adjustable interest rate. An initial expected average mortgage 
interest rate, which defines the mortgagee's margin, is agreed upon by 
the borrower and mortgagee as of the date of loan closing, or as of the 
date of rate lock-in, if the expected average mortgage interest rate was 
locked in prior to closing. The interest rate shall be adjusted in one 
of two ways depending on the option selected by the borrower, in 
accordance with paragraphs (b)(1) and (b)(2) of this section. Whenever 
an interest rate is adjusted, the new interest rate applies to the 
entire loan balance. The difference between the initial interest rate 
and the index figure applicable when the firm commitment is issued shall 
equal the margin used to determine interest rate adjustments. If the 
expected average mortgage interest rate is locked in prior to closing, 
the difference between the expected average mortgage interest rate and 
the

[[Page 262]]

value of the appropriate index at the time of rate lock-in shall equal 
the margin used to determine interest rate adjustments.
    (1) Annual adjustable interest rate HECMs. A mortgagee offering an 
annual adjustable interest rate shall offer a mortgage with an interest 
rate cap structure that limits the periodic interest rate increases and 
decreases as follows:
    (i) Types of mortgages insurable. The types of adjustable interest 
rate mortgages that are insurable are those for which the interest rate 
may be adjusted annually by the mortgagee, beginning after one year from 
the date of the closing.
    (ii) Interest rate index. Changes in the interest rate charged on an 
adjustable interest rate mortgage must correspond either to changes in 
the one-year LIBOR or to changes in the weekly average yield on U.S. 
Treasury securities, adjusted to a constant maturity of one year. Except 
as otherwise provided in this section, each change in the mortgage 
interest rate must correspond to the upward and downward change in the 
index.
    (iii) Frequency of interest rate changes. (A) The interest rate 
adjustments must occur annually, calculated from the date of the 
closing, except that the first adjustment shall be no sooner than 12 
months or later than 18 months.
    (B) To set the new interest rate, the mortgagee will determine the 
change between the initial (i.e., base) index figure and the current 
index figure, or will add a specific margin to the current index figure. 
The initial index figure shall be the most recent figure available 
before the date of mortgage loan origination. The current index figure 
shall be the most recent index figure available 30 days before the date 
of each interest rate adjustment.
    (iv) Magnitude of changes. The adjustable interest rate mortgage 
initial contract interest rate shall be agreed upon by the mortgagee and 
the borrower. The first adjustment to the contract interest rate shall 
take place in accordance with the schedule set forth under paragraph 
(b)(1)(iii) of this section. Thereafter, for all annual adjustable 
interest rate mortgages, the adjustment shall be made annually and shall 
occur on the anniversary date of the first adjustment, subject to the 
following conditions and limitations:
    (A) For all annual adjustable interest rate HECMs, no single 
adjustment to the interest rate shall result in a change in either 
direction of more than two percentage points from the interest rate in 
effect for the period immediately preceding that adjustment. Index 
changes in excess of two percentage points may not be carried over for 
inclusion in an adjustment for a subsequent year. Adjustments in the 
effective rate of interest over the entire term of the mortgage may not 
result in a change in either direction of more than five percentage 
points from the initial contract interest rate.
    (B) At each adjustment date for annual adjustable interest rate 
HECMs, changes in the index interest rate, whether increases or 
decreases, must be translated into the adjusted mortgage interest rate, 
except that the mortgage may provide for minimum interest rate change 
limitations and for minimum increments of interest rate changes.
    (2) Monthly adjustable interest rate HECMs. If a mortgage meeting 
the requirements of paragraph (b)(1) of this section is offered, the 
mortgagee may also offer a mortgage which provides for monthly 
adjustments to the interest rate such that changes in the interest rate 
charged on an adjustable interest rate mortgage correspond either to 
changes in the one-year LIBOR or to changes in the weekly average yield 
on U.S. Treasury securities, adjusted to a constant maturity of one year 
(except as otherwise provided in this section, each change in the 
mortgage interest rate must correspond to the upward and downward change 
in the index), or to the one-month CMT index or one-month LIBOR index, 
and which sets a maximum interest rate that can be charged.
    (c) Pre-loan disclosure. (1) At the time the mortgagee provides the 
borrower with a loan application, a mortgagee shall provide a borrower 
with a written explanation of all adjustable interest rate features of a 
mortgage. The explanation must include the following items:

[[Page 263]]

    (i) The circumstances under which the rate may increase;
    (ii) Any limitations on the increase; and
    (iii) The effect of an increase.
    (2) Compliance with pre-loan disclosure provisions of 12 CFR part 
1026 (Truth in Lending) shall constitute full compliance with paragraph 
(c)(1) of this section.
    (d) Post-loan disclosure. At least 25 days before any adjustment to 
the interest rate may occur, the mortgagee must advise the borrower of 
the following:
    (1) The current index amount;
    (2) The date of publication of the index; and
    (3) The new interest rate.



Sec.  206.23  Shared appreciation.

    (a) Additional interest based on net appreciated value. Any mortgage 
for which the mortgagee has chosen the shared premium option (Sec.  
206.107) may provide for shared appreciation. At the time the mortgage 
becomes due and payable or is paid in full, whichever occurs first, the 
borrower shall pay an additional amount of interest equal to a 
percentage of any net appreciated value of the property during the life 
of the mortgage. The percentage of net appreciated value to be paid to 
the mortgagee, referred to as the appreciation margin, shall be no more 
than twenty-five percent, subject to an effective interest rate cap of 
no more than twenty percent.
    (b) Computation of mortgagee share. The mortgagee's share of net 
appreciated value is computed as follows:
    (1) If the outstanding loan balance at the time the mortgagee's 
share of net appreciated value becomes payable is less than the 
appraised value of the property at the time of loan origination, the 
mortgagee's share is calculated by subtracting the appraised value at 
the time of loan origination from the adjusted sales proceeds (i.e., 
sales proceeds less transfer costs and capital improvement costs 
incurred by the borrower, but excluding any liens) and multiplying by 
the appreciation margin.
    (2) If the outstanding loan balance is greater than the appraised 
value at the time of loan origination but less than the adjusted 
proceeds, the mortgagee's share is calculated by subtracting the 
outstanding loan balance from the adjusted sales proceeds and 
multiplying by the appreciation margin.
    (3) If the outstanding loan balance is greater than the adjusted 
sales proceeds, the net appreciated value is zero.
    (4) If there has been no sale or transfer involving satisfaction of 
the mortgage at the time the mortgagee's share of net appreciated value 
becomes payable, sales proceeds for purposes of this section shall be 
the appraised value as determined in accordance with procedures approved 
by the Commissioner.
    (c) Effective interest rate. To determine the effective interest 
rate, the amount of interest which accrued in the twelve months prior to 
the sale of the property or the prepayment is added to the mortgagee's 
share of the net appreciated value. The sum of the mortgagee's share of 
the net appreciated value and the interest, when divided by the sum of 
the outstanding loan balance at the beginning of the twelve-month period 
prior to sale or prepayment plus the payments to or on behalf of the 
borrower (but not including interest) in the twelve months prior to the 
sale or prepayment, shall not exceed an effective interest rate of 
twenty percent.
    (d) Disclosure. At the time the mortgagee provides the borrower with 
a loan application for a mortgage with shared appreciation, the 
mortgagee shall disclose to the borrower the principal limit, payments 
and interest rate which are applicable to a comparable mortgage offered 
by the mortgagee without shared appreciation.



Sec.  206.25  Calculation of disbursements.

    (a) Initial disbursements--(1) Initial Disbursement Limit--
Adjustable Interest Rate HECMs: for term, tenure, line of credit, 
modified term, and modified tenure payment options:
    (i) The mortgagee is responsible for determining the maximum Initial 
Disbursement Limit.
    (ii) The maximum disbursement allowed at closing and during the 
First 12-Month Disbursement Period is the lesser of:
    (A) The greater of an amount established by the Commissioner through

[[Page 264]]

notice which shall not be less than 50 percent of the principal limit; 
or the sum of Mandatory Obligations and a percentage of the principal 
limit established by the Commissioner through notice which shall not be 
less than 10 percent; or
    (B) The principal limit less the sum of the funds in the LESA for 
payment beyond the First 12-Month Disbursement Period and the Servicing 
Fee Set Aside.
    (iii) The amount in the First 12-Month Disbursement Period or at any 
point in time may not exceed the principal limit.
    (iv) Mortgagees shall monitor and track all disbursements that occur 
at loan closing and during the First 12-Month Disbursement Period; the 
total amount of disbursements shall not exceed the maximum Initial 
Disbursement Limit.
    (v) The borrower shall notify the mortgagee at loan closing of the 
amount of the additional percentage of the principal limit beyond 
Mandatory Obligations that the borrower will draw or that will remain 
available to be drawn during the First 12-Month Disbursement Period. The 
borrower may not increase or decrease this election after closing.
    (2) Borrower's Advance--Fixed Interest Rate HECMs: for the Single 
Lump Sum payment option:
    (i) The mortgagee is responsible for determining the maximum 
Borrower's Advance.
    (ii) The disbursement shall only be taken at the time of closing and 
the maximum disbursement shall not exceed the lesser of:
    (A) The greater of an amount established by the Commissioner through 
notice which shall not be less than 50 percent of the principal limit; 
or the sum of Mandatory Obligations and a percentage of the principal 
limit established by the Commissioner through notice which shall not be 
less than 10 percent; or
    (B) The principal limit less the sum of the funds in the LESA for 
payment beyond the First 12-Month Disbursement Period and the Servicing 
Fee Set Aside.
    (iii) The borrower shall notify the mortgagee at loan closing of the 
amount of the additional percentage of the principal limit beyond 
Mandatory Obligations that the borrower will draw. The borrower may not 
increase or decrease this election after closing.
    (b) Mandatory Obligations for traditional and refinance transactions 
include:
    (1) Initial MIP under Sec.  206.105(a);
    (2) Loan origination fee;
    (3) HECM counseling fee;
    (4) Reasonable and customary amounts, but not more than the amount 
actually paid by the mortgagee for any of the following items:
    (i) Recording fees and recording taxes, or other charges incident to 
the recordation of the insured mortgage;
    (ii) Credit report;
    (iii) Survey, if required by the mortgagee or the borrower;
    (iv) Title examination;
    (v) Mortgagee's title insurance;
    (vi) Fees paid to an appraiser for the initial appraisal of the 
property; and
    (vii) Flood certifications.
    (5) Repair Set Asides;
    (6) Repair administration fee;
    (7) Delinquent Federal debt;
    (8) Amounts required to discharge any existing liens on the 
property;
    (9) Customary fees and charges for warranties, inspections, surveys, 
and engineer certifications;
    (10) Funds to pay contractors who performed repairs as a condition 
of closing, in accordance with standard FHA requirements for repairs 
required by the appraiser;
    (11) Property tax and flood and hazard insurance payments required 
by the mortgagee to be paid at loan closing;
    (12) Property charges not included in paragraph (b)(11) of this 
section and which are scheduled for payment during the First 12-Month 
Disbursement Period, as follows:
    (i) Adjustable Interest Rate HECMs. (A) The total amount of property 
charge payments scheduled for payment from the borrower authorized 
option under Sec.  206.205(d) during the First 12-Month Disbursement 
Period;
    (B) The total amount of semi-annual disbursements scheduled to be 
made during the First 12-Month Disbursement Period to the borrower from 
a Partially-Funded LESA; or

[[Page 265]]

    (C) The total amount of property charges scheduled for payment 
during the First 12-Month Disbursement Period from a Fully-Funded LESA.
    (D) Mortgagees shall use the actual insurance premium and actual tax 
amount; if a new tax bill has not been issued, the mortgagee must use 
the prior year's amount multiplied by 1.04 or an amount set by the 
Commissioner through notice.
    (ii) Fixed Interest Rate HECMs. (A) The total amount of property 
charges scheduled for payment during the First 12-Month Disbursement 
Period from a Fully-Funded LESA.
    (B) Mortgagees shall use the actual insurance premium and actual tax 
amount; if a new tax bill has not been issued, the mortgagee must use 
the prior year's amount multiplied by 1.04 or an amount set by the 
Commissioner through notice;
    (13) Required pay-off of debt not secured by the property, as 
defined by the Commissioner through Federal Register notice; and
    (14) Other charges as authorized by the Commissioner through notice.
    (c) Mandatory Obligations for HECM for Purchase transactions 
include:
    (1) Initial MIP under Sec.  206.105(a);
    (2) Loan origination fee;
    (3) HECM counseling fee:
    (4) Reasonable and customary amounts, but not more than the amount 
actually paid by the mortgagee for any of the following items:
    (i) Recording fees and recording taxes, or other charges incident to 
the recordation of the insured mortgage;
    (ii) Credit report;
    (iii) Survey, if required by the mortgagee or the borrower;
    (iv) Title examination;
    (v) Mortgagee's title insurance;
    (vi) Fees paid to an appraiser for the initial appraisal of the 
property; and
    (vii) Flood certifications.
    (5) Delinquent Federal debt;
    (6) Fees and charges for real estate purchase contracts, warranties, 
inspections, surveys, and engineer certifications;
    (7) The amount of the principal that is advanced towards the 
purchase price of the subject property;
    (8) Property tax and flood and hazard insurance payments required by 
the mortgagee to be paid at loan closing;
    (9) Property charges not included in paragraph (c)(8) of this 
section and which are scheduled for payment during the First 12-Month 
Disbursement Period, as follows:
    (i) Adjustable Interest Rate HECMs. (A) The total amount of property 
charge payments scheduled for payment from the borrower authorized 
option under Sec.  206.205(d) during the First 12-Month Disbursement 
Period;
    (B) The total amount of semi-annual disbursements scheduled to be 
made during the First 12-Month Disbursement Period to the borrower from 
a Partially-Funded LESA; or
    (C) The total amount of property charges scheduled for payment 
during the First 12-Month Disbursement Period from a Fully-Funded LESA.
    (D) Mortgagees shall use the actual insurance premium and actual tax 
amount; if a new tax bill has not been issued, the mortgagee must use 
the prior year's amount multiplied by 1.04 or an amount set by the 
Commissioner through notice.
    (ii) Fixed Interest Rate HECMs. (A) The total amount of property 
charges scheduled for payment during the First 12-Month Disbursement 
Period from a Fully-Funded LESA.
    (B) Mortgagees shall use the actual insurance premium and actual tax 
amount; if a new tax bill has not been issued, the mortgagee must use 
the prior year's amount multiplied by 1.04 or an amount set by the 
Commissioner through notice;
    (10) Required pay-off of debt not secured by the property, as 
defined by the Commissioner through Federal Register notice; and
    (11) Other charges as authorized by the Commissioner through notice.
    (d) Timing of disbursements. Mortgage proceeds may not be disbursed 
until after the expiration of the 3-day rescission period under 12 CFR 
part 1026, if applicable.
    (e) Monthly disbursements--term option. (1) Using factors provided 
by the Commissioner, the mortgagee shall calculate the monthly 
disbursement so that the sum of paragraphs (e)(1)(i) or

[[Page 266]]

(e)(1)(ii) of this section added to paragraphs (e)(1)(iii), (e)(1)(iv), 
and (e)(1)(v) of this section shall be equal to the principal limit at 
the end of the payment term.
    (i) An initial disbursement under paragraph (a) of this section plus 
any initial servicing charge set aside under Sec.  206.19(f)(3); or
    (ii) The outstanding loan balance at the time of a change in payment 
option in accordance with Sec.  206.26, plus any remaining servicing 
charge set aside under Sec.  206.19(f)(3); and
    (iii) The amount of the principal limit set aside in accordance with 
Sec.  206.19(f) which is not included in the amount set aside in 
paragraphs (e)(1)(i) or (e)(1)(ii) of this section;
    (iv) All MIP or monthly charges due to the Commissioner in lieu of 
mortgage insurance premiums due through the payment term; and
    (v) All interest through the remainder of the payment term. The 
expected average mortgage interest rate shall be used for this purpose.
    (2) The mortgagee shall make all monthly disbursements through the 
payment term even if the outstanding loan balance exceeds the principal 
limit because the actual average mortgage interest rate exceeds the 
expected average mortgage interest rate unless the HECM becomes due and 
payable under Sec.  206.27(c). In the event of a deferral of due and 
payable status in accordance with Sec.  206.27(c)(3), disbursements 
shall cease immediately upon the death of the borrower and no further 
disbursements are permissible.
    (3) Mortgagees shall ensure that term monthly disbursements made to 
the borrower during the First 12-Month Disbursement Period do not exceed 
the Initial Disbursement Limit. If the sum of disbursements made during 
the First 12-Month Disbursement Period would exceed the Initial 
Disbursement Limit for that time period, the mortgagee shall decrease 
the monthly disbursements during the First 12-Month Disbursement Period 
to conform with the Initial Disbursement Limit; upon conclusion of the 
First 12-Month Disbursement Period, the borrower may request a payment 
plan recalculation.
    (4) If the borrower makes a partial prepayment of the outstanding 
loan balance during the First 12-Month Disbursement Period, the 
mortgagee shall apply the funds from the partial prepayment in 
accordance with the Note.
    (5) If the mortgagee receives repayment from insurance or 
condemnation proceeds after restoration or repair of the damaged 
property, the available principal limit and outstanding loan balance 
shall be reduced by the amount of such payments.
    (f) Monthly disbursements--tenure option. (1) Monthly disbursements 
under the tenure payment option shall be calculated as if the number of 
months in the payment term equals 100 minus the lesser of the age of the 
youngest borrower or 95, multiplied by 12, but payments shall continue 
until the mortgage becomes due and payable under Sec.  206.27(c), except 
that in the event that payments would exceed any maximum mortgage amount 
stated in the security instrument or would otherwise exceed the amount 
secured by the first lien, in accordance with Sec.  206.19(h) payments 
will cease immediately; payments may be reinstated only in the event a 
new Note and mortgage are executed in accordance with Sec.  
206.27(b)(10); and in the event of a deferral of due and payable status 
in accordance with Sec.  206.27(c)(3) payments will cease immediately 
upon the death of the borrower.
    (2) Mortgagees shall ensure that tenure monthly disbursements made 
to the borrower during the First 12-Month Disbursement Period do not 
exceed the Initial Disbursement Limit. If the sum of disbursements made 
during the First 12-Month Disbursement Period would exceed the Initial 
Disbursement Limit for that time period, the mortgagee shall decrease 
the monthly disbursements during the First 12-Month Disbursement Period 
to conform with the maximum Initial Disbursement Limit; upon conclusion 
of the First 12-Month Disbursement Period, the borrower may request a 
payment plan recalculation.
    (3) If the borrower makes a partial prepayment of the outstanding 
loan balance during the First 12-Month Disbursement Period, the 
mortgagee shall apply the funds from the partial prepayment in 
accordance with the Note.

[[Page 267]]

    (4) If the mortgagee receives repayment from insurance or 
condemnation proceeds after restoration or repair of the damaged 
property, the available principal limit and outstanding loan balance 
shall be reduced by the amount of such payments.
    (g) Line of credit separately or with monthly disbursements. If the 
borrower has a line of credit, separately or combined with the term or 
tenure payment option, the principal limit is divided into an amount set 
aside for servicing charges under Sec.  206.19(f)(3), an amount equal to 
the line of credit (including any portion of the principal limit set 
aside for repairs or property charges under Sec.  206.19(f)(1) or (2)), 
and the remaining amount of the principal limit (if any). The line of 
credit amount increases at the same rate as the total principal limit 
increases under Sec.  206.3. The sum of disbursements made during the 
First 12-Month Disbursement Period shall not exceed the Initial 
Disbursement Limit. If a requested disbursement would exceed the Initial 
Disbursement Limit, the mortgagee may make a partial disbursement to the 
borrower for the amount that will not exceed the limit. Upon the 
conclusion of the First 12-Month Disbursement Period, the borrower may 
request subsequent disbursements up to the available principal limit.
    (h) Single Lump Sum payment option. (1) Under the Single Lump Sum 
payment option, the Borrower's Advance shall be made by the mortgagee to 
the borrower in an amount that does not exceed the maximum allowable 
Borrower's Advance under paragraph (a)(2) of this section.
    (2) If the borrower makes a partial prepayment of the outstanding 
loan balance any time after loan closing and before the contract of 
insurance is terminated, the mortgagee shall apply the funds from the 
partial prepayment in accordance with the Note.
    (i) Payment of MIP and interest. At the end of each month, including 
the first month, interest accrued during that month shall be added to 
the outstanding loan balance. Where the first month is a partial month, 
a prorated amount of interest shall be added. Monthly MIP, which will 
accrue from the closing date, shall be added to the outstanding loan 
balance beginning with the first day of the second month after closing 
when paid to the Commissioner.
    (j) Mortgagee late charge. The mortgagee shall pay a late charge to 
the borrower for any late disbursement. If the mortgagee does not mail 
or electronically transfer a scheduled monthly disbursement to the 
borrower on the first business day of the month or make a line of credit 
disbursement within 5 business days of the date the mortgagee received 
the request, the late charge shall be 10 percent of the entire amount 
that should have been paid to the borrower for that month or as a result 
of that request. In no event shall the total late charge exceed five 
hundred dollars. For each additional day that the borrower does not 
receive payment, the mortgagee shall pay interest at the mortgage 
interest rate on the late payment. Any late charge and interest shall be 
paid from the mortgagee's funds and shall not be added to the 
outstanding loan balance.
    (k) No minimum payments. A mortgagee shall not require, as a 
condition of providing a loan secured by a mortgage insured under this 
part, that the monthly payments under the term or tenure payment option 
or draws under the line of credit payment option exceed a minimum amount 
established by the mortgagee.



Sec.  206.26  Change in payment option.

    (a) General. The payment option may be changed as provided in this 
section.
    (b) Borrower request for payment plan change--(1) Adjustable 
Interest Rate HECMs. (i) During the First 12-Month Disbursement Period, 
no payment plan change shall cause disbursements to exceed the Initial 
Disbursement Limit.
    (ii) After the First 12-Month Disbursement Period, as long as the 
outstanding loan balance is less than the principal limit, a borrower 
may request a recalculation of the current payment option, a change from 
any payment option to another available payment option or a disbursement 
of any amount (not to exceed the difference between the principal limit 
and the sum of the outstanding loan balance and any set asides for 
repairs, servicing charges or property charges). A mortgage will

[[Page 268]]

continue to bear interest at an adjustable interest rate as agreed 
between the mortgagee and the borrower at loan origination. The 
mortgagee shall recalculate any future monthly payments in accordance 
with Sec.  206.25.
    (iii) Fee for change in payment. The mortgagee may charge a fee, not 
to exceed an amount determined by the Commissioner, whenever there is a 
payment plan change or whenever payments are recalculated.
    (iv) Limitations. The Commissioner may, through notice, establish 
limitations on the frequency of payment plan changes, a minimum notice 
period that a borrower must provide in order to make a request under 
paragraph (b)(1)(ii) of this section, or other limitations on payment 
plan change requests by the borrower.
    (2) Fixed Interest Rate HECMs. Borrowers may not request a change in 
payment option.
    (c) Change due to initial repairs. When initial repairs after 
closing under Sec.  206.47 are required using a Repair Set Aside, 
mortgagees shall comply with the following:
    (1) Adjustable Interest Rate HECMs. (i) If repairs after closing 
under Sec.  206.47 are completed without using all of the funds set 
aside for repairs, the mortgagee shall transfer the remaining amount to 
a line of credit, modified term, or modified tenure payment option and 
inform the borrower of the sum available to be drawn.
    (ii) If repairs after closing under Sec.  206.47 cannot be completed 
with the funds set aside for repairs, the mortgagee may advance 
additional funds to complete repairs from an existing line of credit. If 
a line of credit is not sufficient to make the advance or if no line of 
credit exists, future monthly disbursements shall be recalculated for 
use as a line of credit in accordance with Sec.  206.25.
    (iii) If repairs are not completed when required by the mortgage, 
the mortgagee shall stop monthly payments and the mortgage shall convert 
to the line of credit payment option. Until the repairs are completed, 
the mortgagee shall make no line of credit disbursements except as 
needed to pay for repairs required by the mortgage.
    (2) Fixed Interest Rate HECMs. No unused set aside funds shall be 
made available to the borrower, except that a borrower may be reimbursed 
for the cost of repair materials (not including labor), in accordance 
with Sec.  206.47, under conditions established by the Commissioner.



Sec.  206.27  Mortgage provisions.

    (a) Form. The mortgage shall be in a form meeting the requirements 
of the Commissioner.
    (b) Provisions. The terms of the mortgage shall contain an 
explanation of how payments will be made to the borrower, how interest 
will be charged, and when the mortgage will be due and payable. The 
mortgage shall include a provision deferring the due and payable status 
that occurs because of the death of the last surviving borrower for an 
Eligible Non-Borrowing Spouse. It shall also contain provisions designed 
to ensure compliance with this part and provisions on the following 
additional matters:
    (1) Disbursements by the mortgagee under the term or tenure payment 
options shall be mailed to the borrower or electronically transferred to 
an account of the borrower on the first business day of each month 
beginning with the first month after closing. Disbursements under the 
line of credit payment option shall be mailed to the borrower or 
electronically transferred to an account of the borrower within five 
business days after the mortgagee has received a written request for 
disbursement by the borrower. In accordance with Sec.  206.55, in no 
event may disbursements continue during a Deferral Period.
    (2) The borrower shall insure all improvements on the property that 
serves as collateral for the HECM whether in existence at the time of 
origination or subsequently erected, against any hazards, casualties, 
and contingencies, including but not limited to fire and flood, for 
which the mortgagee requires insurance. Such insurance shall be 
maintained in the amount and for the period of time that is necessary to 
protect the mortgagee's investment. Whether or not the mortgagee imposes 
a flood insurance requirement, the borrower shall at a minimum insure 
all

[[Page 269]]

improvements on the property, whether in existence at the time of 
origination or subsequently erected, against loss by floods to the 
extent required by the Commissioner. If the mortgagee imposes insurance 
requirements, all insurance shall be carried with companies acceptable 
to the mortgagee, and the insurance policies and any renewals shall be 
held by the mortgagee and shall include loss payable clauses in favor of 
and in a form acceptable to the mortgagee.
    (3) The borrower shall not participate in a real estate tax deferral 
program or permit any liens to be recorded against the property, unless 
such liens are subordinate to the insured mortgage and, if applicable, 
any second mortgage held by the Commissioner.
    (4) A mortgage may be prepaid in full or in part in accordance with 
Sec.  206.209.
    (5) The borrower must keep the property in good repair.
    (6) The borrower must provide for the payment of property charges in 
accordance with Sec.  206.205.
    (7) The payment of monthly MIP may be added to the outstanding 
principal balance.
    (8) The borrower shall have no personal liability for payment of the 
outstanding loan balance. The mortgagee shall enforce the debt only 
through sale of the property. The mortgagee shall not be permitted to 
obtain a deficiency judgment against the borrower if the mortgage is 
foreclosed.
    (9) If the mortgage is assigned to the Commissioner under Sec.  
206.121(b), the borrower shall not be liable for any difference between 
the insurance benefits paid to the mortgagee and the outstanding loan 
balance including accrued interest, owed by the borrower at the time of 
the assignment.
    (10) If State law limits the first lien status of the mortgage as 
originally executed and recorded to a maximum amount of debt or a 
maximum number of years, the borrower shall agree to execute any 
additional documents required by the mortgagee and approved by the 
Commissioner to extend the first lien status to an additional amount of 
debt and an additional number of years and to cause any other liens to 
be removed or subordinated.
    (c) Date the mortgage comes due and payable. (1) The mortgage shall 
state that the outstanding loan balance will be due and payable in full 
if a borrower dies and the property is not the principal residence of at 
least one surviving borrower, except that the due and payable status 
shall be deferred in accordance with paragraph (c)(3) of this section if 
the requirements of the Deferral Period are met; or if a borrower 
conveys all of his or her title in the property and no other borrower 
retains title to the property. For purposes of the preceding sentence, a 
borrower retains title in the property if the borrower continues to hold 
title to any part of the property in fee simple, as a leasehold interest 
as set forth in Sec.  206.45(a), or as a life estate.
    (2) The mortgage shall state that the outstanding loan balance shall 
be due and payable in full, upon approval of the Commissioner, if any of 
the following occur:
    (i) The property ceases to be the principal residence of a borrower 
for reasons other than death and the property is not the principal 
residence of at least one other borrower;
    (ii) For a period of longer than 12 consecutive months, a borrower 
fails to occupy the property because of physical or mental illness and 
the property is not the principal residence of at least one other 
borrower;
    (iii) The borrower does not provide for the payment of property 
charges in accordance with Sec.  206.205; or
    (iv) An obligation of the borrower under the mortgage is not 
performed.
    (3) Deferral of due and payable status. The mortgage documents shall 
contain a provision deferring due and payable status, called the 
Deferral Period, for an Eligible Non-Borrowing Spouse until the death of 
the last Eligible Non-Borrowing Spouse or the requirements of the 
Deferral Period in Sec.  206.55 cease to be met and have not been cured 
as provided for in Sec.  206.57.
    (d) Second mortgage to Commissioner. Unless otherwise provided by 
the Commissioner, a second mortgage to secure any payments by the 
Commissioner as provided in Sec.  206.121(c) must be given to the 
Commissioner before a Mortgage Insurance Certificate is issued for the 
mortgage. If the Commissioner does

[[Page 270]]

not require a second mortgage to be given to the Commissioner prior to 
the issuance of a Mortgage Insurance Certificate, the Commissioner may 
require a second mortgage to be given to the Commissioner at a later day 
in order to secure payments by the Commissioner as provided in Sec.  
206.121(c).



Sec.  206.31  Allowable charges and fees.

    (a) Fees at closing. The mortgagee may collect, either in cash at 
the time of closing or through an initial payment under the mortgage, 
the following charges and fees incurred in connection with the 
origination, processing, and closing of the mortgage loan:
    (1) Loan Origination Fee. Mortgagees may charge a loan origination 
fee and may use such fee to pay for services performed by a sponsored 
third-party originator. The loan origination fee limit shall be the 
greater of $2,500 or two percent of the maximum claim amount of 
$200,000, plus one percent of any portion of the maximum claim amount 
that is greater than $200,000. Mortgagees may accept a lower origination 
fee. Mortgagees may pay fees for services performed by a sponsored 
third-party originator and these fees may be included as part of the 
loan origination fee. The total amount of the loan origination fee may 
not exceed $6,000, except that the Commissioner may through notice 
adjust the maximum limit in accordance with the annual percentage 
increase in the Consumer Price Index of the Bureau of Labor Statistics 
of the Department of Labor in increments of $500 only when the 
percentage increase in such index, when applied to the maximum 
origination fee, produces dollar increases that exceed $500. The loan 
origination fee may be fully financed with the mortgage.
    (2) Reasonable and customary amounts. Reasonable and customary 
amounts, but not more than the amount actually paid by the mortgagee, 
for any of the following items:
    (i) Recording fees and recording taxes, or other charges incident to 
the recordation of the insured mortgage;
    (ii) Credit report;
    (iii) Survey, if required by the mortgagee or the borrower;
    (iv) Title examination;
    (v) Mortgagee's title insurance;
    (vi) Fees paid to an appraiser for the initial appraisal of the 
property;
    (vii) Flood certifications; and
    (viii) Such other charges as may be authorized by the Commissioner.
    (b) Repair administration fee. If the property requires repairs 
after closing in order to meet FHA requirements, the mortgagee may 
collect a fee for each occurrence as compensation for administrative 
duties relating to repair work pursuant to Sec.  206.47(c) and (d), not 
to exceed the greater of one and one-half percent of the amount advanced 
for the repairs or fifty dollars. The mortgagee shall collect the repair 
fee by adding it to the outstanding loan balance.



Sec.  206.32  No outstanding unpaid obligations.

    In order for a mortgage to be eligible under this part, a borrower 
must establish to the satisfaction of the mortgagee that after the 
initial payment of loan proceeds under Sec.  206.25(a), there will be no 
outstanding or unpaid obligations incurred by the borrower in connection 
with the mortgage transaction, except for mortgage servicing charges 
permitted under Sec.  206.207(b) and any future Repair Set Aside 
established pursuant to Sec.  206.19(f)(1); and the initial disbursement 
will not be used for any payment to or on behalf of an estate planning 
service firm.

                           Eligible Borrowers



Sec.  206.33  Age of borrower.

    The youngest borrower shall be 62 years of age or older at the time 
of loan closing.



Sec.  206.34  Limitation on number of mortgages.

    (a) Once a borrower has obtained an insured mortgage under this 
part, the borrower is eligible to obtain future insured HECM loan 
financing if the existing HECM is satisfied prior to or at the closing 
of the new HECM, or the borrower provides legal documentation, in a 
manner acceptable to the Commissioner, evidencing release of the 
borrower's financial obligation to satisfy the existing HECM.

[[Page 271]]

    (b) Current HECM borrowers that plan to sell their existing 
residence and use the HECM for Purchase program to obtain a new 
principal residence must pay off the existing FHA-insured mortgage 
before the HECM for Purchase mortgage can be insured.



Sec.  206.35  Title of property which is security for HECM.

    (a) A mortgagor is not required to be a borrower; however, any 
borrower is required to be on title to the property which serves as 
collateral for the HECM, and is therefore, by definition, also a 
mortgagor.
    (b) The mortgagor shall hold title to the entire property which is 
the security for the mortgage. If there are multiple mortgagors, all the 
mortgagors must collectively hold title to the entire property which is 
the security for the mortgage. If one or more mortgagors hold a life 
estate in the property, for purposes of this section only, the term 
``mortgagor'' shall include each holder of a future interest in the 
property (remainder or reversion) who has executed the mortgage.
    (c) If Non-Borrowing Spouses and non-borrowing owners of the 
property will continue to hold title to the property which serves as 
collateral for the HECM, such Non-Borrowing Spouses and non-borrowing 
owners must sign the mortgage as mortgagors, evidencing their commitment 
of the property as security for the mortgage.
    (d) All Non-Borrowing Spouses and non-borrowing owners shall sign a 
certification that:
    (1) Consents to their spouse or other borrowing owner obtaining the 
HECM;
    (2) Acknowledges the terms and conditions of the mortgage; and
    (3) Acknowledges that the property will serve as collateral for the 
HECM as evidenced by mortgage lien(s).



Sec.  206.36  Seasoning requirements for existing non-HECM liens.

    (a) The Commissioner may establish, through notice, seasoning 
requirements for existing non-HECM liens. Such seasoning requirements 
shall not prohibit the payoff of existing non-HECM liens using HECM 
proceeds if the liens have been in place for longer than 12 months prior 
to the HECM closing or if the liens have resulted in cash to the 
borrower in an amount of $500 or less, whether at closing or through 
cumulative draws prior to the date of the HECM closing.
    (b) Mortgagees must provide documentation satisfactory to the 
Commissioner as established by notice that the seasoning requirement was 
met.
    (c) Home Equity Lines of Credit. The borrower may pay off, at 
closing, a Home Equity Line of Credit (HELOC) that does not meet 
seasoning requirements from borrower funds, the HECM funds, or a 
combination of HECM funds and borrower funds, as long as the draw from 
HECM funds does not exceed the percentage approved by the Commissioner 
under the authority of Sec.  206.25(a).



Sec.  206.37  Credit standing.

    (a) Each borrower shall have a general credit standing satisfactory 
to the Commissioner.
    (b) Required Financial Assessment--(1) Requirement for Financial 
Assessment prior to loan approval. Prior to loan approval, the mortgagee 
shall assess the financial capacity of the borrower to comply with the 
terms of the mortgage and evaluate whether the HECM is a sustainable 
solution for the borrower, in accordance with instructions established 
by the Commissioner through notice. The Financial Assessment shall 
consider the borrower's credit history, cash flow and residual income, 
extenuating circumstances, and compensating factors.
    (i) Credit history. In accordance with FHA guidelines in existence 
at the time of FHA Case Number assignment, mortgagees shall conduct an 
in-depth credit history analysis to determine if the borrower has 
demonstrated the willingness to meet his or her financial obligations.
    (ii) Cash flow and residual income analysis. In accordance with FHA 
guidelines in existence at the time of FHA Case Number assignment, 
mortgagees shall conduct a cash flow and residual income analysis to 
determine the capacity of the borrower to meet his or her documented 
financial obligations with his or her documented income.
    (iii) Extenuating circumstances. Where the borrower's credit history 
does not

[[Page 272]]

meet the criteria set by the mortgagee based on FHA guidelines in 
existence at the time of FHA Case Number assignment, mortgagees shall 
consider and document, as part of the Financial Assessment, extenuating 
circumstances that led to the credit issues.
    (iv) Compensating factors. The mortgagee shall document and identify 
in the Financial Assessment any considered compensating factors.
    (2) Completion and approval of Financial Assessment. The Financial 
Assessment shall be completed and approved by a DE Underwriter 
registered in HUD's system of record by the underwriting mortgagee.
    (3) Nondiscrimination. (i) The Financial Assessment shall be 
conducted in a uniform manner that shall not discriminate because of 
race, color, religion, sex, national origin, familial status, 
disability, marital status, actual or perceived sexual orientation, 
gender identity, source of income of the borrower, location of the 
property, or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act (15 U.S.C. 1601 et seq.).
    (ii) The Financial Assessment shall be conducted in compliance with 
all applicable laws and regulations, including but not limited to, the 
following:
    (A) Fair Housing Act (42 U.S.C. 3601 et seq.);
    (B) Fair Credit Reporting Act (15 U.S.C. 1681 et seq.);
    (C) Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.); and
    (D) Regulation B (12 CFR part 1002).



Sec.  206.39  Principal residence.

    (a) The property must be the principal residence of each borrower, 
and if applicable, Eligible Non-Borrowing Spouse, at closing.
    (b) HECM for Purchase. For HECM for Purchase transactions, each 
borrower, and if applicable, Eligible Non-Borrowing Spouse, must occupy 
the property within 60 days from the date of closing.



Sec.  206.40  Disclosure, verification and certifications.

    (a) Disclosure and certification of Social Security and Employer 
Identification Numbers--(1) Borrower. The borrower must meet the 
requirements for the disclosure and verification of Social Security and 
Employer Identification Numbers, as provided by part 200, subpart U, of 
this chapter.
    (2) Eligible Non-Borrowing Spouse. The Eligible Non-Borrowing Spouse 
shall comply with the requirements for disclosure and verification of 
Social Security and Employer Identification Numbers by borrowers in 
paragraph (a)(1) of this section.
    (b) Certifications. Each borrower and each Non-Borrowing Spouse 
shall provide all required certifications to HUD and the mortgagee, as 
required by the Commissioner.
    (c) Designation of alternate individual. At the time of origination, 
the mortgagee shall request that the borrower designate an alternate 
individual for the purpose of communicating with the mortgagee if the 
mortgagee has not been able to reach the borrower. The designation of 
the alternate individual is at the discretion of the borrower. If the 
mortgagee is unable to make contact or communicate with the borrower for 
any reason, including death or incapacitation, the mortgagee shall 
communicate with the alternate individual, if one has been designated by 
the borrower.



Sec.  206.41  Counseling.

    (a) List provided. At the time of the initial contact with the 
prospective borrower, the mortgagee shall give the borrower a list of 
the names, addresses, and telephone numbers of HECM counselors and their 
employing agencies, which have been approved by the Commissioner, in 
accordance with subpart E of this part, as qualified and able to provide 
the information described in paragraph (b) of this section. The 
borrower, any Eligible or Ineligible Non-Borrowing Spouse, and any non-
borrowing owner must receive counseling.
    (b) Information to be provided. (1) A HECM counselor must discuss 
with the borrower:
    (i) The information required by section 255(f) of the NHA;

[[Page 273]]

    (ii) Whether the borrower has signed a contract or agreement with an 
estate planning service firm that requires, or purports to require, the 
borrower to pay a fee on or after closing that may exceed amounts 
permitted by the Commissioner or this part;
    (iii) If such a contract has been signed under paragraph (b)(1)(ii) 
of this section, the extent to which services under the contract may not 
be needed or may be available at nominal or no cost from other sources, 
including the mortgagee; and
    (iv) Any other requirements determined by the Commissioner.
    (2) If the HECM borrower has an Eligible Non-Borrowing Spouse, in 
addition to meeting the requirements of paragraph (b)(1) of this 
section, a HECM counselor shall discuss with the borrower and Eligible 
Non-Borrowing Spouse:
    (i) The requirement that the Eligible Non-Borrowing Spouse must 
obtain ownership of the property or other legal right to remain in the 
property for life, upon the death of the last surviving borrower;
    (ii) A failure to obtain ownership or other legal right to remain in 
the property for life will result in the HECM becoming due and payable 
and the Eligible Non-Borrowing Spouse will not receive the benefit of 
the Deferral Period;
    (iii) The requirement that the property must be the principal 
residence of the Eligible Non-Borrowing Spouse prior to and after the 
death of the borrowing spouse;
    (iv) The requirement that the Eligible Non-Borrowing Spouse fulfills 
all obligations of the mortgage, including the payment of property 
charges and upkeep of the property; and
    (v) Any other requirements determined by the Commissioner.
    (3) If the HECM borrower has an Ineligible Non-Borrowing Spouse, in 
addition to meeting the requirements of paragraph (b)(1) of this 
section, a HECM counselor shall discuss with the borrower and Ineligible 
Non-Borrowing Spouse:
    (i) The Deferral Period will not be applicable;
    (ii) The HECM will become due and payable upon the death of the last 
surviving borrower; and
    (iii) Any other requirements determined by the Commissioner.
    (c) Certificate. The HECM counselor will provide the borrower with a 
certificate stating that the borrower, Non-Borrowing Spouse, and non-
borrowing owner, as applicable, has received counseling. The borrower 
shall provide the mortgagee with a physical copy of the certificate.



Sec.  206.43  Information to borrower.

    (a) Disclosure of costs of obtaining mortgage. The mortgagee shall 
ensure that the borrower has received full disclosure of all costs of 
obtaining the mortgage. The mortgagee shall ask the borrower about any 
costs or other obligations that the borrower has incurred to obtain the 
mortgage, as defined by the Commissioner, in addition to providing any 
disclosures required by law. The mortgagee shall clearly state to the 
borrower which charges are required to obtain the mortgage and which are 
not required to obtain the mortgage.
    (b) Lump sum disbursement. (1) If the borrower requests that at 
least 25 percent of the principal limit amount (after deducting amounts 
excluded in the following sentence) be disbursed at closing to the 
borrower (or as otherwise permitted by Sec.  206.25), the mortgagee must 
make sufficient inquiry at closing to confirm that the borrower will not 
use any part of the amount disbursed for payments to or on behalf of an 
estate planning service firm, with an explanation of Sec.  206.32 as 
necessary or appropriate.
    (2) This paragraph does not apply to any part of the principal limit 
used for the following:
    (i) Initial MIP under Sec.  206.105(a) or fees and charges allowed 
under Sec.  206.31(a) paid by the mortgagee from mortgage proceeds 
instead of by the borrower in cash; and
    (ii) Amounts set aside in accordance with Sec.  206.19(f) for 
repairs under Sec.  206.47, for property charges under Sec.  206.205, or 
for servicing charges under Sec.  206.207(b).

[[Page 274]]



Sec.  206.44  Monetary investment for HECM for Purchase program.

    (a) Monetary investment. At closing, HECM for Purchase borrowers 
shall provide a monetary investment that will be applied to satisfy the 
difference between the principal limit and the sale price for the 
property, plus any HECM loan-related fees that are not financed into the 
loan, minus the amount of the earnest deposit.
    (b) Funding sources. To satisfy the required monetary investment, 
borrowers may use:
    (1) Cash on hand;
    (2) Cash from the sale or liquidation of the borrower's assets;
    (3) HECM mortgage proceeds; or
    (4) Other approved funding sources as determined by the Commissioner 
through notice.
    (c) Interested party contributions. (1) The following interested 
party contributions are permissible:
    (i) Fees required to be paid by a seller under state or local law;
    (ii) Fees customarily paid by a seller in the subject property 
locality; and
    (iii) The purchase of the Home Warranty policy by the seller.
    (2) The Commissioner may define additional permissible interested 
party contributions and impose requirements for permissible interested 
party contributions through a notice in the Federal Register.

                           Eligible Properties



Sec.  206.45  Eligible properties.

    (a) Title. A mortgage must be on real estate held in fee simple; or 
on a leasehold that is under a lease with a duration lasting until the 
later of: 99 years, if such lease is renewable; or the actuarial life 
expectancy of the mortgagor plus a number of years specified by the 
Commissioner, which shall not be more than 99 years. The mortgagee shall 
obtain a title insurance policy satisfactory to the Commissioner. If the 
Commissioner determines that title insurance for reverse mortgages is 
not available for reasonable rates in a state, then the Commissioner may 
specify other acceptable forms of title evidence in lieu of title 
insurance.
    (b) Type of property. The property shall include a dwelling designed 
principally as a residence for one family or such additional families as 
the Commissioner shall determine. A condominium unit designed for one-
family occupancy shall also be an eligible property.
    (c) Borrower and mortgagee requirement for maintaining flood 
insurance coverage. (1) During such time as the mortgage is insured, the 
borrower and mortgagee shall be obligated, by a special condition to be 
included in the mortgage commitment, to obtain and to maintain National 
Flood Insurance Program (NFIP) flood insurance coverage on the property 
improvements (dwelling and related structures/equipment essential to the 
value of the property and subject to flood damage) if NFIP flood 
insurance is available with respect to the property improvements that:
    (i) Are located in an area designated by the Federal Emergency 
Management Agency (FEMA) as a floodplain area having special flood 
hazards; or
    (ii) Are otherwise determined by the Commissioner to be subject to a 
flood hazard.
    (2) No mortgage may be insured that covers property improvements 
located in an area that has been identified by FEMA as an area having 
special flood hazards, unless the community in which the area is 
situated is participating in the NFIP and such insurance is obtained by 
the borrower. Such requirement for flood insurance shall be effective 
one year after the date of notification by FEMA to the chief executive 
officer of a flood prone community that such community has been 
identified as having special flood hazards.
    (3) The flood insurance must be maintained during such time as the 
mortgage is insured in an amount at least equal to the lowest of the 
following:
    (i) 100 percent replacement cost of the insurable value of the 
improvements, which consists of the development or project cost less 
estimated land cost; or
    (ii) The maximum amount of the NFIP insurance available with respect 
to the particular type of the property; or
    (iii) The outstanding principal balance of the loan.

[[Page 275]]

    (d) Lead-based paint poisoning prevention. If the appraiser of a 
dwelling constructed prior to 1978 finds defective paint surfaces, 24 
CFR 200.810(d) shall apply unless the borrower certifies that no child 
who is less than six years of age resides or is expected to reside in 
the dwelling, except that any reference to ``mortgagor'' in 24 CFR 
200.810(d) shall mean ``borrower'' for purposes of this paragraph.
    (e) Restrictions on conveyance. The property must be freely 
marketable. Conveyance of the property may only be restricted as 
permitted under 24 CFR 203.41 or 24 CFR 234.66 and this part, except 
that a right of first refusal to purchase a unit in a condominium 
project is permitted if the right is held by the condominium association 
for the project.
    (f) Location of property. The mortgaged property shall be located 
within the United States, Puerto Rico, Guam, the Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, and American Samoa. The 
mortgaged property, if otherwise acceptable to the Commissioner, may be 
located in any location where the housing standards meet the 
requirements of the Commissioner.
    (g) HECM for Purchase. (1) A HECM for Purchase transaction is where 
title to the property is transferred to the HECM borrower and, at the 
time of closing, the HECM first and second liens, if applicable, will be 
the only liens against the property.
    (2) Properties are eligible for FHA insurance under the HECM for 
Purchase program when construction is completed and the property is 
habitable, as evidenced by the issuance of a Certificate of Occupancy or 
its equivalent, by the local jurisdiction.



Sec.  206.47  Property standards; repair work.

    (a) Need for repairs. Properties must meet the applicable property 
requirements of the Commissioner in order to be eligible. Properties 
that do not meet the property requirements must be repaired in order to 
ensure that the repaired property will serve as adequate security for 
the insured mortgage.
    (b) Assurance that repairs are made. The mortgage may be closed 
before the repair work is completed if the Commissioner estimates that 
the cost of the remaining repair work will not exceed 15 percent of the 
maximum claim amount and the mortgage contains provisions approved by 
the Commissioner concerning payment for the repairs.
    (c) Reimbursement to contractor. When repair work is completed after 
closing by a contractor, the mortgagee shall cause one or more 
inspections of the property to be made by an inspector or other 
qualified individual acceptable to the Commissioner in order to ensure 
that the repair work is satisfactory, and prior to the release of funds 
from the Repair Set Aside. The mortgagee shall hold back a portion of 
the contract price attributable to the work done before each interim 
release of funds, and the total of the hold backs will be released after 
the final inspection and approval of the release by the mortgagee. The 
mortgagee shall ensure that all mechanics' and materialmen's liens are 
released of record.
    (d) Reimbursement to borrower. The mortgagee shall not reimburse the 
borrower for any labor the borrower performed. The mortgagee may 
reimburse the borrower for the actual cost of repair materials from the 
Repair Set Aside, provided that the mortgagee causes one or more 
inspections of the property by an inspector or other qualified 
individual acceptable to the Commissioner and meets all reimbursement 
requirements established by the Commissioner.
    (e) HECM for Purchase. For HECM for Purchase transactions, where 
major property deficiencies threaten the health and safety of the 
homeowner or jeopardize the soundness and security of the property, all 
repairs must be completed by the seller prior to closing. Appraisers 
shall complete the appraisal report as ``Subject To'' the completion of 
the repairs.



Sec.  206.51  Eligibility of mortgages involving a dwelling unit in a 
condominium.

    If the mortgage involves a dwelling unit in a condominium, the 
project in which the unit is located shall have

[[Page 276]]

been committed to a plan of condominium ownership by deed, or other 
recorded instrument, that is acceptable to the Commissioner.



Sec.  206.52  Eligible sale of property-HECM for Purchase.

    (a) Sale by owner of record--(1) Owner of record requirement. To be 
eligible for a mortgage insured by FHA, the property must be purchased 
from the owner of record and the transaction may not involve any sale or 
assignment of the sales contract.
    (2) Supporting documentation. The mortgagee shall obtain 
documentation verifying that the seller is the owner of record and must 
submit this documentation to FHA as part of the application for mortgage 
insurance, in accordance with Sec. Sec.  206.15 and 206.115(b)(9).
    (b) Time restrictions on re-sales--(1) General. The eligibility of a 
property for a mortgage insured by FHA is dependent on the time that has 
elapsed between the date the seller acquired the property (based upon 
the date of settlement) and the date of execution of the sales contract 
that will result in the FHA mortgage insurance (the re-sale date). The 
mortgagee shall obtain documentation verifying compliance with the time 
restrictions described in this paragraph and must submit this 
documentation to FHA as part of the application for mortgage insurance, 
in accordance with Sec.  206.115(b).
    (2) Re-sales occurring 90 days or less following acquisition. If the 
re-sale date is 90 days or less following the date of acquisition by the 
seller, the property is not eligible for a mortgage to be insured by 
FHA.
    (3) Re-sales occurring between 91 days and 180 days following 
acquisition. (i) If the re-sale date is between 91 days and 180 days 
following acquisition by the seller, the property is generally eligible 
for a mortgage insured by FHA.
    (ii) However, FHA will require that the mortgagee obtain additional 
documentation if the re-sale price is 100 percent over the purchase 
price. Such documentation must include an appraisal from another 
appraiser. The mortgagee may also document its loan file to support the 
increased value by establishing that the increased value results from 
the rehabilitation of the property.
    (iii) FHA may revise the level at which additional documentation is 
required under paragraph (b)(3) of this section at 50 to 150 percent 
over the original purchase price. FHA will revise this level by Federal 
Register notice with a 30 day delayed effective date.
    (4) Authority to address property flipping for re-sales occurring 
between 91 days and 12 months following acquisition. (i) If the re-sale 
date is more than 90 days after the date of acquisition by the seller, 
but before the end of the twelfth month after the date of acquisition, 
the property is eligible for a mortgage to be insured by FHA.
    (ii) However, FHA may require that the mortgagee provide additional 
documentation to support the re-sale value of the property if the re-
sale price is 5 percent or greater than the lowest sales price of the 
property during the preceding 12 months (as evidenced by the contract of 
sale). At FHA's discretion, such documentation must include, but is not 
limited to, an appraisal from another appraiser. FHA may exclude re-
sales of less than a specific dollar amount from the additional value 
documentation requirements.
    (iii) If the additional value documentation supports a value of the 
property that is more than 5 percent lower than the value supported by 
the first appraisal, the lower value will be used to calculate the 
maximum claim amount. Otherwise, the value supported by the first 
appraisal will be used to calculate the maximum claim amount.
    (iv) FHA will announce its determination to require additional value 
documentation through issuance of a Federal Register notice. The 
requirement for additional value documentation may be established either 
on a nationwide or regional basis. Further, the Federal Register notice 
will specify the percentage increase in the re-sale price that will 
trigger the need for additional documentation, and will specify the 
acceptable types of documentation. The Federal Register notice may also 
exclude re-sales of less than a specific dollar amount from the 
additional value documentation requirements. Any such Federal Register 
notice, and any subsequent revisions,

[[Page 277]]

will be issued at least thirty days before taking effect.
    (v) The level at which additional documentation is required under 
paragraph (b)(4) of this section shall supersede that under paragraph 
(b)(3) of this section.
    (5) Re-sales occurring more than 12 months following acquisition. If 
the re-sale date is more than 12 months following the date of 
acquisition by the seller, the property is eligible for a mortgage 
insured by FHA.
    (c) Exceptions to the time restrictions on sales. The time 
restrictions on sales described in paragraph (b) of this section do not 
apply to:
    (1) Sales by HUD of Real Estate-Owned (REO) properties under 24 CFR 
part 291 and of single family assets in revitalization areas pursuant to 
section 204 of the NHA (12 U.S.C. 1710);
    (2) Sales by another agency of the United States Government of REO 
single family properties pursuant to programs operated by these 
agencies;
    (3) Sales of properties by nonprofit organizations approved to 
purchase HUD REO single family properties at a discount with resale 
restrictions;
    (4) Sales of properties that were acquired by the sellers by 
inheritance;
    (5) Sales of properties purchased by an employer or relocation 
agency in connection with the relocation of an employee;
    (6) Sales of properties by state- and federally-chartered financial 
institutions and government-sponsored enterprises (GSEs);
    (7) Sales of properties by local and state government agencies; and
    (8) Only upon announcement by FHA through issuance of a notice, 
sales of properties located in areas designated by the President as 
federal disaster areas. The notice will specify how long the exception 
will be in effect.
    (d) Sanctions and indemnification. Failure of a mortgagee to comply 
with the requirements of this section may result in HUD requesting 
indemnification of the mortgage loan, or seeking other appropriate 
remedies under 24 CFR part 25.

        Refinancing of Existing Home Equity Conversion Mortgages



Sec.  206.53  Refinancing a HECM loan.

    (a) General. Except as otherwise provided in this section, all 
requirements applicable to the insurance of HECMs under this part apply 
to the insurance of refinanced HECMs. FHA may, upon application by a 
mortgagee, insure any mortgage given to refinance an existing HECM 
insured under this part, including loans assigned to the Commissioner as 
described in Sec.  206.107(a)(1) and Sec.  206.121(b).
    (b) Definition of ``total cost of the refinancing''. For purposes of 
paragraphs (d) and (e) of this section, the term ``total cost of the 
refinancing'' means the sum of the allowable charges and fees permitted 
under Sec.  206.31 and the initial MIP described in Sec.  206.105(a) and 
paragraph (c) of this section.
    (c) Initial MIP limit. (1) The initial MIP paid by the mortgagee 
pursuant to Sec.  206.105(a) shall not exceed the difference between: 
three percent of the increase in the maximum claim amount for the new 
HECM, minus the amount of the initial MIP already charged and paid by 
the borrower for the existing HECM that is being refinanced. No refunds 
will be given if the initial MIP paid on the existing HECM exceeds the 
initial MIP due on the new HECM.
    (2) The HECM refinance authority is only applicable when the 
property that serves as collateral for the FHA-insured mortgage remains 
the same.
    (3) Existing HECM borrowers refinancing an existing HECM are 
eligible for a MIP reduction under the conditions of this section, but 
existing HECM borrowers who participate in a HECM for Purchase 
transaction are ineligible for a reduction in the initial MIP.
    (d) Anti-churning disclosure--(1) Contents of anti-churning 
disclosure. In addition to providing the required disclosures under 
Sec.  206.43, the mortgagee shall provide to the borrower its best 
estimate of:
    (i) The total cost of the refinancing to the borrower; and
    (ii) The increase in the borrower's principal limit as measured by 
the estimated initial principal limit on the

[[Page 278]]

mortgage to be insured less the current principal limit on the HECM that 
is being refinanced under this section.
    (2) Timing of anti-churning disclosure. The mortgagee shall provide 
the anti-churning disclosure concurrently with the disclosures required 
under Sec.  206.43.
    (e) Waiver of counseling requirement. The borrower and any Non-
Borrowing Spouse may elect not to receive counseling under Sec.  206.41, 
but only if:
    (1) The original HECM was assigned a Case Number on or after August 
4, 2014, and the borrower and Non-Borrowing Spouse, if applicable, 
received counseling required under Sec.  206.41; or where the original 
HECM was assigned a Case Number prior to August 4, 2014, and there is no 
applicable Non-Borrowing Spouse.
    (2) The borrower has received the anti-churning disclosure required 
under paragraph (d) of this section.
    (3) The increase in the borrower's principal limit (as provided in 
the anti-churning disclosure) exceeds the total cost of the refinancing 
by an amount established by the Commissioner through Federal Register 
notice. FHA may periodically update this amount through publication of a 
notice in the Federal Register. Publication of any such revised amount 
will occur at least 30 days before the revision becomes effective.
    (4) The time between the date of the closing on the original HECM 
and the date of the application for refinancing under this section does 
not exceed five years (even if less than five years have passed since a 
previous refinancing under this section).

                   Deferral of Due and Payable Status



Sec.  206.55  Deferral of due and payable status for Eligible
Non-Borrowing Spouses.

    (a) Deferral Period. If the last surviving borrower predeceases an 
Eligible Non-Borrowing Spouse, and if the requirements of paragraph (d) 
of this section are satisfied, the due and payable status will be 
deferred for as long as the Eligible Non-Borrowing Spouse continues to 
meet the Qualifying Attributes in paragraph (c) of this section and the 
requirements of paragraphs (d) and (e) of this section.
    (b) End of Deferral Period. (1) If a Deferral Period ceases or 
becomes unavailable because a Non-Borrowing Spouse no longer satisfies 
the Qualifying Attributes and has become an Ineligible Non-Borrowing 
Spouse, a mortgagee may not provide an opportunity to cure the default, 
and the HECM will become immediately due and payable as a result of the 
death of the last surviving borrower.
    (2) If a Deferral Period ceases but the Eligible Non-Borrowing 
Spouse continues to meet the Qualifying Attributes, the mortgagee must 
provide an Eligible Non-Borrowing Spouse with 30 days to cure the 
default, in accordance with Sec.  206.57.
    (c) Qualifying Attributes. (1) In order to qualify as an Eligible 
Non-Borrowing Spouse, the Non-Borrowing Spouse must:
    (i) Have been the spouse of a HECM borrower at the time of loan 
closing and remained the spouse of such HECM borrower for the duration 
of the HECM borrower's lifetime;
    (ii) Have been properly disclosed to the mortgagee at origination 
and specifically named as an Eligible Non-Borrowing Spouse in the HECM 
mortgage and loan documents;
    (iii) Have occupied, and continue to occupy, the property securing 
the HECM as his or her principal residence; and
    (iv) Meet any other requirements as the Commissioner may prescribe 
by Federal Register notice for comment.
    (2) A Non-Borrowing Spouse who meets the Qualifying Attributes in 
paragraph (c)(1) of this section at origination is an Eligible Non-
Borrowing Spouse and may not elect to be ineligible for the Deferral 
Period. A Non-Borrowing Spouse that is ineligible for the Deferral 
Period at the time of loan origination because he or she failed to 
satisfy the Qualifying Attributes requirements in paragraph (c)(1) of 
this section is not subsequently eligible for a Deferral Period when the 
borrowing spouse dies or moves out of the home.

[[Page 279]]

    (3) An Eligible Non-Borrowing Spouse shall become an Ineligible Non-
Borrowing Spouse should any of the Qualifying Attributes requirements in 
paragraph (c)(1) of this section cease to be met.
    (d) Additional requirements for Deferral Period. An Eligible Non-
Borrowing Spouse must satisfy and continue to satisfy the following 
requirements:
    (1) Within 90 days from the death of the last surviving HECM 
borrower, establish legal ownership or other ongoing legal right to 
remain for life in the property securing the HECM;
    (2) After the death of the last surviving borrower, ensure all other 
obligations of the HECM borrower(s) contained in the loan documents 
continue to be satisfied; and
    (3) After the death of the last surviving borrower, ensure that the 
HECM does not become eligible to be called due and payable for any other 
reason.
    (e) Unaffected terms of HECM. All applicable terms and conditions of 
the mortgage and loan documents, and all FHA requirements, continue to 
apply and must be satisfied.
    (f) Nothing in this section may be construed as interrupting or 
interfering with the ability of the borrower's estate or heir(s) to 
dispose of the property if they are otherwise legally entitled to do so.



Sec.  206.57  Cure provision enabling reinstatement of Deferral Period.

    (a) When the mortgagee is required by Sec.  206.55(b)(2) to provide 
an Eligible Non-Borrowing Spouse with 30 days to cure the default, this 
section shall apply.
    (b) If the default is cured within the 30-day timeframe, the 
Deferral Period shall be reinstated, unless:
    (1) The mortgagee has reinstated the Deferral Period within the past 
two years immediately preceding the current notification to the Eligible 
Non-Borrowing Spouse that the mortgage is due and payable;
    (2) The reinstatement of the Deferral Period will preclude 
foreclosure if the mortgage becomes due and payable at a later date; or
    (3) The reinstatement of the Deferral Period will adversely affect 
the priority of the mortgage lien.
    (c) If the default is not cured within the 30-day timeframe, the 
mortgagee shall proceed in accordance with the established timeframes to 
initiate foreclosure and reasonable diligence in prosecuting 
foreclosure.
    (d) Even after a foreclosure proceeding has been initiated, the 
mortgagee shall permit an Eligible Non-Borrowing Spouse to cure the 
condition which resulted in the Deferral Period ceasing, consistent with 
Sec.  206.55(b)(2), and to reinstate the mortgage and Deferral Period, 
and the mortgage insurance shall continue in effect. The mortgagee may 
require the Eligible Non-Borrowing Spouse to pay any costs that the 
mortgagee incurred to reinstate the mortgage, including foreclosure 
costs and reasonable attorney's fees. Such costs may not be added to the 
outstanding loan balance and shall be paid from some other source of 
funds. The mortgagee shall reinstate the Deferral Period unless:
    (1) The mortgagee has reinstated the Deferral Period within the past 
two years immediately preceding the latest notification to the Eligible 
Non-Borrowing Spouse that the mortgage is due and payable;
    (2) The reinstatement of the Deferral Period will preclude 
foreclosure if the mortgage becomes due and payable at a later date; or
    (3) The reinstatement of the Deferral Period will adversely affect 
the priority of the mortgage lien.



Sec.  206.59  Obligations of mortgagee.

    (a) Certifications and disclosures at closing. At closing, the 
mortgagee shall obtain the appropriate certification from each borrower 
identified as married as well as from each identified Non-Borrowing 
Spouse. When a HECM borrower has identified an Ineligible Non-Borrowing 
Spouse, the mortgagee shall also disclose the amount of mortgage 
proceeds that would have been available under the HECM if he or she were 
an Eligible Non-Borrowing Spouse.
    (b) Divorce. In the event of a divorce between the HECM borrower and 
Eligible Non-Borrowing Spouse, a mortgagee shall obtain a copy of the 
final divorce decree and shall not require the

[[Page 280]]

now Ineligible Non-Borrowing Spouse to fulfill any further requirements.
    (c) Death of borrower. Within 30 days of being notified of the death 
of the borrower, the mortgagee shall:
    (1) Obtain all certifications, as required by the Commissioner, from 
the Eligible Non-Borrowing Spouse, and continue to obtain the required 
certifications no less than annually thereafter for the duration of the 
Deferral Period; and
    (2) Notify any Eligible Non-Borrowing Spouse that the due and 
payable status of the loan is in a Deferral Period only for the amount 
of time that such Eligible Non-Borrowing Spouse continues to meet all 
requirements established by the Commissioner.
    (d) Non-compliance with requirements. If the Eligible Non-Borrowing 
Spouse ceases to meet any requirements established by the Commissioner, 
the mortgagee shall notify the Eligible Non-Borrowing Spouse within 30 
days that the Deferral Period has ended and the HECM is immediately due 
and payable, unless the Deferral Period is reinstated in accordance with 
Sec.  206.57. The mortgagee shall obtain documentation validating the 
reason for the cessation of the Deferral Period and, if applicable, the 
reason for reinstatement of the Deferral Period.



Sec.  206.61  HECM proceeds during a Deferral Period.

    (a) The HECM is not assumable. HECM proceeds may not be disbursed to 
any party during a Deferral Period, except as determined by the 
Commissioner through notice.
    (b) If a Repair Set Aside was established as a condition of the 
HECM, funds may be disbursed from the Repair Set Aside during a Deferral 
Period for the sole purpose of paying the cost of those repairs that 
were specifically identified prior to origination as necessary to the 
insurance of the HECM. Repairs under this paragraph shall only be paid 
for using funds from the Repair Set Aside if the repairs are 
satisfactorily completed during the time period established in the 
Repair Rider or such additional time as provided by the Commissioner. 
Unused funds remaining beyond the established time period shall not be 
disbursed.



                Subpart C_Contract Rights and Obligations

                       Sale, Assignment and Pledge



Sec.  206.101  Sale, assignment and pledge of insured mortgages.

    (a) Sale of interests in insured mortgages. No mortgagee may sell or 
otherwise dispose of any mortgage insured under this part, or group of 
mortgages insured under this part, or any partial interest in such 
mortgage or mortgages by means of any agreement, arrangement or device 
except pursuant to this subpart.
    (b) Sale of insured mortgage to approved mortgagee. A mortgage 
insured under this part may be sold to another approved mortgagee. The 
seller shall notify the Commissioner of the sale within 15 calendar 
days, on a form prescribed by the Commissioner and acknowledged by the 
buyer.
    (c) Effect of sale of insured mortgage. When a mortgage insured 
under this part is sold to another approved mortgagee, the buyer shall 
thereupon succeed to all the rights and become bound by all the 
obligations of the seller under the contract of insurance and the seller 
shall be released from its obligations under the contract, provided that 
the seller shall not be relieved of its obligation to pay mortgage 
insurance premiums until the notice required by Sec.  206.101(b) is 
received by the Commissioner.
    (d) Assignments, pledges and transfers by approved mortgagee. (1) An 
assignment, pledge, or transfer of a mortgage or group of mortgages 
insured under this part, not constituting a final sale, may be made by 
an approved mortgagee to another approved mortgagee provided the 
following requirements are met:
    (i) The assignor, pledgor or transferor shall remain the mortgagee 
of record.
    (ii) The Commissioner shall have no obligation to recognize or deal 
with any party other than the mortgagee of record with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.

[[Page 281]]

    (2) An assignment or transfer of an insured mortgage or group of 
insured mortgages may be made by an approved mortgagee to other than an 
approved mortgagee provided the requirements under paragraphs (d)(1)(i) 
and (d)(1)(ii) of this section are met and the following additional 
requirements are met:
    (i) The assignee or transferee shall be a corporation, trust or 
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved mortgagee that:
    (A) It has assets of $100,000 or more; and
    (B) It has lawful authority to hold an insured mortgage or group of 
insured mortgages.
    (ii) The assignment or transfer shall be made pursuant to an 
agreement under which the transferor or assignor is obligated to take 
one of the following alternate courses of action within 1 year from the 
date of the assignment or within such additional period of time as may 
be approved by the Commissioner:
    (A) The transferor or assignor shall repurchase and accept a 
reassignment of such mortgage or group of mortgages.
    (B) The transferor or assignor shall obtain a sale and transfer of 
such mortgage or group of mortgages to an approved mortgagee.
    (3) Notice to or approval of the Commissioner is not required in 
connection with assignments, pledges or transfers pursuant to this 
section.
    (e) Declaration of trust. A sale of a beneficial interest in a group 
of mortgages insured under this part, where the interest to be acquired 
is related to all of the mortgages as an entirety, rather than an 
interest in a specific mortgage, shall be made only pursuant to a 
declaration of trust, which has been approved by the Commissioner prior 
to any such sale.
    (f) Transfers of partial interests. A partial interest in a mortgage 
insured under this part may be transferred under a participation 
agreement without obtaining the approval of the Commissioner, if the 
following conditions are met:
    (1) Principal mortgagee. The insured mortgage shall be held by an 
approved mortgagee which, for the purposes of this section, shall be 
referred to as the principal mortgagee.
    (2) Interest of principal mortgagee. The principal mortgagee shall 
retain and hold for its own account a financial interest in the insured 
mortgage.
    (3) Qualification for holding partial interest. A partial interest 
in an insured mortgage shall be issued to and held only by:
    (i) A mortgagee approved by the Commissioner; or
    (ii) A corporation, trust or organization (including, but not 
limited to any pension fund, pension trust, or profit-sharing plan) 
which certifies to the principal mortgagee that:
    (A) It has assets of $100,000 or more; and
    (B) It has lawful authority to acquire a partial interest in an 
insured mortgage.
    (4) Participation agreement provisions. The participation agreement 
shall include provisions that:
    (i) The principal mortgagee shall retain title to the mortgage and 
remain the mortgagee of record under the contract of mortgage insurance.
    (ii) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the principal mortgagee with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.
    (iii) The mortgage and loan documents shall remain in the custody of 
the principal mortgagee.
    (iv) The responsibility for servicing the insured mortgages shall 
remain with the principal mortgagee.



Sec.  206.102  Insurance Funds.

    Loans endorsed for insurance under this part, prior to October 1, 
2008, shall be obligations of the General Insurance Fund. Loans endorsed 
for insurance under this part, on or after October 1, 2008, shall be 
obligations of the MMIF.

                       Mortgage Insurance Premiums



Sec.  206.103  Payment of MIP.

    (a) The payment of any MIP due under this subpart shall be made to 
the Commissioner by the mortgagee in

[[Page 282]]

cash until an event described in paragraph (b) or (c) of this section 
occurs.
    (b) Payment of the mortgage. The MIP shall no longer be remitted if 
the mortgage is paid in full.
    (c) Acquisition of title. (1) If the mortgagee or a party other than 
the mortgagee acquires title at a foreclosure sale, or the mortgagee 
acquires title by a deed in lieu of foreclosure, and the mortgagee 
notifies the Commissioner that a claim for the payment of the insurance 
benefits will not be presented, the MIP shall no longer be remitted.
    (2) If the mortgagee or a party other than the mortgagee acquires 
title at a foreclosure sale or the mortgagee acquires title by a deed in 
lieu of foreclosure, or where the property is sold in accordance with 
Sec.  206.125(c), and a claim for the payment of the insurance benefits 
will be presented, the MIP shall no longer be remitted as of the date of 
the foreclosure sale, the date the deed in lieu of foreclosure is 
recorded, or the date in which the sale in accordance with Sec.  
206.125(c) is completed, as applicable.



Sec.  206.105  Amount of MIP.

    (a) Initial MIP. The mortgagee shall pay to the Commissioner an 
initial MIP that does not exceed three percent of the maximum claim 
amount.
    (b) Monthly MIP. The Commissioner may establish and collect a 
monthly MIP, which will accrue daily from the closing date, at a rate 
not to exceed 1.50 percent of the remaining insured principal balance, 
or up to 1.55 percent for any mortgage involving an original principal 
obligation that is greater than 95 percent of appraised value of the 
property. A mortgagee may only add the monthly MIP to the loan balance 
when paid to the Commissioner.
    (c) Calculation of the initial MIP. The mortgagee shall calculate 
the initial MIP based on the amount of funds the borrower has elected to 
be made available during the First 12-Month Disbursement Period, except 
that the calculation shall not include any funds set aside in the 
Servicing Fee Set Aside, if applicable. The initial MIP calculation 
shall be determined based on the sum of the following amounts:
    (1) For adjustable interest rate HECMs, the amount of Mandatory 
Obligations, the amount disbursed to the borrower at loan closing, and 
the amount of the available Initial Disbursement Limit not taken by the 
borrower at loan closing that the borrower selects to remain available 
during the First 12-Month Disbursement Period.
    (2) For fixed interest rate HECMs, the amount of Mandatory 
Obligations and the amount disbursed to the borrower at loan closing.
    (d) Adjustments to initial or monthly MIP. The Commissioner may 
adjust the amount of any initial or monthly MIP through notice. Such 
notice shall establish the effective date of any premium adjustment 
therein.



Sec.  206.107  Mortgagee election of assignment or shared premium option.

    (a) Election of option. Before the mortgage is submitted for 
insurance endorsement, the mortgagee shall elect either the assignment 
option or the shared premium option.
    (1) Under the assignment option, the mortgagee shall have the option 
of assigning the mortgage to the Commissioner if the outstanding loan 
balance is equal to or greater than 98 percent of the maximum claim 
amount, regardless of the deferral status, or the borrower has requested 
a payment which exceeds the difference between the maximum claim amount 
and the outstanding loan balance and:
    (i) The mortgagee is current in making the required payments under 
the mortgage to the borrower;
    (ii) The mortgagee is current in its payment of the MIP (and late 
charges and interest on the MIP, if any) to the Commissioner;
    (iii) The mortgage is not due and payable under Sec.  206.27(c)(1), 
or, if due and payable under Sec.  206.27(c)(1), its due and payable 
status has been deferred pursuant to a Deferral Period;
    (iv) An event described in Sec.  206.27(c)(2) has not occurred, or 
the Commissioner has been so informed but has denied approval for the 
mortgage to be due and payable. At the mortgagee's option, the mortgagee 
may forgo assignment of the mortgage and file a claim under any of the 
circumstances described in Sec.  206.123(a)(3)-(5); and

[[Page 283]]

    (v) The mortgage is a first lien of record and title to the property 
securing the mortgage is good and marketable. The provisions of Sec.  
206.136 pertaining to mortgagee certifications also apply.
    (2) Under the shared premium option, the mortgagee may not assign a 
mortgage to the Commissioner unless the mortgagee fails to make payments 
and the Commissioner demands assignment (Sec.  206.123(a)(2)), but the 
mortgagee shall only be required to remit a reduced monthly MIP to the 
Commissioner. The mortgagee shall collect from the borrower the full 
amount of the monthly MIP provided in Sec.  206.105(b) but shall retain 
a portion of the monthly MIP paid by the borrower as compensation for 
the default risk assumed by the mortgagee. The portion of the MIP to be 
retained by a mortgagee shall be determined by the Commissioner as 
calculated in Sec.  206.109. For a particular mortgage, the applicable 
portion shall be determined as of the date of the commitment. The 
mortgagee retains the right to file a claim under any of the 
circumstances described in Sec.  206.123(a)(2)-(5).
    (b) No election for shared appreciation. Shared appreciation 
mortgages shall be insured by the Commissioner only under the shared 
premium option.



Sec.  206.109  Amount of mortgagee share of premium.

    Using the factors provided by the Commissioner, the amount of the 
mortgagee share of the premium shall be determined for each mortgage 
based upon the age of the youngest borrower or Eligible Non-Borrowing 
Spouse and the expected average mortgage interest rate.



Sec.  206.111  Due date of MIP.

    (a) Initial MIP. The mortgagee shall pay the initial MIP to the 
Commissioner within fifteen days of closing and as a condition to the 
endorsement of the mortgage for insurance.
    (b) Monthly MIP. Each monthly MIP shall be due to the Commissioner 
on the first business day of each month except the month in which the 
mortgage is closed.



Sec.  206.113  Late charge and interest.

    (a) Late charge. Initial MIP remitted to the Commissioner more than 
5 days after the payment date in Sec.  206.111(a) and monthly MIP 
remitted to the Commissioner more than 5 days after the payment date in 
Sec.  206.111(b) shall include a late charge of four percent of the 
amount owed.
    (b) Interest. In addition to any late charge provided in paragraph 
(a) of this section, the mortgagee shall pay interest on any initial MIP 
remitted to the Commissioner more than 20 days after closing, and 
interest on any monthly MIP remitted to the Commissioner more than 5 
days after the payment date prescribed in Sec.  206.111(b). Such 
interest rate shall be paid at a rate set in conformity with the 
Treasury Financial Manual.
    (c) Paid by mortgagee. Any late charge and interest owed may not be 
added to the outstanding loan balance and must be paid by the mortgagee.



Sec.  206.115  Insurance of mortgage.

    (a) Mortgages with firm commitments. For applications for insurance 
involving mortgages not eligible to be originated under the Direct 
Endorsement program under Sec.  203.5 (any reference to Sec.  203.255 in 
Sec.  203.5 shall mean Sec.  206.115 for purposes of this section), the 
Commissioner will endorse the mortgage for insurance by issuing a 
Mortgage Insurance Certificate.
    (b) Endorsement with Direct Endorsement processing. For applications 
for insurance involving mortgages originated under the Direct 
Endorsement program under Sec.  203.5 (any reference to Sec.  203.255 in 
Sec.  203.5 shall mean Sec.  206.115 for purposes of this section), the 
mortgagee shall submit to the Commissioner, within 60 days after the 
date of closing of the loan or such additional time as permitted by the 
Commissioner, properly completed documentation and certifications as 
listed in this paragraph (b):
    (1) Property appraisal upon a form meeting the requirements of the 
Commissioner (including, if required, any additional documentation 
supporting the appraised value of the property under Sec.  206.52), and 
a HUD conditional commitment, or a Lender's Notice of Value issued by 
the Lender Appraisal

[[Page 284]]

Processing Program (LAPP) approved lender when the appraisal was 
originally completed for use in a VA application, but only if the 
appraiser was also on the FHA roster as of the effective date of the 
appraisal, and all accompanying documents required by the Commissioner;
    (2) An application for insurance of the mortgage in a form 
prescribed by the Commissioner;
    (3) A certified copy of the mortgage and loan documents executed 
upon forms which meet the requirements of the Commissioner;
    (4) An underwriter certification, on a form prescribed by the 
Commissioner, stating that the underwriter has personally reviewed the 
appraisal report and credit application (including the analysis 
performed on the worksheets) and that the proposed mortgage complies 
with FHA underwriting requirements, and incorporates each of the 
underwriter certification items that apply to the mortgage submitted for 
endorsement, as set forth in the applicable handbook or similar 
publication that is distributed to all Direct Endorsement mortgagees, 
except that if FHA makes the TOTAL Mortgage Scorecard available to HECM 
mortgagees by setting out requirements applicable for the use of the 
TOTAL Mortgage Scorecard in a Federal Register notice for comment, 
mortgagees may follow such procedures and meet such requirements in lieu 
of providing the underwriter certification;
    (5) Where applicable, a certificate under oath and contract 
regarding use of the dwelling for transient or hotel purposes;
    (6) Where an individual water or sewer system is being used, an 
approval letter from the local health authority indicating approval of 
the system in accordance with Sec.  200.926d(f);
    (7) A mortgage certification on a form prescribed by the 
Commissioner, stating that the authorized representative of the 
mortgagee who is making the certification has personally reviewed the 
mortgage documents and the application for insurance endorsement, and 
certifying that the mortgage complies with the requirements of paragraph 
(b) of this section. The certification shall incorporate each of the 
mortgagee certification items that apply to the mortgage loan submitted 
for endorsement, as set forth in the applicable handbook or similar 
publication that is distributed to all Direct Endorsement mortgagees;
    (8) Documents required by Sec.  206.15;
    (9) Documentation providing that the seller is the owner of record 
in accordance with Sec.  206.52(a) and the time restriction requirements 
of Sec.  206.52(b) are met;
    (10) For HECM for Purchase transactions, a Certificate of Occupancy, 
or its equivalent, if required for new construction; and
    (11) Such other documents as the Commissioner may require.
    (c) Pre-endorsement review for Direct Endorsement. (1) Upon 
submission by an approved mortgagee of the documents required by 
paragraph (b) of this section, the Commissioner will review the 
documents and determine that:
    (i) The mortgage is executed on a form which meets the requirements 
of the Commissioner;
    (ii) The mortgage maturity meets the requirements of the applicable 
program;
    (iii) The stated mortgage amount does not exceed 150 percent of the 
maximum claim amount;
    (iv) All documents required by paragraph (b) of this section are 
submitted;
    (v) All necessary certifications are made in accordance with 
paragraph (b) of this section;
    (vi) There is no mortgage insurance premium, late charge or interest 
due to the Commissioner; and
    (vii) The mortgage was not in default when submitted for insurance 
or, if submitted for insurance more than 60 days after closing, the 
mortgagee certifies that the borrower is current in paying all property 
charges or is otherwise in compliance with all the terms and conditions 
of the mortgage documents.
    (2) The Commissioner is authorized to determine if there is any 
information indicating that any certification or required document is 
false, misleading, or constitutes fraud or misrepresentation on the part 
of any party, or that the mortgage fails to meet a statutory or 
regulatory requirement. If, following this review, the

[[Page 285]]

mortgage is determined to be eligible, the Commissioner will endorse the 
mortgage for insurance by issuance of a Mortgage Insurance Certificate. 
If the mortgage is determined to be ineligible, the Commissioner will 
inform the mortgagee in writing of this determination, and include the 
reasons for the determination and any corrective actions that may be 
taken.
    (d) Submission by mortgagee other than originating mortgagee. If the 
originating mortgagee assigns the mortgage to another approved mortgagee 
before pre-endorsement review under paragraph (c) of this section, the 
assignee may submit the required documents for pre-endorsement review in 
the name of the originating mortgagee. All certifications must be 
executed by the originating mortgagee (or its underwriter, if 
appropriate). The purchasing mortgagee may pay any required mortgage 
insurance premium, late charge and interest.
    (e) Post-Endorsement review for Direct Endorsement. Following 
endorsement for insurance, the Commissioner may review all documents 
required by paragraph (b) of this section. If, following this review, 
the Commissioner determines that the mortgage does not satisfy the 
requirements of the Direct Endorsement program, the Commissioner may 
place the mortgagee on Direct Endorsement probation, or terminate the 
authority of the mortgagee to participate in the Direct Endorsement 
program pursuant to Sec.  206.15, or refer the matter to the Mortgagee 
Review Board for action pursuant to part 25 of this title.
    (f) Creation of the contract. The mortgage shall be an insured 
mortgage from the date of the issuance of a Mortgage Insurance 
Certificate, from the date of the endorsement of the credit instrument, 
or from the date of FHA's electronic acknowledgement to the mortgagee 
that the mortgage is insured, as applicable. The Commissioner and the 
mortgagee are thereafter bound by the regulations in this subpart with 
the same force and to the same extent as if a separate contract had been 
executed relating to the insured mortgage, including the provisions of 
the regulations in this subpart and of the National Housing Act.



Sec.  206.116  Refunds.

    No amount of the initial MIP shall be refundable except as 
authorized by the Commissioner.

                     HUD Responsibility to Borrowers



Sec.  206.117  General.

    The Commissioner is required by statute to take any action necessary 
to provide a borrower with funds to which the borrower is entitled under 
the mortgage and which the borrower does not receive because of the 
default of the mortgagee. The Commissioner may hold a second mortgage to 
secure repayment by the borrower under Sec.  206.27(d). Where the 
Commissioner does not hold a second mortgage, but makes a payment to the 
borrower, and such payment is not reimbursed by the mortgagee, the 
Commissioner shall accept assignment of the first mortgage.



Sec.  206.119  [Reserved]



Sec.  206.121  Commissioner authorized to make payments.

    (a) Investigation. The Commissioner will investigate all complaints 
by a borrower concerning late payments. If the Commissioner determines 
that the mortgagee is unable or unwilling to make all payments required 
under the mortgage, including late charges, the Commissioner shall pay 
such payments and late charges to the borrower.
    (b) Reimbursement or assignment. The Commissioner may demand that 
within 30 days from the demand, the mortgagee reimburse the 
Commissioner, with interest from the date of payment by the 
Commissioner, or assign the insured mortgage to the Commissioner. 
Interest shall be paid at a rate set in conformity with the Treasury 
Financial Manual. If the mortgagee complies with the reimbursement 
demand, then the contract of insurance shall not be affected. If the 
mortgagee complies by assigning the mortgage for record within 30 days 
of the demand, then the Commissioner shall pay an insurance claim as 
provided in Sec.  206.129(e)(3) and assume all responsibilities of the 
mortgagee under the first mortgage. If the mortgagee fails to comply 
with the demand within 30 days, the contract of

[[Page 286]]

insurance will terminate as provided in Sec.  206.133(c).
    (c) Second mortgage. If the contract of insurance is terminated as 
provided in Sec.  206.133(c), all payments to the borrower by the 
Commissioner will be secured by the second mortgage, unless otherwise 
provided by the Commissioner. Payments will be due and payable in the 
same manner as under the insured first mortgage. The liability of the 
borrower under the first mortgage shall be limited to payments actually 
made by the mortgagee to or on behalf of the borrower (including prior 
recoupment of the MIP remitted by the mortgagee and billed to the 
borrower), and shall exclude accrued interest, whether or not it has 
been included in the outstanding loan balance, and shared appreciation, 
if any. Interest will stop accruing on the first mortgage when the 
Commissioner begins to make payments under the second mortgage. The 
first mortgage will not be due and payable until the second mortgage is 
due and payable.

                             Claim Procedure



Sec.  206.123  Claim procedures in general.

    (a) Claims. Mortgagees may submit claims for the payment of the 
mortgage insurance benefits if:
    (1) The conditions of Sec.  206.107(a)(1) pertaining to the optional 
assignment of the mortgage by the mortgagee have been met and the 
mortgagee assigns the mortgage to the Commissioner;
    (2) The mortgagee is unable or unwilling to make the payments under 
the mortgage and assigns the mortgage to the Commissioner pursuant to 
the Commissioner's demand, as provided in Sec.  206.121(b);
    (3) The borrower or other permissible party sells the property for 
less than the outstanding loan balance and the mortgagee releases the 
mortgage of record to facilitate the sale, as provided in Sec.  
206.125(c);
    (4) The mortgagee acquires title to the property by foreclosure or a 
deed in lieu of foreclosure and sells the property as provided in Sec.  
206.125(g) for an amount which does not satisfy the outstanding loan 
balance or fails to sell the property as provided in Sec.  
206.127(a)(2); or
    (5) The mortgagee forecloses and a bidder other than the mortgagee 
purchases the property for an amount that is not sufficient to satisfy 
the outstanding loan balance, as provided in Sec.  206.125(e).
    (b) [Reserved]



Sec.  206.125  Acquisition and sale of the property.

    (a) Initial action by the mortgagee. (1) The mortgagee shall notify 
the Commissioner within 60 days of the mortgage becoming due and payable 
when the conditions stated in the mortgage, as required by Sec.  
206.27(c)(1) have occurred or when the Deferral Period ends. The 
mortgagee shall notify the Commissioner within 30 days when one of the 
conditions stated in the mortgage, as required by Sec.  206.27(c)(2), 
has occurred.
    (2) After notifying and receiving approval of the Commissioner when 
needed, the mortgagee shall notify the borrower, Eligible Non-Borrowing 
Spouse, borrower's estate, and borrower's heir(s), as applicable, within 
30 days of the later of notifying the Commissioner or receiving 
approval, if needed, that the mortgage is due and payable. The mortgagee 
shall give the applicable party 30 days from the date of notice to 
engage in the following actions:
    (i) Pay the outstanding loan balance, including any accrued 
interest, MIP, and mortgagee advances in full;
    (ii) Sell the property for an amount not to be less than the amount 
determined by the Commissioner through notice, which shall not exceed 95 
percent of the appraised value as determined under Sec.  206.125(b), 
with the net proceeds of the sale to be applied towards the outstanding 
loan balance. Closing costs shall not exceed the greater of: 11 percent 
of the sales price; or a fixed dollar amount as determined by the 
Commissioner through Federal Register notice. For the purposes of this 
section, sell includes the transfer of title by operation of law;
    (iii) Provide the mortgagee with a deed in lieu of foreclosure;
    (iv) Correct the condition which resulted in the mortgage coming due 
and payable for reasons other than the death of the last surviving 
borrower;

[[Page 287]]

    (v) For an Eligible Non-Borrowing Spouse, correct the condition 
which resulted in an end to the Deferral Period in accordance with Sec.  
206.57; or
    (vi) Such other actions as permitted by the Commissioner through 
notice.
    (3) For a borrower, even after a foreclosure proceeding is begun, 
the mortgagee shall permit the borrower to correct the condition which 
resulted in the mortgage coming due and payable and to reinstate the 
mortgage, and the mortgage insurance shall continue in effect. The 
mortgagee may require the borrower to pay any costs that the mortgagee 
incurred to reinstate the borrower, including foreclosure costs and 
reasonable attorney's fees. Such costs shall be paid by adding them to 
the outstanding loan balance. The mortgagee may refuse reinstatement by 
the borrower if:
    (i) The mortgagee has accepted reinstatement of the mortgage within 
the past two years immediately preceding the current notification to the 
borrower that the mortgage is due and payable;
    (ii) Reinstatement will preclude foreclosure if the mortgage becomes 
due and payable at a later date; or
    (iii) Reinstatement will adversely affect the priority of the 
mortgage lien.
    (4) For an Eligible Non-Borrowing Spouse, even after a foreclosure 
proceeding is begun, the mortgagee shall permit the Eligible Non-
Borrowing Spouse to cure the condition which resulted in the Deferral 
Period ceasing, in accordance with Sec.  206.57(d).
    (b) Appraisal. The mortgagee shall have the property appraised by an 
appraiser on the FHA roster, or other appraiser acceptable to, and 
identified by, the Commissioner through Federal Register notice, no 
later than 30 days after receipt of the request by an applicable party 
in connection with a potential property sale. The property shall be 
appraised before a foreclosure sale and have an effective appraisal date 
that is no more than 30 days before such sale. The appraisal shall be at 
the requesting party's expense unless the mortgage is due and payable. 
If the mortgage is due and payable, the appraisal shall be at the 
mortgagee's expense but the mortgagee shall have a right to be 
reimbursed out of the proceeds of any sale by the borrower or other 
permissible party. The Commissioner may, through Federal Register 
notice, identify other acceptable types of valuation for establishing 
the value of HECMs for the purpose of sale.
    (c) Sale by borrower or other permissible party. Where the HECM is 
not due and payable, the borrower or an authorized representative of the 
borrower may sell the property for at least the lesser of the 
outstanding loan balance or the appraised value. Where the HECM is due 
and payable at the time the contract for sale is executed, the borrower 
or other party with legal right to dispose of the property may sell the 
property in accordance with the amount established by Sec.  
206.125(a)(2)(ii). The mortgagee shall satisfy the mortgage of record 
(and the Commissioner will satisfy any second mortgage required by the 
Commissioner under Sec.  206.27(d) of record) in order to facilitate the 
sale, provided that there are no junior liens (except the mortgage to 
secure payments by the Commissioner if required under Sec.  206.27(d)) 
and all the net proceeds from the sale are paid to the mortgagee.
    (d) Initiation of foreclosure. (1) The mortgagee shall commence 
foreclosure of the mortgage within six months of the due date defined in 
Sec.  206.129(d)(1), or within such additional time as may be approved 
by the Commissioner.
    (2) If the laws of the State, city, or municipality or other 
political subdivision in which the mortgaged property is located or if 
Federal bankruptcy law does not permit the commencement of the 
foreclosure in accordance with Sec.  206.125(d)(1), the mortgagee shall 
commence foreclosure within six months after the expiration of the time 
during which such foreclosure is prohibited by such laws.
    (3) The mortgagee shall give written notice to the Commissioner 
within 30 days after the initiation of foreclosure proceedings, and 
shall exercise reasonable diligence in prosecuting the foreclosure 
proceedings to completion and in acquiring title to and possession of 
the property. A time frame that is determined by the Commissioner to 
constitute ``reasonable diligence'' for each State is made available to 
mortgagees.

[[Page 288]]

    (4) The mortgagee shall bid at the foreclosure sale an amount at 
least equal to the lesser of the sum of the outstanding loan balance and 
any and all other incurred expenses, or the current appraised value of 
the property. Such a bid by any party other than the mortgagee, for the 
full loan balance and all associated expenses, will result in a full 
payoff of the loan and no claim for insurance benefits being presented 
to FHA.
    (e) Other bidders at foreclosure sale. If a party other than the 
mortgagee is the successful bidder at the foreclosure sale, the net 
proceeds of the sale shall be applied to the outstanding loan balance.
    (f) Deed in lieu of foreclosure. (1)(i) In order to avoid delays and 
additional expense as a result of instituting and completing a 
foreclosure action, the mortgagee shall accept a deed in lieu of 
foreclosure from the borrower or other party with legal right to dispose 
of the property provided it is filed for recording within 9 months of 
the due date and the mortgagee is able to obtain good and marketable 
title.
    (ii) Cash for Keys. The Commissioner may provide a financial 
incentive, in an amount to be determined by the Commissioner, to be paid 
by the mortgagee and reimbursed through any subsequent claim where a 
borrower or other party with a legal right to do so deeds the property 
within 6 months of the due date.
    (2) In exchange for the executed and delivered deed, the mortgagee 
shall cancel the credit instrument and deliver it to the borrower and 
satisfy the mortgage of record. If applicable, the mortgagee shall 
request that the Commissioner cancel the credit instrument and deliver 
it to the borrower and satisfy the mortgage of record.
    (g) Sale of the acquired property. (1) Upon acquisition of the 
property by foreclosure or deed in lieu of foreclosure, the mortgagee 
shall take possession of, preserve, and repair the property and shall 
make diligent efforts to sell the property within six months from the 
date the mortgagee acquired the property, or such additional time as 
provided by the Commissioner. The mortgagee shall sell the property for 
an amount not less than the appraised value (as provided under paragraph 
(b) of this section) unless the mortgagee does not file an application 
for insurance benefits or written permission is obtained from the 
Commissioner authorizing a sale at a lower price.
    (2) Repairs shall not exceed those required by local law, or the 
requirements of the Commissioner or the Secretary of Veterans Affairs if 
the sale of the property is financed with a mortgage insured by the 
Commissioner or guaranteed, insured, or taken by the Secretary of 
Veterans Affairs. No other repairs shall be made without the specific 
advance approval of the Commissioner.
    (3) The mortgagee shall not enter into a contract for the 
preservation, repair, or sale of the property with any officer, 
employee, or owner of ten percent or more interest in the mortgagee or 
with any other person or organization having an identity of interest 
with the mortgagee or with any relative of such officer, employee, 
owner, or person.
    (4) The Commissioner may provide financial incentive, in an amount 
to be determined by the Commissioner, to be paid by the mortgagee and 
reimbursed through a subsequent claim when a bona fide tenant vacates 
the property prior to an eviction being initiated by the mortgagee.



Sec.  206.127  Application for insurance benefits.

    (a) Mortgagee acquires title. (1) The mortgagee shall apply for the 
payment of the insurance benefits within 30 days after the sale of the 
property by the mortgagee or within such additional time as approved by 
the Commissioner. Application shall be made by notifying the 
Commissioner of the sale of the property, the sale price, and income and 
expenses incurred in connection with the acquisition, repair, and sale 
of the property.
    (2) If the property will not be sold within six months from the 
foreclosure sale date where the mortgagee is the successful bidder, the 
mortgagee shall apply for the insurance benefit not later than 30 days 
after the end of the six-month period, substituting the appraised value, 
using a valid appraisal,

[[Page 289]]

for the sale price. The mortgagee may add the cost of the appraisal to 
the claim amount.
    (b) Party other than the mortgagee acquires title. The mortgagee 
shall apply for the payment of the insurance benefits within 30 days 
after a party other than the mortgagee acquires title to the property. 
Application shall be made by notifying the Commissioner of the sale of 
the property and the sale price. Transferring a portfolio that includes 
REO properties to another entity does not constitute a ``sale'' under 
this section.
    (c) Mortgagee assigns the mortgage. The mortgagee shall file its 
claim for the payment of insurance benefits within 15 days after the 
date the assignment of the mortgage to the Commissioner is filed for 
recording. The application for the payment of the insurance benefits 
shall include the items listed in Sec.  206.135(a) and the certification 
required under Sec.  206.136.
    (d) Contract of insurance not terminated. Mortgagees may only file 
an application for insurance benefits provided the contract of insurance 
has not terminated.



Sec.  206.129  Payment of claim.

    (a) General. If the claim for the payment of the insurance benefits 
is acceptable to the Commissioner, payment shall be made in cash in the 
amount determined under this section.
    (b) Limit on claim amount. (1) For HECMs assigned Case Numbers prior 
to September 19, 2017, in no case may the claim paid under this subpart 
exceed the maximum claim amount. The interest allowance provided in 
paragraphs (d)(3)(x), (e)(2), and (f)(2)(i) of this section shall not be 
included in determining the limit on the claim amount.
    (2) For HECMs assigned Case Numbers on or after September 19, 2017, 
in no case may the claim paid under this subpart exceed the maximum 
claim amount, as defined in Sec.  206.3. The interest allowance provided 
in paragraphs (d)(3)(x), (e)(2) and (f)(2)(ii) of this section shall be 
made in cash in the amount determined under this section and shall be 
included in determining the limit on the claim amount.
    (c) Shared appreciation mortgages. The terms loan balance and 
accrued interest as used in this section do not include interest 
attributable to the mortgagee's share of the appreciated value of the 
property.
    (d) Amount of payment--mortgagee acquires title or is unsuccessful 
bidder. This paragraph describes the amount of payment if the mortgagee 
acquires title by purchase, foreclosure, or deed in lieu of foreclosure, 
or when a party other than the mortgagee is the successful bidder at the 
foreclosure sale.
    (1) Due and payable date means the date when the mortgagee notifies 
or should have notified the Commissioner that the mortgage is due and 
payable under the conditions stated in the mortgage, as required by 
Sec.  206.27(c)(1) or the date that the Deferral Period, as provided for 
in the mortgage by Sec.  206.27(c)(3), ends; or the date the 
Commissioner approved a due and payable request as provided for in the 
mortgage by Sec.  206.27(c)(2).
    (2) The amount of the claim shall be computed by:
    (i) Totaling the outstanding loan balance and any accrued interest 
and servicing fees which have not been added to the outstanding loan 
balance as of the due and payable date, and allowances for items set 
forth in paragraph (d)(3) of this section; and
    (ii) Subtracting from that total the amount for which the property 
was sold (or the appraised value determined under Sec.  206.127(a)(2)) 
and the items set forth in paragraph (d)(4) of this section.
    (3) The claim shall include items listed in paragraphs (d)(3)(i) 
through (xiv) of this section. For HECMs with Case Numbers assigned on 
or after September 19, 2017, the inclusion of items listed in paragraphs 
(d)(3)(i), (ii), and (iii) of this section shall be limited to two-
thirds of advances made by the mortgagee on such expenses.
    (i) Taxes, ground rents, water rates, and utility charges that are 
liens prior to the mortgage;
    (ii) Special assessments, which are noted on the application for 
insurance or which become liens after the insurance of the mortgage;
    (iii) Hazard and flood insurance premiums on the mortgaged property 
not in excess of a reasonable rate;

[[Page 290]]

    (A) For purposes of this section, reasonable rate means a rate that 
is not in excess of the rate or advisory rate set by the principal 
State-licensed rating organization for essential property insurance in 
the voluntary market, or if coverage is available under a FAIR Plan, the 
FAIR Plan rate;
    (B) If a State has neither a FAIR Plan nor a State-licensed rating 
organization for essential property insurance in the voluntary market, 
the mortgagee must provide to the Home Ownership Center (HOC) having 
jurisdiction, information concerning the lowest rates available from an 
insurer for the types of coverage involved, with a request for a 
determination of whether the rate is reasonable. FHA will determine the 
rate to be reasonable if it approximates the rate assessed for 
comparable insurance coverage applicable to similarly situated 
properties in a State that offers a FAIR Plan or maintains a State-
licensed rating organization;
    (iv) Taxes imposed upon any deeds or other instruments by which said 
property was acquired by the mortgagee pursuant to Sec.  206.125;
    (v) Reasonable payments made by the mortgagee, with the approval of 
the Commissioner, for the purpose of protecting, operating, or 
preserving the property, or removing debris from the property;
    (vi) Reasonable costs for performing property inspections required 
by Sec.  206.140 and to determine if the property is vacant or abandoned 
are considered to be costs of protecting, operating or preserving the 
property;
    (vii) Charges for the administration, operation, maintenance, or 
repair of community-owned property or the maintenance or repair of the 
mortgaged property, paid by the mortgagee for the purpose of discharging 
an obligation arising out of a covenant filed for record prior to the 
issuance of the mortgage; and charges for the repair or maintenance of 
the mortgaged property required by, and in an amount approved by, the 
Commissioner under Sec.  206.142;
    (viii) Reasonable costs of the title search ordered by the 
mortgagee, in accordance with procedures prescribed by FHA, to determine 
if the criteria for approval of the mortgagee's acceptance of a deed in 
lieu of foreclosure or to determine clear title to complete a pre-
foreclosure sale;
    (ix) Foreclosure costs or costs of acquiring the property in 
accordance with such conditions as the Commissioner shall prescribe;
    (x) An amount equal to the interest allowance which would have been 
earned, from the due and payable date to the date when payment of the 
claim is made, if the claim had been paid in debentures, except that 
when the mortgagee fails to meet any one of the applicable requirements 
of Sec. Sec.  206.125 and 206.127 of this subpart within the specified 
time, and in a manner satisfactory to the Commissioner (or within such 
further time as the Commissioner may approve in writing), the interest 
allowance in such cash payment shall be computed only to the date on 
which the particular required action should have been taken or to which 
it was extended.
    (A) Debenture interest rate. The debenture interest rate provided 
for in Sec.  206.146 shall be used.
    (B) Maturity of debentures. Debentures shall mature 20 years from 
the date of issue.
    (C) Registration of debentures. Debentures shall be registered as to 
principal and interest.
    (D) Form and amounts of debentures. Debentures issued under this 
part shall be in such form and amounts; and shall be subject to such 
terms and conditions; and shall include such provisions for redemption, 
if any, as may be prescribed by the Commissioner, with the approval of 
the Secretary of the Treasury; and may be in book entry or certificated 
registered form, or such other form as the Commissioner by regulation 
may prescribe.
    (E) Redemption of debentures. Debentures shall, at the option of the 
Commissioner and with the approval of the Secretary of the Treasury, be 
redeemable at par plus accrued interest on any semiannual interest 
payment date on three months' notice of redemption given in such manner 
as the Commissioner shall prescribe. The debenture interest on the 
debentures called for

[[Page 291]]

redemption shall cease on the semiannual interest payment date 
designated in the call notice. The Commissioner may include with the 
notice of redemption an offer to purchase the debentures at par plus 
accrued interest at any time during the period between the notice of 
redemption and the redemption date. If the debentures are purchased by 
the Commissioner after such call and prior to the named redemption date, 
the debenture interest shall cease on the date of purchase.
    (F) Issue date of debentures. The issue date of debentures is 
determined by the due and payable date as defined in paragraph (d)(1) of 
this section.
    (G) Cash adjustment. Any difference of less than $50 between the 
amount of debentures to be issued to the mortgagee and the total amount 
of the mortgagee's claim, as approved by the Commissioner, may be 
adjusted by the issuance of a check in payment thereof;
    (xi) Any amount of incentive paid by the mortgagee in accordance 
with Sec.  206.125(f)(1)(ii) or Sec.  206.125(g)(4);
    (xii) Costs of any appraisal under Sec. Sec.  206.125 or 206.127, 
provided that the property was appraised after the mortgage became due 
and payable and that the mortgagee is not otherwise reimbursed for such 
costs;
    (xiii) Reasonable payments made by the mortgagee for:
    (A) Preservation and maintenance of the property;
    (B) Repairs necessary to meet the objectives of the property 
standards required for mortgages insured by the Commissioner, those 
required by local law, and such additional repairs as may be 
specifically approved in advance by the Commissioner; and
    (C) Expenses in connection with the sale of the property including a 
sales commission at the rate customarily paid in the community and, if 
the sale to the buyer involves a mortgage insured by the Commissioner or 
guaranteed by the Secretary of Veterans Affairs, a discount at a rate 
not to exceed the maximum allowable by the Commissioner, as of the date 
of execution of the discounted loan. Closing costs shall not exceed the 
greater of: 11 percent of the sales price; or a fixed dollar amount as 
determined by the Commissioner through Federal Register notice; and
    (xiv) A certification that the property is undamaged in accordance 
with Sec.  206.143.
    (4) There shall be deducted from the amount computed in paragraph 
(d)(2)(i) of this section:
    (i) The items listed in Sec.  206.145; and
    (ii) Any adjustment for damage or neglect to the property pursuant 
to Sec. Sec.  206.140, 206.141, and 206.142.
    (e) Amount of payment--assigned mortgages. This paragraph describes 
the amount of payment if the mortgagee assigns a mortgage to the 
Commissioner under Sec.  206.107(a)(1) or Sec.  206.121(b).
    (1) When a mortgagee assigns a mortgage which is eligible for 
assignment under Sec.  206.107(a)(1), the amount of payment shall be 
computed by subtracting from the outstanding loan balance on the date of 
assignment all cash retained by the mortgagee, including amounts held or 
deposited for the account of the borrower or to which it is entitled 
under the mortgage transaction that have not been applied in reduction 
of the principal mortgage indebtedness, and any adjustments for damage 
or neglect to the property pursuant to Sec. Sec.  206.140, 206.141 and 
206.142.
    (2) The claim shall also include:
    (i) Reimbursement for such costs and attorney's fees as the 
Commissioner finds were properly incurred in connection with the 
assignment of the mortgage to the Commissioner; and
    (ii) An amount equivalent to the interest allowance which will have 
been earned from the date the mortgage was assigned to the Commissioner 
to the date the claim is paid, if the claim had been paid in debentures, 
except that if the mortgagee fails to meet any of the requirements of 
Sec.  206.127(c), or Sec.  206.131 if applicable, within the specified 
time and in a manner satisfactory to the Commissioner (or within such 
further time as the Commissioner may approve in writing), the interest 
allowance in the payment of the claim shall be computed only to the date 
on which the particular required action should have been taken or to 
which it was extended. The provisions of paragraphs (d)(3)(x)(A)-(G) of 
this section pertaining to debentures are applicable

[[Page 292]]

except that the issue date of the debentures shall be the date the 
mortgage was assigned to the Commissioner.
    (3) When a mortgagee assigns a mortgage under Sec.  206.121(b) after 
demand by the Commissioner, the mortgagee will not receive the entire 
claim payment as contained in paragraphs (e)(1) and (2) of this section. 
The amount of the claim shall be computed by totaling the payments made 
by the mortgagee to the borrower or for the benefit of the borrower, and 
subtracting from the total the cash retained by the mortgagee, including 
amounts held or deposited for the account of the borrower or to which it 
is entitled under the mortgage transaction that have not been applied in 
reduction of the principal mortgage indebtedness, and any adjustments 
for damage or neglect to the property pursuant to Sec. Sec.  206.141 and 
206.142. The claim shall also be reduced by an amount determined by the 
Commissioner to reimburse the Commissioner for administrative expenses 
incurred in assuming the mortgagee's responsibility under the mortgage, 
which may include expenses for staff time. If more than one mortgage is 
assigned to the Commissioner, the administrative expenses incurred for 
all the mortgages assigned shall be allocated among the mortgages as 
determined by the Commissioner. The claim shall not include accrued 
interest whether or not it has been included in the loan balance.
    (f) Amount of payment-borrower sells the property. This paragraph 
describes the amount of payment if the property is sold in accordance 
with Sec.  206.125(c) to one other than the mortgagee for less than the 
outstanding loan balance, and the mortgagee releases the mortgage to 
facilitate the sale.
    (1)(i) For HECMs assigned Case Numbers prior to September 19, 2017, 
the amount of the claim shall be computed by totaling the outstanding 
loan balance and any accrued interest and servicing fees which have not 
been added to the outstanding loan balance on the date the deed is 
recorded, and an allowance for items set forth in paragraphs (d)(3)(i)--
(vii) and (d)(3)(xii) of this section, and subtracting from the total 
the amount for which the property was sold.
    (ii) For HECMs assigned Case Numbers on or after September 19, 2017, 
the following provisions apply:
    (A) When the loan is not in due and payable status. The amount of 
the claim shall be computed by totaling the outstanding loan balance and 
any accrued interest and servicing fees which have not been added to the 
outstanding loan balance on the date the deed is recorded, and an 
allowance for items set forth in paragraph (d)(3)(xiii)(C) of this 
section, and subtracting from the total the amount for which the 
property was sold.
    (B) When the loan is in due and payable status. The amount of the 
claim shall be computed by totaling the outstanding loan balance and any 
accrued interest and servicing fees which have not been added to the 
outstanding loan balance as of the due date, the items set forth in 
paragraph (d)(3) of this section, and subtracting from the total the 
amount for which the property was sold.
    (2)(i) For HECMs assigned Case Numbers prior to September 19, 2017, 
the claim shall also include an amount equivalent to the interest 
allowance which would have been earned from the date the deed is 
recorded to the date when payment of the claim is made, if the claim had 
been paid in debentures, and in a manner satisfactory to the 
Commissioner; the interest allowance in such cash payment shall be 
computed only to the date on which the particular action should have 
been taken or to which it was extended. The provisions of paragraphs 
(d)(3)(x)(A)-(G) of this section pertaining to debentures apply except 
that the issue date of the debentures is the date the deed is recorded 
instead of the due date.
    (ii) For HECMs assigned Case Numbers on or after September 19, 2017, 
the following provisions apply:
    (A) When the loan is not in due and payable status. The claim shall 
also include an amount equivalent to the interest allowance which would 
have been earned from the date the deed is recorded to the date when 
payment of the claim is made, if the claim had been paid in debentures, 
and in a manner satisfactory to the Commissioner; the interest allowance 
in such cash payment shall be computed only to the

[[Page 293]]

date on which the particular action should have been taken or to which 
it was extended. The provisions of paragraphs (d)(3)(x)(A)-(G) of this 
section pertaining to debentures apply except that the issue date of the 
debentures shall be the date the deed is recorded.
    (B) When the loan is in due and payable status. The claim shall also 
include an amount equivalent to the interest allowance which would have 
been earned from the due and payable date to the date when payment of 
the claim is made, if the claim had been paid in debentures, except that 
when the mortgagee fails to meet any of the applicable requirements of 
Sec. Sec.  206.125 and 206.127 within the specified time determined by 
the due and payable date, as defined in paragraph (d)(1) of this section 
(or within such further time as the Commissioner may approve in 
writing), and in a manner satisfactory to the Commissioner; the interest 
allowance in such cash payment shall be computed only to the date on 
which the particular action should have been taken or to which it was 
extended. The provisions of paragraphs (d)(3)(x)(A)-(G) of this section 
pertaining to debentures apply.

                              Condominiums



Sec.  206.131  Contract rights and obligations for mortgages on individual
dwelling units in a condominium.

    (a) Additional requirements. The requirements of this subpart shall 
be applicable to mortgages on individual dwelling units in a 
condominium, except as modified by this section.
    (b) References. The term property as used in this subpart shall be 
construed to include the individual dwelling unit and the undivided 
interest in the common areas and facilities as may be designated.
    (c) Assignment of the mortgage. If the mortgagee assigns the 
mortgage on the individual dwelling unit to the Commissioner, the 
mortgagee shall certify:
    (1) To any changes in the plan of apartment ownership including the 
administration of the property;
    (2) That as of the date the assignment is filed for record, the 
family unit is assessed and subject to assessment for taxes pertaining 
only to that unit; and
    (3) To the condition of the property as of the date the assignment 
is filed for record. Section 234.275 of this chapter concerning the 
certification of condition is incorporated by reference.
    (d) Condition of the multifamily structure. The provisions of Sec.  
234.270 (a) and (b) of this chapter concerning the condition of the 
multifamily structure in which the property is located shall be 
applicable to mortgages insured under this part which are assigned to 
the Commissioner.

                    Termination of Insurance Contract



Sec.  206.133  Termination of insurance contract.

    (a) Payment of the mortgage. The contract of insurance shall be 
terminated if the mortgage is paid in full.
    (b) Acquisition of title. (1) If the mortgagee or a party other than 
the mortgagee acquires title at a foreclosure sale, or the mortgagee 
acquires title by a deed in lieu of foreclosure, and the mortgagee 
notifies the Commissioner that a claim for the payment of the insurance 
benefits will not be presented, the contract of insurance shall be 
terminated.
    (2) For HECMs with Case Numbers assigned on or after September 19, 
2017, if the mortgagee or a party other than the mortgagee acquires 
title at a foreclosure sale or the mortgagee acquires title by a deed in 
lieu of foreclosure and a claim for the payment of the insurance 
benefits will be presented, the contract of insurance shall be 
terminated as of claim payment.
    (c) Mortgagee fails to make payments. If the mortgagee fails to make 
the payments to the borrower as required under the mortgage, and does 
not reimburse the Commissioner or assign the mortgage to the 
Commissioner within 30 days from the demand by the Commissioner for 
reimbursement or assignment, the contract of insurance shall 
automatically terminate. The Commissioner may later reinstate the 
contract of insurance, which shall continue in force as if no 
termination had occurred, upon reimbursement with interest as provided 
in Sec.  206.121. Upon reinstatement, the mortgagee shall be liable for 
all MIP which would have

[[Page 294]]

been due if no termination had occurred, including late charge and 
interest as provided in Sec.  206.113.
    (d) Notice of termination. The mortgagee shall give written notice 
to the Commissioner, or other notice acceptable to the Commissioner, 
within 15 days of the occurrence of an event under paragraphs (a) and 
(b) of this section. No contract of insurance shall be terminated under 
paragraphs (a) or (b) of this section unless such notice is given.
    (e) Voluntary termination. The mortgagor and the mortgagee may 
jointly request the Commissioner to approve the voluntary termination of 
the mortgage insurance contract. Prior to approval, the Commissioner 
shall make certain that the borrower is aware of the consequences which 
could arise out of the voluntary termination of the contract of 
insurance. The mortgagee shall cancel the insurance endorsement on the 
Mortgage Insurance Certificate or Note upon receipt of notice from the 
Commissioner that the contract of insurance is terminated. 
Notwithstanding any provision in a mortgage instrument, there shall be 
no voluntary termination charge due the Commissioner on account of the 
voluntary termination of any mortgage insurance contract where the 
request for termination is received by the Commissioner.
    (f) Effect of termination. When the insurance contract is 
terminated, all rights of the mortgagee shall terminate, including the 
right to file a claim for insurance benefits. All obligations of the 
Commissioner shall also cease immediately.

                         Additional Requirements



Sec.  206.134  Partial release, addition or substitution of security.

    (a) A mortgagee shall not release the security or any part thereof, 
while the mortgage is insured, without the prior consent of the 
Commissioner.
    (b) A mortgagee may, with the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot or replacing the dwelling with a 
similar or like kind on the existing lot under the following conditions:
    (1) The mortgagee obtains a good and valid first lien on the 
property to which the dwelling is removed or the existing lot upon which 
the dwelling is rebuilt;
    (2) All damages to the structure are repaired or all rebuilding of 
the structure is completed without cost to FHA; and
    (3) The property to which the dwelling is removed or rebuilt is in 
an area known to be reasonably free from natural hazards or, if in a 
flood zone, the borrower will insure or reinsure under the National 
Flood Insurance Program.
    (c) A mortgagee may, without the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot under the following conditions:
    (1) The dwelling has survived an earthquake or other disaster with 
little damage, but continued location on the property might be 
hazardous;
    (2) The conditions stated in paragraph (b) of this section exist; 
and
    (3) Immediately following the emergency removal the mortgagee 
notifies the Commissioner of the reasons for removal.



Sec.  206.135  Application for insurance benefits and fiscal data.

    (a) On the date the application for assignment is filed, the 
mortgagee shall submit to the Commissioner:
    (1) Credit and security instrument. The original credit and security 
instruments assigned without recourse or warranty, except that no act or 
omission of the mortgagee shall have impaired the validity and priority 
of the mortgage.
    (2) Proposed assignment instrument. A copy of the proposed 
assignment of mortgage.
    (3) Hazard and flood insurance. All hazard and flood insurance (if 
applicable) policies held in connection with the mortgaged property, 
together with a copy of the mortgagee's notification to the carrier 
authorizing the amendment of the loss payable clause substituting the 
Commissioner as the mortgagee.

[[Page 295]]

    (4) Rights and interests. An assignment of all rights and interests 
arising under the mortgage, and all claims of the mortgagee against the 
borrower or others arising out of the mortgage transaction.
    (5) Property. All property of the borrower held by the mortgagee or 
to which it is entitled (other than the cash items which are to be 
retained by the mortgagee).
    (6) Records and accounts. All records, ledger cards, documents, 
books, papers and accounts relating to the mortgage transaction.
    (7) Additional information. Any additional information or data which 
the Commissioner may require.
    (8) Title evidence. All title evidence held by the mortgagee. It 
need not be extended to include the recordation of the assignment. The 
title insurance policy shall be endorsed from the mortgage insurance 
company up to the point of assignment. At the point of assignment, the 
Commissioner shall be named insured under such policy.
    (b) All documents required in paragraph (a) of this section must be 
submitted and approved before a claim for assignment may be submitted.
    (c) Recorded assignment instrument. The original of the recorded 
assignment of mortgage shall be forwarded to the Commissioner as soon as 
received by the mortgagee, but in no case shall it be longer than 12 
months after recordation. If the original of the assignment is not 
available, a copy shall be furnished and the original forwarded as soon 
as possible.



Sec.  206.136  Conditions for assignment.

    (a) In order for a HECM to be eligible for assignment, the following 
must be met:
    (1) Priority of mortgage to liens. The mortgage is prior to all 
mechanics' and materialmen's liens, regardless of when such liens 
attach, and prior to all liens and encumbrances, or defects which may 
arise based on any act or omission by the mortgagee except such liens or 
other matters as may have been approved by the Commissioner.
    (2) Amount due. The amount stated in the instrument of assignment is 
actually due and owing under the mortgage.
    (3) Offsets or counterclaims. There are no offsets or counterclaims 
thereto and the mortgagee has a good right to assign.
    (b) The mortgagee shall certify that the conditions of paragraph (a) 
have been met.



Sec.  206.137  Effect of noncompliance with regulations.

    If, for any reason, the mortgagee fails to comply with the 
regulations in this subpart, the Commissioner may hold processing of the 
application for insurance benefits in abeyance for a reasonable time in 
order to permit the mortgagee to comply. In the alternative to holding 
processing in abeyance, the Commissioner may reconvey title to the 
property or reassign the mortgage to the mortgagee, in which event the 
application for insurance benefits shall be considered as cancelled and 
the mortgagee shall refund the insurance benefits to the Commissioner as 
well as other funds required by Sec.  206.138. The mortgagee may reapply 
for insurance benefits at a subsequent date; provided, however, that the 
mortgagee may not be reimbursed for any expenses incurred in connection 
with the property after it has been reconveyed or the mortgage 
reassigned by the Commissioner, or paid any debenture interest accrued 
after the date of initial conveyance, whichever is earlier, and there 
will be deducted from the insurance benefits any reduction in the 
Commissioner's estimate of the value of the property occurring from the 
time of reconveyance or mortgage reassignment to the time of 
reapplication.



Sec.  206.138  Mortgagee's liability for certain expenditures.

    Where the Commissioner accepts an assignment, acquires a property 
after accepting an assignment of a mortgage, or otherwise pays a claim 
for insurance benefits and thereafter it becomes necessary for the 
Commissioner to either reconvey the property or reassign the mortgage to 
the mortgagee due to the mortgagee's noncompliance with these 
regulations, the mortgagee shall reimburse the Commissioner for all 
expenses incurred in connection

[[Page 296]]

with such acquisition and reconveyance or reassignment. The 
reimbursement shall include interest on the amount of insurance benefits 
refunded by the mortgagee from the date the insurance benefits were paid 
to the date of refund at an interest rate set in conformity with the 
Treasury Fiscal Requirements Manual, and the Commissioner's cost of 
holding the property or servicing the mortgage, accruing on a daily 
basis, from the date of assignment or claim payment to the date of 
reconveyance or reassignment. These costs are based on the 
Commissioner's estimate of the taxes, maintenance and operating expenses 
of the property, and administrative expenses. Appropriate adjustments 
shall be made by the Commissioner on account of any income received from 
the property.



Sec.  206.140  Inspection and preservation of properties.

    The mortgagee, upon learning that a property subject to a mortgage 
insured under this part is vacant or abandoned, shall be responsible for 
the inspection of such property at least monthly, if the loan is in a 
due and payable status. When a mortgage is in due and payable status and 
efforts to reach the borrower or applicable party by telephone within 
that period have been unsuccessful, the mortgagee shall be responsible 
for a visual inspection of the security property to determine whether 
the property is vacant. The mortgagee shall take reasonable action to 
protect and preserve such security property when it is determined or 
should have been determined to be vacant or abandoned until assigned to 
the Commissioner or an application for insurance benefits is filed, if 
such action does not constitute an illegal trespass. ``Reasonable 
action'' includes the commencement of foreclosure within the time 
required by Sec.  206.125.



Sec.  206.141  Property condition.

    (a) Condition at time of transfer. When the mortgage is assigned to 
the Commissioner or the property is sold by the mortgagee, the property 
shall be undamaged by fire, earthquake, flood, or tornado, except as set 
forth in this subpart.
    (b) Damage to property by waste. The mortgagee shall not be liable 
for damage to the property by waste committed by the borrower, its 
heirs, successors or assigns in connection with mortgage insurance 
claims.
    (c) Mortgagee responsibility. The mortgagee shall be responsible 
for:
    (1) Damage by fire, flood, earthquake, hurricane, or tornado; and
    (2) Damage to or destruction of security properties on which the 
loans are in default and which properties are vacant or abandoned, when 
such damage or destruction is due to the mortgagee's failure to take 
reasonable action to inspect, protect and preserve such properties as 
required by Sec.  206.140.
    (d) Limitation. The mortgagee's responsibility for property damage 
shall not exceed the amount of its insurance claim as to a particular 
property.



Sec.  206.142  Adjustment for damage or neglect.

    (a) Except as provided for in paragraphs (a)(1) and (a)(2) of this 
section: if the property has been damaged by fire, flood, earthquake, 
hurricane, or tornado, the damage must be repaired before assignment of 
the mortgage to the Commissioner; if the property has suffered damage 
because of the mortgagee's failure to take action as required by Sec.  
206.140, the damage must be repaired before the mortgagee sells the 
property.
    (1) If the prior approval of the Commissioner is obtained, there 
will be deducted from the insurance benefits the Commissioner's estimate 
of the cost of repairing the damage or any insurance recovery received 
by the mortgagee, whichever is greater.
    (2) If the property has been damaged by fire and was not covered by 
fire insurance at the time of the damage, or the amount of insurance 
coverage was inadequate to repair fully the damage, only the amount of 
insurance recovery received by the mortgagee, if any, will be deducted 
from the insurance benefits, provided the mortgagee certifies, at the 
time that a claim is filed for insurance benefits, that:
    (i) At the time the mortgage was insured, the property was covered 
by fire insurance in an amount at least equal

[[Page 297]]

to the lesser of 100 percent of the insurable value of the improvements, 
or the principal loan balance of the mortgage;
    (ii) The insurer later cancelled this coverage or refused to renew 
it for reasons other than nonpayment of premium;
    (iii) The mortgagee made diligent though unsuccessful efforts within 
30 days of any cancellation or non-renewal of hazard insurance, and at 
least annually thereafter, to secure other coverage or coverage under a 
FAIR Plan, in an amount described in paragraph (a)(2)(i) of this 
section, or if coverage to such an extent was unavailable at a 
reasonable rate, the greatest extent of coverage that was available at a 
reasonable rate;
    (iv) The extent of coverage obtained by the mortgagee in accordance 
with paragraph (a)(2)(iii) of this section was the greatest available at 
a reasonable rate, or if the mortgagee was unable to obtain insurance, 
none was available at a reasonable rate; and
    (v) The mortgagee took the actions required by Sec.  206.140.
    (b) If the property has been damaged during the time of the 
mortgagee's possession by events other than fire, flood, earthquake, 
hurricane, or tornado, or if it was damaged notwithstanding reasonable 
action by the mortgagee as required by Sec.  206.140, the mortgagee must 
provide notice of such damage to the Commissioner and may not sell the 
property until directed to do so by the Commissioner. The Commissioner 
will either:
    (1) Allow the mortgagee to sell the property damaged; or
    (2) Require the mortgagee to repair the damage before sale, and the 
Commissioner will reimburse the mortgagee for reasonable payments not in 
excess of the Commissioner's estimate of the cost of repair, less any 
insurance recovery.



Sec.  206.143  Certificate of property condition.

    (a) The mortgagee shall certify that as of the date the mortgagee 
sold the property in accordance with Sec.  206.125(g) or assignment of 
the mortgage to the Commissioner, the property was:
    (1) Undamaged by fire, flood, earthquake, hurricane or tornado; and
    (2) Undamaged due to failure of the mortgagee to take action as 
required by Sec.  206.140; and
    (3) Undamaged while the property was in the possession of the 
mortgagee.
    (b) In the absence of evidence to the contrary, the mortgagee's 
certificate or description of the damage shall be accepted by the 
Commissioner as establishing the condition of the property, as of the 
date of mortgagee sale or assignment of the mortgage to the 
Commissioner.



Sec.  206.144  Final payment.

    The mortgagee may not file any supplemental claims to its mortgage 
insurance claim after six months from settlement by the Commissioner of 
the claim payment except where the Commissioner determines it 
appropriate and expressly authorizes an extension of time for 
supplemental claim filings.



Sec.  206.145  Items deducted from payment.

    (a) There shall be deducted from the total of the added items in 
Sec.  206.129 the following cash items:
    (1) All amounts received by the mortgagee on account of the mortgage 
after the institution of foreclosure proceedings or the acquisition of 
the property or otherwise after due and payable.
    (2) All amounts received by the mortgagee from any source relating 
to the property on account of rent or other income after deducting 
reasonable expenses incurred in handling the property.
    (3) All cash retained by the mortgagee including amounts held or 
deposited for the account of the borrower or to which it is entitled 
under the mortgage transaction that have not been applied in reduction 
of the outstanding loan balance.
    (4) With regard to claims filed pursuant to successful short sales, 
all amounts received by the mortgagee relating to the sale of the 
property.
    (b) [Reserved]



Sec.  206.146  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year

[[Page 298]]

at the rate in effect as of the day the commitment was issued, or as of 
the date the mortgage was endorsed for insurance, whichever rate is 
higher. For applications involving mortgages originated under the single 
family Direct Endorsement program, debentures shall bear interest from 
the date of issue, payable semiannually on the first day of January and 
on the first day of July of each year at the rate in effect as of the 
date the mortgage was endorsed for insurance;
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average yield, 
for the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 years.



                  Subpart D_Servicing Responsibilities



Sec.  206.201  Mortgage servicing generally; sanctions.

    (a) General. This subpart identifies servicing practices that the 
Commissioner considers acceptable mortgage servicing practices of 
lending institutions servicing mortgages insured by the Commissioner. 
Failure to comply with this subpart shall not be a basis for denial of 
the insurance benefits, but a pattern of refusal or failure to comply 
will be cause for withdrawal of FHA mortgagee approval.
    (b) Importance of timely payments. The paramount servicing 
responsibility is to make timely payments in full as required by the 
mortgage. Any failure of a mortgagee to make all payments required by 
the mortgage in a timely manner will be grounds for administrative 
sanctions authorized by regulations, including 2 CFR part 2424 
(Debarment, Suspension, and Limited Denial of Participation), and 24 CFR 
part 25 (Mortgagee Review Board).
    (c) Responsibility for servicing. (1) Servicing of insured mortgages 
must be performed by a mortgagee that is approved by FHA to service 
insured mortgages. The servicer must fully discharge the servicing 
responsibilities of the mortgagee as outlined in this part. The 
mortgagee shall remain fully responsible to the Commissioner for proper 
servicing, and the actions of its servicer shall be considered to be the 
actions of the mortgagee. The servicer also shall be fully responsible 
to the Commissioner for its actions as a servicer.
    (2) Whenever servicing of any mortgage is transferred from one 
mortgagee or servicer to another, notice of the transfer of service 
shall be delivered:
    (i) By the transferor mortgagee or servicer to the borrower. The 
notification shall be delivered not less than 15 days before the 
effective date of the transfer and shall contain the information 
required in 12 CFR 1024.33(b)(4); and
    (ii) By the transferee mortgagee or servicer:
    (A) To the borrower. The notification shall be delivered not less 
than 15 days before the effective date of the transfer and shall contain 
the information required in 12 CFR 1024.33(b)(4); and
    (B) To the Commissioner. This notification shall be delivered within 
15 days of the transfer, in a format prescribed by the Commissioner.



Sec.  206.203  Providing information.

    (a) Statements of account activity. The mortgagee shall provide to 
the borrower a monthly statement regarding the activity of the mortgage 
for each month, as well as for the calendar year. The statement shall 
summarize the total principal amount which has been paid to the borrower 
under the mortgage during that calendar year, the MIP paid to the 
Commissioner and charged to the borrower, the total amount of deferred 
interest added to the outstanding loan balance, the total outstanding 
loan balance, and the current principal limit. The mortgagee shall 
include an accounting of all payments for property charges. The 
statement shall be provided to the borrower monthly until the mortgage 
is paid in full by the borrower. The mortgagee shall provide the 
borrower with a new payment plan every time it recalculates monthly 
payments or the payment option is changed. The statements shall be in a 
format acceptable to the Commissioner.
    (b) [Reserved]

[[Page 299]]

    (c) Servicing--Providing information. (1) Mortgagees shall provide 
loan information to borrowers and arrange for individual loan 
consultation on request. The mortgagee must establish written procedures 
and controls to assure prompt responses to inquiries. One or more of the 
following means of making information readily available to borrowers is 
required:
    (i) A servicing office staffed with competent personnel located 
within 200 miles of the property, capable of providing timely responses 
to requests for information. Complete records need not be maintained in 
such an office if the staff is able to secure needed information and 
pass it on to the borrower.
    (ii) Toll-free telephone service at an office capable of providing 
needed information.
    (2)(i) All borrowers must be informed of and reminded annually of 
the system available for obtaining answers to loan inquiries and the 
office from which needed information may be obtained. Toll-free 
telephone service need not be provided to a borrower other than at the 
office designated to serve the borrower nor other than from the 
immediate vicinity of the security property.
    (ii) The mortgagee shall provide the borrower with the telephone 
number where the borrower may speak to employee(s) specifically 
designated by the mortgagee or its servicer to address inquiries 
concerning mortgages insured under this part. Such information shall be 
provided annually and whenever the servicer or the designated employee 
(or employee group) changes.
    (3) Mortgagees must respond to FHA requests for information 
concerning individual accounts.



Sec.  206.205  Property charges.

    (a) General. (1) The borrower shall be responsible for the payment 
of the following property charges before or on the due date: ground 
rents, condominium fees, planned unit development fees, and homeowners' 
association fees.
    (2) Payment of the following property charges are obligations of the 
borrower and shall be made through the LESA, by the borrower, or by the 
mortgagee, in accordance with paragraphs (b) through (e) of this section 
on or before the due date: property taxes, including any special 
assessments levied by local or State law, hazard insurance premiums, and 
applicable flood insurance premiums.
    (b) Method of property charge payment--(1) LESA required. For fixed 
or adjustable interest rate HECMs, based on the results of the Financial 
Assessment, the mortgagee may require the borrower to have a Fully-
Funded LESA for the payment of property charges identified in paragraph 
(a)(2) of this section. For adjustable interest rate HECMs, based on the 
results of the Financial Assessment, the mortgagee may require the 
borrower to have a Partially-Funded LESA for the payment of property 
charges identified in paragraph (a)(2) of this section.
    (2) LESA not required. (i) If, based on the results of the Financial 
Assessment, the mortgagee does not require the borrower to have a LESA, 
the borrower shall elect one of the following at closing, whereby an 
election of the option in paragraph (b)(2)(i)(B) or (C) of this section 
cannot be cancelled by the borrower:
    (A) Borrower is responsible for the independent payment of all 
property charges;
    (B) Borrower elects to have a Fully-Funded LESA for the payment of 
property charges identified in paragraph (a)(2) of this section; or
    (C) For adjustable interest rate HECMs only, borrower elects to have 
the mortgagee pay property charges listed in paragraph (a)(2) of this 
section which would have otherwise been required to be paid by the 
borrower, in accordance with paragraph (d) of this section.
    (ii) Through Federal Register notice, the Commissioner may establish 
an incentive for voluntarily electing a LESA under paragraph 
(b)(2)(i)(B) of this section.
    (c) Life Expectancy Set Aside--(1) General. (i) For a Fully-Funded 
LESA, the mortgagee shall:
    (A) Make payments for property charges identified in paragraph 
(a)(2) of this section before bills become delinquent and establish 
controls to ensure that the information needed to pay such bills is 
obtained on a timely basis;

[[Page 300]]

    (B) Make early payments to take advantage of a discount whenever it 
is to the borrower's advantage;
    (C) Not charge the borrower penalties for late payments for property 
charges unless it can be shown that the penalty was the direct result of 
the borrower's error or omission;
    (D) Ensure that LESA funds are not held in an escrow account;
    (E) Add payments for property charges to the outstanding loan 
balance when the mortgagee disburses funds to the taxing authority or 
insurance carrier; and
    (F) Provide written notification to the borrower and FHA within 30 
days of the mortgagee receiving notification that a property charge 
payment is outstanding when there are no funds or insufficient funds 
remaining in the LESA, and recommend that the borrower speak with a HUD-
Approved Housing Counselor.
    (ii) For a Partially-Funded LESA, the mortgagee shall:
    (A) Ensure that LESA funds are disbursed to the borrower semi-
annually;
    (B) Establish controls to ensure the taxing authority, insurance 
carrier, or both, received the borrower's payment;
    (C) Ensure the LESA funds are not held in an escrow account;
    (D) Add payments disbursed to the borrower for the payment of 
property charges identified in paragraph (a)(2) to the outstanding loan 
balance when the mortgagee disburses the funds; and
    (E) Provide written notification to the borrower and FHA within 30 
days of the mortgagee receiving notification that a property charge 
payment is outstanding when there are no funds or insufficient funds 
remaining in the LESA, and recommend that the borrower speak with a HUD-
Approved Housing Counselor.
    (2) Calculation of property charges. (i) The projected cost of 
property charges that will be required over the life expectancy of the 
youngest borrower shall be calculated based on a formula established by 
the Commissioner.
    (ii) The mortgagee shall not require any LESA to be funded in excess 
of the projected cost of property charges.
    (iii) For a Fully-Funded LESA, the amount withheld from the mortgage 
proceeds shall equal the projected cost of property charges.
    (iv) For a Partially-Funded LESA, the amount withheld from the 
mortgage proceeds is based on a calculation of the gap in residual 
income and may not exceed the projected cost of property charges.
    (v) Mortgagees shall use the HECM Financial Assessment and Property 
Charge Guide, or subsequent guide issued by the Commissioner, to 
determine whether a LESA is required; view the formula for calculating 
the projected costs of property charges; and view the formulas for 
calculating the Fully- and Partially-Funded LESA amounts.
    (3) Annual analysis of LESA. Mortgagees shall perform an annual 
analysis of the LESA to determine whether the funds are sufficient to 
make required distributions for the next year. If funds are exhausted or 
there is an insufficient balance determination, the mortgagee shall 
notify the borrower, in writing and within 15 calendar days of the 
annual analysis of the determination, that LESA funds are exhausted or 
insufficient and the borrower will be responsible for the payment of 
property charges.
    (4) Non-payment of property charges--(i) Fully-Funded LESA for an 
adjustable interest rate HECM with no remaining funds. (A) If the LESA 
is exhausted and the borrower fails to make property charge payments, 
the mortgagee shall use any available principal limit to pay the 
outstanding property charge amount in full and charge the borrower's 
account.
    (B) The mortgagee shall provide the borrower with a written 
notification within 30 days of the mortgagee receiving notification that 
a property charge payment is outstanding. The borrower shall have 30 
days to respond to the mortgagee to explain the circumstances which 
resulted in the non-payment. (C) If there is no available principal 
limit from which the mortgagee can pay the property charge amount in 
full, and the borrower fails to pay the property charges, the mortgage 
will become due and payable under Sec.  206.27(c)(2).
    (ii) Fully-Funded LESA for a fixed interest rate HECM with no 
remaining

[[Page 301]]

funds. If the LESA is exhausted and the borrower fails to make property 
charge payments, the mortgage will become due and payable under Sec.  
206.27(c)(2).--
    (iii) Partially-Funded LESA with remaining funds. If funds remain in 
the LESA and the borrower fails to make property charge payments, the 
mortgagee shall:
    (A) Immediately suspend future semi-annual payments to the borrower 
from the Partially-Funded LESA, although scheduled and unscheduled 
payments from the borrower's payment option may continue;
    (B) Disburse funds from the Partially-Funded LESA to pay the full 
amount owed for the past due property charge; and
    (C) Provide written notification to the borrower, within 30 days of 
the mortgagee receiving notification that a property charge payment is 
outstanding, that funds were advanced from the Partially-Funded LESA to 
pay the outstanding property charge. The borrower shall have 30 days to 
respond to the mortgagee to explain the circumstances which resulted in 
the non-payment.
    (iv) Partially-Funded LESA with no remaining funds. (A) If the LESA 
is exhausted and the borrower fails to make property charge payments 
when due, the mortgagee shall use any funds available in the principal 
limit to pay the outstanding property charge amount in full and charge 
the borrower's account.
    (B) The mortgagee shall provide written notification to the borrower 
within 30 days of the mortgagee receiving notification that a property 
charge payment is outstanding. The borrower shall have 30 days to 
respond to the mortgagee to explain the circumstances which resulted in 
the non-payment.
    (C) If there is no available principal limit from which the 
mortgagee can pay the property charge amount in full, and the borrower 
fails to pay the property charges, the mortgage will become due and 
payable under Sec.  206.27(c)(2).
    (5) Unused LESA funds. During a Deferral Period or when one of the 
events listed in Sec.  206.27(c)(1) or (c)(2) have occurred, no unused 
funds from the LESA shall be disbursed.
    (6) Assignment of mortgage to the Commissioner. If the insured first 
mortgage is assigned to the Commissioner, or if payments are made 
through the second mortgage under the Demand Assignment process, the 
Commissioner is not required to assume the responsibility for property 
charge payments, but may continue to administer payments for property 
charges for a borrower with a Fully-Funded LESA or semi-annual 
disbursements to a borrower with a Partially-Funded LESA to the extent 
that there are any funds available in the LESA. For adjustable interest 
rate HECMs, if the LESA has a positive remaining balance but funds are 
insufficient to pay all property charges due or semi-annual 
disbursements to the borrower, the Commissioner may provide the 
remaining funds to the borrower as a line of credit.
    (d) Borrower elects to have mortgagee pay property charges. If, 
based on the results of the Financial Assessment, the mortgagee does not 
require the borrower to have a LESA, for adjustable interest rate HECMs, 
the borrower may elect at closing to require the mortgagee to pay 
property charges identified in paragraph (a)(2) of this section by 
withholding funds from monthly payments due to the borrower or by 
charging such funds to a line of credit. This voluntary election to have 
funds withheld by the mortgagee to pay property charges cannot be 
canceled by the borrower at any time. If the sum of the outstanding loan 
balance and any unused set aside for repairs and servicing charges has 
reached the principal limit or the HECM proceeds are otherwise 
insufficient to pay the property charges, the borrower shall pay such 
property charges, even though the borrower elected payment to be made by 
the mortgagee. Through Federal Register notice, the Commissioner may 
expand the borrower's options for property charge payment by the 
mortgagee.
    (1) Assignment of mortgage to the Commissioner. If the insured first 
mortgage is assigned to the Commissioner under Sec.  206.107(a)(1) or 
Sec.  206.121(b), or if payments are made through the second mortgage 
under Sec.  206.121(c), the Commissioner is not required to assume the

[[Page 302]]

mortgagee's responsibility under paragraph (d) of this section, despite 
the election by the borrower.
    (2) Mortgagee's responsibilities. (i) Funds withheld from payments 
due to the borrower for property charges under paragraph (d) of this 
section shall not be paid into an escrow account. When property charges 
are actually paid, the mortgagee may add the amount paid to the 
outstanding loan balance.
    (ii) It is the mortgagee's responsibility to make disbursements for 
property charges before bills become delinquent. Mortgagees shall 
establish controls to ensure that the information needed to pay such 
bills is obtained on a timely basis. Penalties for late payments for 
property charges must not be charged to the borrower unless it can be 
shown that the penalty was the direct result of the borrower's error or 
omission. Early payment of a bill to take advantage of a discount should 
be made whenever it is to the borrower's benefit.
    (iii) Not later than the end of the second loan year the mortgagee 
shall establish a system for the periodic analysis of the amounts 
withheld from monthly payments. The analysis shall be performed at least 
once a year thereafter. The amount shall be adjusted, after analysis, to 
provide sufficient available funds to make anticipated disbursements 
during the ensuing year. The borrower shall be given at least ten days' 
notice of adjustment in the amount of withholding and an adequate 
explanation of the reasons for any change. When the amount withheld is 
analyzed in accordance with this paragraph, any surplus shall be paid to 
the borrower and added to the outstanding loan balance. Any shortage 
shall be corrected through increasing the monthly withholding as 
provided in paragraph (d)(2)(iv) of this section. If amounts withheld 
are insufficient to pay a property charge before it is delinquent, and 
the borrower could request a payment equal to the shortage under Sec.  
206.26(b), then the mortgagee shall pay the full property charge and 
treat payment of the shortage as a payment requested by the borrower 
under Sec.  206.26(b).
    (iv) The mortgagee's estimate of withholding amount shall be based 
on the best information available as to probable payments which will be 
required to be made for property charges in the coming year. If actual 
disbursements during the preceding year are used as the basis, the 
resulting estimate may deviate from those disbursements by as much as 
ten percent. The mortgagee may not require withholding in excess of the 
current estimated total annual requirement, unless expressly requested 
by the borrower. Each monthly withholding for property charges shall 
equal one-twelfth of the annual amounts as reasonably estimated by the 
mortgagee.
    (e) Borrower elects to pay property charges. (1) If, based on the 
results of the Financial Assessment, the mortgagee does not require the 
borrower to have a LESA, the borrower may elect to be responsible for 
the independent payment of all property charges and shall pay all 
property charges in a timely manner and shall provide evidence of 
payment to the mortgagee as required in the mortgage.
    (2) Failure to pay property charges. If the borrower fails to pay 
the property charges in a timely manner, and has not elected to have the 
mortgagee make the payments in accordance with paragraph (d) of this 
section:
    (i) The mortgagee may make the payment for the borrower and charge 
the borrower's account if there are available funds from which the 
mortgagee may make payment. If a pattern of missed payments occurs, the 
mortgagee may establish procedures to pay the property charges from the 
borrower's funds as if the borrower elected to have the mortgagee pay 
the property charges under this section.
    (ii) The mortgagee shall provide a written notification to the 
borrower and notify the Commissioner that an obligation of the mortgage 
has not been performed within 30 days of the mortgagee receiving 
notification of a missed payment when there are no available HECM funds 
from which the mortgagee may make payment. The borrower shall have 30 
days to respond to the mortgagee to explain the circumstances which 
resulted in the non-payment. The mortgagee may provide

[[Page 303]]

any permissible loss mitigation made available by the Commissioner 
through notice. If the borrower is unable or unwilling to repay the 
mortgagee for any funds advanced by the mortgagee to pay property 
charges outside of a LESA, the mortgagee shall submit a due and payable 
request under the provisions of Sec.  206.27(c)(2).



Sec.  206.207  Allowable charges and fees after endorsement.

    (a) Reasonable and customary charges. The mortgagee may collect 
reasonable and customary charges and fees from the borrower after 
insurance endorsement, only to the extent that the mortgagee is not 
reimbursed for such fees by FHA, by adding them to the outstanding loan 
balance, but only for: items listed in paragraph (a)(1) of this section; 
items authorized by the Commissioner under paragraph (a)(2) of this 
section, or as provided at Sec.  206.26(b)(1)(iii); or charges and fees 
related to additional documents described in Sec.  206.27(b)(10) and 
related title search costs.
    (1)(i) Charges for substitution of a hazard insurance policy at 
other than the expiration of term of the existing hazard insurance 
policy;
    (ii) Attorney's and trustee's fees and expenses actually incurred 
(including the cost of appraisals and cost of advertising) when a case 
has been referred for foreclosure in accordance with the provisions of 
this part after a firm decision to foreclose if foreclosure is not 
completed because of a reinstatement of the account (no attorney's fee 
may be charged for the services of the mortgagee's or servicer's staff 
attorney or for the services of a collection attorney other than the 
attorney handling the foreclosure);
    (iii) A trustee's fee if the security instrument in deed-of-trust 
states provides for payment of such a fee for execution of a 
satisfactory, release, or trustee's deed when the deed of trust is paid 
in full;
    (iv) Where permitted by the security instrument, attorney's fees and 
expenses actually incurred in the defense of any suit or legal 
proceeding wherein the mortgagee shall be made a party thereto by reason 
of the mortgage (no attorney's fee may be charged for the services of 
the mortgagee's or servicer's staff attorney); and
    (v) Property preservation expenses incurred pursuant to Sec.  
206.140.
    (2) Such other reasonable and customary charges as may be authorized 
by the Commissioner, but which shall not include:
    (i) Charges for servicing activities of the mortgagee or servicer;
    (ii) Fees charged by independent tax service organizations which 
contract to furnish data and information necessary for the payment of 
property taxes;
    (iii) Satisfaction, termination, or reconveyance fees when a 
mortgage is paid in full (other than as provided in paragraph 
(a)(1)(iii) of this section); or
    (iv) The fee for recordation of a satisfaction of the mortgage in 
states where recordation is the responsibility of the mortgagee.
    (b) Servicing charges. (1) If the following conditions are met, the 
mortgagee may include a servicing charge in the mortgage Note rate, 
starting with the month of loan closing and continuing through the life 
of the loan, including any applicable Deferral Period:
    (i) The charge is authorized by the Commissioner;
    (ii) The charge is selected by the mortgagee;
    (iii) The charge is within the range established by the 
Commissioner, which shall be set, through notice, in an amount which 
shall be between 36 and 150 basis points. The Commissioner may, through 
a Federal Register notice for comment, extend the range of permissible 
charges below 36 basis points and above 150 basis points; and
    (iv) The charge is disclosed as required by Sec.  206.43 to the 
borrower in a manner acceptable to the Commissioner at the time the 
mortgagee provides the borrower with a loan application; or
    (2) If the following conditions are met, the mortgagee may collect a 
fixed monthly charge for servicing activities of the mortgagee or 
servicer, starting with the month of loan closing and continuing through 
the life of the loan, including any applicable Deferral Period.
    (i) The charge is authorized by the Commissioner;

[[Page 304]]

    (ii) The charge is disclosed as required by Sec.  206.43 to the 
borrower in a manner acceptable to the Commissioner at the time the 
mortgagee provides the borrower with a loan application;
    (iii) Amounts to pay the charge are set aside as a portion of the 
principal limit in accordance with Sec.  206.19(f)(3); and
    (iv) The charge is payable only from the Servicing Fee Set Aside.



Sec.  206.209  Prepayment.

    (a) No charge or penalty. The borrower may repay a mortgage in full 
or prepay a mortgage in part without charge or penalty at any time, 
regardless of any limitations on repayment or prepayment stated in a 
mortgage.
    (b) Insurance and condemnation proceeds. If insurance or 
condemnation proceeds are paid to the mortgagee, the principal limit and 
the outstanding loan balance shall be reduced by the amount of the 
proceeds not applied to restoration or repair of the damaged property.
    (c) Funds received from a partial prepayment shall be applied in 
accordance with the Note.



Sec.  206.211  Determination of principal residence and contact information.

    (a) Annual certification. At least once during each calendar year, 
the mortgagee shall verify the contact information for the borrower(s) 
and determine whether or not the property is the principal residence of 
at least one borrower. The mortgagee shall require each borrower to make 
an annual certification of his or her contact information and principal 
residence. As part of the annual certification, the borrower may 
designate an alternate individual as specified in Sec.  206.40 to 
receive copies of the notifications from the mortgagee, and who the 
mortgagee shall contact if the borrower is unwilling or unable to reply 
to requests from the mortgagee. The mortgagee may rely on the 
certification unless it has information indicating that the 
certification may be false.
    (b) Requirements when an Eligible Non-Borrowing Spouse exists. Where 
an Eligible Non-Borrowing Spouse has been identified, the mortgagee 
shall obtain an additional annual certification from the borrower 
confirming the Eligible Non-Borrowing Spouse remains his or her spouse 
and the Eligible Non-Borrowing Spouse continues to reside in the 
property as his or her principal residence.
    (1) Death of borrower with Eligible Non-Borrowing Spouse. If a 
borrower with an Eligible Non-Borrowing Spouse has died, the mortgagee 
shall obtain the annual certification in paragraph (a) of this section 
from the Eligible Non-Borrowing Spouse. For purposes of this paragraph, 
the term ``Eligible Non-Borrowing Spouse'' shall replace the term 
``borrower'' in paragraph (a) of this section.
    (2) Failure of previously Eligible Non-Borrowing Spouse to reside in 
the property as his or her principal residence. If a Non-Borrowing 
Spouse fails to reside in the property as his or her principal 
residence, the Non-Borrowing Spouse becomes an Ineligible Non-Borrowing 
Spouse and the deferral of due and payable status that would prevent the 
displacement of an Eligible Non-Borrowing Spouse will no longer be in 
effect. Once this occurs, the Eligible Non-Borrowing Spouse annual 
certifications are no longer required to be obtained.



                     Subpart E_HECM Counselor Roster



Sec.  206.300  General.

    This subpart provides for the establishment of the HECM Counselor 
Roster (Roster) and sets forth the requirements for the operation of the 
HECM Counselor Roster.



Sec.  206.302  Establishment of the HECM Counselor Roster.

    (a) HECM Counselor Roster. FHA maintains a Roster of HECM 
counselors. Only counselors listed on the Roster and employed by a 
participating agency are approved to provide HECM counseling. A 
prospective borrower applying for a HECM loan to be insured by FHA must 
receive the required HECM counseling from one of the counselors on the 
Roster.
    (b) Disclaimer. The inclusion of a HECM counselor on the Roster does

[[Page 305]]

not create or imply a warranty or endorsement by FHA of the listed 
counselor to a prospective HECM borrower or to any other organization or 
individual, nor does it represent a warranty of any counseling provided 
by the listed HECM counselor. The inclusion of a counselor on the Roster 
means that a listed counselor has met the FHA-prescribed qualifications 
and conditions for inclusion on the Roster and that the counselor is 
approved to provide HECM counseling by telephone or face-to-face.



Sec.  206.304  Eligibility for placement on the HECM Counselor Roster.

    (a) Application. To be considered for placement on the Roster, a 
housing counselor must apply to FHA in a form and in a manner prescribed 
by the Commissioner.
    (b) Eligibility. FHA will approve an application for placement on 
the Roster if the application demonstrates that the housing counselor:
    (1) Is employed by a HUD-approved housing counseling agency or an 
affiliate of a HUD-approved intermediary or State housing finance 
agency;
    (2) Successfully passed a standardized HECM counseling exam 
administered by FHA, or a party selected by FHA, within the last 3 
years. In order to maintain eligibility, a HECM counselor must 
successfully pass a standardized HECM counseling exam every 3 years;
    (3) Received training and education related to HECMs within the 
prior 2 years;
    (4) Has access to and is supported by technology that enables FHA to 
track the results of the counseling offered to each loan applicant, 
e.g., what action(s), if any, did the client take after receiving the 
HECM counseling; and
    (5) Is not listed on:
    (i) The General Services Administration's Suspension and Debarment 
List;
    (ii) HUD's Limited Denial of Participation List; or
    (iii) HUD's Credit Alert Interactive Response System.



Sec.  206.306  Removal from the HECM Counselor Roster.

    (a) General. FHA reserves the right to remove a HECM counselor from 
the Roster, in accordance with this section.
    (b) Cause for removal. Cause for removal of a HECM counselor from 
the Roster includes, but is not limited to:
    (1) Failure to comply with the education and training requirements 
of Sec.  206.308;
    (2) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation;
    (3) Misrepresentation or fraudulent statements;
    (4) Promotion, representation, or recommendation of any specific 
mortgagee;
    (5) Failure to comply with applicable fair housing and civil rights 
requirements;
    (6) Failure to comply with applicable statutes and regulations;
    (7) Failure to comply with applicable statutory counseling 
requirements found at section 255(f) of the National Housing Act, which 
include, but are not limited to, providing information about: options 
other than a HECM, the financial implications of entering into a HECM, 
the tax consequences of a HECM, and any other information that HUD or 
the applicant may request;
    (8) Failure to maintain any registration, license, or certification 
requirements of a State or local authority;
    (9) Unsatisfactory performance in providing counseling to HECM loan 
applicants. FHA may determine that a HECM counselor's performance is 
unsatisfactory based on a review of counseling files or other monitoring 
activities, or if the counselor fails to employ the minimum 
competencies, as measured by the FHA-administered HECM counseling exam; 
or
    (10) For any other reason HUD determines to be so serious as to 
justify an administrative sanction.
    (c) Automatic removal from HECM Counselor Roster for failure to 
maintain required State or local licensure. A HECM counselor who is 
required to maintain a State or local registration, license, or 
certification and whose registration or certification is revoked, 
suspended, or surrendered will be automatically suspended from the 
Roster until FHA receives evidence demonstrating that the local- or 
State-imposed sanction has been lifted.

[[Page 306]]

    (d) Removal procedure. Except as provided in paragraph (c) of this 
section, the following procedures apply to removal of a HECM counselor 
from the Roster.
    (1) FHA will give the HECM counselor written notice of the proposed 
removal. The notice will state the reasons for and the duration of the 
proposed removal.
    (2) The HECM counselor will have 30 days from the date of receipt of 
the notice (or such time as described in the notice, but in no event 
less than a period of 30 days) to submit a written appeal of the 
proposed removal, along with a written request for a conference.
    (3) An FHA official will review the appeal and render a response 
affirming, modifying, or canceling the removal. The FHA official will 
not be a person who was involved in FHA's initial removal decision. FHA 
will respond with a decision within 30 days after the date of receiving 
the appeal or, if the HECM counselor has requested a conference, within 
30 days after the conference was held. FHA may extend the 30-day period 
by providing written notice to the counselor.
    (4) If the HECM counselor does not submit a timely written response, 
the removal will be effective 31 days after the date of FHA's initial 
removal notice (or after the period provided in the notice, if longer 
than 30 days). If a written response is submitted, and the removal 
decision is affirmed or modified, the removal will be effective on the 
date of FHA's notice affirming or modifying the initial removal 
decision.
    (e) Maximum time period of removal. The maximum time period for 
removal from the Roster is 12 months from the effective date of removal 
for all removed counselors. A counselor who has been removed must apply 
for reinstatement on the Roster.
    (f) Placement on the Roster after removal. A counselor who has been 
removed from the Roster must apply for reinstatement on the Roster (in 
accordance with Sec.  206.304) after the period of the counselor's 
removal from the Roster has expired. FHA may require the counselor to 
retake and pass the HECM exam for reinstatement when the reason for 
removal from the Roster was particularly egregious. Typically, the 
counselor will not be required to take and pass the HECM exam; however, 
FHA must be ensured by the counselor that the HECM counseling 
requirements are understood and will be followed. An application from a 
counselor for reinstatement on the Roster will be rejected if the period 
of the counselor's removal from the Roster has not expired.
    (g) Voluntary removal. A HECM counselor will be removed from the 
Roster upon FHA's receipt of a written request from the counselor.
    (h) Other action. Nothing in this section prohibits HUD from taking 
such other action against a HECM counselor or from seeking any other 
remedy against a counselor available to HUD by statute or other 
authority.



Sec.  206.308  Continuing education requirements of counselors listed 
on the HECM Counselor Roster.

    A HECM counselor listed on the Roster must receive, on a continuing 
basis, training, education, and technical assistance related to HECMs. 
The HECM counselor must maintain evidence of the successful completion 
of such continuing education, and such evidence must be made available 
to FHA upon request. FHA will consider a HECM counselor's successful 
completion of a HECM course no less than once every 2 years as 
satisfying the requirements of this section.



PART 207_MULTIFAMILY HOUSING MORTGAGE INSURANCE--Table of Contents



                   Subpart A_Eligibility Requirements

Sec.
207.1 Eligibility requirements.

                Subpart B_Contract Rights and Obligations

207.251 Definitions.

                                Premiums

207.252 First, second and third premiums.
207.252a Premiums--operating loss loans.
207.252b Premiums--mortgages insured pursuant to section 223(f) of the 
          Act.
207.252c Premiums--mortgages insured pursuant to Section 238(c) of the 
          Act.
207.252d Mortgagee's late charge.
207.252e Method of payment of mortgage insurance premiums.

[[Page 307]]

207.253 Termination by prepayment and voluntary termination.
207.253a Termination of insurance contract
207.254 Changes in premiums; manner of publication.

     Rights and Duties of Mortgagee Under the Contract of Insurance

207.255 Defaults for purposes of insurance claim.
207.256 Notice to the Commissioner of default.
207.256a Reinstatement of defaulted mortgage.
207.256b Modification of mortgage terms.
207.257 Commissioner's right to require acceleration.
207.258 Insurance claim requirements.
207.258a Title requirements.
207.258b Partial payment of claim.
207.259 Insurance benefits.
207.259a Waiver of title objection; mortgages formerly Commissioner-
          held.
207.260 Maintenance and inspection of property.
207.261 Capturing excess bond proceeds.

                         Rights in Housing Fund

207.263 Responsibility for servicing.

                               Amendments

207.499 Effect of amendments.

    Authority: 12 U.S.C. 1701z-11(e), 1709(c)(1), 1713, 1715(b), and 
1735d; 42 U.S.C. 3535(d).

    Source: 36 FR 24537, Dec. 22, 1971, unless otherwise noted.



                   Subpart A_Eligibility Requirements



Sec.  207.1  Eligibility requirements.

    The eligibility requirements set forth in 24 CFR part 200, subpart 
A, apply to multifamily project mortgages insured under section 207 of 
the National Housing Act (12 U.S.C. 1713), as amended.

[61 FR 14405, Apr. 1, 1996]



                Subpart B_Contract Rights and Obligations



Sec.  207.251  Definitions.

    As used in this subpart:
    (a) The term Commissioner means the Federal Housing Commissioner.
    (b) The term act means the National Housing Act, as amended.
    (c) The term mortgage means such a first lien upon real estate and 
other property as is commonly given to secure advances on, or the unpaid 
purchase price of, real estate under the laws of the State, district or 
territory in which the real estate is located, together with the credit 
instrument or instruments, if any, secured thereby. In any instance 
where an operating loss loan is involved, the term shall include both 
the original mortgage and the instrument securing the operating loss 
loan.
    (d) The term insured mortgage means a mortgage which has been 
insured by the endorsement of the credit instrument by the Commissioner, 
or his duly authorized representative.
    (e) The term contract of insurance means the agreement evidenced by 
such endorsement and includes the terms, conditions and provisions of 
this part and of the National Housing Act.
    (f) The term mortgagor means the original borrower under a mortgage 
and its successors and such of its assigns as are approved by the 
Commissioner.
    (g) The term mortgagee means the original lender under a mortgage 
its successors and such of its assigns as are approved by the 
Commissioner, and includes the holders of the credit instruments issued 
under a trust indenture, mortgage or deed of trust pursuant to which 
such holders act by and through a trustee therein named.

                                Premiums



Sec.  207.252  First, second and third premiums.

    The mortgagee, upon the initial endorsement of the mortgage for 
insurance, shall pay to the Commissioner a first mortgage insurance 
premium equal to not less than one-fourth of one percent nor more than 
one percent as the Secretary shall determine of the original face amount 
of the mortgage. The specific premium to be charged will be set forth in 
Federal Register notice.
    (a) If the date of the first principal payment is more than one year 
following the date of such initial insurance endorsement, the mortgagee, 
upon the anniversary of such insurance date, shall pay a second premium 
equal to not less than one-fourth of one percent nor more than one 
percent as the

[[Page 308]]

Secretary shall determine of the original face amount of the mortgage. 
On the date of the first principal payment, the mortgagee shall pay a 
third premium equal to not less than one-fourth of one percent nor more 
than one percent of the average outstanding principal obligation of the 
mortgage for the following year which shall be adjusted so as to accord 
with such date and so that the aggregate of the said three premiums 
shall equal the sum of:
    (1) One percent of the average outstanding principal obligation of 
the mortgage for the year following the date of initial insurance 
endorsement; and
    (2) Not less than one-fourth of one percent nor more than one 
percent per annum as the Secretary shall determine of the average 
outstanding principal obligation of the mortgage for the period from the 
first anniversary of the date of initial insurance endorsement to one 
year following the date of the first principal payment.
    (b) If the date of the first principal payment is one year, or less 
than one year following the date of such initial insurance endorsement, 
the mortgagee, upon such first principal payment date, shall pay a 
second premium equal to not less than one-fourth of one percent nor more 
than one percent as the Secretary shall determine of the average 
outstanding principal obligation of the mortgage for the following year 
which shall be adjusted so as to accord with such date and so that the 
aggregate of the said two premiums shall equal the sum of:
    (1) One percent per annum of the average outstanding principal 
obligation of the mortgage for the period from the date of initial 
insurance endorsement to the date of first principal payment; and
    (2) Not less than one-fourth of one percent nor more than one 
percent as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the year following the date of 
the first principal payment.
    (c) Where the credit instrument is initially and finally endorsed 
for insurance pursuant to a Commitment to Insure Upon Completion, the 
mortgagee on the date of the first principal payment shall pay a second 
premium equal to not less than one-fourth of one percent nor more than 
one percent as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the year following such first 
principal payment date which shall be adjusted so as to accord with such 
date and so that the aggregate of the said two premiums shall equal the 
sum of not less than one-fourth of one percent nor more than one percent 
per annum as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the period from the date of the 
insurance endorsement to one year following the date of the first 
principal payment.
    (d) Until the mortgage is paid in full, or until receipt by the 
Commissioner of an application for insurance benefits, or until the 
contract of insurance is otherwise terminated with the consent of the 
Commissioner, the mortgagee, on each anniversary of the date of the 
first principal payment, shall pay an annual mortgage insurance premium 
equal to not less than one-fourth of one percent nor more than one 
percent as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the year following the date on 
which such premium becomes payable.
    (e) The premiums payable on and after the date of the first 
principal payment shall be calculated in accordance with the 
amortization provisions without taking into account delinquent payments 
or prepayments.
    (f) Premiums shall be payable in cash or in debentures at par plus 
accrued interest. All premiums are payable in advance and no refund can 
he made of any portion thereof except as hereinafter provided in this 
subpart.
    (g) Any change in mortgage insurance premiums pursuant to this 
section will apply to new commitments issued or reissued on or after 
August 1, 2001 and any notice setting mortgage insurance premiums issued 
pursuant to this section.

[66 FR 35072, July 2, 2001]

[[Page 309]]



Sec.  207.252a  Premiums--operating loss loans.

    (a) The mortgagee, upon the insurance endorsement of the increase 
loan credit instrument covering the operating loss loan, shall pay to 
the Commissioner a first mortgage insurance premium of not less than 
one-fourth of one percent nor more than one percent as the Secretary 
shall determine of the original amount of the loan.
    (b) The provisions of paragraphs (d), (e), (f) and (g) of Sec. 
207.252 shall apply to operating loss loans.

[66 FR 35073, July 2, 2001]



Sec.  207.252b  Premiums--mortgages insured pursuant to section 223(f) of the Act.

    (a) The mortgagee, upon the initial-final endorsement of the 
mortgage for insurance pursuant to a Commitment to Insure Upon 
Completion issued in accordance with Sec.  207.32a, shall pay to the 
Commissioner a first mortgage insurance premium equal to one percent of 
the original face amount of the mortgage.
    (b) The mortgagee, on the date of the first principal payment, shall 
pay a second premium equal to one percent of the average outstanding 
principal obligation of the mortgage for the year following such first 
principal payment date which shall be adjusted as of that date so that 
the aggregate of the first and second premiums shall equal the sum of 
one percent per annum of the average outstanding principal obligation of 
the mortgage for the period from the date of the insurance endorsement 
to one year following the date of the first principal payment.
    (c) The provisions of paragraphs (d), (e) and (f) of Sec.  207.252 
shall apply to mortgages insured pursuant to section 223(f) of the Act.

[40 FR 10177, Mar. 5, 1975]



Sec.  207.252c  Premiums--mortgages insured pursuant to section 238(c) 
of the Act.

    All of the provisions of Sec. Sec.  207.252 and 207.252a governing 
mortgage insurance premiums shall apply to mortgages insured under this 
subpart pursuant to section 238(c) of the Act except that all mortgage 
insurance premiums due on such mortgages in accordance with Sec. Sec.  
207.252 and 207.252a shall be calculated on the basis of one percent.

[42 FR 59674, Nov. 18, 1977]



Sec.  207.252d  Mortgagee's late charge.

    Mortgage insurance premiums which are paid to the Commissioner more 
than 15 days after the billing date or due date, whichever is later, 
shall include a late charge of 4 percent of the amount of the payment 
due, except that no late charge shall be required with respect to any 
case for which HUD fails to render a proper billing to the mortgagee.

[43 FR 60154, Dec. 26, 1978, as amended at 44 FR 23067, Apr. 18, 1979]



Sec.  207.252e  Method of payment of mortgage insurance premiums.

    In the cases that the Commissioner deems appropriate, the 
Commissioner may require, by means of instructions communicated to all 
affected mortgagees, that mortgage insurance premiums be remitted 
electronically.

[63 FR 1303, Jan. 8, 1998]



Sec.  207.253  Termination by prepayment and voluntary termination.

    All rights under the insurance contract and all obligations to pay 
future insurance premiums shall terminate on the following conditions:
    (a) Termination by prepayment. Notice of the prepayment in full of 
the mortgage or loan shall be given to the Commissioner, on a form 
prescribed by the Commissioner, within 30 days from the date of 
prepayment. The insurance contract shall terminate, effective as of the 
date of prepayment. No adjusted premium charge shall be due the 
Commissioner on account of such termination by prepayment.
    (b) Termination by voluntary agreement. Receipt by the Commissioner 
of a written request, by the mortgagor and mortgagee or lender for 
termination of the insurance on the mortgage or loan, on a form 
prescribed by the Commissioner, accompanied by the original credit 
instrument for cancellation of the insurance endorsement and the 
remittance of all sums to which the Commissioner is entitled. The 
termination shall become effective as of the date

[[Page 310]]

these requirements are met. No voluntary termination charge shall be due 
the Commissioner on account of such termination by voluntary agreement.
    (c) Upon termination of the mortgage or loan insurance contract by a 
payment in full or by a voluntary termination, the Commissioner shall 
refund to the mortgagee or lender for the account of the mortgagor or 
borrower an amount equal to the pro rata portion of the current annual 
mortgage insurance premium theretofore paid, which is applicable to the 
portion of the year subsequent to (1) the date of the prepayment or (2) 
the effective date of the voluntary termination of the contract of 
insurance.
    (d) Notwithstanding any provision in the mortgage instrument, this 
section shall apply to all mortgage or loan insurance contracts 
terminated by either prepayment or voluntary termination where: (1) The 
mortgage is prepaid in full or (2) the Commissioner receives a request 
for voluntary termination, on or after May 1, 1972.

[37 FR 8662, Apr. 29, 1972]



Sec.  207.253a  Termination of insurance contract.

    (a) Reason for termination. The happening of any of the following 
events shall constitute an additional reason for terminating the 
contract of insurance in cases where the mortga- gee has elected to 
convey the property to the Commissioner:
    (1) The acquisition by the mortgagee of the mortgaged property 
without conveying it to the Commissioner.
    (2) The acquisition of the property at the foreclosure sale by a 
party other than the mortgagee.
    (3) The redemption of the property after foreclosure.
    (4) Notice given by the mortgagee after the foreclosure and during 
the redemption period that it will not tender the property to the 
Commissioner.
    (b) Notice of termination. No contract of insurance shall be 
terminated until the mortgagee has given written notice thereof to the 
Commissioner within 30 days from the happening of any one of the events 
set forth in paragraph (a) of this section.
    (c) Effective termination date. The Commissioner shall notify the 
mortgagee that the contract of insurance has been terminated and the 
effective termination date. The termination shall be effective as of the 
date any one of the events set forth in paragraph (a) of this section 
occur.
    (d) Effect of termination. Upon termination of the contract of 
insurance the obligation to pay any subsequent MIP shall cease and all 
rights of the mortgagor and mortgagee shall be terminated.

[36 FR 24537, Dec. 22, 1971, as amended at 37 FR 8662, Apr. 29, 1972]



Sec.  207.254  Changes in premiums; manner of publication.

    Notice of future premium changes will be published in the Federal 
Register. The Department will propose MIP changes for multifamily 
mortgage insurance programs and provide a 30-day public comment period 
for the purpose of accepting comments on whether the proposed changes 
are appropriate. After the comments have been considered, the Department 
will publish a final notice announcing the premiums for each program and 
their effective date. The provisions of paragraph (g) of 24 CFR 207.252 
shall apply to any notice of future premium changes published pursuant 
to this section.

[66 FR 35073, July 2, 2001]

     Rights and Duties of Mortgagee Under the Contract of Insurance



Sec.  207.255  Defaults for purposes of insurance claim.

    (a)(1) Except as provided in paragraph (b) of this section, the 
following shall be considered a default under the terms of a mortgage 
insured under this subpart:
    (i) Failure of the mortgagor to make any payment due under the 
mortgage (also referred to as a ``Monetary Event of Default'' in certain 
mortgage security instruments); or
    (ii) A material violation of any other covenant under the provisions 
of the mortgage, if because of such violation, the mortgagee has 
accelerated the debt, subject to any necessary HUD approval (also 
referred to as a ``Covenant Event of Default'' in certain mortgage 
security instruments).

[[Page 311]]

    (2) For purposes of a mortgagee filing an insurance claim with the 
Commissioner, the failure of the mortgagor to make any payment due under 
an operating loss loan or under the original mortgage shall be 
considered a default under both the operating loss loan and original 
mortgage.
    (3) If a default as defined in paragraphs (a)(1) and (a)(2) of this 
section continues for a minimum period of 30 days, the mortgagee shall 
be entitled to receive the benefits of the insurance provided for the 
mortgage, subject to the procedures in this subpart.
    (4) For the purposes of paragraph (a) of this section, the date of 
default shall be:
    (i) The date of the first failure to make a monthly payment that 
subsequent payments by the mortgagor are insufficient to cover when 
those subsequent payments are applied by the mortgagee to the overdue 
monthly payments in the order in which they became due; or
    (ii) The date of the first uncorrected violation of a covenant or 
obligation for which the mortgagee has accelerated the debt.
    (5) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance on or after September 1, 2011, the 
regulations of paragraph (a) of this section shall apply, unless the 
mortgagor demonstrates to the satisfaction of the Commissioner that 
financial hardship to the mortgagor would result from application of the 
regulations in paragraph (a) of this section due to the reasonable 
expectations of the mortgagor that the transaction would close under the 
regulations in effect prior to September 1, 2011, in which case, the 
regulations of paragraph (b) shall apply.
    (b)(1) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance before September 1, 2011, and for 
multifamily project mortgages insured under section 232 of the Act (12 
U.S.C. 1715w), and section 242 of the Act (12 U.S.C. 1715z-7), the 
following shall be considered a default under the terms of a mortgage 
insured under this subpart:
    (i) Failure of the mortgagor to make any payment due under the 
mortgage; or
    (ii) Failure to perform any other covenant under the provisions of 
the mortgage, if the mortgagee, because of such failure, has accelerated 
the debt.
    (2) In the case of an operating loss loan, the failure of the 
mortgagor to make any payment due under such loan or under the original 
mortgage shall be considered a default under both the loan and original 
mortgage.
    (3) If such defaults, as defined in paragraph (b) of this section, 
continue for a period of 30 days the mortgagee shall be entitled to 
receive the benefits of the insurance hereinafter provided.
    (4) Except for mortgages insured under section 232 of the Act, for 
the purposes of paragraph (b) of this section, the date of default shall 
be considered as:
    (i) The date of the first uncorrected failure to perform a covenant 
or obligation; or
    (ii) The date of the first failure to make a monthly payment which 
subsequent payments by the mortgagor are insufficient to cover when 
applied to the overdue monthly payments in the order in which they 
became due.
    (5) For mortgages insured under section 232 of the Act, for purposes 
of this section, the date of default shall be considered as:
    (i) The first date on which the borrower has failed to pay the debt 
when due as a result of the lender's acceleration of the debt because of 
the borrower's uncorrected failure to perform a covenant or obligation 
under the regulatory agreement or security instrument; or
    (ii) The date of the first failure to make a monthly payment that 
subsequent payments by the borrower are insufficient to cover when 
applied to the overdue monthly payments in the order in which they 
become due.

[76 FR 24370, May 2, 2011, as amended at 77 FR 55135, Sept. 7, 2012]



Sec.  207.256  Notice to the Commissioner of default.

    (a) If a default as defined in Sec.  207.255(a) or (b) is not cured 
within the grace period of 30 days provided under Sec.  207.255(a)(3) or 
(b)(3), the mortgagee must, within 30 days after the date of the end of 
the grace period, notify the Commissioner of the default, in the

[[Page 312]]

manner prescribed in 24 CFR part 200, subpart B.
    (b) The mortgagee must give notice to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B, of the mortgagor's 
violation of any covenant, whether or not the mortgagee has accelerated 
the debt.

[76 FR 24370, May 2, 2011]



Sec.  207.256a  Reinstatement of defaulted mortgage.

    If, after default and prior to the completion of foreclosure 
proceedings, the mortgagor cures the default, the insurance shall 
continue on the mortgage as if a default had not occurred, provided the 
mortgagee gives notice of reinstatement to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B.

[76 FR 24370, May 2, 2011]



Sec.  207.256b  Modification of mortgage terms.

    (a) The mortgagor and the mortgagee may, with the approval of the 
Commissioner, enter into an agreement that extends the time for curing a 
default under the mortgage or modifies the payment terms of the 
mortgage.
    (b)(1) Except as provided in paragraph (b)(2), the Commissioner's 
approval of the type of agreement specified in paragraph (a) of this 
section shall not be given, unless the mortgagor agrees in writing that, 
during such period as the mortgage continues to be in default, and 
payments by the mortgagor to the mortgagee are less than the amounts 
required under the terms of the original mortgage, the mortgagor or 
mortgagee, as may be appropriate in the particular situation, will hold 
in trust for disposition, as directed by the Commissioner, all rents or 
other funds derived from the secured property that are not required to 
meet actual and necessary expenses arising in connection with the 
operation of such property, including amortization charges, under the 
mortgage.
    (2) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance before September 1, 2011, and for 
multifamily project mortgages insured under section 232 of the Act (12 
U.S.C. 1715w), and section 242 (12 U.S.C. 1715z-7), the Commissioner's 
approval of the type of agreement specified in paragraph (a) of this 
section shall not be given unless the mortgagor agrees in writing that, 
during such period as payments to the mortgagee are less than the 
amounts required under the terms of the original mortgage, the mortgagor 
will hold in trust for disposition as directed by the Commissioner all 
rents or other funds derived from the property which are not required to 
meet actual and necessary expenses arising in connection with the 
operation of such property, including amortization charges, under the 
mortgage.
    (3) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance on or after September 1, 2011, the 
regulations of paragraph (b)(1) of this section shall apply, unless the 
mortgagor demonstrates to the satisfaction of the Commissioner that 
financial hardship to the mortgagor would result from application of the 
regulations in paragraph (b)(1) of this section due to the reasonable 
expectations of the mortgagor that the transaction would close under the 
regulations in effect prior to September 1, 2011, in which case, the 
regulations of paragraph (b)(2) shall apply.
    (c) The Commissioner may exempt a mortgagor from the requirement of 
paragraph (b) of this section in any case where the Commissioner 
determines that such exemption does not jeopardize the interests of the 
United States.

[76 FR 24370, May 2, 2011]



Sec.  207.257  Commissioner's right to require acceleration.

    Upon receipt of notice of violation of a covenant, as provided for 
in Sec.  207.256(b), or otherwise being apprised of the violation of a 
covenant, the Commissioner reserves the right to require the mortgagee 
to accelerate payment of the outstanding principal balance due in order 
to protect the interests of the Commissioner.

[76 FR 24371, May 2, 2011]

[[Page 313]]



Sec.  207.258  Insurance claim requirements.

    (a) Alternative election by mortgagee. (1) When the mortgagee 
becomes eligible to receive mortgage insurance benefits pursuant to 
Sec.  207.255(a)(3) or (b)(3), the mortgagee must, within 45 calendar 
days after the date of eligibility, such period is referred to as the 
``Eligibility Notice Period'' for purposes of this section, give the 
Commissioner notice of its intention to file an insurance claim and of 
its election either to assign the mortgage to the Commissioner, as 
provided in paragraph (b) of this section, or to acquire and convey 
title to the Commissioner, as provided in paragraph (c) of this section. 
Notice of this election must be provided to the Commissioner in the 
manner prescribed in 24 CFR part 200, subpart B. HUD may extend the 
Eligibility Notice Period at the request of the mortgagee under the 
following conditions:
    (i) The request must be made to and approved by HUD prior to the 
45th day after the date of eligibility; and
    (ii) The approval of an extension shall in no way prejudice the 
mortgagee's right to file its notice of its intention to file an 
insurance claim and of its election either to assign the mortgage to the 
Commissioner or to acquire and convey title to the Commissioner within 
the 45-day period or any extension prescribed by the Commissioner.
    (2) For mortgages funded with the proceeds of state or local bonds, 
Ginnie Mae mortgage-backed securities, participation certificates, or 
other bond obligations specified by the Commissioner (such as an 
agreement under which the insured mortgagee has obtained the mortgage 
funds from third-party investors and has agreed in writing to repay such 
investors at a stated interest rate and in accordance with a fixed 
repayment schedule), any of which contains a lock-out or prepayment 
premium, in the event of a default during the term of the prepayment 
lock-out or prepayment premium, and for any mortgage insured under 
section 232 of the Act, the mortgagee must:
    (i) Request a 90-day extension of the deadline for filing the notice 
of the mortgagee's intention to file an insurance claim and the 
mortgagee's election to assign the mortgage or acquire and convey title 
in accordance with the mortgagee certificate, which HUD may further 
extend at the written request of the mortgagee;
    (ii) Assist the mortgagor in arranging refinancing to cure the 
default and avert an insurance claim, if the Commissioner grants the 
requested (or a shorter) extension of notice filing deadline;
    (iii) Report to the Commissioner at least monthly on any progress in 
arranging refinancing;
    (iv) Cooperate with the Commissioner in taking reasonable steps in 
accordance with prudent business practices to avoid an insurance claim;
    (v) Require successors or assigns to certify in writing that they 
agree to be bound by these conditions for the remainder of the term of 
the prepayment lock-out or prepayment premium; and
    (vi) After commencement of amortization of the refinanced mortgage, 
notify HUD of a delinquency when a payment is not received by the 10th 
day after the date the payment is due.
    (3) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance on or after September 1, 2011, the 
regulations of paragraph (a)(2) of this section shall apply, unless the 
mortgagor demonstrates to the satisfaction of the Commissioner that 
financial hardship to the mortgagor would result from application of the 
regulations in paragraph (a)(2) of this section due to the reasonable 
expectations of the mortgagor that the transaction would close under the 
regulations in effect prior to September 1, 2011, in which case, the 
regulations of paragraph (a)(2) shall not apply.
    (4) Acknowledgment of election. For mortgages insured pursuant to 
section 232 of the Act, if the lender provides notice to the 
Commissioner of its election either to assign the mortgage to the 
Commissioner or to acquire and convey title to the Commissioner, the 
Commissioner shall, not later than 90 calendar days after the expiration 
of the Eligibility Notice Period, as defined in paragraph (a)(1) of this 
section, as the same may have been extended, acknowledge and accept, or 
reject for

[[Page 314]]

cause, pursuant to program requirements, the lender's election, provided 
that the Commissioner may, in the Commissioner's discretion, extend such 
90-day period by no more than an additional 90 calendar days if the 
Commissioner determines that such an extension is in HUD's interest.
    (b) Assignment of mortgage to Commissioner-- (1) Timeframe; request 
for extension. (i) If the mortgagee elects to assign the mortgage to the 
Commissioner, the mortgagee shall, at any time within 30 calendar days 
after the date HUD acknowledges the notice of election, file its 
application for insurance benefits and assign to the Commissioner, in 
such manner as the Commissioner may require, any applicable credit 
instrument and the realty and chattel security instruments.
    (ii) The Commissioner may extend this 30-day period by written 
notice that a partial payment of insurance claim under Sec.  207.258b is 
being considered. A mortgagee may consider failure to receive a notice 
of an extension approval by the end of the 30-day time period a denial 
of the request for an extension.
    (iii) The extension shall be for such term, not to exceed 60 days, 
as the Commissioner prescribes; however, the Commissioner's 
consideration of a partial payment of claim, or the Commissioner's 
request that a mortgagee accept partial payment of a claim in accordance 
with Sec.  207.258b, shall in no way prejudice the mortgagee's right to 
file its application for full insurance benefits within either the 30-
day period or any extension prescribed by the Commissioner.
    (iv) The requirements of paragraphs (b)(2) through (b)(6) of this 
section shall also be met by the mortgagee.
    (2) Notice of assignment. On the date the assignment of the mortgage 
is filed for record, the mortgagee must notify the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B, of such assignment, and 
must also notify the FHA Comptroller by telegram of such recordation.
    (3) Warranty of mortgagee. The assignment shall be made without 
recourse or warranty, except that the mortgagee shall warrant that:
    (i) No act or omission of the mortgagee has impaired the validity 
and priority of the mortgage.
    (ii) The mortgage is prior to all mechanics' and materialmen's liens 
filed on record subsequent to the recording of the mortgage, regardless 
of whether such liens attached prior to the recording date.
    (iii) The mortgage is prior to all liens and encumbrances which may 
have attached or defects which may have arisen subsequent to the 
recording of the mortgage, except such liens or other matters as may be 
approved by the Commissioner.
    (iv) The amount stated in the instrument of assignment is actually 
due under the mortgage and there are no offsets or counterclaims against 
such amount.
    (v) The mortgagee has a good right to assign the mortgage.
    (4) Chattel lien warranty. In assigning its security interest in 
chattels, including materials, located on the premises covered by the 
mortgage, or its security interest in building components stored either 
on-site or off-site at the time of the assignment, the mortgagee shall 
warrant that:
    (i) No act or omission of the mortgagee has impaired the validity or 
priority of the lien created by the chattel security instruments; and
    (ii) The mortgagee has a good right to assign the security 
instruments; and
    (iii) The chattel security instruments are a first lien on the items 
covered by the instruments except for such other liens or encumbrances 
as may be approved by the Commissioner.
    (5) Items delivered by mortgagee. The mortgagee shall deliver to the 
Commissioner, within 45 days after the assignment is filed for record, 
the items enumerated below:
    (i) An assignment of all claims of the mortgagee against the 
mortgagor or others arising out of the mortgage transaction.
    (ii) All policies of title or other insurance or surety bonds or 
other guaranties, and any and all claims thereunder, including evidence 
satisfactory to the Commissioner that the effective date of the original 
title coverage has

[[Page 315]]

been extended to include the assignment of the mortgage to the 
Commissioner.
    (iii) All records, ledger cards, documents, books, papers, and 
accounts relating to the mortgage transaction.
    (iv) All property of the mortgagor held by the mortgagee or to which 
it is entitled (other than the cash items which are to be retained by 
the mortgagee) pursuant to paragraph (b)(5) of this section.
    (v) Any additional information or data which the Commissioner may 
require.
    (6) Disposition of cash items. The following cash items shall either 
be retained by the mortgagee or delivered to the Commissioner in 
accordance with instructions to be issued by the Commissioner at the 
time the insurance claim is filed:
    (i) Any balance of the mortgage loan not advanced to the mortgagor.
    (ii) Any cash held by the mortgagee or its agents or to which it is 
entitled, including deposits made for the account of the mortgagor, and 
which have not been applied in reduction of the principal of the 
mortgage indebtedness.
    (iii) All funds held by the mortgagee for the account of the 
mortgagor received pursuant to any other agreement.
    (iv) The amount of any undrawn balance under a letter of credit used 
in lieu of a cash deposit.
    (c) Conveyance of title to Commissioner. If the mortgagee elects to 
acquire and convey title to the Commissioner, the following requirements 
shall be met:
    (1) Alternative actions by mortgagee. At any time within a period of 
30 days after the date of the notice of such election, the mortgagee 
shall take one of the alternative actions in paragraph (c) (2) or (3) of 
this section.
    (2) Foreclosure of mortgage. The mortgagee may elect to commence 
foreclosure proceedings. If the laws of the State where the property is 
located do not permit institution of foreclosure within such 30-day 
period, foreclosure shall be commenced not less than 30 days after such 
action can be taken. Under such proceedings, the mortgagee shall take 
one of the following actions:
    (i) Obtain possession of the mortgaged property and the income 
therefrom through the voluntary surrender thereof by the mortgagor.
    (ii) Institute and prosecute with reasonable diligence, proceedings 
for the appointment of a receiver to manage the mortgaged property and 
collect income therefrom.
    (iii) Proceed to exercise such other rights and remedies as may be 
available to it for the protection and preservation of the mortgaged 
property and to obtain the income therefrom under the mortgage and the 
law of the particular jurisdiction.
    (iv) With the prior approval of the Commissioner, exercise the power 
of sale under a deed of trust.
    (3) Acquisition of title and possession. The mortgagee, with the 
approval of the Commissioner, may elect to acquire possession of, and 
title to, the mortgaged property by means other than foreclosure. With 
the prior approval of the Commissioner, title may be transferred 
directly to the Commissioner.
    (4) Notice of foreclosure. The mortgagee shall given written notice 
to the Commissioner within 30 days after the institution of foreclosure 
proceedings and shall exercise reasonable diligence in prosecuting such 
proceedings to completion. Any developments which might delay the 
consummation of such proceedings shall be promptly reported to the 
Commissioner.
    (5) Transfer by mortgagee. After acquiring title to and possession 
of the property, the mortgagee shall (within 30 days of such 
acquisition) transfer title and possession of the property to the 
Commissioner. The transfer shall be made in such manner as the 
Commissioner may require. On the date the deed is filed for record, the 
mortgagee shall notify the Commissioner on a form prescribed by him of 
the filing of such conveyance, and shall also notify the FHA Assistant 
Commissioner-Comptroller by telegram of such recordation.
    (6) Filing of deed and application. The mortgagee shall file its 
application for insurance benefits at the time of filing for record of 
the deed conveying the property to the Commissioner.

[[Page 316]]

    (7) Deed covenants and documents. The deed conveying the property to 
the Commissioner shall contain covenants satisfactory to the 
Commissioner. The original deed shall be forwarded to the Commissioner 
as soon as received from the recording authority. The following 
documents shall be forwarded with the deed:
    (i) A bill of sale covering any personal property to which the 
mortgagee is entitled by reason of the mortgage transaction or by the 
acceptance of a deed in lieu of foreclosure.
    (ii) An assignment of all claims of the mortgagee against the 
mortgagor or others arising out of the mortgage transaction and out of 
the foreclosure proceedings or other means by which the property was 
acquired.
    (iii) An assignment of any claims on account of title insurance and 
fire or other hazard insurance, except claims which have been released 
with the prior approval of the Commissioner.
    (8) Title evidence. Evidence of title, satisfactory to the 
Commissioner and meeting the requirements of Sec.  207.258a shall be 
furnished to the Commissioner (without expense to him) within 45 days of 
the filing for record of the deed conveying the property to him.
    (9) Disposition of cash items. The provisions of paragraph (b)(4) of 
this section, relating to the retention or delivery of cash items, shall 
be applicable to cases involving the conveyance of property to the 
Commissioner.

(Information collection requirements in paragraph (b) were approved by 
the Office of Management and Budget under control number 2535-0061)

[36 FR 24537, Dec. 22, 1971, as amended at 44 FR 8195, Feb. 8, 1979; 50 
FR 38786, Sept. 25, 1985; 51 FR 27838, Aug. 4, 1986; 64 FR 4770, Jan. 
29, 1999; 76 FR 24371, May 2, 2011; 77 FR 55135, Sept. 7, 2012]



Sec.  207.258a  Title requirements.

    (a) Form of title evidence. The title evidence submitted with a 
conveyance of the property to the Commissioner shall be in the form of 
an owner's policy of title insurance, except that, if an abstract and 
attorney's opinion were accepted by the Commissioner at the time of 
insurance, the title evidence may be in such form. The title evidence 
shall be effective on or after the date of the recording of the 
conveyance to the Commissioner.
    (b) Content of title evidence. To be satisfactory to the 
Commissioner, the title evidence covering the property conveyed to him 
shall show the same title vested in the Commissioner as was vested in 
the mortgagor as of the date of the mortgage was filed for record, with 
the exception of such liens or other matters affecting the title as may 
be approved by the Commissioner.



Sec.  207.258b  Partial payment of claim.

    (a) Whenever the Commissioner receives notice under Sec.  207.258 of 
a mortgagee's intention to file an insurance claim and to assign the 
mortgage to the Commissioner, the Commissioner may request the 
mortgagee, in lieu of assignment, to accept partial payment of the claim 
under the mortgage insurance contract and to recast the mortgage, under 
such terms and conditions as the Commissioner may determine.
    (b) The Commissioner may request the mortgagee to participate in a 
partial payment of claim in lieu of assignment only after a 
determination that partial payment would be less costy to the Federal 
government than other reasonable alternatives for maintaining the low- 
and moderate-income character of the project. This determination shall 
be based upon the findings listed below and such other findings as the 
Commissioner deems appropriate:
    (1) The mortgagee is entitled, under Sec.  207.255, to assign the 
mortgage in exchange for the payment of insurance benefits;
    (2) The relief resulting from partial payment, when considered with 
other resources available to the project, would be sufficient to restore 
the financial viability of the project;
    (3) The project is, or can at reasonable cost be made, structurally 
sound;
    (4) The management of the project is satisfactory to the 
Commissioner; and
    (5) The default under the insured mortgage was beyond the control of 
the mortgagor.
    (c) Partial payment of a claim under this section shall be made only 
when:
    (1) The project is, or potentially could serve as, a low- and 
moderate-income housing resource;

[[Page 317]]

    (2) The property covered by the mortgage is free and clear of all 
liens other than the insured first mortgage and such other liens as the 
Commissioner may have approved;
    (3) The mortgagee has voluntarily agreed to accept partial payment 
of the insurance claim under the mortgage insurance contract and to 
recast the remaining mortgage amount under terms and conditions 
prescribed by the Commissioner; and
    (4) The mortgagor has agreed to repay to the Commissioner an amount 
equal to the partial payment, with the obligation secured by a second 
mortgage on the project containing terms and conditions prescribed by 
the Commissioner. The terms of the second mortgage will be determined on 
a case-by-case basis to assure that the estimated project income will be 
sufficient to cover estimated operating expenses and debt service on the 
recast insured mortgage. The Commissioner may provide for postponed 
amortization of the second mortgage.
    (d) Payment of insurance benefits under this section shall be in 
cash. The Commissioner shall waive the deduction of one percent of the 
mortgage funds advanced to the mortgagor, provided for in Sec.  
207.259(b)(2)(iv), with respect to a partial payment of a claim under 
this section. The items referred to in Sec.  207.258(b)(4) shall either 
be retained by the mortgagee or delivered to the Commissioner in 
accordance with instructions to be issued by the Commissioner with 
respect to a partial payment of claim under this section.
    (e) Lenders receiving a partial payment of claim following the 
Commissioner's endorsement of the Mortgage for full insurance under 
parts 251, 252, or 255 of this chapter, will pay HUD a fee in an amount 
set forth through Federal Register notice. HUD, in its discretion, may 
collect this fee or deduct the fee from any payment it makes in the 
claim process.

[50 FR 38786, Sept. 25, 1985, as amended at 61 FR 49037, Sept. 17, 1996]



Sec.  207.259  Insurance benefits.

    (a) Method of payment. (1) Upon either an assignment of the mortgage 
to the Commissioner or a conveyance of the property to the Commissioner 
in accordance with requirements in Sec.  207.258, payment of an 
insurance claim shall be made in cash, in debentures, or in a 
combination of both, as determined by the Commissioner either at, or 
prior to, the time of payment.
    (2) An insurance claim paid on a mortgage insured under section 
223(e) of the National Housing Act shall be paid in cash from the 
Special Risk Insurance Fund.
    (b) Amount of payment; assignment of mortgage. If the mortgage is 
assigned to the Commissioner, the insurance benefits shall be paid in an 
amount determined as follows:
    (1) By adding to the unpaid principal amount of the mortgage, 
computed as of the date of default, the following items:
    (i) The amount of all payments made by the mortgagee for taxes, 
special assessments and water rates which are liens prior to the 
mortgage; for insurance on the property; and for any mortgage insurance 
premiums paid after default.
    (ii) An allowance for reasonable payments made by the mortgagee, 
with the approval of the Commissioner, for the completion and 
preservation of the property.
    (iii) An amount equivalent to the debenture interest which would 
have been earned on the portion of the insurance benefits paid in cash, 
as of the date such cash payment is made, except that when the mortgagee 
fails to meet any one of the applicable requirements of Sec. Sec.  
207.256 and 207.258 within the specified time and in a manner 
satisfactory to the Commissioner (or within such further time as the 
Commissioner may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended.
    (2) By deducting from the total of the items computed under 
paragraph (b)(1) of this section, the following items:
    (i) Any amount received by the mortgagee on account of the mortgage 
after the date of default.
    (ii) Any net income received by the mortgagee from the property 
covered by the mortgage after the date of default.

[[Page 318]]

    (iii) The sum of the cash items retained by the mortgagee pursuant 
to Sec.  207.258(b)(6), except the balance of the mortgage loan not 
advanced to the mortgagor.
    (iv) An amount equivalent to 1 percent of the mortgage funds 
advanced to the mortgagor and not repaid as of the date of default, 
except that all or part of the 1 percent may be waived by the 
Commissioner if, at his request and in lieu of foreclosure, the mortgage 
is assigned to the Secretary.
    (v) In the case of a lender receiving insurance benefits for the 
full Mortgage amount upon the Commissioner's endorsement of the Mortgage 
for full insurance pursuant to 24 CFR parts 251, 252, or 255, the amount 
of the fee set forth through Federal Register notice. HUD may, in its 
discretion, collect this fee rather than deducting the fee from the 
total of the items computed under paragraph (b)(1) of this section.
    (vi) Except for multifamily project mortgages for which HUD issued a 
firm commitment for mortgage insurance before September 1, 2011, and for 
multifamily project mortgages insured under section 232 of the Act (12 
U.S.C. 1715w) and under section 242 of the Act (12 U.S.C. 1715z-7), when 
there is a covenant default as defined in Sec.  207.255(a)(1)(ii) and a 
mortgagee refuses to comply promptly with the Commissioner's request to 
accelerate payment pursuant to Sec.  207.257, an amount equal to the 
difference between the project's market value as of the date of the 
Commissioner's request and the project's market value as of the date the 
mortgagee makes an election to assign the mortgage, or convey title to 
the project, as determined by appraisal procedures established by the 
Commissioner.
    (vii) For multifamily project mortgages for which HUD issued a firm 
commitment for mortgage insurance on or after September 1, 2011, the 
regulations of paragraph (b)(2)(vi) of this section shall apply, unless 
the mortgagor demonstrates to the satisfaction of the Commissioner that 
financial hardship to the mortgagor would result from application of the 
regulations in paragraph (b)(2)(vi) of this section due to the 
reasonable expectations of the mortgagor that the transaction would 
close under the regulations in effect prior to September 1, 2011, in 
which case, the regulations of paragraph (b)(2)(vi) shall not apply.
    (c) Amount of payment; conveyance of property. If the property is 
conveyed to the Commissioner, the insurance benefits shall be paid in an 
amount determined in accordance with paragraph (b) of this section, 
except that the item set forth in paragraph (b)(2)(iv) of this section 
shall not be deducted.
    (d) Issuance of certificate of claim. In addition to the insurance 
benefits paid under paragraph (b) or (c) of this section, a certificate 
of claim shall be issued to the mortgagee.
    (1) In the case of an assignment of the mortgage, the certificate 
shall be for an amount which the Commissioner determines to be 
sufficient, when added to the amount of the insurance benefits to equal 
the amount the mortgagee would have received if, on the date of 
assignment to the Commissioner, the mortgagor had paid in full all 
obligations under the mortgage. Where a conveyance is involved, there 
shall also be included in the certificate an allowance in a reasonable 
amount for any necessary expenses incurred by the mortgagee in 
connection with the foreclosure proceedings or the acquisition of the 
mortgaged property otherwise and in connection with the conveyance of 
the property to the Commissioner.
    (2) The certificate of claim shall provide for an uncompounded 
annual interest increment of 3 percent to begin as of the date of either 
assignment or conveyance.
    (e) Issuance of debentures. Where debentures are issued, they shall 
meet the following requirements:
    (1) Be issued as of the date of default.
    (2) Be registered as to principal and interest.
    (3) At the option of the Commissioner and with the approval of the 
Secretary of the Treasury, be redeemable at par plus accrued interest on 
any semiannual interest payment date on 3 months' notice of redemption 
given in such manner as the Commissioner shall prescribe. The debenture 
interest on the debentures called for redemption shall cease on the 
semiannual interest

[[Page 319]]

payment date designated in the call notice. The Commissioner may include 
with the notice of redemption an offer to purchase the debentures at par 
plus accrued interest at any time during the period between the notice 
of redemption and the redemption date. If the debentures are purchased 
by the Commissioner after such call and prior to the named redemption 
date, the debenture interest shall cease on the date of purchase.
    (4) Mature 20 years from the date thereof.
    (5) Be issued in such forms and amounts; and be subject to such 
terms and conditions; and include such provisions for redemption, if 
any, as may be prescribed by the Secretary, with the approval of the 
Secretary of the Treasury; and may be in book entry or certificated 
registered form, or such other form as the Secretary by regulation may 
prescribe.
    (6) Bear interest from the date of issue, payable semiannually on 
the first day of January and the first day of July of each year at the 
rate in effect as of the date the commitment was issued, or as of the 
date of initial insurance endorsement of the mortgage, whichever rate is 
higher. The applicable rates of interest will be published twice each 
year as a notice in the Federal Register.
    (7) Debentures representing the portion of the claim applicable to 
an operating loss loan shall bear interest at the rate in effect as of 
the date the commitment to insure such loan was issued, or as of the 
date of endorsement for insurance of such loan, whichever rate is the 
higher, although debentures representing the portion of the claim 
applicable to the original mortgage may bear interest at a different 
rate.
    (f) Mortgagee Time Limits for Supplemental Claims for Additional 
Insurance Benefits. A mortgagee may not file for any additional payments 
of its mortgage insurance claim more than six months after the date of 
final settlement of the insurance claim by the Commissioner. For the 
purpose of this section, the term final settlement shall mean the 
payment of the insurance claim (in cash or debentures) or billing for 
any overpayment of a partial claim that is made by the Commissioner. 
Final settlement is based upon the submission by the mortgagee of all 
required documents and information pursuant to part 207 of this chapter.

[36 FR 24537, Dec. 22, 1971, as amended at 41 FR 45829, Oct. 18, 1976; 
47 FR 26125, June 17, 1982; 49 FR 24654, June 14, 1984; 51 FR 13142, 
Apr. 17, 1986; 51 FR 27838, Aug. 4, 1986; 57 FR 55112, Nov. 24, 1992; 59 
FR 49816, Sept. 30, 1994; 61 FR 49038, Sept. 17, 1996; 71 FR 18153, Apr. 
10, 2006; 76 FR 24371, May 2, 2011; 80 FR 51468, Aug. 25, 2015]



Sec.  207.259a  Waiver of title objection; mortgages formerly Commissioner-held.

    If the Commissioner sells a mortgage and such mortgage is later 
reassigned to him in exchange for debentures or the property covered by 
such mortgage is later conveyed to him in exchange for debentures, the 
Commissioner will not object to title by reason of any lien or other 
adverse interest that was senior to the mortgage on the date of the 
original sale of such mortgage by the Commissioner.



Sec.  207.260  Maintenance and inspection of property.

    As long as the mortgage is insured or held by the Commissioner, the 
mortgagor must maintain the insured project in accordance with the 
physical condition requirements in 24 CFR part 5, subpart G; and the 
mortgagee must inspect the project in accordance with the physical 
inspection requirements in 24 CFR part 5, subpart G.

[63 FR 46578, Sept. 1, 1998]



Sec.  207.261  Capturing excess bond proceeds.

    (a) A mortgagee that finances multifamily housing or healthcare 
facilities insured under Title II of the National Housing Act through 
the issuance and sale of bonds or bond anticipation notes and uses a 
project-specific trust indenture agreement, that clearly outlines the 
project and identifies by project the trust funds established by and 
administered in accordance with the terms of the trust indenture, shall:
    (1) Include the following clause in the trust indenture: In the 
event of an assignment or conveyance of the mortgage to the 
Commissioner, subsequent to the issuance of the bonds, all money

[[Page 320]]

remaining in all funds and accounts other than the rebate fund, and any 
other funds remaining under the trust indenture after payment or 
provision for payment of debt service on the bonds and the fees and 
expenses of the credit enhancer, issuer, trustee, and other such parties 
unrelated to the mortgagor (other than funds originally deposited by the 
mortgagor or related parties on or before the date of issuance of the 
bonds) shall be returned to the mortgagee.
    (2) Upon the Commissioner's payment of an FHA mortgage insurance 
claim under Sec.  207.259, the mortgagee shall take all legally-entitled 
actions to enforce the clause required by paragraph (a)(1) of this 
section and pay the Commissioner any trust funds remaining after 
discharge by the trustee of all obligations of the trust indenture, no 
later than 6 months after the date of the Commissioner's final 
settlement of the FHA mortgage insurance claim.
    (b) For purposes of paragraph (a) of this section, the term ``rebate 
fund'' means a separate fund established under a contract or agreement 
for tax-exempt bonds in which amounts (excess interest earnings from the 
tax-exempt bonds) must be deposited to make rebate payments to the 
federal government under the Internal Revenue Code.

[79 FR 43933, July 29, 2014]

                         Rights in Housing Fund



Sec.  207.263  Responsibility for servicing.

    After January 10, 1994, servicing of insured mortgages must be 
performed by a mortgagee which is approved by HUD to service insured 
mortgages.

[57 FR 58350, Dec. 9, 1992]

                               Amendments



Sec.  207.499  Effect of amendments.

    The regulations in this subpart may be amended by the Commissioner 
at any time and from time to time, in whole or in part, but such 
amendment shall not adversely affect the interests of a mortgagee or 
lender under the contract of insurance on any mortgage or loan already 
insured and shall not adversely affect the interests of a mortgagee or 
lender on any mortgage or loan to be insured on which the Commissioner 
has made a commitment to insure.



PART 208_ELECTRONIC TRANSMISSION OF REQUIRED DATA FOR CERTIFICATION
AND RECERTIFICATION AND SUBSIDY BILLING PROCEDURES FOR MULTIFAMILY 
SUBSIDIZED PROJECTS--Table of Contents



Sec.
208.101 Purpose.
208.104 Applicability.
208.108 Requirements.
208.112 Cost.

    Authority: 12 U.S.C. 1701s, 1715l, 1715z-1; 42 U.S.C. 1437f and 
3535(d).

    Source: 58 FR 61022, Nov. 19, 1993, unless otherwise noted.



Sec.  208.101  Purpose.

    The purpose of this part is to require owners of subsidized 
multifamily projects to electronically submit certain data to HUD for 
the programs listed in Sec.  208.104. This electronically submitted data 
is required by HUD Forms, Owner's Certification of Compliance with 
Tenant's Eligibility and Rent Procedure, Worksheets to Compute Tenant 
Payment/Rent (Form HUD-50059 and 50059 Worksheets), and the Monthly 
Subsidy Billing Forms, Housing Owner's Certification and Application for 
Housing Assistance Payments (HUD-52670), Schedule of Tenant Assistance 
Payments Due (HUD-52670A, Part 1), Schedule of section 8 Special Claims 
(HUD-52670A, Part 2), and Special Claims Worksheets, HUD-52671 A through 
D), as applicable.



Sec.  208.104  Applicability.

    (a) This part applies to HUD administered subsidized multifamily 
projects, either insured or non-insured, under:
    (1) The section 236 Interest Reduction and Rental Assistance 
Payments program;
    (2) The section 8 Housing Assistance Payments Programs, including, 
but not limited to, section 8 Housing Assistance Payments Programs for 
New Construction (24 CFR part 880), section 8 Housing Assistance 
Payments Program for Substantial Rehabilitation (24 CFR part 881), 
section 8 Housing Assistance Payments Program, New Construction

[[Page 321]]

Set-Aside for section 515 Rural Rental Housing Projects (24 CFR part 
884); Loans for Housing for the Elderly or Handicapped (24 CFR part 885) 
and section 8 Loan Management and Property Disposition Set-aside program 
(24 CFR part 886);
    (3) The section 221(d)(3) Below Market Interest Rate Housing for Low 
and Moderate Income Mortgage Insurance program (24 CFR part 221); and
    (4) The section 101 Rent Supplement program (24 CFR part 215).
    (b) This part applies to those multifamily projects having subsidy 
contracts, either insured or non-insured, where State housing finance 
and development agencies and other Public Housing Agencies are the 
subsidy contract administrator under:
    (1) The section 236 Interest Reduction and Rental Assistance 
Payments program (24 CFR part 236);
    (2) The section 8 Housing Assistance Payments Programs, including, 
but not limited to, section 8 Housing Assistance Payments Program for 
New Construction (24 CFR part 880), section 8 Housing Assistance 
Payments Program for Substantial Rehabilitation (24 CFR part 881), and 
section 8 Housing Assistance Payments Program, New Construction Set-
Aside for section 515 Rural Rental Housing Projects (24 CFR part 884);
    (3) The section 221(d)(3) Below Market Interest Rate Housing for Low 
and Moderate Income Mortgage Insurance Program (24 CFR part 221); and
    (4) The section 101 Rent Supplement program (24 CFR part 215).
    (c) This part applies to all other subsidized section 202 projects, 
which include: section 202 projects with rent supplement or loan 
management set aside, section 202 projects with section 162 assistance, 
and section 202 Supportive Housing for the Elderly. This part also 
applies to section 811 Supportive Housing for Persons With Disabilities.
    (d) This part does not apply to the section 8 Existing Housing 
Program or the Moderate Rehabilitation program.



Sec.  208.108  Requirements.

    (a) Projects specified in Sec.  208.104(a) that are automated. 
Project owners of applicable projects under Sec.  208.104(a) who 
currently use an automated software package to process certifications 
and recertifications and to provide subsidy billings to HUD must update 
their software packages and begin electronic transmission of that data 
in a HUD specified format by March 21, 1994. These project owners are 
required to transmit data collected for the 12 months preceding March 
21, 1994, as well as data collected on or after this date. Data 
collected for the 12 months preceding March 21, 1994, is to include only 
the tenant's most recent ``complete certification'' (move-in, initial 
certification, interim recertification, or annual recertification). When 
the most recent certification for a tenant is a partial certification 
(gross rent change, unit transfer, or correction), both the complete and 
partial certifications must be transmitted.
    (b) Projects specified in Sec.  208.104(a) that are not automated. 
Nonautomated project owners and agents (those owners and agents that 
currently prepare the certification, recertification, and subsidy 
billing forms manually) of applicable projects under Sec.  208.104(a) 
must:
    (1) Complete the search and either obtain the necessary hardware or 
software, or sign service contracts;
    (2) Complete their data loading; and
    (3) Begin electronic transmission by May 20, 1994. These project 
owners are required to transmit data collected for the 12 months 
preceding May 20, 1994, as well as data collected on or after this date. 
Data collected for the 12 months preceding May 20, 1994, is to include 
only the tenant's most recent ``complete certification'' (move-in, 
initial certification, interim recertification, or annual 
recertification). When the most recent certification for a tenant is a 
partial certification (gross rent change, unit transfer, or correction), 
both the complete and partial certifications must be transmitted.
    (c) Projects specified in Sec.  208.104(b)--(1) Project owners. 
Project owners of applicable projects under Sec.  208.104(b) must 
electronically transmit data for certification, recertification and 
subsidy billing procedures in a HUD specified format to the contract 
administrator. These project owners are required to transmit data 
collected for the 12

[[Page 322]]

months preceding September 23, 1994, as well as data collected on or 
after that date. Data collected for the 12 months preceding September 
23, 1994 is to include only the tenant's most recent ``complete 
certification'' (move-in, initial certification, interim 
recertification, or annual recertification). When the most recent 
certification for a tenant is a partial certification (gross rent 
change, unit transfer, or correction), both the complete and partial 
certifications must be transmitted.
    (2) Contract administrators. State housing finance and development 
agencies and Public Housing Agencies that serve as the subsidy contract 
administrator must accept the electronic transmission of the HUD forms 
listed below in Sec.  208.108(e) from the projects they administer, and 
electronically transmit that data to HUD in a HUD specified format after 
appropriate review and correction of the data.
    (d) Projects specified in Sec.  208.104(c). Project owners of 
applicable projects under Sec.  208.104(c) must electronically transmit 
data for certification, recertification and subsidy billing procedures 
to HUD in a HUD specified format. In the case of partially assisted 
section 202 projects, owners are required to electronically transmit 
data only for subsidized units. These project owners are required to 
transmit data collected for the 12 months preceding the effective date 
of the rule, as well as data collected on or after the effective date of 
the rule. Data collected for the 12 months preceding September 23, 1994 
is to include only the tenant's most recent ``complete certification'' 
(move-in, initial certification, interim recertification, or annual 
recertification). When the most recent certification for a tenant is a 
partial certification (gross rent change, unit transfer, or correction), 
both the complete and partial certifications must be transmitted.
    (e) Data to be transmitted. Electronic transmission consists of data 
transmitted from the HUD-50059, 50059 worksheets, 52670 and 52670A, 
Parts 1 and 2 and 52671 A through D correctly formatted in accord with 
the HUD data requirements and in lieu of the hard copy forms.

[58 FR 61022, Nov. 19, 1993, as amended at 59 FR 43474, Aug. 24, 1994]



Sec.  208.112  Cost.

    (a) The costs of the electronic transmission of the correctly 
formatted data, including either the purchase and maintenance of 
computer hardware or software, or both, the cost of contracting for 
those services, or the cost of centralizing the electronic transmission 
function, shall be considered project operating costs to be paid from 
project income, and considered project operating costs for the purpose 
of processing and approving requests for HUD approval of rent increases.
    (b) At the owner's option, the cost of the computer software may 
include service contracts to provide maintenance or training, or both. 
Regardless of whether an owner obtains service contracts to provide 
maintenance or training or both, the software must be updated to 
incorporate changes or revisions in legislation, regulations, handbooks, 
notices or HUD electronic transmission data format requirements.
    (c) The source of funds for the purchase of hardware or software, or 
contracting for services for electronic transmission, may include 
current project operating income; an expense item in processing rent 
increases; a loan from the Reserve for Replacement Account, or a release 
from the Residual Receipts Account.
    (d) A loan from the Reserve for Replacements Account must be repaid 
within a five year period from the release date.
    (e) Owners of smaller projects or partially assisted projects with 
few subsidized units and CAs that administer no more than one project 
that determine that the purchase of hardware and/or software is not cost 
effective may contract out the electronic data transmission function to 
organizations that provide such services, including, but not limited to 
the following organizations: local management agents, local management 
associations and management agents with centralized facilities. Owners 
of multiple projects may centralize the electronic transmission 
function. However, owners that contract out or centralize the electronic 
transmission function are required to retain the ability to monitor the 
day-to-day operations of the project at the project site and be able

[[Page 323]]

to demonstrate that ability to the relevant HUD field office.

[58 FR 61022, Nov. 19, 1993, as amended at 59 FR 43475, Aug. 24, 1994]



PART 213_COOPERATIVE HOUSING MORTGAGE INSURANCE--Table of Contents



               Subpart A_Eligibility Requirements_Projects

Sec.
213.1 Eligibility requirements.

           Subpart B_Contract Rights and Obligations_Projects

213.251 Cross-reference.
213.252 Definitions.
213.253 Premiums upon initial endorsement.
213.254 Premiums where first principal payment more than one year after 
          initial endorsement.
213.255 Premiums where first principal payment one year or less after 
          initial endorsement.
213.256 Premiums; insurance upon completion.
213.257 Premiums; purchasing cooperatives; Existing Construction, 
          supplementary loans to purchase existing community facility.
213.258 Subsequent annual premiums.
213.259 Computation of subsequent annual premiums.
213.259a Premiums--mortgages insured pursuant to Section 238(c) of the 
          Act.
213.260 Allowable methods of premium payment.
213.265 Modifications and consolidations.
213.266 Initial insurance endorsement.
213.266a Insurance fund obligations.
213.267 Effect of insurance endorsement.
213.268 Final insurance endorsement.
213.269 Endorsement of supplementary loans.
213.270 Supplementary loans; election of action; claims; debentures.

    Cooperative Management Housing Insurance and Distributive Shares

213.275 Nature of the Cooperative Management Housing Insurance Fund.
213.276 Allocation of Cooperative Management Housing Insurance Fund 
          income or losses.
213.277 Right and liability under the Cooperative Management Housing 
          Insurance Fund.
213.278 Distribution of distributive share.
213.279 Maximum amount of distributive share.
213.280 Finality of determination.

Subpart C_Individual Properties Released From Project Mortgage; Expiring 
                                 Program

213.501 Savings clause.

    Authority: 12 U.S.C. 1715b, 1715e; 42 U.S.C. 3535(d).

    Source: 36 FR 24553, Dec. 22, 1971, unless otherwise noted.



               Subpart A_Eligibility Requirements_Projects



Sec.  213.1  Eligibility requirements.

    The eligibility requirements set forth in 24 CFR part 200, subpart 
A, apply to multifamily project mortgages insured under section 213 of 
the National Housing Act (12 U.S.C. 1715e), as amended.

[61 FR 14405, Apr. 1, 1996]



           Subpart B_Contract Rights and Obligations_Projects



Sec.  213.251  Cross-reference.

    (a) All of the provisions of subpart B, part 207 of this chapter 
covering mortgages insured under section 207 of the National Housing 
Act, apply with full force and effect to mortgages insured under section 
213 of the National Housing Act, except the following provisions:

Sec.
207.251 Definitions.
207.252 First, second, and third premiums.
207.254 Form of endorsement.

    (b) For the purposes of this subpart, all references in part 207 of 
this chapter to section 207 of the National Housing Act shall be deemed 
to refer to section 213 of the Act, and all references in part 207 of 
this chapter to the General Insurance Fund shall be deemed to refer to 
the Cooperative Management Housing Insurance Fund in cases involving 
mortgages which are the obligation of the Cooperative Management Housing 
Insurance Fund.
    (c) The provisions of Sec. Sec.  207.255, 207.256, 207.257, 207.261, 
207.262 and 207.263 of this chapter shall apply to supplementary loans 
insured under section 213(j) of the Act. In connection with the 
foregoing provisions the terms mortgagor, mortgagee, mortgage shall be 
construed to

[[Page 324]]

mean borrower, lender, and supplementary loan, including required 
security instrument.
    (d) Where the provisions of this subpart are applicable to 
supplementary loans, the terms mortgagor, mortgagee, mortgage, shall be 
construed to mean borrower, lender, and supplementary loan, including 
required security instrument.
    (e) Where the provisons of this subpart are applicable to operating 
loss loans, the terms mortgagor, mortgagee and mortgage shall be 
construed to mean borrower, lender and operating loss loan, including 
required security instrument, respectively.

[36 FR 24553, Dec. 22, 1971, as amended at 37 FR 8662, Apr. 29, 1972]



Sec.  213.252  Definitions.

    The definitions contained in Sec.  213.1 shall apply to this subpart 
and in addition the following terms shall have the meaning indicated.
    (a) Contract of Insurance means the agreement evidenced by 
endorsement of the credit instrument by the Commissioner or his duly 
authorized representative and includes the terms, conditions and 
provisions of this subpart and of the National Housing Act.
    (b) Insured mortgage means a mortgage which has been insured by the 
endorsement of the credit instrument by the Commissioner.
    (c) Mortgage means such a first lien upon real estate and other 
property as is commonly given to secure advances on, or the unpaid 
purchase price of, real estate under the laws of the State, district or 
territory in which the real estate is located, together with the credit 
instrument or instruments, if any, secured thereby. In any instance 
where an operating loss loan is involved, the term shall include both 
the original mortgage and the instrument securing the operating loss 
loan.
    (d) Mortgagee means the original lender under a mortgage, its 
successors and such of its assigns as are approved by the Commissioner, 
and includes the holders of the credit instruments issued under a trust 
indenture, mortgage or deed of trust pursuant to which such holders act 
by and through a trustee therein named.
    (e) Mortgagor means the original borrower under a mortgage and its 
successors and such of its assigns as are approved by the Commissioner.
    (f) Project Mortgage means a blanket mortgage insured under section 
213 of the Act, covering a group of not less than five single-family 
dwellings.



Sec.  213.253  Premiums upon initial endorsement.

    (a) Management and Sales Types and Investor Sponsored Projects. The 
mortgagee, upon the initial endorsement of the mortgage for insurance, 
shall pay to the Commissioner a first mortgage insurance premium equal 
to one-half of one percent of the original face amount of the mortgage.
    (b) Purchasing cooperatives. The provisions of paragraph (a) of this 
section do not apply to the mortgage or a purchasing nonprofit 
cooperative housing corporation or trust where such mortgage is endorsed 
for insurance pursuant to the sale of an Investor Sponsored Project to 
such purchasing nonprofit cooperative housing corporation or trust.
    (c) Existing Construction. The provisions of paragraph (a) of the 
section shall apply to a mortgage covering Existing Construction which 
involves insurance of advances for Commissioner approved or required 
repairs, improvements, alterations and additions.
    (d) Operating loss loans and supplementary loans. The provisions of 
paragraph (a) of this section shall apply to any operating loss loan and 
to any supplementary loan, except a supplementary loan to finance the 
acquisition of an existing community facility.



Sec.  213.254  Premiums where first principal payment more than one
year after initial endorsement.

    (a) Management and Sales Types and Investor Sponsored Projects. (1) 
If the date of the first principal payment is more than one year 
following the date of such initial insurance endorsement, the mortgagee, 
upon the anniversary of such insurance date, shall pay a second premium 
equal to one-half of one percent of the original face amount of the 
mortgage. On the date of the first principal payment, the mortgagee 
shall pay a third premium equal to one-half of

[[Page 325]]

one percent of the average outstanding principal obligation of the 
mortgage for the following year which shall be adjusted so as to accord 
with such date and so that the aggregate of the first, second and third 
premiums shall equal the sum of:
    (i) One percent of the average outstanding principal obligation of 
the mortgage for the year following the date of initial insurance 
endorsement, and
    (ii) One-half of one percent per annum of the average outstanding 
principal obligation of the mortgage for the period from the first 
anniversary of the date of initial insurance endorsement to one year 
following the date of the first principal payment.
    (2) If the date of the first principal payment of a mortgage is more 
than one year following the date of the initial insurance endorsement 
and the mortgage is paid in full prior to the date of such first 
principal payment, the first and second premiums collected shall be 
adjusted so that the aggregate of the two premiums shall equal the sum 
of:
    (i) One percent of the average outstanding principal obligation of 
the mortgage for the year following the date of the initial insurance 
endorsement and
    (ii) One-half of one percent per annum of the average outstanding 
principal obligation of the mortgage for the period from the first 
anniversary of the date of initial endorsement to the date the mortgage 
was paid in full.
    (b) Purchasing cooperatives. The provisions of paragraph (a) of this 
section do not apply to the mortgage of a purchasing nonprofit 
cooperative housing corporation or trust where such mortgage is endorsed 
for insurance pursuant to the sale of an Investor Sponsored Project to 
such purchasing nonprofit cooperative housing corporation or trust.
    (c) Existing Construction. The provisions of paragraph (a) of this 
section shall apply to a mortgage covering Existing Construction which 
involves insurance of advances for Commissioner approved or required 
repairs, improvements, alterations and additions.
    (d) Supplementary loan; insurance of advances. The provisions of 
paragraph (a) shall apply to any supplementary loan involving insurance 
of advances.



Sec.  213.255  Premiums where first principal payment one year or less
after initial endorsement.

    (a) Management and Sales Types and Investor Sponsored Projects. (1) 
If the date of the first principal payment is one year, or less than one 
year following the date of such initial insurance endorsement, the 
mortgagee, upon such first principal payment date, shall pay a second 
premium equal to one-half of one percent of the average outstanding 
principal obligation of the mortgage for the following year which shall 
be adjusted so as to accord with such date and so that the aggregate of 
the first and second premiums shall equal the sum of
    (i) One percent per annum of the average outstanding principal 
obligation of the mortgage for the period from the date of initial 
insurance endorsement to the date of first principal payment, and
    (ii) One-half of one percent of the average outstanding principal 
obligation of the mortgage for the year following the date of the first 
principal payment.
    (2) If the date of the first principal payment of a mortgage is one 
year or less than one year following the date of the initial insurance 
endorsement and the mortgage is paid in full prior to the date of such 
first principal payment, the first and only premium collected shall be 
adjusted so that the total premium shall equal one percent per annum of 
the average outstanding principal obligation of the mortgage for the 
period from the date of initial insurance endorsement to the date the 
mortgage was paid in full.
    (b) Purchasing cooperatives. The provisions of paragraph (a) of this 
section do not apply to the mortgage of a purchasing nonprofit 
cooperative housing corporation or trust where such mortgage is endorsed 
for insurance pursuant to the sale of an Investor Sponsored Project to 
such purchasing nonprofit cooperative housing corporation or trust.
    (c) Existing Construction. The provisions of paragraph (a) of this 
section

[[Page 326]]

shall apply to a mortgage covering Existing Construction which involves 
insurance of advances for Commissioner approved or required repairs, 
improvements, alterations and additions.
    (d) Supplementary loan; insurance of advances. The provisions of 
paragraph shall apply to a supplementary loan involving insurance of 
advances.



Sec.  213.256  Premiums; insurance upon completion.

    (a) Management and Sales Types and Investor Sponsored Projects. (1) 
Where the mortgage is initially and finally endorsed for insurance 
pursuant to a Commitment to Insure Upon Completion, the mortgagee on the 
date of the first principal payment shall pay a second premium equal to 
one-half of one percent of the average outstanding principal obligation 
of the mortgage for the year following such first principal payment date 
which shall be adjusted so as to accord with such date and so that the 
aggregate of the first and second premiums shall equal the sum of one-
half of one percent per annum of the average outstanding principal 
obligation of the mortgage for the period from the date of the insurance 
endorsement to one year following the date of the first principal 
payment.
    (2) Where the mortgage is initially and finally endorsed for 
insurance pursuant to a Commitment to Insure Upon Completion and is paid 
in full prior to the date of the first principal payment, the first and 
only premium collected shall be adjusted so that the total premium shall 
equal one-half of one percent per annum of the average outstanding 
principal obigation of the mortgage for the period from the date of the 
insurance endorsement to the date the mortgage was paid in full.
    (b) Purchasing cooperatives. The provisions of paragraph (a) of this 
section do not apply to the mortgage of a purchasing nonprofit 
cooperative housing corporation or trust where such mortgage is endorsed 
for insurance pursuant to the sale of an Investor Sponsored Project to 
such purchasing nonprofit cooperative housing corporation or trust.
    (c) Existing Construction. The provisions of paragraph (a) of this 
section shall apply to Existing Construction not involving insurance of 
advances but involved Commissioner approved or required repairs, 
improvements, alterations and additions.
    (d) Supplementary loans; Commitment to Insure Upon Completion. The 
provisions of paragraphs (a) and (b) of this section shall apply to a 
supplementary loan endorsed for insurance pursuant to a Commitment to 
Insure Upon Completion.



Sec.  213.257  Premiums; purchasing cooperatives; Existing Construction;
supplementary loans to purchase existing community facility.

    (a) Where a mortgage is endorsed for insurance pursuant to the sale 
of an Investor Sponsor Project or covers Existing Construction not 
involving Commissioner approved or required repairs, improvements, 
alterations and additions, the mortgagee, on the date of the insurance 
endorsement, shall pay a first premium equal to one-half of one percent 
of the principal obligation of the mortgage for the period from the date 
of the insruance endorsement to one year following the date of the first 
principal payment. On the anniversary of the first principal payment, 
this first premium shall be adjusted to equal one-half of one percent of 
the average outstanding principal obligation of the mortgage for the 
period from the date of the insurance endorsement to one year following 
the date of the first principal payment.
    (b) The premium provisions of paragraph (a) of this section shall 
apply to a supplementary loan to purchase an existing community 
facility.



Sec.  213.258  Subsequent annual premiums.

    (a) Until the mortgage is paid in full or until receipt by the 
Commissioner of an application for insurance benefits, or until the 
contract of insurance is otherwise terminated with the consent of the 
Commissioner, the mortgagee, on each anniversary of the date of the 
first principal payment, shall pay an annual mortgage insurance premium 
equal to one-half of one percent of the

[[Page 327]]

average outstanding principal obligation of the mortgage for the year 
following the date on which such premium becomes payable.
    (b) The provisions of paragraph (a) of this section shall apply to 
operating loss loans and to supplementary loans.



Sec.  213.259  Computation of subsequent annual premiums.

    The premiums payable on and after the date of the first principal 
payment shall be calculated in accordance with the amortization 
provisions without taking into account delinquent payments or 
prepayments.



Sec.  213.259a  Premiums--mortgages insured pursuant to section 238(c)
of the Act.

    All of the provisions of Sec. Sec.  213.253 through 213.259 
governing mortgage insurance premiums shall apply to mortgages insured 
under this subpart pursuant to section 238(c) of the Act, except that 
all mortgage insurance premiums due on such mortgages in accordance with 
Sec. Sec.  213.253 through 213.259 shall be calculated on the basis of 
one percent.

[42 FR 59675, Nov. 18, 1977]



Sec.  213.260  Allowable methods of premium payment.

    Premiums shall be payable in cash or in debentures at par plus 
accrued interest. All premiums are payable in advance and no refund can 
be made of any portion thereof except as hereinafter provided in this 
part.



Sec.  213.265  Modifications and consolidations.

    Where a mortgage covering an investor sponsored project is modified 
and consolidated with the mortgage of a purchasing nonprofit cooperative 
housing corporation or trust, it shall be deemed to be paid in full as 
of the date of such modification and consolidation.

[37 FR 8662, Apr. 29, 1972]



Sec.  213.266  Initial insurance endorsement.

    The Commissioner shall indicate his insurance of the mortgage or 
supplementary loan by endorsing the original credit instrument and 
identifying the section of the Act and the regulations under which the 
mortgage or supplementary loan is insured and the date of insurance.



Sec.  213.266a  Insurance fund obligations.

    A mortgage endorsed for insurance under section 213 of the Act shall 
be the obligation either of the Cooperative Management Housing Insurance 
Fund or of the General Insurance Fund. The determination of the 
applicable fund shall be governed by the following:
    (a) A mortgage insured under section 213(a)(1) of the Act or under 
section 213(a)(3) if the project has been acquired by a cooperative 
corporation or under section 213 (i) or (j) shall be the obligation of 
the Cooperative Management Housing Insurance Fund, where it has been 
insured pursuant to a commitment issued on or after August 10, 1965, or 
insured pursuant to a commitment issued prior to such date, and 
transferred to the Cooperative Management Housing Insurance Fund.
    (b) A mortgage insured under section 213(a)(2) of the Act or under 
section 213(a)(3) where the project has not been acquired by a 
cooperative corporation shall be the obligation of the General Insurance 
Fund. A mortgage insured prior to August 10, 1965, or insured pursuant 
to a commitment issued prior to such date, where the project has not 
been transferred to the Cooperative Management Housing Insurance Fund, 
shall also be the obligation of the General Insurance Fund.



Sec.  213.267  Effect of insurance endorsement.

    From the date of initial endorsement, the Commissioner and the 
mortgagee or lender shall be bound by the provisions of this subpart to 
the same extent as if they had executed a contract including the 
provisions of this subpart and the applicable sections of the Act.



Sec.  213.268  Final insurance endorsement.

    When all advances of mortgage or loan proceeds have been made and 
all the terms and conditions of the commitment have been complied with 
to the satisfaction of the Commissioner, he shall indicate on the 
original credit

[[Page 328]]

instrument the total of all advances he has approved for insurance and 
again endorse such instrument.



Sec.  213.269  Endorsement of supplementary loans.

    The provisions of Sec. Sec.  213.266, 213.267, and 213.268 shall 
apply to supplementary loans.



Sec.  213.270  Supplementary loans; election of action; claims;
debentures.

    (a) Election of action. Where a real estate mortgage, deed of trust, 
conditional sales contract, chattel mortgage, lien, judgement, or any 
other security device has been used to secure the payment of a loan made 
under the provisions of this section, the lender may not, except with 
the approval of the Commissioner, both proceed against such security and 
also make claim under its contract of insurance, but shall elect which 
method it desires to pursue.
    (b) Maximum claim period. Notice of intention to file claim on a 
form prescribed by the Commissioner shall be filed within 45 days after 
the lender becomes eligible for the benefits of the loan insurance, or 
within such later time as may be agreed upon by the Commissioner in 
writing.
    (c) Items to be filed on submitting claim. Within 30 days after the 
filing of the notice of intention to file claim, or within such further 
period as may be agreed upon by the Commissioner in writing, the lender 
shall file with the Commissioner:
    (1) The fiscal data pertaining to the loan transaction;
    (2) Receipts covering all disbursements as required by the fiscal 
data form;
    (3) The original note and any security instrument or instruments 
which shall be assigned to the Commissioner without recourse or 
warranty, except that the lender must warrant that no act or omission of 
the lender has impaired the validity and priority of such security 
instrument or instruments, that the security instrument or instruments, 
are prior to all mechanics' and materialmen's liens filed of record 
subsequent to the recording of such security instrument or instruments 
regardless of whether such liens attached prior to such recording date, 
and prior to all liens and encumbrances which may have attached or 
defects which may have arisen subsequent to the recording of such 
security instrument or instruments, except such liens or other matters 
as may be approved by the Commissioner, that the amount stated in the 
instrument of assignment is actually due and owing under the security 
instrument or instruments, that there are no offsets or counterclaims 
thereto, and that the lender has a good right to assign such note and 
security instrument or instruments;
    (4) All hazard insurance policies held on property serving as 
security for the loan or other evidence of insurance coverage acceptable 
to the Commissioner, together with a copy of the lender's notification 
to the carrier authorizing the amendment of the loss payable clause 
substituting the Commissioner as the holder of the security instrument;
    (5) The assignment to the Commissioner of all rights and interests 
arising under the note and security instrument or instruments so in 
default, and all claims of the lender against the borrower or others 
arising out of the loan transaction;
    (6) All policies of title or other insurance or surety bonds, or 
other guarantees and any and all claims thereunder; including evidence 
satisfactory to the Commissioner that the original title coverage has 
been extended to include the assignment of the note and the security 
instrument or instruments to the Commissioner;
    (7) Any balance of the loan not advanced to the borrower;
    (8) Any cash or property held by the lender or its agents or to 
which it is entitled; including deposits made for the account of the 
borrower and which have not been applied in reduction of the principal 
obligation under the note and security instrument or instruments;
    (9) All records, ledger cards, documents, books, papers and accounts 
relating to the loan transaction;
    (10) Any additional information or data which the Commissioner may 
require.

[[Page 329]]

    (d) Claim computation. Upon an acceptable assignment of the note and 
security instrument, the Commissioner shall pay the claim of the lender 
in cash, in debentures or in a combination of both, as determined by the 
Commissioner at the time of payment. The payment shall be in an amount 
equal to the unpaid principal balance of the supplementary loan plus:
    (1) Any accrued interest due on the supplementary loan as of the 
date of execution of its assignment to the Commissioner;
    (2) Any advance made previously under the provisions of the loan 
instrument and approved by the Commissioner;
    (3) Reimbursement for such reasonable collection costs, court costs, 
and attorney's fees as may be approved by the Commissioner;
    (4) An amount equivalent to the debenture interest which would have 
been earned on the portion of the insurance benefits paid in cash, as of 
the date such cash payment is made, except that when the lender fails to 
meet any one of the applicable requirements of paragraphs (b) and (c) of 
this section within the specified time and in a manner satisfactory to 
the Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (e) Debenture interest. The debentures shall bear interest as 
provided in Sec.  207.259(e)(6) of this chapter.
    (f) Maturity of debentures. Debentures shall mature 20 years from 
the date of issue.
    (g) Registration of debentures. Debentures shall be registered as to 
principal and interest.
    (h) Denomination of debentures. Debentures shall be issued in 
multiples of $50 and any difference not in excess of $50 between the 
amount of debentures to which the lender is otherwise entitled hereunder 
and the aggregate face value of the debentures issued shall be paid in 
cash by the Commissioner to the lender.
    (i) Redemption of debentures. Debentures shall, at the option of the 
Commissioner and with the approval of the Secretary of the Treasury, be 
redeemable at par plus accrued interest on any semiannual interest 
payment date on 3 months' notice of redemption given in such manner as 
the Commissioner shall prescribe. The debenture interest on the 
debentures called for redemption shall cease on the semiannual interest 
payment date designated in the call notice. The Commissioner may include 
with the notice of redemption an offer to purchase the debentures at par 
plus accrued interest at any time during the period between the notice 
of redemption and the redemption date. If the debentures are purchased 
by the Commissioner after such call and prior to the named redemption 
date, the debenture interest shall cease on the date of purchase.
    (j) Issue date of debentures. The debentures shall be issued as of 
the date of the execution of the assignment of the supplementary loan in 
accordance with the requirements of paragraph (c)(3) of this section.

    Cooperative Management Housing Insurance and Distributive Shares



Sec.  213.275  Nature of the Cooperative Management Housing Insurance
Fund.

    The Cooperative Management Housing Insurance Fund shall consist of 
the General Surplus Account and the Participating Reserve Account.



Sec.  213.276  Allocation of Cooperative Management Housing Insurance
Fund income or losses.

    For any semiannual period in which Cooperative Management Housing 
Insurance Fund operations shall result in a net income, or loss, the 
Commissioner shall allocate such net income or such loss to the General 
Surplus Account, to the Participating Reserve Account, or to both, as he 
may determine to be in accordance with sound actuarial and accounting 
practice. In determining net income or loss, the Commissioner shall take 
into consideration all income received from fees, premiums, and earnings 
on investments of the Fund, operating expenses, and provision for losses 
of the Fund.

[[Page 330]]



Sec.  213.277  Right and liability under the Cooperative Management
Housing Insurance Fund.

    No mortgagor or mortgagee shall have any vested right in a credit 
balance in either the General Surplus Account or the Participating 
Reserve Account. No mortgagor or mortgagee shall be subject to any 
liability arising under the mutuality of the Cooperative Management 
Housing Insurance Fund.



Sec.  213.278  Distribution of distributive share.

    When the contract of insurance is terminated by reason of payment in 
full of the mortgage or by voluntary termination approved by the 
Commissioner, and at such time or times prior to such termination as the 
Commissioner may approve, the Commissioner may distribute to a mortgagor 
under a mortgage that is the obligation of the Cooperative Management 
Housing Insurance Fund a share of the Participating Reserve Account in 
such manner and amount as he shall determine to be equitable and in 
accordance with sound actuarial and accounting practice.



Sec.  213.279  Maximum amount of distributive share.

    In no event shall a distributive share of the Participating Reserve 
Account exceed the aggregate paid scheduled annual premiums of the 
mortgagor paid to the year of termination of the insurance or to the 
year of payment of the share, if paid prior to termination.



Sec.  213.280  Finality of determination.

    The determination of the Commissioner as to the amount to be paid to 
any mortgagor from the Cooperative Management Housing Insurance Fund 
shall be final and conclusive.



Subpart C_Individual Properties Released From Project Mortgage; Expiring 
                                 Program



Sec.  213.501  Savings clause.

    No new loans are being insured under the Cooperative Housing 
Mortgage Insurance Program for individual properties released from a 
project mortgage. Any existing insured loans on individual properties 
released from a project mortgage under this program will continue to be 
governed by the regulations on eligibility requirements, contract rights 
and obligations, and servicing responsibilities in effect as they 
existed immediately before December 26, 1996.

[61 FR 60160, Nov. 26, 1996]



PART 214_HOUSING COUNSELING PROGRAM--Table of Contents



                 Subpart A_General Program Requirements

Sec.
214.1 Purpose.
214.3 Definitions.

    Subpart B_Approval and Disapproval of Housing Counseling Agencies

214.100 General.
214.103 Approval criteria.
214.105 Preliminary application process.
214.107 Approval by HUD.
214.109 Disapproval by HUD.

           Subpart C_Inactive Status, Termination, and Appeals

214.200 Inactive status.
214.201 Termination of HUD-approved status and grant agreements.
214.203 Re-approval or removal as a result of a performance review.
214.205 Appeals.

                    Subpart D_Program Administration

214.300 Counseling services.
214.303 Performance criteria.
214.305 Agency profile changes.
214.307 Performance review.
214.309 Reapproval and disapproval based on performance review.
214.311 Housing counseling grant funds.
214.313 Housing counseling fees.
214.315 Recordkeeping.
214.317 Reporting.

                  Subpart E_Other Federal Requirements

214.500 Audit.
214.503 Other requirements.

    Authority: 12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 3535(d).

    Source: 72 FR 55648, Sept. 28, 2007, unless otherwise noted.

[[Page 331]]



                 Subpart A_General Program Requirements



Sec.  214.1  Purpose.

    This part implements the Housing Counseling Program authorized by 
section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 
1701x). Section 106 authorizes HUD to make grants to, or contract with, 
public or private organizations to provide a broad range of housing 
counseling services to homeowners and tenants to assist them in 
improving their housing conditions and in meeting the responsibilities 
of tenancy or homeownership. Section 106 also directs HUD to provide 
housing counseling services only through agencies or individuals that 
have been certified by HUD as competent to provide such services. The 
regulations contained in this part prescribe the procedures and 
requirements by which the Housing Counseling Program will be 
administered, including the process by which agencies are approved and 
individuals will be certified to provide the homeownership and rental 
counseling, as defined by section 106. These regulations apply to all 
agencies participating in HUD's Housing Counseling Program, and to all 
organizations or entities that deliver housing counseling, including 
homeownership counseling or rental housing counseling, required under or 
provided in connection with HUD programs.

[81 FR 90657, Dec. 14, 2016]



Sec.  214.3  Definitions.

    The following definitions apply throughout this part:
    Action plan. A plan that outlines what the housing counseling agency 
and the client will do in order to meet the client's housing goals and, 
when appropriate, addresses the client's housing problem(s).
    Affiliate. A nonprofit organization participating in the HUD-related 
Housing Counseling program of a regional or national intermediary, or 
state housing finance agency. The affiliate organization is incorporated 
separately from the regional or national intermediary or state housing 
finance agency. An affiliate is:
    (1) Duly organized and existing as a tax-exempt nonprofit 
organization;
    (2) In good standing under the laws of the state of the 
organization; and
    (3) Authorized to do business in the states where it proposes to 
provide housing counseling services.
    Branch or branch office. An organizational and subordinate unit of a 
local housing counseling agency, multi-state organization, regional or 
national intermediary, or state housing finance agency not separately 
incorporated or organized, that participates in HUD's Housing Counseling 
program. A branch or branch office must be in good standing under the 
laws of the state where it proposes to provide housing counseling 
services. A branch or branch office cannot be a subgrantee or affiliate.
    Clients. Individuals or households who seek the assistance of an 
agency participating in HUD's Housing Counseling program to meet a 
housing need or resolve a housing problem.
    Counseling. Counselor to client assistance that addresses unique 
financial circumstances or housing issues and focuses on ways of 
overcoming specific obstacles to achieving a housing goal such as 
repairing credit, addressing a rental dispute, purchasing a home, 
locating cash for a down payment, being informed of fair housing and 
fair lending requirements of the Fair Housing Act, finding units 
accessible to persons with disabilities, avoiding foreclosure, or 
resolving a financial crisis. Except for reverse mortgage counseling, 
all counseling shall involve the creation of an action plan.
    Education. Formal classes, with established curriculum and 
instructional goals provided in a group or classroom setting, covering 
topics applicable to groups of people such as, but not limited to:
    (1) Renter rights;
    (2) The homebuying process;
    (3) How to maintain a home;
    (4) Budgeting;
    (5) Fair housing;
    (6) Identifying and reporting predatory lending practices;
    (7) Rights for persons with disabilities; and
    (8) The importance of good credit.
    Homeownership counseling. See definition at 24 CFR 5.100.

[[Page 332]]

    Housing counseling. See definition at 24 CFR 5.100.
    Housing counseling grant funds. Grants awarded to participating 
agencies under section 106 of the Housing and Urban Development Act of 
1968 (12 U.S.C. 1701x).
    Housing counseling work plan. A participating agency's plan to 
provide housing counseling activities and services in a specified 
geographic area to resolve or mitigate identified community needs and 
problems. The plan will also describe the objectives of the agency and 
the resources available to meet those objectives. An intermediary's 
state housing finance agency's (SHFA) or multistate organization's (MSO) 
plan includes similar information regarding the services they propose to 
provide to the network of affiliated agencies or branches participating 
in their HUD-related Housing Counseling program.
    Housing goal. A realistic, short- or long-term objective set by the 
client, with advice from a housing counselor.
    HUD-approved housing counseling agency. Private and public nonprofit 
organizations that are exempt from taxation under section 501(a), 
pursuant to section 501(c) of the Internal Revenue Code of 1996, 26 
U.S.C. 501(a) and 501(c) and approved by HUD, in accordance with this 
part and 106(e) of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701x(e)), to provide housing counseling services to clients 
directly, or through their affiliates or branches, and which meet the 
requirements set forth in this part.
    HUD certified housing counselor. A housing counselor who has passed 
the HUD Certification examination, works for a participating agency, and 
is certified by HUD as competent to provide housing counseling services 
pursuant to this part.
    Intermediary. A HUD-approved organization that provides housing 
counseling services indirectly through its branches or affiliates, for 
whom it exercises control over the quality and type of housing 
counseling services rendered. The Housing Counseling program recognizes 
two types of intermediaries, which include:
    (1) National intermediary. A national intermediary provides, in 
multiple regions of the United States:
    (i) Housing counseling services through its branches or affiliates 
or both; and
    (ii) Administrative and supportive services to its network of 
affiliates or branches, including, but not limited to, pass-through 
funding, training, and technical assistance.
    (2) Regional intermediary. A regional intermediary provides in a 
generally recognized region within the United States, such as the 
Southwest, Mid-Atlantic, New England:
    (i) Housing counseling services through its branches or affiliates 
or both; and
    (ii) Administrative and supportive services to its network of 
affiliates, or branches, including, but not limited to, pass-through 
funding, training, and technical assistance.
    Local housing counseling agency (LHCA). A housing counseling agency 
that directly provides housing counseling services. An LHCA may have a 
main office, and one or more branch offices, in no more than two 
contiguous states.
    Multi-state organization (MSO). A multi-state organization provides 
housing counseling services through a main office and branches in two or 
more states.
    Nonprofit organization. Shall have the meaning given in section 
104(5) of the Cranston-Gonzalez National Affordable Housing Act (42 
U.S.C. 12704(5)), except that subparagraph (D) of such section shall not 
apply.
    Participating agency. Participating agencies are all housing 
counseling and intermediary organizations participating in HUD's Housing 
Counseling program, including HUD-approved agencies, and affiliates and 
branches of HUD-approved intermediaries, HUD-approved MSOs, and state 
housing finance agencies.
    Rental housing counseling. See definition at 24 CFR 5.100.
    Reverse mortgage. A mortgage that pays a homeowner loan proceeds 
drawn from accumulated home equity and that requires no repayment until 
a future time.

[[Page 333]]

    State. Each of the several States, the Commonwealth of Puerto Rico, 
the District of Columbia, the Commonwealth of the Northern Mariana 
Islands, Guam, the Virgin Islands, American Samoa, or any other 
possession of the United States.
    State housing finance agency (SHFA). Any public body, agency, or 
instrumentality created by a specific act of a state legislature 
empowered to finance activities designed to provide housing and related 
facilities through land acquisition, construction, or rehabilitation 
throughout an entire state. SHFAs may provide direct counseling services 
or subgrant housing counseling funds, or both, to affiliated housing 
counseling agencies within the SHFA's state. ``State'' includes the 
several states, Puerto Rico, the District of Columbia, Guam, the 
Commonwealth of the Northern Mariana Islands, American Samoa, and the 
U.S. Virgin Islands.
    Subgrantee. An affiliate of a HUD-approved intermediary or SHFA that 
receives a subgrant of housing counseling funds provided under a HUD 
grant.
    Unit of general local government. Any city, county, parish, town, 
township, borough, village, or any other general purpose political 
subdivision of a State.

[72 FR 55648, Sept. 28, 2007, as amended at 81 FR 90658, Dec. 14, 2016]



    Subpart B_Approval and Disapproval of Housing Counseling Agencies



Sec.  214.100  General.

    An organization may be approved by HUD as a HUD-approved housing 
counseling agency upon meeting the requirements of Sec.  214.103 and 
upon completing the application procedures set forth in this subpart B.
    (a) Approval. The approval of a housing counseling agency and the 
certification of a HUD certified housing counselor does not create or 
imply a warranty or endorsement by HUD of the approved agency, or its 
employees, including counselors, to a prospective client or to any other 
organization or individual, nor does it represent a warranty of any 
housing counseling provided by the agency or a HUD certified housing 
counselor working for an agency. Approval means only that the agency has 
met the qualifications and conditions prescribed by HUD, and a HUD 
certified housing counselor only means the housing counselor has 
successfully passed an examination pursuant to these regulations and 
works for a participating agency.
    (b) Effective date. Agencies approved by HUD on or before October 
29, 2007 and agencies that have submitted applications to HUD on or 
before September 28, 2007 and that are subsequently approved, are 
required to be in full compliance with the requirements in this part on 
October 1, 2007. Agencies approved after October 29, 2007 must comply 
with this part.

[72 FR 55648, Sept. 28, 2007, as amended at 81 FR 90658, Dec. 14, 2016]



Sec.  214.103  Approval criteria.

    The following criteria for approval apply to all agencies, MSOs, and 
intermediaries, including all local housing counseling agencies, 
branches, and affiliates that are included in one application:
    (a) Nonprofit and tax-exempt status. A housing counseling agency 
must function as a private or public nonprofit organization, or be a 
unit of local, county, or state government. The agency must submit 
evidence of nonprofit status and tax-exempt status under section 501(a), 
pursuant to section 501(c) of the Internal Revenue Code of 1996 (26 
U.S.C. 501(a) and (c)). Units of local, county, or state government must 
submit proof of their authorization to provide housing counseling 
services.
    (b) Experience. An agency must have successfully administered a 
Housing Counseling program for at least one year. An intermediary must 
have operated in an intermediary capacity for at least one year. To be 
considered part of an LHCA's, MSO's, or intermediary's approval 
application, and to participate in the HUD-approved portion of the 
intermediary's, SHFA's, or MSO's Housing Counseling program, affiliates 
and branches must have successfully administered a Housing Counseling 
program for at least one year.
    (c) Ineligible participants. An agency, including any of the 
agency's directors,

[[Page 334]]

partners, officers, principals, or employees, must not be:
    (1) Suspended, debarred, or otherwise restricted under the 
Department's, or any other federal regulations;
    (2) Indicted for, or convicted of, a criminal offense that reflects 
upon the responsibility, integrity, or ability of the agency to 
participate in housing counseling activities. These offenses include 
criminal offenses that can be prosecuted at a local, state, or federal 
level;
    (3) Subject to unresolved findings as a result of HUD or other 
government audit or investigations.
    (d) Community base. A housing counseling agency and its HUD Program 
branches and affiliates must have functioned for at least one year in 
the geographical area(s) the agency set forth in its housing counseling 
work plan.
    (e) Recordkeeping and reporting. The agency must have an established 
system of recordkeeping so that client files, electronic and paper, can 
be reviewed and annual activity data for the agency can be verified, 
reported, and analyzed. Client files, both electronic and paper, must be 
kept confidential, in accordance with Sec.  214.315. This system must 
meet the requirements of 2 CFR part 200, subpart D, 24 CFR 1.6, and 24 
CFR part 121 and can be easily accessible to HUD for all monitoring and 
audit purposes.
    (f) Client management system. All participating agencies shall 
utilize an automated housing counseling client management system for the 
collection and reporting of client-level information, including, but not 
limited to, financial and demographic data, counseling services 
provided, and outcomes data. The system used must provide the counseling 
agency with the tools necessary to track and manage all counseling and 
educational activities associated with each client. Agencies must 
utilize a Client Management System that satisfies HUD's requirements and 
interfaces with HUD's databases.
    (g) Housing counseling resources. The agency must have the following 
resources sufficient to implement the proposed housing counseling work 
plan no later than the date of HUD approval:
    (1) Funding. The application for approval must provide evidence of 
funds immediately available, or written commitment for funds to cover 
the cost of operating the housing counseling work plan during the 
initial 12-month period of HUD approval.
    (2) Staff. The agency must employ staff trained in housing 
counseling. All staff providing housing counseling, including 
homeownership counseling or rental housing counseling, must be HUD 
certified housing counselors, and at least half the agency's counselors 
must have at least 6 months of experience in the job they will perform 
in the agency's housing counseling program.
    (3) Language skills. The agency must have housing counselor(s) who 
are fluent in the language of the clients they serve, or the housing 
counseling agency must use the services of an interpreter, or the agency 
must refer the client to another agency that can meet the client's 
needs.
    (h) Knowledge of HUD programs and local housing market. The agency's 
housing counseling staff must possess a working knowledge of HUD's 
housing and single-family mortgage insurance programs, other state and 
local housing programs available in the community, consolidated plans, 
and the local housing market. The staff should be familiar with housing 
programs offered by conventional mortgage lenders and other housing or 
related programs that may assist their clients.
    (i) Contracts or agreements to provide eligible housing counseling 
services. An agency and its branches or subgrantees or affiliates must 
deliver all of the housing counseling activities set forth in the 
agency's housing counseling work plan. It is not permissible to contract 
out housing counseling services, except:
    (1) In geographic areas where a need for housing counseling services 
is demonstrated and no HUD-approved housing counseling agency or its 
branches, affiliates, or subgrantees exists. Under this exception, the 
contract must delineate the respective Housing Counseling program 
responsibilities of the contracting parties, the agency providing 
services (contractor) must meet the HUD approval eligibility standards,

[[Page 335]]

and the contracting agency must receive prior written approval from HUD.
    (2) Intermediaries and SHFAs may enter into agreements with 
affiliates to provide housing counseling services. The agreements with 
affiliates may be in the form of an exchange of letters that delineate 
the respective Housing Counseling program responsibilities of the 
parties. Agreements must be sufficiently detailed to establish 
accountability and allow for adequate monitoring in accordance with 2 
CFR part 200.
    (3) With prior approval from HUD, and at HUD's discretion, 
intermediary organizations may operate a Housing Counseling program with 
a network of affiliated counselors, rather than affiliated counseling 
agencies, if the structure is designed to meet a special housing 
counseling need identified by HUD.
    (j) Community resources. The housing counseling agency must have 
established working relationships with private and public community 
resources to which it can refer clients who need help the agency cannot 
offer, including agencies offering similar or related services to non-
English speaking clients.
    (k) State and local requirements. An agency and its branches and 
affiliates must meet all state and local requirements for its operation.
    (l) Facilities. All housing counseling facilities of the agency and 
its branches, affiliates, and subgrantees must meet the following 
criteria:
    (1) Have a clearly identified office, with space available for the 
provision of housing counseling services. The office should operate 
during normal business hours and offer extended hours when necessary;
    (2) Provide privacy for in-person counseling and confidentiality of 
client records;
    (3) Provide accessibility features or make alternate accommodations 
for persons with disabilities, in accordance with section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), 24 CFR parts 8 and 9, and 
the Americans with Disabilities Act (42 U.S.C. 12101 et seq.).
    (m) Housing counseling work plan. (1) The agency must submit a 
detailed yet concise housing counseling plan that explains: The needs 
and problems of the target population; how the agency will address one 
or more of these needs and problems with its available resources; the 
type of housing counseling services offered; fee structure, if 
applicable; the geographic service area to be served; and the 
anticipated results (outcomes) to be achieved within the period of 
approval.
    (2) The plan must be periodically reviewed and, when changed or 
amended, the agency must notify and provide a copy to HUD.
    (3) The plan must meet the basic requirements described in Sec.  
214.300.
    (4) An agency's housing counseling work plan must also address, if 
appropriate, alternative settings and formats for the provision of 
housing counseling services.
    (n) Certification of housing counselors. (1) In order for an agency 
to participate in HUD's Housing Counseling Program, all individuals who 
provide counseling, including homeownership and rental housing 
counseling, must be HUD certified according to requirements in this 
section.
    (2) For an individual to become a HUD certified counselor, an 
individual must pass a standardized written examination to demonstrate 
competency in each of the following areas:
    (i) Financial management;
    (ii) Property maintenance;
    (iii) Responsibilities of homeownership and tenancy;
    (iv) Fair housing laws and requirements;
    (v) Housing affordability; and
    (vi) Avoidance of, and response to, rental or mortgage delinquency 
and avoidance of eviction or mortgage default.
    (3) HUD will certify an individual housing counselor who has met the 
requirements of paragraph (n)(1) of this section upon verification that 
the individual works for a participating agency.
    (4) Participating agencies and housing counselors must be in 
compliance with requirements of paragraph (n) of this section by 36 
months after HUD commences the administration of the

[[Page 336]]

certification examination by publication in the Federal Register.

[72 FR 55648, Sept. 28, 2007, as amended at 80 FR 75936, Dec. 7, 2015; 
81 FR 90658, Dec. 14, 2016]



Sec.  214.105  Preliminary application process.

    (a) Submission. All agencies must complete the forms prescribed by 
HUD and submit the application and all supporting documentation to HUD. 
Agencies with branches or affiliates for which the parent entity 
exercises control over the quality and type of housing counseling 
services rendered must submit a single application for approval.
    (b) Notwithstanding paragraph (a), SHFAs are not required to submit 
an application for HUD approval. However, to participate in HUD's 
Housing Counseling program, SHFAs must either submit a request and 
provide HUD with a list of affiliates, if applicable, and assure that 
they meet all program requirements, or submit a request through such 
other application procedure as HUD may periodically announce in the 
Federal Register or other informational sources.



Sec.  214.107  Approval by HUD.

    (a) Notice of approval. If an application package meets all 
requirements outlined in Sec.  214.103, HUD will approve an agency for a 
period of up to 3 years. HUD will advise the agency of its approval in 
the form of an approval letter to the agency's main office.
    (b) Certificate of Approval. HUD will issue a ``Certificate of 
Approval'' to the approved agency. The certificate will show the period 
of approval.
    (c) Appearance on list of HUD-approved and participating housing 
counseling agencies. For purposes of client referrals, participating 
agencies that provide housing counseling services directly to clients 
must provide HUD with the agency name and contact information, which may 
appear on HUD's Web site. In addition, names and addresses of all 
participating agencies that provide housing counseling services directly 
may be made available to the public through HUD's toll-free housing 
counseling hotline.



Sec.  214.109  Disapproval by HUD.

    If an application package does not meet all requirements in Sec.  
214.103, HUD will provide the agency with the reasons for the denial in 
writing. Within 30 calendar days of the written notice of denial, the 
agency may submit a revised application, or appeal HUD's decision in 
writing to HUD, as provided in Sec.  214.205. If an agency decides to 
submit a revised application, the agency may consult HUD, to determine 
the specific actions needed to resolve the deficiencies.



           Subpart C_Inactive Status, Termination, and Appeals



Sec.  214.200  Inactive status.

    (a) HUD may change a participating agency's status to inactive, in 
lieu of terminations of HUD-approved status or removals from the list of 
HUD-approved agencies, under certain circumstances that may temporarily 
impair an agency from complying with its housing counseling plan. An 
agency's status may be changed to inactive on a case-by-case basis for a 
period not to exceed 6 months, unless an extension is provided by HUD 
under paragraph (d) of this section. HUD may change an agency's status 
through either a request submitted to HUD or as a result of information 
obtained by the Department. Some of the conditions under which inactive 
status may be considered include, but are not limited to:
    (1) Loss of counselor(s);
    (2) Damage to facilities by natural disasters that renders the 
agency unable to function properly;
    (3) Loss of funds;
    (4) Relocation;
    (5) Other circumstances caused by reasons beyond the agency's 
control; or
    (6) Results of performance review.
    (b) Agencies that seek temporary inactive status must submit a 
request to HUD in writing. Documentation or evidence of the condition(s) 
that rendered the agency incapable of carrying out its housing 
counseling plan must be submitted along with the request, if possible. 
Upon receipt of the request, HUD will review and notify the agency of 
approval or rejection, in writing. If

[[Page 337]]

approved, the agency's name and contact information will be temporarily 
removed from the HUD-approved Web list of agencies and the telephone 
referral system.
    (c) The agency must notify HUD in writing and provide supporting 
documentation or evidence when it is ready to resume operation, or no 
later than the end of the inactive period. After review and acceptance 
by HUD, the agency's contact information may be restored to the Web list 
of HUD-approved and participating agencies and the telephone referral 
system.
    (d) At HUD's discretion, if the condition(s) still exists, an 
extension of the inactive period may be considered or the agency may be 
terminated or removed from the Housing Counseling program. HUD will 
notify the agency in writing of its decision.



Sec.  214.201  Termination of HUD-approved status and grant agreements.

    (a) Cause for termination by HUD. HUD may terminate an agency's 
approval; remove an SHFA; remove one or more branches or affiliates from 
the HUD portion of an intermediary's, MSO's, or SHFA's counseling 
program; and terminate any grant agreements (if applicable) upon 
confirmation of any of the following reasons:
    (1) Noncompliance with program requirements;
    (2) Failure to implement in whole or in part the agency's approved 
housing counseling work plan or failure to notify HUD of changes in the 
agency's housing counseling work plan;
    (3) Lack of the capacity to deliver the housing counseling 
activities described in its approved housing counseling work plan;
    (4) Failure to achieve outcomes described in the work plan;
    (5) Misuse of grant funds; or
    (6) HUD determines that there is good cause.
    (b) Agency withdrawal. The participating agency may withdraw from 
the Housing Counseling program at any time.
    (c) Post-termination, post-withdrawal requirements. All terminations 
by HUD, or an agency's withdrawal, must be in writing. When a 
termination or withdrawal occurs, the agency must return to HUD any 
unexpired ``Certificate of Approval.'' A terminated or inactive agency 
cannot continue to display the certificate. If HUD has determined that 
an agency will be terminated from participating in the Housing 
Counseling program, and an agency does not voluntarily withdraw, then 
HUD may follow the provisions found in 24 CFR part 24.



Sec.  214.203  Re-approval or removal as a result of a performance review.

    HUD may conduct a periodic performance review for all agencies 
participating in the Housing Counseling program. The performance review 
and the terms of re-approval or removal of a participating agency are 
described in Sec.  214.307 and Sec.  214.309. At the end of the approval 
period, and upon completion of a successful performance review, if 
conducted, HUD will reapprove agencies.



Sec.  214.205  Appeals.

    An agency making an application for approval, or an approved agency 
seeking reapproval, shall have the right to appeal any adverse decisions 
rendered by HUD under this part:
    (a) Appeal must be in writing. An agency may make a formal written 
appeal to HUD.
    (b) Timeliness. HUD must receive an appeal within 30 days of the 
date of the HUD decision letter to the applicant agency. HUD is not 
bound to review appeals received after this 30-calendar day period.
    (c) Other action. Nothing in this section prohibits HUD from taking 
such other action against an agency as provided in 24 CFR part 24, or 
from seeking any other remedy against an agency available to HUD by 
statute or otherwise.



                    Subpart D_Program Administration



Sec.  214.300  Counseling services.

    (a) Basic requirements. (1) Agencies must provide counseling to 
current and potential homeowners and tenants to assist them in improving 
their housing conditions and in meeting the responsibilities of 
homeownership or tenancy.

[[Page 338]]

    (2) Except for reverse mortgage counseling, housing counselors and 
clients must establish an action plan for each counseling client.
    (3) Counseling may take place in the office of the housing 
counseling agency, at an alternate location, or by telephone, as long as 
mutually acceptable to the housing counselor and client. All agencies 
participating in HUD's Housing Counseling program that provide services 
directly to clients must provide in-person counseling to clients that 
prefer this format.
    (4) Regardless of setting or format, counseling activities must be 
limited to the geographic area specified in the agency's approved 
housing counseling work plan.
    (5) With prior approval from HUD, a network of affiliated counselors 
or a HUD roster of counselors, designed to meet a special housing 
counseling need, may be permitted to provide specified types of 
counseling nationally.
    (6) All participating agencies that offer group educational sessions 
must also offer individual counseling on the same topics covered in the 
group educational sessions.
    (7) All participating agencies that provide homeownership 
counseling, shall address the entire process of homeownership, 
including, but not limited to, the decision to purchase a home, the 
selection and purchase of a home, the home inspection process, issues 
arising during or affecting the period of ownership of a home 
(including, but not limited to, financing, refinancing, default, and 
foreclosure, and other financial decisions), and the sale or other 
disposition of a home.
    (8) All participating agencies that provide rental housing 
counseling shall address issues related to the rental of residential 
property, which may include counseling regarding future homeownership 
opportunities, the decision to rent, responsibilities of tenancy, 
affordability of renting, and eviction prevention.
    (9) As part of the homeownership counseling process, participating 
agencies shall provide clients with such materials as HUD may require 
regarding the availability and importance of obtaining an independent 
home inspection.
    (b) Counseling services. For each client, all agencies participating 
in HUD's Housing Counseling program shall offer the following basic 
services:
    (1) Housing counseling, on at least one of the topics described in 
paragraph (d) of this section, that enables a client to make informed 
and reasonable decisions to achieve his or her housing goal.
    (2) Referrals to local, state, and federal resources.
    (c) Follow-up. Make a reasonable effort to have follow-up 
communication with the client, when possible, to assure that the client 
is progressing toward his or her housing goal, to modify or terminate 
housing counseling, and to learn and report outcomes.
    (d) Agency's housing counseling work plan. (1) A participating 
agency shall deliver housing counseling services consistent with the 
agency's housing counseling work plan. The work plan should identify 
housing counseling services to be provided in response to one or more of 
the needs in targeted communities and geographic areas where the agency 
and its branches and affiliates provide their housing counseling 
services.
    (2) Participating agencies may also conduct marketing and outreach, 
including, but not limited to, providing general information about 
housing opportunities, conducting information campaigns, and raising 
awareness about critical housing topics such as predatory lending and 
fair housing topics.
    (e) Approved housing counseling, education, and outreach topics. The 
following are examples of approved housing counseling, education, and 
outreach topics that participating agencies may provide to and discuss 
with clients:
    (1) Prepurchase/homebuying, including, but not limited to: Advice 
regarding readiness and preparation, Federal Housing Administration-
insured financing, housing selection and mobility, search assistance, 
fair housing and predatory lending, budgeting and credit, loan product 
comparison, purchase procedures, and closing costs;

[[Page 339]]

    (2) Resolving or preventing mortgage delinquency, including, but not 
limited to: Default and foreclosure, loss mitigation, budgeting, and 
credit;
    (3) Home maintenance and financial management for homeowners, 
including, but not limited to: Escrow funds, budgeting, refinancing, 
home equity, home improvement, utility costs, energy efficiency, rights 
and responsibilities of home owners, and reverse mortgages;
    (4) Rental topics, including, but not limited to: HUD rental and 
rent subsidy programs; other federal, state or local assistance; fair 
housing; housing search assistance; landlord tenant laws; lease terms; 
rent delinquency; and
    (5) Homeless assistance, including, but not limited to: Information 
regarding emergency shelter, other emergency services, and transitional 
housing.

[72 FR 55648, Sept. 28, 2007, as amended at 81 FR 90658, Dec. 14, 2016]



Sec.  214.303  Performance criteria.

    To maintain HUD-approved status, a participating agency must meet 
the following requirements:
    (a) Approval status. Agencies must continue to comply with approval 
requirements in Sec.  214.103.
    (b) Workload. During each 12-month period, the participating agency 
must provide housing counseling to at least 30 clients. Agencies that 
offer only housing counseling services limited to reverse mortgages, 
including home equity conversion mortgages (HECMs), are exempt from this 
requirement.
    (c) Reporting. The agency must submit to HUD complete, accurate, and 
timely activity reports, as described in Sec.  214.317.
    (d) Agency's housing counseling work plan. The agency must implement 
the housing counseling work plan and demonstrate reasonable achievement 
of the outcome objectives approved by HUD, as described in Sec.  
214.103(k).
    (e) Client referrals from HUD and other participating agencies. 
Except as described in this paragraph, all clients who contact the 
agency as a result of these referrals must be served. In cases where the 
agency does not offer the unique services requested by the client or 
does not have sufficient resources, the agency must refer the client to 
another participating agency, preferably in the area, or, failing the 
availability of a participating agency, must make a reasonable effort to 
refer the client to another agency, that can help the client meet his or 
her needs.
    (f) Conflicts of interest. (1) A director, employee, officer, 
contractor, or agent of a participating agency shall not engage in 
activities that create a real or apparent conflict of interest. Such a 
conflict would arise if the director, employee, officer, contractor, 
agent, his or her spouse, child, general partner, or organization in 
which he or she serves as employee (other than with the participating 
counseling agency), or with whom he or she is negotiating future 
employment, has a direct interest in the client as a landlord, broker, 
or creditor, or originates, has a financial interest in, services, or 
underwrites a mortgage on the client's property, owns or purchases a 
property that the client seeks to rent or purchase, or serves as a 
collection agent for the client's mortgage lender, landlord, or 
creditor.
    (2) A director, employee, officer, contractor, or agent of a 
participating agency shall not refer clients to mortgage lenders, 
brokers, builders, or real estate sales agents or brokers in which the 
officer, employee, director, his or her spouse, child, or general 
partner has a financial interest, neither may they acquire the client's 
property from the trustee in bankruptcy or accept a fee or any other 
consideration for referring a client to mortgage lenders, brokers, 
builders, or real estate sales agents or brokers.
    (3) A director, employee, officer, contractor, or agent of a 
participating agency or any member of his or her immediate family shall 
avoid any action that might result in, or create the appearance of, 
administering the housing counseling operation for personal or private 
gain; providing preferential treatment to any organization or person; or 
undertaking any action that might compromise the agency's ability to 
ensure compliance with the requirements of this part and to serve the 
best interests of its clients.

[[Page 340]]

    (4) HUD may investigate agency practices and may take action to 
inactivate or terminate the agency's approval or participation in the 
Housing Counseling program.
    (5) Participating agencies must notify HUD of conflicts of interest 
not later than 15 calendar days after the conflict occurred and report 
to HUD on the corrective action taken to cure the immediate, and avoid 
future, conflicts.
    (g) Disclosure requirements. A participating agency must provide to 
all clients a disclosure statement that explicitly describes the various 
types of services provided by the agency and any financial relationships 
between this agency and any other industry partners. The disclosure must 
clearly state that the client is not obligated to receive any other 
services offered by the organization or its exclusive partners. 
Furthermore, the agency must provide information on alternative 
services, programs, and products.
    (h) Staff and supervision. The agency must employ staff trained in 
housing counseling, and at least half the counselors must have at least 
6 months of experience in the job they will perform in the agency's 
Housing Counseling program. Supervisors of the housing counselors must 
periodically monitor the work of the housing counselors by reviewing 
client files with the housing counselor to determine the adequacy and 
effectiveness of the housing counseling. The agency must document these 
monitoring activities and make the documentation available to HUD upon 
request.
    (i) Funding. The agency must maintain a level of funds that enables 
it to provide housing counseling to at least the required workload of 
clients every year, whether or not the agency receives HUD funding.



Sec.  214.305  Agency profile changes.

    Participating agencies must notify HUD within 15 days when any of 
the following occurs:
    (a) The agency loses or changes its tax-exempt, nonprofit status.
    (b) The agency no longer complies with local and state requirements.
    (c) Changes occur in any of the items below:
    (1) Address(es) of the agency's main office and the address(es) of 
its branches and affiliates;
    (2) Staff personnel responsible for the Housing Counseling program, 
such as the housing counselors and management staff;
    (3) Telephone numbers of the main office, affiliates, and branches; 
or
    (4) Any other aspect of the agency's purpose or functions that may 
impair its ability to comply with these regulations or the applicable 
grant agreement (e.g., lack of qualified housing counselors).



Sec.  214.307  Performance review.

    (a) HUD may conduct periodic on-site or desk performance reviews of 
all participating agencies.
    (b) The performance review will consist of a review of the 
participating agency's compliance with all program requirements, 
including applicable civil rights requirements, and the agency's level 
of success in delivering counseling services.



Sec.  214.309  Reapproval and disapproval based on performance review.

    Based on the performance review, HUD may determine whether to renew 
the approval unconditionally or conditionally, temporarily change status 
to inactive, or terminate approval or participation of the agency.
    (a) Unconditional Reapproval. If the agency is in full compliance 
with the performance criteria of this part, HUD may reapprove the agency 
unconditionally for up to 3 years.
    (b) Conditional Reapproval. If the agency fails to meet the 
performance criteria, but the failure does not seriously impair the 
agency's counseling capability as required in this part, HUD may extend 
the agency's approval or participation for up to 120 calendar days.
    (c) Inactive status. HUD may temporarily change an agency's status 
to inactive, as provided in Sec.  214.200.
    (d) Follow-up Review. HUD may conduct a follow-up review to 
determine if the deficiencies have been corrected.
    (e) Termination of HUD Approval. When HUD determines that the 
agency's program deficiencies seriously impair the agency's ability to 
comply

[[Page 341]]

with this part, HUD may terminate approval or participation of the 
agency immediately.
    (f) Appeal. If HUD does not reinstate the approval, or terminates 
participation, the agency may file an appeal, as prescribed under Sec.  
214.205.



Sec.  214.311  Housing counseling grant funds.

    (a) HUD housing counseling grant funds. HUD approval or program 
participation does not guarantee housing counseling grant funding. 
Funding for the Housing Counseling Program depends on appropriations 
from Congress, and are awarded competitively under Federal and HUD 
regulations and policies governing assistance programs, including the 
Department of Housing and Urban Development Reform Act of 1989 (42 
U.S.C. 3545 et seq.). If housing counseling grant funds become available 
that are to be competitively awarded, HUD will notify the public through 
a Notice of Funding Availability (NOFA) in the Federal Register and by 
the Internet or other electronic media.
    (b) Local funding sources. HUD recommends that approved agencies 
seek and secure funding from funding sources that may include local and 
state governments, private foundations, and lending or real estate 
organizations. Agencies must assure that such arrangements do not 
violate the provisions regarding conflicts of interest described in 
Sec.  214.303(e).
    (c) Limitation on distribution of funds. No housing counseling funds 
made available under the Housing Counseling Program shall be distributed 
to:
    (1)(i) Any organization that has been convicted for a violation 
under Federal law relating to an election for Federal office or any 
organization that employs applicable individuals. For the purposes of 
this section, applicable individual means an individual who is:
    (A) Employed by the organization in a permanent or temporary 
capacity;
    (B) Contracted or retained by the organization; or
    (C) Acting on behalf of, or with the express or apparent authority 
of, the organization; and
    (D) Has been convicted for a violation under Federal law relating to 
an election for Federal office.
    (ii) For the purposes of this paragraph (c)(1), a violation under 
Federal law relating to an election for Federal office includes, but is 
not limited to, a violation of one or more of the following statutory 
provisions related to Federal election fraud, voter intimidation, and 
voter suppression: 18 U.S.C. 241-242, 245(b)(1)(A), 592-611, and 42 
U.S.C. 1973.
    (2) A participating agency that provides housing counseling through 
housing counselors who are not HUD certified housing counselors in 
accordance with Sec.  214.103(n).
    (d) Misuse of housing counseling grant funds. If any participating 
agency that receives housing counseling grant funds under the Housing 
Counseling Program is determined by HUD to have used those housing 
counseling grant funds in a manner that constitutes a material violation 
of applicable statutes and regulations, or any requirements or 
conditions under which such funds were provided:
    (1) HUD shall require that, within 12 months after the date of the 
determination of such misuse, the agency shall reimburse HUD for such 
misused amounts and return to HUD any such amounts that remain unused or 
unobligated for use; and
    (2) Such agency shall be ineligible, at any time after the date of 
such determination of material misuse, to apply for or receive further 
funds under the Housing Counseling Program.
    (3) The remedies under paragraph (d) of this section are in addition 
to any other remedies that may be available under law.

[72 FR 55648, Sept. 28, 2007, as amended at 81 FR 90658, Dec. 14, 2016]



Sec.  214.313  Housing counseling fees.

    (a) Participating agencies may charge reasonable and customary fees 
for housing education and counseling services, as long as the cost does 
not create a financial hardship for the client. An agency's fee schedule 
must be posted in a prominent place that is easily viewed by clients, 
and be available to HUD for review.
    (b) Agencies must inform clients of the fee structure in advance of 
providing services. Clients cannot be charged for client intake.

[[Page 342]]

    (c) If any agency chooses to charge fees, the agency must conform to 
the following guidelines:
    (1) Provide counseling without charge to persons who cannot afford 
the fees;
    (2) Fees must be commensurate with the level of services provided;
    (3) Agencies may not impose fees upon clients for the same portion 
of or for an entire service that is already funded with HUD grant funds.
    (d) The agency may also be reimbursed from clients for the direct 
cost of obtaining copies of clients' credit reports from credit 
reporting bureaus if this does not cause a hardship for the client. In 
cases where the participating agency receives a discount for the cost of 
credit reports, this discount must be passed on to the client.
    (e) Lenders may pay agencies for counseling services, through a lump 
sum or on a case-by-case basis, provided the level of payment does not 
exceed a level that is commensurate with the services provided, and is 
reasonable and customary for the area, and does not violate requirements 
under the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et 
seq.). These transactions and relationships must be disclosed to the 
client as required in Sec.  214.303(g).



Sec.  214.315  Recordkeeping.

    (a) Recordkeeping system. Each participating housing counseling 
agency must maintain a recordkeeping system. The system must permit HUD 
to easily access all information needed for a performance review. This 
system must meet the requirements of 2 CFR part 200, subpart D, 24 CFR 
1.6, and 24 CFR part 121.
    (b) File retention requirements. Financial records, supporting 
documents, statistical records and all other pertinent records, both 
electronic and on paper, shall be retained for a period of 3 years from 
the date the case file was terminated for housing counseling. If the 
housing counseling agency is a recipient of a HUD housing counseling 
grant, then the client files for the housing counseling grant year must 
be retained for 3 years from the date the final grant invoice was paid 
by HUD.
    (c) Grant activities. Recipients of HUD housing counseling grants 
are required to report activities under the grant in a format acceptable 
to HUD and within the designated time frames required by the applicable 
grant agreement.
    (d) Race, ethnicity, and income data. Participating agencies must 
maintain current and accurate data on the race, ethnicity, and income of 
their counseling clients and education participants.
    (e) Client file. The housing counseling agency must maintain a 
separate confidential file for each counseling client to document the 
action plan and the services provided to the client, as described in 
Sec.  214.300. For all counseling, except for HECM counseling, the 
client file must include an action plan. The client file may be for an 
individual or household or for a group of clients with the same housing 
need.
    (f) Group education file. The housing counseling agency must 
maintain a separate confidential file for each course provided. This 
file must contain a list of all participants, their race, ethnicity and 
income data, course title, course outline, instructors, and date of each 
course.
    (g) Confidentiality. Participating agencies must ensure the 
confidentiality of each client's personal and financial information, 
including credit reports, whether the information is received from the 
client or from another source. Failure to maintain the confidentiality 
of, or improper use of, credit reports may subject the agency to 
penalties under the Fair Credit Reporting Act (14 U.S.C. 1681 et seq.).
    (h) Termination of services. The housing counseling agency must 
document in the client's file termination of housing counseling. 
Termination occurs or may occur under any of these conditions:
    (1) The client meets his or her housing need or resolves the housing 
problem;
    (2) The agency determines that further housing counseling will not 
meet the client's housing need or resolve the client's housing problem;
    (3) The agency attempts to, but is unable to, locate the client;
    (4) The client does not follow the agreed-upon action plan;

[[Page 343]]

    (5) The client otherwise terminates housing counseling; or
    (6) The client fails to appear for housing counseling appointments.

[72 FR 55648, Sept. 28, 2007, as amended at 80 FR 75936, Dec. 7, 2015]



Sec.  214.317  Reporting.

    All participating agencies shall submit to HUD activity reports, 
which may be required up to quarterly. The reports must be submitted in 
the format, by the deadline, and in the manner prescribed by HUD. 
Participating agencies that are also recipients of HUD grants or 
subgrants may be required to submit additional reports, as described in 
their grant agreements and prescribed by HUD.



                  Subpart E_Other Federal Requirements



Sec.  214.500  Audit.

    Housing counseling grant recipients and subrecipients shall be 
subject to the audit requirements contained in 2 CFR part 200, subpart 
F. HUD must be provided a copy of the audit report within 30 days of 
completion.

[72 FR 55648, Sept. 28, 2007, as amended at 80 FR 75936, Dec. 7, 2015]



Sec.  214.503  Other requirements.

    In addition to the requirements of this part, the Housing Counseling 
program is subject to applicable federal requirements in 24 CFR 5.105.



PART 219_FLEXIBLE SUBSIDY PROGRAM FOR TROUBLED PROJECTS--Table of Contents



Sec.
219.1 Program operations.
219.2 Savings provision.

    Authority: 12 U.S.C. 1715z-1a; 42 U.S.C. 3535(d).

    Source: 61 FR 14405, Apr. 1, 1996, unless otherwise noted.



Sec.  219.1  Program operations.

    Effective May 1, 1996, the Flexible Subsidy Program for Troubled 
Projects will be governed and operate under the statutory provisions 
codified at 12 U.S.C. 1715z-1a, under the administrative policies and 
procedures contained in any applicable HUD Handbooks, and other 
administrative bulletins and notices as the Department may issue from 
time to time.



Sec.  219.2  Savings provision.

    Part 219, as it existed immediately before May 1, 1996, (contained 
in the April 1, 1995 edition of 24 CFR, parts 200 to 219) will continue 
to govern the rights and obligations of housing owners, tenants, and the 
Department of Housing and Urban Development with respect to units and 
projects assisted under the Flexible Subsidy Program for Troubled 
Projects prior to May 1, 1996. A list of any amendments to this part 
published after the CFR revision date is available from the Office of 
the Rules Docket Clerk, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410.



PART 220_MORTGAGE INSURANCE AND INSURED IMPROVEMENT LOANS FOR URBAN 
RENEWAL AND CONCENTRATED DEVELOPMENT AREAS--Table of Contents



Subpart A [Reserved]

             Subpart B_Contract Rights and Obligations_Homes

Sec.
220.251 Cross-reference.
220.252 Forbearance of foreclosure and assignment of mortgage.
220.253 Substitute mortgagors.
220.275 Method of paying insurance benefits.

                     Insured Home Improvement Loans

220.350 Cross-reference.

               Subpart C_Eligibility Requirements_Projects

220.501 Eligibility requirements.

           Subpart D_Contract Rights and Obligations_Projects

                       Project Mortgage Insurance

220.751 Cross-reference.
220.753 Forbearance relief.
220.765 Special insurance benefits--forbearance relief cases.

[[Page 344]]

                    Insured Project Improvement Loans

220.800 Definitions.
220.801 Initial insurance endorsement.
220.802 Final insurance endorsement.
220.803 Effect of insurance endorsement.
220.804 Insurance premiums.
220.804a Mortgagee's late charge.
220.805 Termination of insurance.
220.806 Pro rata refund of insurance premium.
220.810 Definition of default.
220.811 Date of default.
220.812 Notice of default.
220.813 Commissioner's right to require acceleration.
220.814 Election of action.
220.820 Maximum claim period.
220.821 Items to be filed on submitting claim.
220.822 Claim computation; items included.
220.823 Claim computation; items deducted.
220.830 Debenture interest rate.
220.832 Maturity of debentures.
220.834 Registration of debentures.
220.836 Form and amounts of debentures.
220.838 Redemption of debentures.
220.840 Issue date of debentures.
220.842 Cash adjustment.
220.850 Assignment of insured loans.

                Subpart E_Servicing Responsibilites_Homes

220.900 Cross-reference.

    Authority: 12 U.S.C. 1713, 1715b, 1715k, and 1735d; 42 U.S.C. 
3535(d).

    Source: 36 FR 24573, Dec. 22, 1971, unless otherwise noted.

Subpart A [Reserved]



             Subpart B_Contract Rights and Obligations_Homes



Sec.  220.251  Cross-reference.

    (a) All of the provisions of subpart B, part 203 of this chapter 
covering mortgages insured under section 203 of the National Housing Act 
apply to mortgages covering 1- to 11-family dwellings insured under 
section 220 of the National Housing Act, except the following:

Sec.
203.258 Substitute mortgagors.
203.259 Scope.
203.280 One-time MIP.
203.281 Calculation of one-time MIP.
203.282 Mortgagee's late charge and interest.
203.283 Refund of one-time MIP.
203.340 Conditions of special forbearance relief.
203.342 Recasting of mortgage.
203.343 Partial release, addition or substitution of security.
203.350 Assignment of defaulted mortgage--ingeneral.
203.350a Assignment of defaulted mortgage.
203.351 Application for insurance benefits and fiscal data.
203.353 Certification by mortgagee.
203.400 Method of payment.
203.402a Reimbursement for uncollected interest.
203.420 Nature of Mutual Mortgage Insurance Fund.
203.421 Allocation of Mutual Mortgage Insurance Fund income or loss.
203.422 Right and liability under Mutual Mortgage Insurance Fund.
203.423 Distribution of distributive shares
203.424 Maximum amount of distributive shares.
203.425 Finality of determination.
203.438 Mortgages on Indian land insured pursuant to section 248 of the 
          National Housing Act.
203.439 Mortgages on Hawaiian home lands insured pursuant to section 247 
          of the National Housing Act.
203.439a Mortgages on property in Allegany Reservation of Seneca Nation 
          of Indians authorized by section 203(q) of the National 
          Housing Act.

    (b) For the purposes of this subpart, all references in part 203 of 
this chapter to section 203 of the act shall be construed to refer to 
section 220 of the act, and all references to the Mutual Mortgage 
Insurance Fund shall be construed to refer to the General Insurance 
Fund.

[36 FR 24573, Dec. 22, 1971, as amended at 42 FR 29304, June 8, 1977; 48 
FR 28807, June 23, 1983; 51 FR 21874, June 16, 1986; 52 FR 8069, Mar. 
16, 1987; 52 FR 28470, July 30, 1987; 52 FR 48203, Dec. 21, 1987; 53 FR 
9869, Mar. 28, 1988; 55 FR 34808, Aug. 24, 1990]



Sec.  220.252  Forbearance of foreclosure and assignment of mortgage.

    All of the provisions of Sec. Sec.  203.340 through 203.342, 
203.350, 203.352 and 203.353 of this chapter shall apply to mortgages 
insured under this subpart, except that the provisions relating to 
forbearance of foreclosure, recasting of the mortgage and assignment of 
a defaulted mortgage, shall be applicable only to a mortgage covering a 
property having not more than four dwelling units.

[[Page 345]]



Sec.  220.253  Substitute mortgagors.

    (a) Selling mortgagor. The mortgagee may effect the release of a 
mortgagor from personal liability on the mortgage note only if it 
obtains the Commissioner's approval of a substitute mortgagor, as 
provided by this section.
    (b) Purchasing mortgagor. (1) The Commissioner may approve a 
substitute mortgagor with respect to any mortgage insured under subpart 
A of this part, if the substitute mortgagor is to occupy the dwelling as 
a principal residence or a secondary residence (as these terms are 
defined in Sec.  220.30(d)).
    (2) The Commissioner may approve as a substitute mortgagor an 
eligible non-occupant mortgagor (as defined in Sec.  220.30(d)) with 
respect to any mortgage insured under this part, only if the outstanding 
balance of the mortgage does not exceed the Commissioner's estimate of:
    (i) The replacement cost of the property as of the date the mortgage 
was originally accepted for insurance, or the date the substitute 
mortgagor is approved by the Commissioner, which ever is greater, in the 
case of a dwelling described in Sec.  220.30(a) (1) or (2); or
    (ii) The cost of repair or rehabilitation, plus the Commissioner's 
estimate of the replacement cost of the property as of either the date 
the mortgage was originally accepted for insurance, or the date the 
substitute mortgagor is approved by the Commissioner, whichever is 
greater, in the case of a dwelling described in Sec.  220.30(a) (3) or 
(4).
    (c) Applicability--current mortgagor. Paragraph (b) of this section 
applies to the Commissioner's approval of a substitute mortgagor, only 
if the mortgage executed by the original mortgagor met the conditions of 
Sec.  203.258(c) of this chapter.
    (d) Applicability--earlier mortgagor. The occupancy and similar 
requirements set forth in Sec.  203.258(d) of this chapter apply to 
mortgages insured under subpart A of this part.
    (e) Mortgagees approved for participation in the Direct Endorsement 
program under Sec.  203.3 may, subject to limitations established by the 
Commissioner, themselves approve an appropriate substitute mortgagor 
under this section for mortgages which they own or service, and need not 
obtain further specific approval from the Commissioner.
    (f) Definition. As used in this section, the term substitute 
mortgagor includes: (1) Persons who, upon the release by a mortgagee of 
a previous mortgagor from personal liability on the mortgage note, 
assume this liability and agree to pay the mortgage debts; and (2) 
persons who purchase without assuming liability on the mortgage note, or 
purchase where no release is given by the mortgagee to the previous 
mortgagor.

[55 FR 34808, Aug. 24, 1990, as amended at 57 FR 58351, Dec. 9, 1992]



Sec.  220.275  Method of paying insurance benefits.

    If the application for insurance benefits is acceptable to the 
Commissioner, all of the insurance claim shall be paid in cash unless 
the mortgagee files a written request with the application for payment 
in debentures. If such a request is made, all of the claim shall be paid 
by issuing debentures and by making a cash payment adjusting any 
differences between the total amount of the claim and the amount of the 
debentures issued.

                     Insured Home Improvement Loans



Sec.  220.350  Cross-reference.

    (a) All of the provisions of Sec. Sec.  203.440 through 203.495 of 
this chapter covering insured home improvement loans under section 
203(k) of the Act shall apply to home improvement loans on one-to-four 
family dwellings under section 220(h) of the Act, except as set out in 
paragraph (b).
    (b) The provisions of Sec. Sec.  203.473(a) shall not be applicable 
to home improvement loans on one-to-four family dwellings under section 
220(h) of the Act.

[52 FR 1330, Jan. 13, 1987]



               Subpart C_Eligibility Requirements_Projects



Sec.  220.501  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
multifamily project mortgages insured under

[[Page 346]]

section 220 of the National Housing Act (12 U.S.C. 1715k), as amended.

[61 FR 14405, Apr. 1, 1996]



           Subpart D_Contract Rights and Obligations_Projects

                       Project Mortgage Insurance



Sec.  220.751  Cross-reference.

    (a) All of the provisions of subpart B, part 207, of this chapter, 
covering mortgages insured under section 207 of the National Housing 
Act, apply with full force and effect to multifamily project mortgages 
insured under section 220 of the National Housing Act, except Sec.  
207.256b Modification of mortgage terms.
    (b) For the purposes of the portion of this subpart, covering 
multifamily project mortgages, all references in part 207 of this 
chapter to section 207 of the National Housing Act shall be deemed to 
refer to section 220 of the National Housing Act.

[36 FR 24573, Dec. 22, 1971, as amended at 80 FR 51468, Aug. 25, 2015]



Sec.  220.753  Forbearance relief.

    (a) In a case where the mortgage is in default, the mortgagor and 
the mortgagee may enter into a forbearance agreement for the reduction 
or suspension of regular mortgage payments for a specified period of 
time, if the following requirements are met:
    (1) The mortgage was endorsed for insurance on or after July 7, 
1961.
    (2) The Commissioner determines that the default was due to 
circumstances beyond the mortgagor's control and that the mortgage 
probably will be restored to good standing within a reasonable period of 
time and evidences such determination by written approval of the 
forbearance agreement.
    (b) The time specified in Sec.  207.258(a) of this chapter, within 
which a mortgagee shall give the Commissioner written notice of its 
intention to file an insurance claim, shall be suspended for the period 
of time specified in the forbearance agreement as long as the mortgagor 
complies with the requirements of such agreement.
    (c) If the mortgagor fails to meet the requirements of a forbearance 
agreement or to cure the default under the mortgage at the expiration of 
the forbearance period, and such failure continues for a period of 30 
days, the mortgagee shall notify the Commissioner of such failure. 
Within 45 days thereafter, unless a modification or extension of the 
forbearance agreement has been approved by the Commissioner, the 
mortgagee shall notify the Commissioner of its election to file an 
insurance claim and of its decision to either assign the mortgage to the 
Commissioner or acquire and convey title to the property to the 
Commissioner. If the mortgage is assigned to the Commissioner, the 
special insurance benefits prescribed in Sec.  220.765 shall be 
applicable.



Sec.  220.765  Special insurance benefits--forbearance relief cases.

    (a) Upon a failure of the mortgagor to meet the requirements of a 
forbearance agreement or to cure the default under the mortgage at the 
expiration of the forbearance period, the mortgagee shall be entitled to 
obtain a special insurance payment in cash, in lieu of the insurance 
benefits otherwise provided under this subpart. To receive the special 
insurance payment, the mortgagee shall assign the mortgage to the 
Commissioner in compliance with the requirements of Sec.  207.258(b) of 
this chapter.
    (b) The special insurance benefits to the mortgagee shall be a cash 
payment computed in accordance with Sec.  207.259(b) of this chapter, 
except that in lieu of the allowance for debenture interest in Sec.  
207.259(b)(1)(iii) of this chapter, the payment shall include the amount 
of the unpaid accrued mortgage interest computed to the date the 
assignment of the mortgage to the Commissioner is filed for record. In 
addition, there shall be included in the cash payment an amount 
equivalent to the debenture interest which would have been earned from 
the date the mortgage assignment was filed for record to the date the 
payment is made; except that when the mortgagee fails to meet any of the 
applicable requirements of Sec.  207.258(b) of this chapter and Sec.  
220.753(c) within the specified times and in a manner satisfactory to

[[Page 347]]

the Commissioner (or within such further time as the Commissioner may 
approve in writing), such debenture interest allowance shall be computed 
only to the date on which the particular required action should have 
been taken.

                    Insured Project Improvement Loans



Sec.  220.800  Definitions.

    All of the definitions contained in Sec.  220.550 shall apply to 
Sec. Sec.  220.800 et seq. In addition the following terms shall have 
the meaning indicated:
    (a) Contract of insurance means the agreement evidenced by the 
endorsement of the Commissioner upon the note given in connection with 
an insured loan, incorporating by reference the regulations in 
Sec. Sec.  220.800 et seq. and the applicable provisions of the Act.
    (b) Maturity means the date on which the loan indebtedness would be 
extinguished if paid in accordance with periodic payments provided for 
in the loan.



Sec.  220.801  Initial insurance endorsement.

    The Commissioner shall indicate his insurance of the loan by 
endorsing the original credit instrument and identifying the section of 
the Act and the regulations under which the loan is insured and the date 
of insurance.



Sec.  220.802  Final insurance endorsement.

    When all advances of loan proceeds have been made, and all the terms 
and conditions of the commitment have been complied with to the 
satisfaction of the Commissioner, he shall indicate on the original 
credit instrument the total of advances he has approved for insurance 
and again endorse such instrument.



Sec.  220.803  Effect of insurance endorsement.

    From the date of initial endorsement, the Commissioner and the 
lender shall be bound by the provisions of this subpart to the same 
extent as if they had executed a contract including the provisions of 
this subpart and the applicable sections of the Act.



Sec.  220.804  Insurance premiums.

    (a) First premium. The lender, upon the initial endorsement of the 
loan for insurance, shall pay to the Commissioner a first loan insurance 
premium equal to one-half of one percent of the original face amount of 
the note.
    (b) Second premium; first payment more than one year following 
initial endorsement. If the date of the first principal payment is more 
than one year following the date of initial insurance endorsement, the 
lender, upon the anniversary of such insurance date, shall pay a second 
premium equal to one-half of one percent of the original face amount of 
the loan.
    (c) Third premium. On the date of the first principal payment, the 
lender shall pay a third premium equal to one-half of one percent of the 
average outstanding principal obligation of the note for the following 
year which shall be adjusted so as to accord with such date and so that 
the aggregate of the three premiums shall equal the sum of (1) one 
percent of the average outstanding principal obligation of the note for 
the year following the date of initial insurance endorsement and (2) 
one-half of one percent per annum of the average outstanding principal 
obligation of the note for the period from the first anniversary of the 
date of initial insurance endorsement to one year following the date of 
the first principal payment.
    (d) Second premium; first payment one year or less following initial 
endorsement. If the date of the first principal payment is one year, or 
less than one year following the date of initial insurance endorsement, 
the lender upon such first principal payment date, shall pay a second 
premium equal to one-half of one percent of the average outstanding 
principal obligation of the note for the following year which shall be 
adjusted so as to accord with such date and so that the aggregate of the 
said two premiums shall equal the sum of (1) one percent per annum of 
the average outstanding principal obligation of the note for the period 
from the date of initial insurance endorsement to the date of first 
principal payment and (2) one-half of one percent of the average 
outstanding principal obligation of the

[[Page 348]]

note for the year following the date of the first principal payment.
    (e) Second premium; commitment to insure upon completion. Where the 
note is initially and finally endorsed for insurance pursuant to a 
Commitment to Insure Upon Completion, the lender on the date of the 
first principal payment shall pay a second premium equal to one-half of 
one percent of the average outstanding principal obligation of the note 
for the year following such first principal payment date which shall be 
adjusted so as to accord with such date and so that the aggregate of the 
said two premiums shall equal the sum of one-half of one percent per 
annum of the average outstanding principal obligation of the note for 
the period from the date of the insurance endorsement to one year 
following the date of the first principal payment.
    (f) Annual insurance premium. Until the note is paid in full, or 
until the loan is assigned to the Commissioner, or until the contract of 
insurance is otherwise terminated with the consent of the Commissioner, 
the lender, on each anniversary of the date of the first principal 
payment shall pay an annual loan insurance premium equal to one-half of 
one percent of the average outstanding principal obligation of the loan 
for the year following the date on which such premium becomes payable.
    (g) Method of premium payment. Premiums shall be payable in cash or 
in debentures at par plus accrued interest. All premiums are payable in 
advance and no refund can be made of any portion thereof except as 
hereinafter provided in Sec. Sec.  220.800 et seq.
    (h) Calculation of premiums. The premiums payable on and after the 
date of the first principal payment shall be calculated in accordance 
with the amortization provisions without taking into account delinquent 
payments or prepayments.



Sec.  220.804a  Mortgagee's late charge.

    Mortgage insurance premiums which are paid to the Commissioner more 
than 15 days after the billing date or due date, whichever is later, 
shall include a late charge of 4 percent of the amount of the payment 
due, except that no late charge shall be required with respect to any 
case for which HUD fails to render a proper billing to the mortgagee.

[43 FR 60154, Dec. 26, 1978]



Sec.  220.805  Termination of insurance.

    (a) Prepayment in full. The contract of insurance shall be 
terminated if the loan is paid in full prior to its maturity. Notice of 
the prepayment shall be given to the Commissioner, on a form prescribed 
by the Commissioner, within 30 days from the date of the prepayment. The 
insurance termination shall become effective as of the date of the 
prepayment.
    (b) Voluntary termination. The contract of insurance shall be 
voluntarily terminated upon receipt by the Commissioner of a written 
request, on a form prescribed by the Commissioner, by the borrower and 
the lender for such termination, accompanied by a submission of the 
original credit instrument for cancellation of the insurance endorsement 
and the remittance of all sums to which the Commissioner is entitled. 
The termination shall become effective as of the date these requirements 
are met.



Sec.  220.806  Pro rata refund of insurance premium.

    Upon termination of loan insurance contract by a payment in full or 
by a voluntary termination, the Commissioner shall refund to the lender 
for the account of the borrower an amount equal to the pro rata portion 
of the current annual loan insurance premium theretofore paid which is 
applicable to the portion of the year subsequent to the date of the 
prepayment or the effective date of the voluntary termination of the 
contract of insurance.



Sec.  220.810  Definition of default.

    (a) If the borrower fails to make any payments due under or provided 
to be paid by the terms of the note or security instrument and such 
default continues for a period of 30 days, the note or security 
instrument shall be considered in default for the purposes of Sec. Sec.  
220.800 et seq.
    (b) The failure to perform any other covenant under the note or 
security instrument shall be considered a default,

[[Page 349]]

provided the lender because of such default, has exercised its right 
under the note or security instrument and accelerated the debt.
    (c) If such defaults as defined in paragraphs (a) and (b) of this 
section continue for a period of 30 days, the lender shall be entitled 
to receive the benefits of insurance hereinafter provided.



Sec.  220.811  Date of default.

    For the purposes of Sec. Sec.  220.800 et seq., the date of default 
shall be considered as:
    (a) The date of the first uncorrected failure to perform a covenant 
or obligation under the note or security instrument; or
    (b) The date of the first failure to make a monthly payment which 
subsequent payments by the borrower are insufficient to cover when 
applied to the overdue monthly payments in the order in which they 
became due.



Sec.  220.812  Notice of default.

    (a) If the default as defined in Sec.  220.810 is not cured within 
the 30 day grace period, the lender shall, within 30 days thereafter, 
notify the Commissioner in writing of such default.
    (b) The lender shall give notice in writing to the Commissioner of 
the failure of the borrower to comply with any covenant or obligation 
under the security instrument or note regardless of the fact the lender 
may not have elected to accelerate the debt.



Sec.  220.813  Commissioner's right to require acceleration.

    Upon receipt of notice of the failure of the borrower to comply with 
any covenant or obligation under the security instrument or note, or 
otherwise being apprised thereof, the Commissioner reserves the right to 
require the lender to accelerate payment of the outstanding principal 
balance due in order to protect the interests of the Federal Housing 
Commissioner.



Sec.  220.814  Election of action.

    Where a real estate mortgage, deed of trust, conditional sales 
contract, chattel mortgage, lien, judgment, or any other security device 
has been used to secure the payment of a loan made under the provisions 
of this section, the lender may not, except with the approval of the 
Commissioner, both proceed against such security and also make claim 
under its contract of insurance, but shall elect which method it desires 
to pursue.



Sec.  220.820  Maximum claim period.

    Notice of intention to file claim on a form prescribed by the 
Commissioner shall be filed within 45 days after the lender becomes 
eligible for the benefits of the loan insurance, or within such later 
time as may be agreed upon by the Commissioner in writing.



Sec.  220.821  Items to be filed on submitting claim.

    Within 30 days after the filing of the notice of intention to file 
claim, or within such further period as may be agreed upon by the 
Commissioner in writing, the lender shall file with the Commissioner:
    (a) The fiscal data pertaining to the loan transaction;
    (b) Receipts covering all disbursements as required by the fiscal 
data form;
    (c) The original note and any security instrument or instruments 
which shall be assigned to the Commissioner without recourse or 
warranty, except that the lender must warrant that no act or omission of 
the lender has impaired the validity and priority of such security 
instrument or instruments, that the security instrument or instruments 
are prior to all mechanics' and materialmen's liens filed of record 
subsequent to the recording of such security instrument or instruments 
regardless of whether such liens attached prior to such recording date, 
and prior to all liens and encumbrances which may have attached or 
defects which may have arisen subsequent to the recording of such 
security instrument or instruments, except such liens or other matters 
as may be approved by the Commissioner, that the amount stated in the 
instrument of assignment is actually due and owing under the security 
instrument or instruments, that there are no offsets or counter claims 
thereto, and that the lender has a good right to assign such note and 
security instrument or instruments;

[[Page 350]]

    (d) All hazard insurance policies held on property serving as 
security for the loan, together with a copy of the lender's notification 
to the carrier authorizing the amendment of the loss payable clause 
substituting the Commissioner as the holder of the security instrument;
    (e) The assignment to the Commissioner of all rights and interests 
arising under the note and security instrument or instruments so in 
default, and all claims of the lender against the borrower or others 
arising out of the loan transaction;
    (f) All policies of title or other insurance or surety bonds, or 
other guarantees and any and all claims thereunder; including evidence 
satisfactory to the Commissioner that the original title coverage has 
been extended to include the assignment of the note and security 
instrument or instruments to the Commissioner.
    (g) Any property held by the lender or its agents or to which it is 
entitled and, if payment is requested in debentures, any cash held by 
the lender or its agents or to which it is entitled, including deposits 
made for the account of the borrower, and which have not been applied in 
reduction of the principal of the mortgage indebtedness;
    (h) All records, ledger cards, documents, books, papers and accounts 
relating to the loan transaction;
    (i) Any additional information or data which the Commissioner may 
require.



Sec.  220.822  Claim computation; items included.

    (a) Assignment of loan. Upon an acceptable assignment of the note 
and security instrument, the Commissioner shall pay the claim of the 
lender in an amount equal to the unpaid principal balance of the loan 
plus:
    (1) Any accrued interest due as of the date of execution of the 
assignment of the loan to the Commissioner.
    (2) Any advances approved by the Commissioner made previously by the 
lender under the provisions of the note of security instrument or 
instruments.
    (3) Reimbursement for such reasonable collection costs, court costs, 
and attorney's fees as may be approved by the Commissioner.
    (4) Reimbursement for premiums paid on any hazard insurance policies 
held on the property.
    (5) If payment is made in cash, an amount equivalent to the 
debenture interest which would have been earned as of the date insurance 
settlement occurs, except that when the lender fails to meet any one of 
the applicable requirements of Sec. Sec.  220.812, 220.820, and 220.821 
within the specified time (or within such further time as the 
Commissioner may approve in writing), the debenture interest shall be 
computed only to the date to which the particular action should have 
been taken or to which it was extended.
    (b) [Reserved]

[36 FR 24573, Dec. 22, 1971, as amended at 80 FR 51468, Aug. 25, 2015]



Sec.  220.823  Claim computation; items deducted.

    If the lender is to receive payment in cash, there shall be deducted 
from the total of the added items in Sec.  220.822 the following:
    (a) Any balance of the loan not advanced to the borrower;
    (b) Any cash held by the lender or its agents or to which it is 
entitled; including deposits made for the account of the borrower and 
which have not been applied in reduction of the principal obligation 
under the note and security instrument or instruments.



Sec.  220.830  Debenture interest rate.

    Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year at the rate in effect as of the date the commitment was issued 
or as of the date the loan was endorsed for insurance, whichever rate is 
higher. The applicable rates of interest will be published twice each 
year as a notice in the Federal Register.

[47 FR 26125, June 17, 1982]



Sec.  220.832  Maturity of debentures.

    Debentures shall mature 10 years from the date of issue.



Sec.  220.834  Registration of debentures.

    Debentures shall be registered as to principal and interest.

[[Page 351]]



Sec.  220.836  Form and amounts of debentures.

    Debentures issued under subpart D of this part shall be in such form 
and amounts; and shall be subject to such terms and conditions; and 
shall include such provisions for redemption, if any, as may be 
prescribed by the Secretary, with the approval of the Secretary of the 
Treasury; and may be in book entry or certificated registered form, or 
such other form as the Secretary by regulation may prescribe.

[59 FR 49816, Sept. 30, 1994]



Sec.  220.838  Redemption of debentures.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment date on three 
months' notice of redemption given in such manner as the Commissioner 
shall prescribe. The debenture interest on the debentures called for 
redemption shall cease on the semiannual interest date designated in the 
call notice. The Commissioner may include with the notice of redemption 
an offer to purchase the debentures at par plus accrued interest at any 
time during the period between the notice of redemption and the 
redemption date. If the debentures are purchased by the Commissioner 
after such call and prior to the named redemption date, the debenture 
interest shall cease on the date of purchase.



Sec.  220.840  Issue date of debentures.

    The debentures shall be issued as of the date of the execution of 
the assignment of the loan to the Commissioner.



Sec.  220.842  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a check 
in payment thereof.

[59 FR 49816, Sept. 30, 1994]



Sec.  220.850  Assignment of insured loans.

    (a) An insured loan may not be transferred or pledged prior to the 
full disbursement of the loan, except with the prior written approval of 
the Commissioner which approval may be subject to such conditions and 
qualifications as the Commissioner may prescribe. Subsequent to full 
disbursement such loan may be transferred only to a transferee who is a 
lender approved by the Commissioner. Upon such transfer and the 
assumption by the transferee of all obligations under the contract of 
insurance the transferor shall be released from its obligations under 
the contract of insurance.
    (b) The contract of insurance shall terminate with respect to loans 
described in paragraph (a) of this section upon the happening of either 
of the following events:
    (1) The transfer or pledge of the insured loan to any person, firm, 
or corporation, public or private, other than an approved lender.
    (2) The disposal by a lender of any partial interest in the insured 
loan by means of a declaration of trust or by a participation or trust 
certificate or by any other device, unless with the prior written 
approval of the Commissioner, which approval may be subject to such 
conditions and qualifications as the Commissioner in his discretion may 
prescribe: Provided, That this paragraph shall not be applicable to any 
loan so long as it is held in a common trust fund maintained by a bank 
or trust company exclusively for the collective investment and 
reinvestment of moneys contributed thereto by the bank or trust company 
in its capacity as a trustee, executor or administrator; and in 
conformity with the rules and regulations prevailing from time to time 
of the Board of Governors of the Federal Reserve System, pertaining to 
the collective investment of trust funds: Provided further, That this 
paragraph shall not be applicable to any loan so long as it is held in a 
common trust estate administered by a bank or trust company which is 
subject to the inspection and supervision of a governmental agency, 
exclusively for the benefit of other banking institutions which are 
subject to the inspection and supervision of a governmental agency, and 
which are authorized by law to acquire beneficial intersts in such 
common trust estate, nor to any loan transferred to such a bank or trust

[[Page 352]]

company as trustee exclusively for the benefit of outstanding owners of 
undivided interest in the trust estate, under the terms of certificates 
issued and sold more than three years prior to said transfer, by a 
corporation which is subject to the inspection and supervision of a 
governmental agency.



               Subpart E_Servicing Responsibilities_Homes



Sec.  220.900  Cross-reference.

    All of the provisions of subpart C, part 203 of the chapter 
concerning the responsibilities of servicers of mortgages insured under 
section 203 of the National Housing Act apply to mortgages covering 1- 
to 11-family dwellings insured under section 220 of the National Housing 
Act, except Sec. Sec.  203.664 through 203.666.

[52 FR 48203, Dec. 21, 1987, and 53 FR 9869, Mar. 28, 1988]



PART 221_LOW COST AND MODERATE INCOME MORTGAGE INSURANCE_SAVINGS CLAUSE--Table of Contents



    Subpart A_Eligibility Requirements_Low Cost Homes_Savings Clause

Sec.
221.1 Savings clause.

        Subpart B_Contract Rights and Obligations_Low Cost Homes

221.251 Cross-reference.
221.252 Substitute mortgagors.
221.254 Mortgage insurance premiums.
221.255 Assignment option.
221.256 Interest rate increase and payment of mortgage insurance 
          premiums on mortgages under Sec. Sec.  221.60 and 221.65
221.275 Method of paying insurance benefits.
221.280 Waived title objections.

 Special Provisions Applicable Only to Mortgages Involving Condominium 
                                  Units

221.300 Changes in the plan of apartment ownership.
221.305 Condition of the multifamily structure.
221.310 Assessment of taxes.
221.315 Certificate of tax assessment.
221.320 Certificate or statement of condition.
221.325 Cancellation of hazard insurance.

       Subpart C_Eligibility Requirements_Moderate Income Projects

221.501 Eligibility requirements.

   Subpart D_Contract Rights and Obligations_Moderate Income Projects

221.751 Cross-reference.
221.753 Termination of mortgage insurance.
221.755 Premiums first, second, third and operating loss loans.
221.761 Forbearance relief.
221.762 Payment of insurance benefits.
221.763 Special insurance benefits--forbearance relief cases.
221.770 Assignment option.
221.775 Option period.
221.780 Issuance of debentures.
221.785 Date of maturity of debentures.
221.790 Debenture interest rate.
221.795 Displacement--below market interest rate mortgages.

           Subpart E_Servicing Responsibilities_Low Cost Homes

221.800 Cross-reference.

    Authority: 12 U.S.C. 1715b, 1715l, and 1735d; 42 U.S.C. 3535(d).

    Source: 36 FR 24587, Dec. 22, 1971, unless otherwise noted.



    Subpart A_Eligibility Requirements_Low Cost Homes_Savings Clause



Sec.  221.1  Savings clause.

    (a) Effective February 20, 2001, the authority to insure mortgages 
under section 221(d)(2) of the National Housing Act (12 U.S.C. 
1715l(d)(2)) for low cost and moderate income mortgage insurance is 
terminated, except that HUD will endorse for insurance validly processed 
mortgages under direct endorsement where the credit worksheet was signed 
by the mortgagee's underwriter before February 20, 2001.
    (b) Subpart A of this part, as it existed immediately before 
February 20, 2001, will continue to govern the rights and obligations of 
insured mortgage lenders, mortgagors, and HUD with respect to section 
221(d)(2) single family loans insured before February 20, 2001, or in 
accordance with paragraph (a) of this section, pursuant to the 
applicable provisions of this subpart.

[66 FR 5913, Jan. 19, 2001]

[[Page 353]]



        Subpart B_Contract Rights and Obligations_Low Cost Homes



Sec.  221.251  Cross-reference.

    (a) All of the provisions of subpart B, part 203 of this chapter 
covering mortgages insured under section 203 of the National Housing Act 
apply to mortgages covering one- to four-family dwellings insured under 
section 221 of the National Housing Act, except the following 
provisions:

Sec.
203.258 Substitute mortgagors.
203.259a Scope.
203.260 Amount of Mortgage Insurance Premium (MIP).
203.261 Calculation of MIP.
203.262 Due date of MIP.
203.264 Payment of MIP.
203.266 Period covered by MIP.
203.268 Pro rata payment of MIP.
203.280 One-time MIP.
203.281 Calculation of one-time MIP.
203.282 Mortgagee's late charge and interest.
203.283 Refund of one-time MIP.
203.288 Discontinuance of adjusted premium charge.
203.295 Voluntary termination of insurance.
203.389 Waived title objections.
203.400 Method of payment.
203.420 Nature of Mutual Mortgage Insurance Fund.
203.421 Allocation of Mutual Mortgage Insurance Fund income or loss.
203.422 Right and liability under Mutual Mortgage Insurance Fund.
203.423 Distribution of distributive shares.
203.424 Maximum amount of distributive shares.
203.425 Finality of determination.
203.436 Claim procedure--graduated payment mortgages.
203.438 Mortgages on Indian land insured pursuant to section 248 of the 
          National Housing Act.
203.439 Mortgages on Hawaiian home lands insured pursuant to section 247 
          of the National Housing Act.
203.439a Mortgages on property in Allegany Reservation of Seneca Nation 
          of Indians authorized by section 203(q) of the National 
          Housing Act.

    (b) For the purposes of this subpart, all references in part 203 of 
this chapter to section 203 of the Act shall be construed to refer to 
section 221 of the Act, and all references to the Mutual Mortgage 
Insurance Fund shall be construed to refer to the General Insurance 
Fund.

[36 FR 24587, Dec. 22, 1971, as amended at 37 FR 8663, Apr. 29, 1972; 41 
FR 42949, Sept. 29, 1976; 42 FR 29304, June 8, 1977; 47 FR 30754, July 
15, 1982; 48 FR 28807, June 23, 1983; 51 FR 21874, June 16, 1986; 52 FR 
8069, Mar. 16, 1987; 52 FR 28470, July 30, 1987; 52 FR 48204, Dec. 21, 
1987; 53 FR 9869, Mar. 28, 1988; 55 FR 34810, Aug. 24, 1990; 61 FR 
37801, July 19, 1996]



Sec.  221.252  Substitute mortgagors.

    (a) Selling mortgagor. The mortgagee may effect the release of a 
mortgagor from personal liability on the mortgage note only if it 
obtains the Commissioner's approval of a substitute mortgagor, as 
provided by this section.
    (b) Purchasing mortgagor. The Commissioner may approve a substitute 
mortgagor with respect to any mortgage insured under subpart A of this 
part, if the substitute mortgagor is to occupy the dwelling as a 
principal residence or a secondary residence (as these terms are defined 
in Sec.  221.20(c)) or is a private nonprofit or public entity as 
provided in section 221(h) of the National Housing Act.
    (c) Applicability--current mortgagor. Paragraph (b) of this section 
applies to the Commissioner's approval of a substitute mortgagor, only 
if the mortgage executed by the original mortgagor met the conditions of 
Sec.  203.258(c) of this chapter.
    (d) Applicability--earlier mortgagor. The occupancy and similar 
requirements set forth in Sec.  203.258(d) of this chapter apply to 
mortgages insured under subpart A of this part.
    (e) Mortgagees approved for participation in the Direct Endorsement 
program under Sec.  203.3 of this chapter may, subject to limitations 
established by the Commissioner, themselves approve an appropriate 
substitute mortgagor under the section and need not obtain further 
specific approval from the Commissioner.
    (f) Definition. As used in this section, the term substitute 
mortgagor includes:
    (1) Persons who, upon the release by a mortgagee of a previous 
mortgagor from personal liability on the mortgage note, assume this 
liability and agree to pay the mortgage debts and
    (2) Persons who purchase without assuming liability on the mortgage 
note

[[Page 354]]

or purchase where no release is given by the mortgagee to the previous 
mortgagor.

[55 FR 34810, Aug. 24, 1990, as amended at 57 FR 58351, Dec. 9, 1992]



Sec.  221.254  Mortgage insurance premiums.

    (a) All of the provisions of Sec. Sec.  203.260 through 203.295 of 
this chapter relating to mortgage insurance premiums shall apply to 
mortgages insured under this subpart, except that as to mortgages 
meeting the special requirements of Sec.  221.60 or Sec.  221.65, such 
provisions shall only be applicable under the circumstances prescribed 
in paragraph (b) of this section. Notwithstanding any provision in the 
mortgage instrument, there shall be no adjusted mortgage insurance 
premium or voluntary termination charge due the Commissioner on account 
of the prepayment of any mortgage or the voluntary termination of any 
mortgage insurance contract where (1) The mortgage is prepaid in full, 
or (2) the Commissioner receives a request for voluntary termination on 
or after May 1, 1972.
    (b) Whenever the interest rate on a mortgage insured under this part 
as having met the special requirement of Sec.  221.60 or Sec.  221.65 
shall have been increased to the maximum rate in accordance with Sec.  
221.60(j), Sec.  221.65(d)(4), or Sec.  221.65(d)(5), the provisions of 
Sec. Sec.  203.260 through 203.295 of this chapter relating to mortgage 
insurance premiums shall apply except that:
    (1) References to the original principal amount shall be construed 
as the scheduled unpaid principal balance, without taking into account 
delinquent payments or prepayments, on the date of the change in 
interest rate required under the mortgage.
    (2) References to the date of the issuance of a Mortgage Insurance 
Certificate or the date of the endorsement of the credit instrument or 
the date the insurance becomes effective shall be construed as the date 
of the change in interest required under the mortgage.
    (3) References to the first year of amortization under the mortgage 
shall be construed as the period beginning on the date of the change in 
interest rate required under the mortgage and ending on the next 
anniversary of the beginning of amortization.

[36 FR 24587, Dec. 22, 1971, as amended at 37 FR 8663, Apr. 29, 1972]



Sec.  221.255  Assignment option.

    (a) A mortgagee holding a mortgage insured pursuant to a conditional 
or firm commitment issued on or before November 30, 1983 has the option 
to assign, transfer and deliver to the Commissioner the original credit 
instrument and the mortgage securing it, provided the mortgage is not in 
default at the expiration of 20 years from the date of final endorsement 
of the credit instrument. In processing a mortgagee's claim for 
insurance benefits under this section, the Commissioner may direct the 
mortgagee to assign, transfer and deliver the original credit 
instrument, and the mortgage securing it, directly to the Government 
National Mortgage Association (GNMA). Upon such assignment, transfer and 
delivery, either to the Commissioner or to GNMA, as directed, the 
mortgage insurance contract shall terminate and the mortgagee shall be 
entitled to receive insurance benefits in accordance with this section.
    (b) The mortgagee may exercise its assignment option within 1 year 
following the twentieth anniversary of the date the mortgage was 
endorsed for insurance.
    (c) Upon the exercise of the assignment option the Commissioner 
shall issue to the assignor mortgagee debentures having a total face 
value equal to the amount of the original principal obligation of the 
mortgage which was unpaid on the date of the assignment, plus accrued 
interest to such date.
    (d) The debentures issued pursuant to the exercise of an assignment 
option shall be dated as of the date the mortgage is assigned to the 
Commissioner and shall mature 10 years after such date.
    (e) The debentures issued pursuant to the exercise of an assignment 
option shall bear interest at the going Federal rate at date of 
issuance. The going Federal rate means the annual rate of interest 
specified by the Secretary of the Treasury as applicable to the 6-month 
period which includes the issuance date of the debentures. The Secretary 
of the

[[Page 355]]

Treasury shall determine this applicable rate by estimating the average 
yield to maturity, on the basis of daily closing market bid quotations 
or prices during the month of May or the month of November, as the case 
may be, next preceding such 6-month period, on all outstanding 
marketable obligations of the United States having a maturity date of 8 
to 12 years from the first day of May or November, as the case may be. 
If there should be no outstanding marketable obligations of the United 
States having the 8 to 12 year maturity at the time the Secretary of the 
Treasury is required to determine the debenture rate involved, the 
obligation next shorter than 8 years and the obligation next longer than 
12 years respectively, shall be used.
    (f) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year at the rate in effect on the issue date, a date which shall be 
established as provided in Sec.  203.410 of this chapter. The interest 
rate shall be established by the Commissioner in an amount not in excess 
of the annual rate of interest which the Secretary of the Treasury shall 
specify as applicable to the 6-month period (consisting of January 
through June, or July through December) which includes the issuance date 
of such debentures, which applicable rate for each 6-month period shall 
be determined by the Secretary of the Treasury, at the request of the 
Commissioner, by estimating the average yield to maturity, on the basis 
of daily closing market bid quotations or prices during the calendar 
month next preceding the establishment of such rate of interest, on all 
outstanding marketable obligations of the United States having a 
maturity date of 15 years or more from the first day of such next 
preceding month, and by adjusting such estimated average annual yield to 
the nearest one-eighth of 1 per centum.

[36 FR 24587, Dec. 22, 1971, as amended at 49 FR 12697, Mar. 30, 1984]



Sec.  221.256  Interest rate increase and payment of mortgage insurance
premiums on mortgages under Sec.  221.60 and Sec.  221.65.

    (a) Where a mortgage meets the special requirements of Sec.  221.60 
or Sec.  221.65, the following procedures are applicable:
    (1) The mortgagee shall determine, at least biennially, whether the 
mortgagor has continued to occupy the property securing the mortgage. If 
the mortgagee determines that the mortgagor is not occupying the 
property or that the mortgagor has sold the property subject to the 
mortgage to a purchaser not qualifying under the provisions of Sec.  
221.60(h) or Sec.  221.65(d)(4) (as appropriate) for the continuation of 
a below market interest rate, interest on such mortgage shall be 
computed by the mortgagee at the highest rate permissible under the 
mortgage. The computation at the higher rate shall be effective from the 
first day of the month following the month in which the right to collect 
interest at the increased rate first accrued, as determined by the 
mortgagee.
    (2) The mortgagee shall determine the mortgagor's family income, at 
least biennially, and shall increase the mortgage interest pursuant to 
the requirements of Sec. Sec.  221.60(g) and 221.65(d)(5), as 
appropriate, to comply with the requirements of such sections. The 
computation at the higher rate shall be effective from the first day of 
the month following the month in which the mortgagee determines that the 
mortgagor's family income was increased.
    (b) The mortgagee shall notify the Commissioner, on a form 
prescribed by the Commissioner, within 30 days of making the 
determination of the right to compute interest at the higher rate, as 
provided in paragraph (a) of this section, of:
    (1) The date on which such right first accrued, and
    (2) The outstanding principal balance of the mortgage on the first 
day of the month following the date on which such right first accrued.
    (c) The liability for payment of mortgage insurance premiums shall 
begin on and be computed from the first day of the month following the 
date on

[[Page 356]]

which the right to compute interest at the higher rate shall have first 
accrued.

[36 FR 24587, Dec. 22, 1971, as amended at 37 FR 8663, Apr. 29, 1972]



Sec.  221.275  Method of paying insurance benefits.

    If the application for insurance benefits is acceptable to the 
Commissioner, all of the insurance claim shall be paid in cash unless 
the mortgagee files a written request with the application for payment 
in debentures. If such a request is made, all of the claim shall be paid 
by issuing debentures and by making a cash payment adjusting any 
differences between the total amount of the claim and the amount of the 
debentures issued.



Sec.  221.280  Waived title objections.

    (a) General provisions. All of the provisions of Sec.  203.389 of 
this chapter (relating to the waiver by the Commissioner of objections 
to title) shall apply to mortgages insured under this subpart, with the 
exception of mortgages involving condominium units.
    (b) Provisions applicable to condominium units. Where the mortgage 
involves a condominium unit, the Commissioner shall not object to title 
by reason of the following matters:
    (1) Violations of a restriction based on race, color, or creed, even 
where such restriction provides for a penalty of reversion or forfeiture 
of title or a lien for liquidated damage.
    (2) Easements for public utilities along one or more of the property 
lines, provided the exercise of the rights thereunder do not interfere 
with any of the buildings or improvements located on the subject 
property.
    (3) Encroachments on the subject property by improvements on 
adjoining property, provided such encroachments do not interfere with 
the use of any improvements on the subject property.
    (4) Variations between the length of the subject property lines as 
shown on the application for insurance and as shown by the record or 
possession lines, provided such variations do not interfere with the use 
of any of the improvements on the subject property.
    (5) Customary buildings or use restrictions for breach of which 
there is no reversion and which have not been violated to a material 
extent.

 Special Provisions Applicable Only to Mortgages Involving Condominium 
                                  Units



Sec.  221.300  Changes in the plan of apartment ownership.

    The mortgagee shall notify the Commissioner of any changes in the 
plan of apartment ownership and in the administration of the property. 
Such notification shall be given either at the time of the conveyance of 
the property or at the time of the assignment of the mortgage. Any 
changes in such plan shall require approval by the Commissioner.



Sec.  221.305  Condition of the multifamily structure.

    (a) When a family unit is conveyed or a mortgage is assigned to the 
Commissioner, the family unit and the common areas and facilities 
(including restricted common areas and facilities) designated for the 
particular unit shall be undamaged by fire, earthquake, tornado, or 
boiler explosion, except if the property has been damaged, either of the 
following actions shall be taken:
    (1) The property may be repaired prior to its conveyance or prior to 
the assignment of the mortgage to the Commissioner.
    (2) With the prior approval of the Commissioner, the property may be 
conveyed or the mortgage assigned to the Commissioner without repairing 
the damage. In such instances, the Commissioner shall deduct from the 
insurance benefits either his estimate of the decrease in value of the 
family unit or the amount of any insurance recovery received by the 
mortgagee, whichever is the greater.
    (b) If the property has been damaged by fire and such property was 
not covered by fire insurance at the time of the damage, the mortgagee 
may convey the property or assign the mortgage to the Commissioner 
without deduction from the insurance benefits for any loss occasioned by 
such fire if the following conditions are met:
    (1) The property shall have been covered by fire insurance at the 
time the mortgage was insured.

[[Page 357]]

    (2) The fire insurance shall have been later cancelled or renewal 
shall have been refused by the insuring company.
    (3) The mortgagee shall have notified the Commissioner within 30 
days (or within such further time as the Commissioner may approve) of 
the cancellation of the fire insurance or of the refusal of the insuring 
company to renew the fire insurance. This notification shall have been 
accompanied by a certification of the mortgagee that diligent efforts 
were made, but it was unable to obtain fire insurance coverage at 
reasonably competitive rates and that it will continue its efforts to 
obtain adequate fire insurance coverage at competitive rates.



Sec.  221.310  Assessment of taxes.

    When a family unit is conveyed to the Commissioner or a mortgage is 
assigned to the Commissioner, the unit shall be assessed and subject to 
assessment for taxes pertaining only to that unit.



Sec.  221.315  Certificate of tax assessment.

    The mortgagee shall certify, as of the date of filing for record of 
the deed or assignment of the mortgage to the Commissioner, that the 
family unit is assessed and subject to assessment for taxes pertaining 
to that unit.



Sec.  221.320  Certificate or statement of condition.

    (a) At the time of the assignment of the mortgage or conveyance of 
the property to the Commissioner, the mortgagee shall, as of the date of 
the filing for record of the deed or assignment,
    (1) Certify that the conditions of Sec.  221.305(a) have been met; 
or
    (2) Submit a statement describing any such damage that may still 
exist.
    (b) In the absence of evidence to the contrary, the mortgagee's 
certificate or its statement as to damage shall be accepted by the 
Commissioner as establishing the condition of the family unit and the 
common areas and facilities including restricted common areas and 
facilities designated for the particular unit.



Sec.  221.325  Cancellation of hazard insurance.

    The provisions of Sec.  203.382 of this chapter are incorporated by 
reference and shall apply to hazard insurance policies carried solely 
for the family unit.



       Subpart C_Eligibility Requirements_Moderate Income Projects



Sec.  221.501  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
multifamily project mortgages insured under section 221 of the National 
Housing Act (12 U.S.C. 1715l), as amended.

[61 FR 14405, Apr. 1, 1996]



   Subpart D_Contract Rights and Obligations_Moderate Income Projects



Sec.  221.751  Cross-reference.

    (a) All of the provisions of subpart B, part 207 of this chapter, 
covering mortgages insured under section 207 of the National Housing 
Act, apply with full force and effect to multifamily project mortgages 
insured under section 221 of the National Housing Act, except the 
following provisions:

Sec.
207.252 First, second, and third premium.
207.252a Premiums--operating loss loans.
207.259 Insurance benefits.

    (b) For the purposes of this subpart, all references in part 207 of 
this chapter to section 207 of the act shall be construed to refer to 
section 221 of the Act, and all references to part 207 shall be 
construed to refer to this subpart.

[36 FR 24587, Dec. 22, 1971, as amended at 37 FR 8663, Apr. 29, 1972; 42 
FR 59675, Nov. 18, 1977]



Sec.  221.753  Termination of mortgage insurance.

    In addition to the provisions of Sec.  207.253a, the following 
requirements apply to certain multifamily mortgages insured under 
section 221 of the National Housing Act:
    (a) For those projects qualifying as eligible low income housing 
under Sec.  248.201, the contract of insurance may

[[Page 358]]

be terminated only as provided in part 248.
    (b) For those projects subject to section 250(a) of the National 
Housing Act, the contract of insurance may be terminated only if the 
Commissioner determines that the requirements of section 250(a) are met.

[55 FR 38958, Sept. 21, 1990]



Sec.  221.755  Premiums first, second, third and operating loss loans.

    All of the provisions of Sec. Sec.  207.252 and 207.252a of this 
chapter, relating to mortgage insurance premiums, apply to mortgages 
insured under this subpart that provide for interest at the market rate 
prescribed in Sec.  221.518(a) except that as to mortgages insured under 
this subpart pursuant to section 238(c) of the Act all mortgage 
insurance premiums due in accordance with Sec. Sec.  207.252 and 
207.252a shall be calculated on the basis of one percent. The provisions 
of Sec.  207.252. shall not apply to:
    (a) Mortgages that provide for interest during the construction 
period at the market rate and for interest subsequent to final 
endorsement at the below market rate prescribed in Sec.  221.518(b); or
    (b) Mortgages encumbering a project in which all units are covered 
by an annual contributions contract issued pursuant to section 10(c) of 
the Housing Act of 1937.

[36 FR 24587, Dec. 22, 1971, as amended at 42 FR 59675, Nov. 18, 1977]



Sec.  221.761  Forbearance relief.

    (a) In a case where the mortgage is in default, the mortgagor and 
the mortgagee may enter into a forbearance agreement for the reduction 
or suspension of regular mortgage payments for a specified period of 
time, if the following requirements are met:
    (1) The mortgage was endorsed for insurance on or after July 7, 
1961.
    (2) The Commissioner determines that the default was due to 
circumstances beyond the mortgagor's control and that the mortgage 
probably will be restored to good standing within a reasonable period of 
time and evidences such determination by written approval of the 
forbearance agreement.
    (b) The time specified in Sec.  207.258(a) of this chapter, within 
which a mortgagee shall give the Commissioner written notice of its 
intention to file an insurance claim, shall be suspended for the period 
of time specified in the forbearance agreement as long as the mortgagor 
complies with the requirements of such agreement.
    (c) If the mortgagor fails to meet the requirements of a forbearance 
agreement or to cure the default under the mortgage at the expiration of 
the forbearance period, and such failure continues for a period of 30 
days, the mortgagee shall notify the Commissioner of such failure. 
Within 45 days thereafter, unless a modification or extension of the 
forbearance agreement has been approved by the Commissioner, the 
mortgagee shall notify the Commissioner of its election to file an 
insurance claim and of its decision to either assign the mortgage to the 
Commissioner or to acquire and convey title to the property to the 
Commissioner. If the mortgage is assigned to the Commissioner, the 
special insurance benefits prescribed in Sec.  221.763 shall be 
applicable.

[36 FR 24587, Dec. 22, 1971, as amended at 51 FR 27838, Aug. 4, 1986]



Sec.  221.762  Payment of insurance benefits.

    All of the provisions of Sec.  207.259 of this chapter relating to 
insurance benefits apply to multifamily project mortgages insured under 
this subpart, except as provided in this section:
    (a) [Reserved]
    (b) Below market interest rate mortgages. Where the mortgage has 
been finally endorsed and the special below market interest rate 
provided in Sec.  221.518(b) is applicable as of the date of default, 
the 1 percent deduction from insurance benefits prescribed in Sec.  
207.259(b)(2)(iv) of this chapter shall not be applicable.
    (c) Mortgages financed with section 11(b) obligations. Where the 
funds for a mortgage loan are provided by obligations that are tax-
exempt under section 11(b) of the United States Housing Act of 1937 (24 
CFR part 811), the one percent deduction from insurance benefits 
prescribed in Sec.  207.259(b)(2)(iv) of

[[Page 359]]

this chapter shall not be applicable to claims with respect to 
multifamily rental housing projects for which a firm commitment for 
mortgage insurance was issued on or after March 12, 1979.

[36 FR 24587, Dec. 22, 1971, as amended at 44 FR 40890, July 13, 1979; 
80 FR 51468, Aug. 25, 2015]



Sec.  221.763  Special insurance benefits--forbearance relief cases.

    (a) In the case of a mortgage that provides for payment of interest 
at the market rate prescribed in Sec.  221.518(a), if the mortgagor 
fails to meet the requirements of a forbearance agreement or to cure the 
default under the mortgage at the expiration of the forbearance 
agreement, the mortgagee shall be entitled to obtain a special insurance 
payment in cash, in lieu of the insurance benefits otherwise provided 
under this subpart. To receive the special insurance payment, the 
mortgagee shall assign the mortgage to the Commissioner in compliance 
with the requirements of Sec.  207.258(b) of this chapter.
    (b) The special insurance benefit to the mortgagee shall be a cash 
payment computed in accordance with Sec.  207.259(b) of this chapter, 
except that in lieu of the allowance for debenture interest in Sec.  
207.259(b)(1)(iii) of this chapter, the payment shall include the amount 
of the unpaid accrued mortgage interest computed to the date the 
assignment of the mortgage to the Commissioner is filed for record. In 
addition, there shall be included in the cash payment an amount 
equivalent to the debenture interest which would have been earned from 
the date the mortgage assignment was filed for record to the date the 
payment is made; except that when the mortgagee fails to meet any of the 
applicable requirements of Sec.  207.258(b) of this chapter and Sec.  
221.761(c) within the specified times and in a manner satisfactory to 
the Commissioner (or within such further time as the Commissioner may 
approve in writing), such debenture interest allowance shall be computed 
only to the date on which the particular required action should have 
been taken.



Sec.  221.770  Assignment option.

    A mortgagee holding a conditional or firm commitment issued on or 
before November 30, 1983 (or, in the Direct Endorsement program, a 
property appraisal report signed by the mortgagee's approved underwriter 
on or before November 30, 1983) has the option to assign, transfer and 
deliver to the Commissioner the original credit instrument and the 
mortgage securing it, provided that the mortgage is not in default at 
the expiration of 20 years from the date of final endorsement of the 
credit instrument. In processing a mortgagee's claim for insurance 
benefits under this section, the Commissioner may direct the mortgagee 
to assign, transfer and deliver the original credit instrument, and the 
mortgage securing it, directly to the Government National Mortgage 
Association (GNMA). Upon such assignment, transfer and delivery either 
to the Commissioner or to GNMA, as directed, the mortgage insurance 
contract shall terminate and the mortgagee shall be entitled to receive 
insurance benefits in accordance with Sec.  221.780.

[49 FR 12698, Mar. 30, 1984, as amended at 57 FR 58351, Dec. 9, 1992]



Sec.  221.775  Option period.

    The mortgagee may exercise its option to assign within one year 
following the twentieth anniversary of the date the mortgage was finally 
endorsed for insurance.



Sec.  221.780  Issuance of debentures.

    Upon the exercise of the assignment option and the satisfactory 
performance of the requirements as to assignment set out in Sec.  
207.258 of this chapter, the Commissioner shall issue the assignor 
mortgagee debentures having a total par value equal to the amount of the 
original principal obligation of the mortgage which was unpaid on the 
date of the assignment, plus accrued interest to such date.

[59 FR 49816, Sept. 30, 1994]



Sec.  221.785  Date of maturity of debentures.

    The debentures issues pursuant to the exercise of an assignment 
option

[[Page 360]]

shall be dated as of the date the mortgage is assigned to the 
Commissioner and shall mature 10 years after such date.



Sec.  221.790  Debenture interest rate.

    The debentures issued pursuant to the exercise of an assignment 
option shall bear interest at the going Federal rate at date of 
issuance. The going Federal rate means the annual rate of interest 
specified by the Secretary of the Treasury as applicable to the 6-month 
period which includes the issuance date of the debentures. The Secretary 
of the Treasury shall determine this applicable rate by estimating the 
average yield to maturity, on the basis of daily closing market bid 
quotations or prices during the month of May or the month of November, 
as the case may be, next preceding such 6-month period, on all 
outstanding marketable obligations of the United States having a 
maturity date of 8 to 12 years from the first day of May or November, as 
the case may be. If there should be no outstanding marketable 
obligations of the United States having the 8 to 12 year maturity at the 
time the Secretary of the Treasury is required to determine the 
debenture rate involved, the obligation next shorter than 8 years and 
the obligation next longer than 12 years respectively shall be used.



Sec.  221.795  Displacement--below market interest rate mortgages.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, Owners shall assure that they have taken all 
reasonable steps to minimize the displacement of persons (households, 
businesses, nonprofit organizations, and farms) as a result of a project 
assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily to permit rehabilitation or other work for the 
project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporarily occupied housing, any increase in 
monthly rent/utility costs and any incidental expenses.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the rehabilitation; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-4655) 
and implementing regulations at 49 CFR part 24. A ``displaced person'' 
shall be advised of his or her rights under the Fair Housing Act (42 
U.S.C. 3601-19), and, if the representative comparable replacement 
dwelling used to establish the amount of the replacement housing payment 
to be provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements 
described in 49 CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the Owner's determination 
concerning whether the person qualifies as a ``displaced person,'' or 
with the amount of relocation assistance for which the person is 
eligible, may file a written appeal of that determination with the 
Owner. A person who is dissatisfied with the Owner's determination on 
his or her appeal may submit a written request for review of that 
determination to the HUD Field Office.

[[Page 361]]

    (f) Responsibility of Owner. (1) The Owner shall certify (i.e., 
provide assurance of compliance as required by 49 CFR part 24) that the 
Owner will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The Owner shall ensure such compliance 
notwithstanding any third party's contractual obligation to the Owner to 
comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. Such costs also may be paid with funds available from other 
sources.
    (3) The Owner shall maintain records in sufficient detail to 
demonstrate compliance with these provisions. The Owner shall maintain 
data on the race, ethnic, gender, and disability status of displaced 
persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term displaced person means a person (household, business, 
nonprofit organization, or farm) that moves from real property, or moves 
personal property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted under 
this part. The term ``displaced person'' includes, but may not be 
limited to:
    (i) A tenant-occupant of a dwelling unit who moves from the 
building/complex, permanently, after the Owner executes the agreement 
covering the rehabilitation, demolition or acquisition, if the move 
occurs before the tenant is provided written notice offering him or her 
the opportunity to lease and occupy a suitable, decent, safe, and 
sanitary dwelling in the same building/complex, under reasonable terms 
and conditions, upon completion of the project. Such reasonable terms 
and conditions include a monthly rent and estimated average monthly 
utility costs that do not exceed the amount approved by HUD;
    (ii) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied unit, 
any increased housing costs and incidental expenses; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (iii) A tenant-occupant of a dwelling who moves from the building/
complex, permanently, after he or she has been required to move to 
another dwelling unit in the same building/complex in order to carry out 
the project, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable; or
    (iv) Any person, including a person who moves before the Owner's 
execution of the agreement covering the rehabilitation, demolition, or 
acquisition, if the Owner or HUD determines that the displacement 
resulted directly from rehabilitation, demolition or acquisition for the 
assisted project.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the execution of the 
agreement covering the rehabilitation, demolition or acquisition and, 
before signing a lease and commencing occupancy, received written notice 
of the project, its possible impact on the person (e.g., the person may 
be displaced, temporarily relocated or suffer a rent increase) and the 
fact that he or she would not qualify as a ``displaced person'' (or for 
any assistance provided under this section) as a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or

[[Page 362]]

    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (3) The Owner may ask HUD, at any time, to determine whether a 
displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition, or acquisition of the 
real property, the term initiation of negotiations means the Owner's 
execution of the agreement covering the rehabilitation, demolition, or 
acquisition.

(Approved by Office of Management and Budget under OMB Control Number 
2506-0121)

[59 FR 29330, June 6, 1994]



           Subpart E_Servicing Responsibilities_Low Cost Homes



Sec.  221.800  Cross-reference.

    All of the provisions of subpart C, part 203 of the chapter 
concerning the responsibilities of servicers of mortgages insured under 
section 203 of the National Housing Act apply to mortgages covering one- 
to four-family dwellings to be insured under section 221 of the National 
Housing Act, except Sec. Sec.  203.664 through 203.666.

[52 FR 48204, Dec. 21, 1987, and 53 FR 9869, Mar. 28, 1988]



PART 231_HOUSING MORTGAGE INSURANCE FOR THE ELDERLY--Table of Contents



                   Subpart A_Eligibility Requirements

Sec.
231.1 Eligibility requirements.

                Subpart B_Contract Rights and Obligations

231.251 Cross-reference.

    Authority: 12 U.S.C. 1715b, 1715v; 42 U.S.C. 3535(d).

    Source: 36 FR 24615, Dec. 22, 1971, unless otherwise noted.



                   Subpart A_Eligibility Requirements



Sec.  231.1  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
multifamily project mortgages insured under section 231 of the National 
Housing Act (12 U.S.C. 1715v), as amended.

[61 FR 14406, Apr. 1, 1996]



                Subpart B_Contract Rights and Obligations



Sec.  231.251  Cross-reference.

    (a) All of the provisions of part 207, subpart B of this chapter 
covering mortgages insured under section 207 of the National Housing Act 
apply to mortgages insured under section 231 of such Act.
    (b) For the purposes of this subpart all references in part 207 of 
this chapter to section 207 of the Act shall be construed to refer to 
section 231 of the Act.



PART 232_MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE 
FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES
--Table of Contents



                   Subpart A_Eligibility Requirements

Sec.
232.1 Eligibility requirements, generally; applicability of certain 
          requirements.
232.2 License.
232.3 Eligible borrower.
232.7 Bathroom.
232.11 Establishment and maintenance of long-term debt service reserve 
          account.

                Subpart B_Contract Rights and Obligations

232.251 Cross-reference.
232.252 Definitions.
232.254 Withdrawal of project funds, including for repayments of 
          advances from the borrower, operator, or management agent.
232.256 Partial payment of claims.

    Subpart C_Eligibility Requirements_Supplemental Loans To Finance 
           Purchase and Installation of Fire Safety Equipment

232.500 Definitions.

[[Page 363]]

                            Fees and Charges

232.505 Application and application fee.
232.510 Commitment and commitment fee.
232.515 Refund of fees.
232.520 Maximum fees and charges by lender.
232.522 Inspection fee.

                      Eligible Security Instruments

232.525 Note and security form.
232.530 Disbursement of proceeds.
232.535 Loan multiples--minimum principal.
232.540 Method of loan payment and amortization period.
232.545 Covenant against liens.
232.550 Accumulation of next premium.
232.555 Security instrument and lien.
232.560 Interest rate.
232.565 Maximum loan amount.
232.570 Endorsement of credit instrument.
232.580 Application of payments.
232.585 Prepayment privilege and prepayment charge.
232.586 Minimum principal loan amount.

                          Property Requirements

232.590 Eligibility of property.
232.591 Smoke detectors.

                                  Title

232.595 Eligibility of title.
232.600 Title evidence.

                            Form of Contract

232.605 Contract requirements.

                     Cost Certification Requirements

232.610 Certification of cost requirements.

                           Eligible Borrowers

232.615 Eligible borrowers.
232.616 Disclosure and verification of Social Security and Employer 
          Identification Numbers.

                          Special Requirements

Sec.  232.620 Determination of compliance with fire safety equipment 
          requirements.
232.625 Discrimination prohibited.
232.630 Assurance of completion.

                Subpart D_Contract Rights and Obligations

232.800 Definitions.

                                Premiums

232.805 Insurance premiums.
232.805a Mortgagee's late charge.
232.815 Termination of insurance.
232.825 Pro rata refund of insurance premium.

       Rights and Duties of Lender Under the Contract of Insurance

232.830 Definition of default.
232.840 Date of default.
232.850 Notice of default.
232.860 Commissioner's right to require acceleration.
232.865 Election by lender.
232.875 Maximum claim period.
232.880 Items to be delivered on submitting claim.
232.885 Insurance benefits.
232.890 Characteristics of debentures.
232.893 Cash adjustment.

                               Assignments

232.895 Assignment of insured loans.

                            Extension of Time

232.897 Actions to be taken by lender.

       Subpart E_Insurance of Mortgages Covering Existing Projects

232.901 Mortgages covering existing projects are eligible for insurance.
232.902 Eligible project.
232.903 Maximum mortgage limitations.
232.904 Terms of the mortgage.
232.905 Labor standards and prevailing wage requirements.
232.906 Processing of applications and required fees.

  Subpart F_Eligible Operators and Facilities and Restrictions on Fund 
                              Distributions

232.1001 Scope.
232.1003 Eligible operator.
232.1005 Treatment of project operating accounts.
232.1007 Operating expenses.
232.1009 Financial reports.
232.1011 Management agents.
232.1013 Restrictions on deposit, withdrawal, and distribution of funds, 
          and repayment of advances.
232.1015 Prompt notification to HUD and mortgagee of circumstances 
          placing the value of the security at risk.

    Authority: 12 U.S.C. 1715b, 1715w, 1735d, and 1735f-19; 42 U.S.C. 
3535(d).

    Source: 36 FR 24618, Dec. 22, 1971, unless otherwise noted.



                   Subpart A_Eligibility Requirements

    Source: 61 FR 14406, Apr. 1, 1996, unless otherwise noted.

[[Page 364]]



Sec.  232.1  Eligibility requirements, generally; applicability of
certain requirements.

    (a) Eligibility, generally. All of the requirements set forth in 24 
CFR part 200, subpart A, except for the requirements for ``eligible 
mortgagor'' in 24 CFR 200.5, apply to mortgages insured under section 
232 of the National Housing Act (12 U.S.C. 1715w), as amended.
    (b) Applicability of certain requirements. As of October 9, 2012 the 
provisions in 24 CFR 207.255(b)(5), 207.258, 232.3, 232.11, 232.254, 
232.903(c) and (d), and subpart F of part 232, excluding Sec. Sec.  
232.1007, 232.1009, and 232.1015 of subpart F are applicable only to 
transactions for which a firm commitment has been issued under this part 
on or after July 12, 2013.

[77 FR 55136, Sept. 7, 2012, as amended at 78 FR 25185, Apr. 30, 2013]



Sec.  232.2  License.

    The Commissioner shall not insure any mortgage under this part 
unless the facility is regulated by the State, municipality or other 
political subdivision in which the facility is or is to be located, and 
the appropriate agency for such jurisdiction provides a license, 
certificate or other assurances the Commissioner considers necessary, 
that the facility complies with any applicable State or local standards 
and requirements for such facility.



Sec.  232.3  Eligible borrower.

    The borrower shall be a single asset entity acceptable to the 
Commissioner, as may be limited by the applicable section of the Act, 
and shall possess the powers necessary and incidental to owning the 
project, except that the Commissioner may approve a non-single asset 
borrower entity under such circumstances, terms, and conditions 
determined and specified as acceptable to the Commissioner.

[77 FR 55136, Sept. 7, 2012]



Sec.  232.7  Bathroom.

    Not less than one full bathroom must be provided for every four 
residents of a board and care home or assisted living facility, and 
bathroom access from any bedroom or sleeping area must not pass through 
a public corridor or area.

[61 FR 14406, Apr. 1, 1996. Redesignated at 77 FR 55136, Sept. 7, 2012]



Sec.  232.11  Establishment and maintenance of long-term debt service
reserve account.

    (a) To be eligible for insurance under this part, and except with 
respect to Supplemental Loans to Finance Purchase and Installation of 
Fire Safety Equipment (subpart C of this part), if HUD determines the 
mortgage presents an atypical long-term risk, HUD may require that the 
borrower establish, at final closing and maintain throughout the term of 
the mortgage, a long-term debt service reserve account.
    (b) The long-term debt service reserve account, if required, may be 
financed as part of the initial mortgage amount, provided that the 
maximum mortgage amount as otherwise calculated is not thereby exceeded.
    (c) The amount required to be initially placed in the long-term debt 
service reserve account and the minimum long-term balance to be 
maintained in that account will be determined during underwriting and 
separately identified in the firm commitment. Although HUD may, when 
appropriate to avert a mortgage insurance claim, permit the balance to 
fall below the required minimum long-term balance, the borrower may not 
take any distribution of mortgaged property except when both the long-
term debt service reserve account is funded at the minimal long-term 
level and such distribution is otherwise permissible.

[77 FR 55136, Sept. 7, 2012]



                Subpart B_Contract Rights and Obligations



Sec.  232.251  Cross-reference.

    (a) All of the provisions, except Sec.  207.258b, of part 207, 
subpart B of this chapter relating to mortgages insured under section 
207 of the National Housing Act, apply to mortgages insured under 
section 232 of the Act.
    (b) For the purposes of this subpart all references in part 207 of 
this chapter

[[Page 365]]

to section 207 of the Act shall be construed to refer to section 232 of 
the Act.

[36 FR 24618, Dec. 22, 1971, as amended at 50 FR 38787, Sept. 25, 1985]



Sec.  232.252  Definitions.

    All of the definitions contained in Sec.  232.1 shall apply to this 
subpart. In addition, as used in this part, the following term shall 
have the meaning indicated:
    (a) Contract of insurance means the agreement evidenced by the 
Commissioner's insurance endorsement and includes the provisions of this 
subpart and of the Act.



Sec.  232.254  Withdrawal of project funds, including for repayments of
advances from the borrower, operator, or management agent.

    Borrower may make and take distributions of mortgaged property, as 
set forth in the mortgage loan transactional documents, to the extent 
and as permitted by the law of the applicable jurisdiction, provided 
that, upon each calculation of borrower surplus cash (as defined by 
HUD), which calculation shall be made no less frequently than semi-
annually, borrower must demonstrate positive surplus cash, or to the 
extent surplus cash is negative, repay any distributions taken during 
such calculation period within 30 calendar days unless a longer time 
period is approved by HUD. Borrower shall be deemed to have taken 
distributions to the extent that surplus cash is negative unless, in 
conjunction with the calculation of surplus cash, borrower provides to 
HUD documentation evidencing, to HUD's reasonable satisfaction, a lesser 
amount of total distributions. To the extent that the provisions of this 
section are inconsistent with the provisions in a borrower's existing 
transactional loan documents, including without limitation any HUD-
required regulatory agreement, the provisions of the transactional loan 
documents shall apply.

[77 FR 55136, Sept. 7, 2012]



Sec.  232.256  Partial payment of claims.

    (a) When a lender for a loan on a healthcare project becomes 
eligible to file an insurance claim and to assign the mortgage to the 
Commissioner pursuant to Sec.  207.258, the Commissioner may request the 
lender, in lieu of assignment, to accept a partial payment of the claim 
under the mortgage insurance contract and recast the mortgage, under 
such terms and conditions as the Commissioner may determine.
    (b) The Commissioner may request the lender to participate in a 
partial payment of claim in lieu of assignment only after a 
determination that partial payment would be less costly to the Federal 
Government than other reasonable alternatives for maintaining the 
project and that would keep the healthcare facility operational to serve 
community needs. In addition to any findings that may be provided in 
other guidance, the Commissioner shall base the determination on the 
findings listed below:
    (1) The lender is entitled, after a default as defined in Sec.  
207.255, to assign the mortgage in exchange for the payment of insurance 
benefits;
    (2) The relief resulting from partial payment, when considered with 
other resources available to the project, would be sufficient to restore 
the financial viability of the project;
    (3) The project is or can (at reasonable cost) be made physically 
sound;
    (4) The current or proposed operator of the facility is satisfactory 
to the Commissioner, as demonstrated by past experience in operating 
similar types of healthcare facilities and by state regulatory 
performance;
    (5) The default under the insured mortgage was beyond the control of 
the borrower and/or operator, or in the case of a transfer of physical 
assets (TPA), the proposed borrower or operator, unless the Commissioner 
determines that any borrower/operator deficiencies giving rise to the 
default have clearly been addressed; and
    (6) The project is serving as, or potentially could serve as, a 
needed nursing home, intermediate care facility, board and care home, or 
assisted living facility.
    (c) Partial payment of a claim under this section shall be made only 
when:
    (1) The property covered by the mortgage is free and clear of all 
liens other than the insured first mortgage and

[[Page 366]]

such other liens as the Commissioner may have approved;
    (2) The lender has voluntarily agreed to accept a PPC under the 
mortgage insurance contract and to recast the remaining mortgage amount 
under terms and conditions prescribed by the Commissioner; and
    (3) The borrower has agreed to repay to the Commissioner an amount 
equal to the partial payment, with the obligation secured by a second 
mortgage on the project containing terms and conditions prescribed by 
the Commissioner. The terms of the second mortgage will be determined on 
a case-by-case basis to ensure that the estimated project income will be 
sufficient to cover estimated operating expenses and debt service on the 
recast insured mortgage. The Commissioner may provide for postponed 
amortization of the second mortgage.
    (d) Payment of insurance benefits under this section shall be in 
cash.
    (e) A lender receiving a partial payment of claim, following the 
Commissioner's endorsement of the mortgage for full insurance under 24 
CFR part 252, will pay HUD a fee in an amount set forth through Federal 
Register notice. HUD, in its discretion, may collect this fee or deduct 
the fee from any payment it makes in the claim process.

[77 FR 72922, Dec. 7, 2012]



    Subpart C_Eligibility Requirements_Supplemental Loans To Finance 
           Purchase and Installation of Fire Safety Equipment

    Source: 39 FR 28966, Aug. 12, 1974, unless otherwise noted.



Sec.  232.500  Definitions.

    In addition to the definitions contained in subpart A, incorporated 
herein by reference, the following terms, as used in Sec. Sec.  232.500 
et seq., shall have the meaning indicated:
    (a) Insured loan means a loan insured by the endorsement of the 
credit instrument by the Commissioner.
    (b) Insurance premium means the loan insurance premium paid by the 
financial institution to the Commissioner in consideration of the 
contract of insurance.
    (c)(1) Fire safety equipment means equipment that is purchased, 
installed, and maintained in a nursing home, intermediate care facility, 
assisted living facility, or board and care home and that meets the 
following standards for the applicable occupancy:
    (i) The edition of The Life Safety Code of the National Fire 
Protection Association as accepted by the Department of Health and Human 
Services in 42 CFR 483.70; or
    (ii) A standard mandated by a State under the provisions of section 
1616(e) of the Social Security Act.
    (iii) Any appropriate requirement approved by the Secretary of 
Health and Human Services for providers of services under title XVIII or 
title XIX of the Social Security Act.
    (2) In addition to those requirements approved by the Secretary of 
Health and Human Services as necessary for the appropriate level of 
occupancy, fire safety equipment may also include fire safety-related 
improvements that are not mandatory under the requirements of the 
Secretary of Health and Human Services, but which the Secretary of 
Health and Human Services considers acceptable and reasonable for 
protection against the hazards of fire and which the borrower agrees to 
install.
    (3) For the purposes of this definition, the terms nursing home and 
intermediate care facility shall include those facilities designated as 
skilled nursing facilities or intermediate care facilities by the 
Department of Health and Human Services.
    (d) Fire safety loan means any form of secured or unsecured 
obligation determined by the Commissioner to be eligible for insurance 
under this subpart and, in the case of an assisted living facility or a 
board and care home, made with respect to such a home located in a State 
which the Secretary has determined is in compliance with the provisions 
of section 1616(e) of the Social Security Act.
    (e) Equipment cost means the reasonable cost of fire safety 
equipment fully installed as determined by the Commissioner.
    (f) Insured loan maturity means the date on which the loan 
indebtedness

[[Page 367]]

would be extinguished if paid in accordance with periodic payments 
provided for in the loan instrument or instruments.
    (g) Approved lender means a financial institution or other mortgagee 
approved by the Commissioner as eligible for insurance under section 2 
of the National Housing Act, or a mortgagee approved under section 
203(b)(1) of the National Housing Act.

[39 FR 28966, Aug. 12, 1974, as amended at 50 FR 37522, Sept. 16, 1985; 
59 FR 61228, Nov. 29, 1994; 80 FR 48027, Aug. 11, 2015]

                            Fees and Charges



Sec.  232.505  Application and application fee.

    (a) Filing of application. An application for insurance of a fire 
safety loan for a nursing home, intermediate care facility, assisted 
living facility or board and care home shall be submitted on an approved 
HUD form by an approved lender and by the owners of the project to the 
HUD office.
    (b) Application fee. See 24 CFR 200.40(d)(2).

[80 FR 48027, Aug. 11, 2015]



Sec.  232.510  Commitment and commitment fee.

    (a) Issuance of commitment. Upon approval of an application for 
insurance, a commitment shall be issued by the Commissioner setting 
forth the terms and conditions upon which the fire safety loan will be 
insured.
    (b) Type of commitment. The commitment will provide for the 
insurance of the loan after satisfactory completion of installation of 
the fire safety equipment, as determined by the Commissioner.
    (c) Term of commitment. A commitment shall have a term as the 
Commissioner deems necessary for satisfactory completion of 
installation.
    (d) Commitment fee. See 24 CFR 200.40(d)(2).
    (e) Increase in commitment prior to endorsement. An application, 
filed prior to endorsement, for an increase in the amount of an 
outstanding firm commitment shall be accompanied by an additional 
application fee. The additional application fee shall be in an amount 
determined by the Secretary as equal to the amount determined under 24 
CFR 200.40(d)(2), which shall not exceed $5.00 per thousand dollars of 
the amount of the requested increase. If an inspection fee was required 
in the original commitment, an additional inspection fee shall be paid 
in an amount computed at the same dollar rate per thousand dollars of 
the amount of increase in commitment as was used for the inspection fee 
required in the original commitment. The additional inspection fee shall 
be paid prior to the date installation of fire safety equipment is 
begun, or, if installation has begun, it shall be paid with the 
application for increase.

[39 FR 28966, Aug. 12, 1974, as amended at 80 FR 48027, Aug. 11, 2015]



Sec.  232.515  Refund of fees.

    If the amount of the commitment issued or an increase in the loan 
amount prior to endorsement is less than the amount applied for, the 
Commissioner shall refund the excess amount of the application fee 
submitted by the applicant. If an application is rejected before it is 
assigned for processing, or in such other instances as the Commissioner 
may determine, the entire application fee or any portion thereof may be 
returned to the applicant.

[80 FR 48027, Aug. 11, 2015]



Sec.  232.520  Maximum fees and charges by lender.

    See 24 CFR 200.40 titled ``HUD fees'' and 200.41 titled ``Maximum 
mortgage fees and charges'' for maximum fees and charges applicable to 
mortgages insured under 24 CFR part 232.

[80 FR 48027, Aug. 11, 2015]



Sec.  232.522  Inspection fee.

    See 24 CFR 200.40 titled ``HUD fees'' and 200.41 titled ``Maximum 
mortgage fees and charges'' for maximum fees and charges applicable to 
mortgages insured under 24 CFR part 232.

[80 FR 48027, Aug. 11, 2015]

[[Page 368]]

                      Eligible Security Instruments



Sec.  232.525  Note and security form.

    The lender shall present for insurance a note and security 
instrument, if required, on forms approved by the Commissioner for use 
in the jurisdiction in which the property to be improved is located.



Sec.  232.530  Disbursement of proceeds.

    At the time of endorsement for insurance of the note by the 
Commissioner, the entire principal amount of the note shall have been 
disbursed to the borrower or to his creditors for his account and with 
his consent.



Sec.  232.535  Loan multiples--minimum principal.

    The loan shall involve a principal obligation in multiples of $100, 
and the minimum principal obligation shall be $10,000.

[40 FR 4908, Feb. 3, 1975]



Sec.  232.540  Method of loan payment and amortization period.

    See 24 CFR 200.82 titled ``Maturity'' for loan payment and 
amortization period requirements applicable to mortgages insured under 
24 CFR part 232.

[80 FR 48027, Aug. 11, 2015]



Sec.  232.545  Covenant against liens.

    (a) The security instrument shall contain a covenant against the 
creation by the borrower of additional liens against the property 
superior or inferior to the lien of such instrument, except with the 
prior approval of the Commissioner.
    (b) The covenant required under paragraph (a) of this section shall 
not apply where a lien inferior to the lien of the insured mortgage is 
given in favor of a Federal, State or local governmental agency or 
instrumentality under such circumstances as may be approved by the 
Commissioner, provided the source of funds for repayment of the inferior 
lien is limited to surplus cash or residual receipts.

[36 FR 24641, Dec. 22, 1971, as amended at 48 FR 35393, Aug. 4, 1983; 49 
FR 12215, Mar. 29, 1984]



Sec.  232.550  Accumulation of next premium.

    The security instrument shall provide for payments by the borrower 
to the lender on each interest payment date of an amount sufficient to 
accumulate in the hands of the lender one payment period prior to its 
due date the next annual insurance premium payable by the lender to the 
Commissioner.



Sec.  232.555  Security instrument and lien.

    The security instrument shall cover the entire property included in 
the project, shall be a lien on the real property of the project under 
the laws of the jurisdiction in which the project is located, and may be 
junior to such prior liens or mortgages indebtedness as the Commissioner 
may approve. The Commissioner may from time to time require such other 
security, in lieu of, or in addition to, a lien on real property as he 
may prescribe.



Sec.  232.560  Interest rate.

    (a) The loan shall bear interest at the rate agreed upon by the 
lender and the borrower.
    (b) Interest shall be payable in monthly installments on the 
principal amount of the loan outstanding on the due date of each 
installment.

[39 FR 28966, Aug. 12, 1974, as amended at 53 FR 3366, Feb. 5, 1988; 53 
FR 8885, Mar. 18, 1988]



Sec.  232.565  Maximum loan amount.

    The principal amount of the loan shall not exceed the lower of the 
Commissioner's estimate of the cost of the fire safety equipment, 
including the cost of installation and eligible fees, or the amount 
supported by ninety percent (90%) of the residual income, which is 
ninety percent (90%) of the amount of net income remaining after payment 
of all existing debt service requirements, as determined by the 
Commissioner. The cost of installation may include the cost of such 
other work to be performed on the project necessary to meet the 
requirements of the Secretary of Health and Human Services and the 
Commissioner to enhance the fire safety of the project, and such

[[Page 369]]

costs incidental to installation as may be approved by the Commissioner.

[40 FR 4908, Feb. 3, 1975, as amended at 80 FR 48028, Aug. 11, 2015]



Sec.  232.570  Endorsement of credit instrument.

    The Commissioner shall indicate his insurance of the loan by 
endorsing the credit instrument and identifying the section of the Act 
and regulations under which the loan is insured and the date of 
insurance, subject to the presentation and approval by him of the 
following:
    (a) Certification of full disbursement of loan proceeds as provided 
for in Sec.  232.530.
    (b) Certification of costs as required by Sec.  232.610.
    (c) Certification that fire safety equipment was installed as 
required by Sec.  232.500(c).

[39 FR 28966, Aug. 12, 1974, as amended at 80 FR 48028, Aug. 11, 2015]



Sec.  232.580  Application of payments.

    (a) The security instrument shall provide that all monthly payments 
to be made by the borrower shall be added together and this aggregate 
amount shall be paid by the borrower upon each monthly payment date in a 
single payment. The lender shall apply the payment to the following 
items in the order set forth:
    (1) Premium charges under the contract of insurance;
    (2) Interest on the loan;
    (3) Amortization of the principal of the loan;
    (b) Any deficiency in the amount of any monthly payments required 
under paragraph (a) of this section shall constitute an event of default 
and the loan shall further provide for a grace period of 30 days within 
which time the default must be cured.



Sec.  232.585  Prepayment privilege and prepayment charge.

    The security instrument shall contain a provision permitting 
prepayment of the loan in whole or in part upon any interest payment 
date after giving to the lender 30 days' advance written notice and it 
may contain a provision, with the approval of the Commissioner, for a 
reasonable charge in the event of prepayment.



Sec.  232.586  Minimum principal loan amount.

    A mortgagee may not require, as a condition of providing a loan 
secured by a mortgage insured under this subpart, that the principal 
amount of the mortgage exceed a minimum amount established by the 
mortgagee.

[53 FR 8885, Mar. 18, 1988]

                          Property Requirements



Sec.  232.590  Eligibility of property.

    (a) A loan to be eligible for insurance shall be on real estate 
held:
    (1) In fee simple; or
    (2) On the interest of the lessee under a lease for not less than 
ninety-nine years which is renewable; or
    (3) Under a lease having a period of not less than ``twenty-five'' 
years to run from the date the loan is executed.
    (b) The property constituting security for the loan transaction must 
be held by an eligible borrower as herein defined and must at the time 
the loan is insured be free and clear of all liens other than those 
specifically approved by the Commissioner.

[39 FR 28966, Aug. 12, 1974; 39 FR 30349, Aug. 22, 1974]



Sec.  232.591  Smoke detectors.

    After October 30, 1992, each occupied room must include at least one 
battery-operated or hard-wired smoke detector in proper working 
condition. If the room is occupied by hearing-impaired persons, the 
smoke detector must have an alarm system designed for hearing-impaired 
persons, unless the smoke alarm is connected to a central alarm system 
that is monitored on a 24-hour basis, or otherwise meets industry 
standards.

[57 FR 33850, July 30, 1992]

                                  Title



Sec.  232.595  Eligibility of title.

    In order for the property which is to be the security for a loan to 
be insured under this subpart to be eligible for insurance, the 
Commissioner shall determine that the title to the property is

[[Page 370]]

vested in the borrower as of the date the security instrument is filed 
for record. The title evidence will be examined by the Commissioner and 
the endorsement of the credit instrument for insurance shall be evidence 
of its acceptability.



Sec.  232.600  Title evidence.

    The lender, without expense to the Commissioner, shall furnish to 
the Commissioner a policy of title insurance, or if the lender is unable 
to furnish a policy for reasons satisfactory to the Commissioner, the 
lender, without expense to the Commissioner, shall furnish an abstract 
of title. The following are the requirements covering the title 
insurance and abstract of title:
    (a) The policy of title insurance shall be issued by a company, and 
in a form, satisfactory to the Commissioner. The policy shall name as 
the insureds the lender and the Secretary of Housing and Urban 
Development, as their respective interests may appear. The policy shall 
provide that upon acquisition of title by the lender or the Secretary, 
the policy of title insurance will continue to provide the same coverage 
as the original policy, and will run to the lender or the Secretary, as 
the case may be.
    (b) The abstract of title shall be satisfactory to the Commissioner, 
prepared by an abstract title company or an individual engaged in the 
business of preparing abstracts of title, accompanied by a legal opinion 
satisfactory to the Commissioner, as to the quality of such title, 
signed by an attorney at law experienced in the examination of titles.

[39 FR 28966, Aug. 12, 1974, as amended at 58 FR 34216, June 24, 1993]

                            Form of Contract



Sec.  232.605  Contract requirements.

    The contract between the mortgagor and the general contractor may be 
in the form of a lump sum contract, a cost plus contract, or different 
or alternative forms of contract specified by the Commissioner.

[80 FR 48028, Aug. 11, 2015]

                     Cost Certification Requirements



Sec.  232.610  Certification of cost requirements.

    (a) Certificate and adjustment. No loan shall be insured unless a 
certification of actual cost is made by the contractor.
    (b) Cost computation. The term actual cost of the improvements shall 
mean the cost to the borrower of the improvements, after deducting the 
amount of any kickbacks, rebates, or trade discount received in 
connection with the improvements, and including the amounts paid under 
any contract for the improvements, labor, materials, and for any other 
items of expense approved by the Commissioner.
    (c) Statement of facts. Any agreement, undertaking, statement or 
certification required in connection with cost certification shall 
specifically state that it has been made, presented and delivered for 
the purpose of influencing an official action of the Commissioner and 
may be relied upon as a true statement of the facts contained therein.
    (d) Incontestability. Upon the Commissioner's approval of the cost 
certification, such certification shall be final and incontestable 
except for fraud or material misrepresentation on the part of the 
borrower.
    (e) Records. The borrower shall keep and maintain adequate records 
of all costs of any construction improvements or other cost items not 
representing work under the general contract and shall require the 
builder to keep similar records and, upon request by the Commissioner, 
shall make available for examination such records, including any 
collateral agreements.

[39 FR 28966, Aug. 12, 1974, as amended at 80 FR 48028, Aug. 11, 2015]

                           Eligible Borrowers



Sec.  232.615  Eligible borrowers.

    (a) In order to be eligible as a borrower under this subpart the 
applicant shall be a profit or non-profit entity, which owns a nursing 
home or intermediate care facility for which the Secretary of Health and 
Human Services has determined that the installation of fire safety 
equipment in such

[[Page 371]]

facility is necessary to meet the applicable requirements of the 
Secretary of Health and Human Services for providers of services under 
Title XVIII and Title XIX of the Social Security Act and that upon 
completion of the installation of such equipment the nursing home or 
intermediate care facility will meet the applicable fire safety 
requirements of HHS. Until the termination of all obligations of the 
Commissioner under an insurance contract under this subpart and during 
such further period of time as the Commissioner shall be the owner, 
holder, or reinsurer of the loan, the borrower shall be regulated or 
restricted by the Commissioner as to methods of operation including 
requirements for maintenance of fire safety equipment.
    (b) Also eligible as a borrower shall be a profit or nonprofit 
entity which owns an assisted living facility or board and care home for 
which HUD has determined that the installation of fire safety equipment 
is approvable under the definition contained in Sec.  232.500(c).

[39 FR 28966, Aug. 12, 1974; 39 FR 30349, Aug. 22, 1974, as amended at 
50 FR 37523, Sept. 16, 1985; 59 FR 61228, Nov. 29, 1994; 80 FR 48028, 
Aug. 11, 2015]



Sec.  232.616  Disclosure and verification of Social Security and
Employer Identification Numbers.

    To be eligible for mortgage insurance under this subpart, the 
borrower must meet the requirements for the disclosure and verification 
of Social Security and Employer Identification Numbers, as provided by 
part 200, subpart U, of this chapter.

(Approved by the Office of Management and Budget under control number 
2502-0118)

[54 FR 39695, Sept. 27, 1989]

                          Special Requirements



Sec.  232.620  Determination of compliance with fire safety equipment
requirements.

    Prior to Endorsement, applicant must provide certification that the 
installed improvements will meet HHS, as well as all other Federal, 
state and local requirements for fire safety equipment, if applicable.

[80 FR 48028, Aug. 11, 2015]



Sec.  232.625  Discrimination prohibited.

    Any contract or subcontract executed for the installation of 
equipment, or construction of improvements to the project shall provide 
that there shall be no discrimination against any employee or applicant 
for employment because of sex, religion, race, color, creed or national 
origin.



Sec.  232.630  Assurance of completion.

    If the property upon which the fire safety equipment is to be 
installed is subject to a mortgage insured or held by the Commissioner 
pursuant to subpart B of this part, the Commissioner may require such 
assurance of completion of the contract for installation as he may from 
time to time prescribe.



                Subpart D_Contract Rights and Obligations

    Source: 39 FR 28970, Aug. 12, 1974, unless otherwise noted.



Sec.  232.800  Definitions.

    All of the definitions contained in Sec.  232.500 shall apply to 
this subpart. In addition, as used in this subpart, the following term 
shall have the meaning indicated:
    (a) Contract of insurance means the agreement evidenced by the 
endorsement of the Commissioner upon the note given in connection with 
an insured loan and includes the provisions of this subpart and the 
applicable provisions of the Act.
    (b) Maturity means the date on which the loan indebtedness would be 
extinguished if paid in accordance with periodic payments provided for 
in the loan.

                                Premiums



Sec.  232.805  Insurance premiums.

    (a) First premium. The lender, upon the endorsement of the loan for 
insurance, shall pay to the Commissioner a first loan insurance premium 
equal to one percent of the original face amount of the note.

[[Page 372]]

    (b) Second premium. The lender, on the date of the first principal 
payment, shall pay a second premium equal to one percent of the average 
outstanding principal obligation of the loan for the year following such 
first principal payment date which shall be adjusted as of that date so 
that the aggregate of the first and second premiums shall equal the sum 
of one percent per annum of the average outstanding principal obligation 
of the loan for the period from the date of the insurance endorsement to 
one year following the date of the first principal payment.
    (c) Annual insurance premium. Until the note is paid in full, or 
until the loan is assigned to the Commissioner, or until the contract of 
insurance is otherwise terminated with the consent of the Commissioner, 
the lender, on each anniversary of the date of the first principal 
payment shall pay an annual loan insurance premium equal to one percent 
of the average outstanding principal obligation of the loan for the year 
following the date on which such premium becomes payable.
    (d) Method of premium payment. Premiums shall be payable in cash or 
in debentures of the General Insurance Fund at par plus accrued 
interest. All premiums are payable in advance and no refund can be made 
of any portion thereof except as provided in Sec.  232.800 et seq.
    (e) Calculation of premiums. The premiums payable on and after the 
date of the first principal payment shall be calculated in accordance 
with the amortization provisions without taking into account delinquent 
payments or prepayments.



Sec.  232.805a  Mortgagee's late charge.

    Mortgage insurance premiums which are paid to the Commissioner more 
than 15 days after the billing date or due date, whichever is later, 
shall include a late charge of 4 percent of the amount of the payment 
due, except that no late charge shall be required with respect to any 
case for which HUD fails to render a proper billing to the mortgagee.

[43 FR 60154, Dec. 26, 1978]



Sec.  232.815  Termination of insurance.

    (a) Prepayment in full. The contract of insurance shall be 
terminated if the loan is paid in full prior to its maturity. Notice of 
the prepayment shall be given to the Commissioner, on a form prescribed 
by the Commissioner, within 30 days from the date of the prepayment. The 
insurance termination shall become effective as of the date of the 
prepayment, or 30 days prior to the Commissioner's receipt of the 
prepayment notice, whichever is later.
    (b) Voluntary termination. The contract of insurance shall be 
voluntarily terminated upon receipt by the Commissioner of a written 
request, on a form prescribed by the Commissioner, by the borrower and 
the lender for such termination, accompanied by a submission of the 
original credit instrument for cancellation of the insurance endorsement 
and the remittance of all sums to which the Commissioner is entitled. 
The termination shall become effective as of the date these requirements 
are met.



Sec.  232.825  Pro rata refund of insurance premium.

    Upon termination of a loan insurance contract by a payment in full 
or by a voluntary termination, the Commissioner shall refund to the 
lender for the account of the borrower an amount equal to the pro rata 
portion of the current annual loan insurance premium theretofore paid 
which is applicable to the portion of the year subsequent to the 
effective date of the termination.

       Rights and Duties of Lender Under the Contract of Insurance



Sec.  232.830  Definition of default.

    (a) If the borrower fails to make any payments due under or provided 
to be paid by the terms of the note or security instrument, the note 
shall be considered in default for the purposes of this subpart.
    (b) The failure to perform any other covenant under the note or 
security instrument shall be considered a default, provided the lender, 
because of such default, has exercised its rights under the note or 
security instrument and accelerated the debt.

[[Page 373]]

    (c) If such defaults as defined in paragraphs (a) and (b) of this 
section continue for a period of 30 days, the lender shall be entitled 
to receive the benefits of insurance hereinafter provided.



Sec.  232.840  Date of default.

    In computing loan insurance benefits, the date of default shall be 
considered as:
    (a) The date of the lender's acceleration of the debt because of the 
borrower's uncorrected failure to perform a covenant or obligation under 
the note or security instrument; or
    (b) The date of the first failure to make a monthly payment which 
subsequent payments by the borrower are insufficient to cover when 
applied to the overdue monthly payments in the order in which they 
become due.



Sec.  232.850  Notice of default.

    (a) If the default is not cured within the 30 day grace period, as 
defined in Sec.  232.830(c), the lender shall, within 30 days 
thereafter, notify the Commissioner in writing of such default.
    (b) The lender shall give notice in writing to the Commissioner of 
the failure of the borrower to comply with any covenant or obligation 
under the security instrument or note regardless of the fact that the 
lender may not have elected to accelerate the debt.



Sec.  232.860  Commissioner's right to require acceleration.

    Upon receipt of notice of the failure of the borrower to comply with 
any covenant or obligation under the security instrument or note, or 
otherwise being apprised thereof, the Commissioner may require the 
lender to accelerate payment of the outstanding principal balance due.



Sec.  232.865  Election by lender.

    Where a real estate mortgage, or other security instrument has been 
used to secure the payment of a loan made under the provisions of this 
subpart and subpart C of this part, the lender may either elect to 
assign the loan to the Commissioner in exchange for the payment of 
insurance benefits or may exercise its rights under the note and 
security instrument in lieu of making a claim for insurance benefits. If 
the lender elects the latter course, the Commissioner shall be so 
notified and the contract of insurance shall be deemed terminated upon 
the date of receipt of such notification.



Sec.  232.875  Maximum claim period.

    Notice of intention to file claim on a form prescribed by the 
Commissioner shall be filed within 45 days after the lender becomes 
eligible for the benefits of the loan insurance, or within such later 
time as may be agreed upon by the Commissioner in writing.



Sec.  232.880  Items to be delivered on submitting claim.

    Within 30 days after the filing of the notice of intention to file 
claim, or within such further period as may be agreed upon by the 
Commission in writing, the lender shall deliver to the Commissioner:
    (a) The fiscal data pertaining to the loan transactions;
    (b) Receipts covering all disbursements as required by the fiscal 
data form;
    (c) The original note and any security instrument or instruments 
which shall be assigned to the Commissioner without recourse or 
warranty, except that the lender must warrant that no act or omission of 
the lender has impaired the validity and priority of such security 
instrument or instruments, that the security instrument or instruments 
are prior to all mechanics' and material-men's liens filed of record 
subsequent to the recording of such security instrument or instruments 
regardless of whether such liens attached prior to such recording date, 
and prior to all liens and encumbrances which may have attached or 
defects which which may have arisen subsequent to the recording of such 
security instrument or instruments, except such liens or other matters 
as may be approved by the Commissioner, that the amount stated in the 
instrument of assignment is actually due and owing under the security 
instrument or instruments, that there are no offsets or counterclaims 
thereto, and that the lender has a good right to assign such note and 
security instrument or instruments;

[[Page 374]]

    (d) The assignment to the Commissioner of all rights and interests 
arising under the note and security instrument or instruments so in 
default and all claims of the lender against the borrower or others 
arising out of the loan transaction;
    (e) All policies of title or other insurance or surety bonds, or 
other guarantees and any and all claims thereunder; including evidence 
satisfactory to the Commissioner that the original title coverage has 
been extended to include the assignment of the note and security 
instrument or instruments to the Commissioner;
    (f) All records, ledger cards, documents, books, papers and accounts 
relating to the loan transaction;
    (g) Any additional information or data which the Commissioner may 
require;
    (h) The following cash items, held in connection with the loan 
insured under this subpart, shall either be retained by the lender or 
delivered to the Commissioner in accordance with instructions to be 
issued by the Commissioner at the time the insurance claim is filed.
    (1) Any cash held by the lender or its agents or to which it is 
entitled including deposits made for the account of the borrower and 
which have not been applied in reduction of the principal of the loan 
indebtedness.
    (2) All funds held by the lender for the account of the borrower 
received pursuant to any other agreement.



Sec.  232.885  Insurance benefits.

    (a) Method of payment. Payment of an insurance claim shall be made 
in cash, in debentures, or in a combination of both, as determined by 
the Commissioner either at, or prior to, the time of payment.
    (b) Amount of payment. Upon an acceptable assignment of the note and 
security instrument, the Commissioner shall pay the claim of the lender 
in an amount equal to the unpaid principal balance of the loan as of the 
date of default determined as follows:
    (1) By adding the following items:
    (i) Any accrued interest due as of the date of execution of the 
assignment of the loan to the Commissioner.
    (ii) Any advances approved by the Commissioner made previously by 
the lender under the provisions of the note or security instrument or 
instruments.
    (iii) Reimbursement for such reasonable collection costs, court 
costs, and attorney's fees as may be approved by the Commissioner.
    (iv) Any loan insurance premiums paid after default.
    (v) If payment is made in cash, an amount equivalent to the 
debenture interest which would have been earned thereon, as of the date 
such cash payment is made, except when the lender fails to meet any one 
of the applicable requirements of Sec. Sec.  232.850, 232.875, and 
232.880, within the specified time and in a manner satisfactory to the 
Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (2) By deducting from the total of the items computed under 
paragraph (b)(1) of this section the following items:
    (i) Any amount received by the lender on account of the loan after 
the date of default.
    (ii) Any net income received by the lender from the property covered 
by the note or security instrument and not applied to prior debts held 
by that lender.
    (iii) The sum of the cash items retained by the lender pursuant to 
Sec.  232.880(h)(i)(ii).

[39 FR 28970, Aug. 12, 1974, as amended at 80 FR 51468, Aug. 25, 2015]



Sec.  232.890  Characteristics of debentures.

    Debentures issued in settlement of insurance claims under this 
subpart shall have the same characteristics and the same requirements 
for registration and redemption as those issued pursuant to subpart B of 
this part except that debentures shall bear interest at the rate in 
effect as of the date the commitment was issued, or as of the date the 
loan was first endorsed for insurance, whichever rate is higher and 
shall mature 10 years from the date of issue which date shall be the 
date of

[[Page 375]]

execution of the assignment of the loan to the Commissioner.



Sec.  232.893  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a check 
in payment thereof.

[59 FR 49816, Sept. 30, 1994]

                               Assignments



Sec.  232.895  Assignment of insured loans.

    (a) An insured loan may be transferred only to a transferee who is a 
lender approved by the Commissioner. Upon such transfer and the 
assumption by the transferee of all obligations under the contract of 
insurance the transferor shall be released from its obligations under 
the contract of insurance.
    (b) The contract of insurance shall terminate with respect to loans 
described in paragraph (a) of this section upon the happening of either 
of the following events:
    (1) The transfer or pledge of the insured loan to any person, firm, 
or corporation, public or private, other than an approved lender.
    (2) The disposal by a lender of any partial interest in the insured 
loan to other than an approved lender.

                            Extension of Time



Sec.  232.897  Actions to be taken by lender.

    With respect to any action required of the lender within a period of 
time prescribed by this subpart, the Commissioner may extend such 
period.



       Subpart E_Insurance of Mortgages Covering Existing Projects

    Source: 53 FR 33735, Aug. 31, 1988, unless otherwise noted.



Sec.  232.901  Mortgages covering existing projects are eligible for
insurance.

    A mortgage executed in connection with the purchase or refinancing 
of an existing project without substantial rehabilitation may be insured 
under this subpart pursuant to section 223(f) of the Act. A mortgage 
insured pursuant to this subpart shall meet all other requirements of 
this part except as expressly modified by this subpart.

[59 FR 61228, Nov. 29, 1994]



Sec.  232.902  Eligible project.

    Existing projects (with such repairs and improvements as are 
determined by the Commissioner to be necessary) are eligible for 
insurance under this subpart. The project must not require substantial 
rehabilitation and three years must have elapsed from the date of 
completion of construction or substantial rehabilitation of the project, 
or from the beginning of occupancy, whichever is later, to the date of 
application for insurance. In addition, the project must have attained 
sustaining occupancy (occupancy that produces income sufficient to pay 
operating expenses, annual debt service and reserve fund for replacement 
requirements) as determined by the Commissioner, before endorsement of 
the project for insurance; alternatively, the borrower must provide an 
operating deficit fund at the time of endorsement for insurance, in an 
amount, and under an agreement, approved by the Commissioner.

[59 FR 61228, Nov. 29, 1994]



Sec.  232.903  Maximum mortgage limitations.

    Notwithstanding the maximum mortgage limitations set forth in 24 CFR 
200.15, a mortgage within the limits set forth in this section shall be 
eligible for insurance under this subpart.
    (a) Value limit. The mortgage shall involve a principal obligation 
of not in excess of eighty-five percent (85%) for a profit motivated 
borrower (ninety percent (90%) for a private nonprofit borrower) of the 
Commissioner's estimate of the value of the project, including major 
movable equipment to be used in its operation and any repairs and 
improvements. The Commissioner's estimate of value shall result from 
consideration of:
    (1) Estimated market value of the Project by capitalization,

[[Page 376]]

    (2) Estimated market value of the Project by direct sales 
comparison, and
    (3) Total estimated replacement cost of the Project.
    In the event the mortgage is secured by a leasehold estate rather 
than a fee simple estate, the value of the property described in the 
mortgage shall be the value of the leasehold estate (as determined by 
the Commissioner) which shall in all cases be less than the value of the 
property in fee simple.
    (b) Debt service limit. The insured mortgage shall involve a 
principal obligation not in excess of the amount that could be amortized 
by eighty-five percent (85%) for a profit motivated borrower (ninety 
percent (90%) for a private nonprofit borrower) of the net projected 
project income available for payment of debt service. Net projected 
Project income available for debt service shall be determined by 
reducing the Commissioner's estimated gross income for the Project by a 
vacancy and collection loss factor and by the cost of all estimated 
operating expenses, including deposits to the reserve for replacements 
and taxes.
    (c) Project to be refinanced--additional limit. (1) In addition to 
meeting the requirements of paragraphs (a) and (b) of this section, if 
the Project is to be refinanced by the insured mortgage, the maximum 
mortgage amount must not exceed the cost to refinance the existing 
indebtedness. For the purposes of this requirement:
    (i) The Project shall not have changed ownership subsequent to the 
date of application, or
    (ii) The Project shall have been sold to a purchaser who has an 
identity of interest with the seller (as defined by the Commissioner).
    (2) The cost to refinance the existing indebtedness will consist of 
the following items, the eligibility and amounts of which must be 
determined by the Commissioner:
    (i) The amount required to pay off the existing indebtedness;
    (ii) The amount of the initial deposit for the reserve fund for 
replacements;
    (iii) Reasonable and customary legal, organization, title, and 
recording expenses, including mortgagee fees under Sec.  200.41;
    (iv) The estimated repair costs, if any;
    (v) Architect's and engineer's fees, municipal inspection fees, and 
any other required professional or inspection fees; and
    (vi) The amount of any long-term debt service reserve account 
required by the Commissioner pursuant to Sec.  232.11.
    (d) Project to be acquired--additional limit. In addition to meeting 
the requirements of paragraphs (a) and (b) of this section, if the 
project is to be acquired by the borrower and the purchase price is to 
be financed with the insured mortgage, the maximum amount must not 
exceed 85 percent for a profit-motivated borrower and 90 percent for a 
private nonprofit borrower of the cost of acquisition as determined by 
the Commissioner. The cost of acquisition shall consist of the following 
items, to the extent that each item (except for paragraph (d)(1) of this 
section) is paid by the purchaser separately from the purchase price. 
The eligibility and amounts of these items must be determined in 
accordance with standards established by the Commissioner.
    (1) Purchase price is indicated in the purchase agreement;
    (2) An amount for the initial deposit to the reserve fund for 
replacements;
    (3) Reasonable and customary legal, organizational, title, and 
recording expenses, including mortgagee fees under Sec.  200.41;
    (4) The estimated repair cost, if any;
    (5) Architect's and engineer's fees, municipal inspection fees, and 
any other required professional or inspection fees; and
    (6) The amount of any long-term debt service reserve account 
required by the Commissioner pursuant to Sec.  232.11.

[53 FR 33735, Aug. 31, 1988, as amended at 59 FR 61228, Nov. 29, 1994; 
77 FR 55136, Sept. 7, 2012]



Sec.  232.904  Term of the mortgage.

    Notwithstanding the provisions of Sec.  232.27, a mortgage insured 
under this subpart must have a maturity satisfactory to the Commissioner 
which is not less than 10 years, nor more than the lesser of 35 years or 
75 percent of the estimated remaining economic life of

[[Page 377]]

the physical improvements. The term of the mortgage will begin on the 
first day of the second month following the date of endorsement of the 
mortgage for insurance.



Sec.  232.905  Labor standards and prevailing wage requirements.

    The provisions of Sec. Sec.  232.70-232.74 of this part shall not 
apply to mortgages insured under commitments issued in accordance with 
this subpart.



Sec.  232.906  Processing of applications and required fees.

    (a) Processing of applications. The local HUD Office will determine 
whether participation in a preapplication conference is required as a 
condition to submission of an initial application for either a 
conditional or firm commitment. After the preapplication conference an 
application for a conditional or firm commitment for insurance of a 
mortgage on a project shall be submitted by the sponsor and an approved 
mortgagee. Such application shall be submitted to the local HUD Office 
on a HUD approved form. An application may, at the option of the 
applicant, be submitted for a firm commitment omitting the conditional 
commitment stage. No application shall be considered unless accompanied 
by all exhibits required by the form and program handbooks. An 
application may be made for a commitment which provides for the 
insurance of the mortgage upon completion of any improvements or for a 
commitment which provides, in accordance with standards established by 
the Commissioner, for the completing of specified repairs and 
improvements after endorsement.
    (b) Application fee--conditional commitment. An application-
commitment fee of $3 per thousand dollars of the requested mortgage 
amount shall accompany an application for conditional commitment.
    (c) Application fee--firm commitment. An application for firm 
commitment shall be accompanied by an application-commitment fee of $5 
per thousand dollars of the requested mortgage amount to be insured less 
any amount previously received for a conditional commitment.
    (d) Inspection fee. Where an application provides for the completion 
of repairs, replacements and/or improvements (repairs), the Commissioner 
will charge an inspection fee equal to one percent (1%) of the cost of 
the repairs. However, where the Commissioner determines the cost of 
repairs is minimal, the Commissioner may establish a minimum inspection 
fee that exceeds one percent of the cost of repairs and can periodically 
increase or decrease this minimum fee.
    (e) Cross-reference. The provisions of paragraphs (f)(1) (Fee on 
increases), (g) (Reopening of expired commitments), (h) (Transfer fee), 
(i) (Refund of fees), and (j) (Fees not required) of Sec.  200.40 of 
this chapter apply to applications submitted under subpart E of this 
part.

[61 FR 14416, Apr. 1, 1996]



  Subpart F_Eligible Operators and Facilities and Restrictions on Fund 
                              Distributions

    Source: 77 FR 55137, Sept. 7, 2012, unless otherwise noted.



Sec.  232.1001  Scope.

    This subpart establishes requirements applicable to the operators of 
healthcare facilities and the facilities under this part.



Sec.  232.1003  Eligible operator.

    Operator shall be a single asset entity acceptable to the 
Commissioner, and shall possess the powers necessary and incidental to 
operating the healthcare facility, except that the Commissioner may 
approve a non-single asset entity under such circumstances, terms, and 
conditions determined and specified as acceptable to the Commissioner. A 
master tenant under a master lease approved by the Commissioner who has 
subleased the healthcare facility to an operator is not an Operator.



Sec.  232.1005  Treatment of project operating accounts.

    All accounts deriving from the operation of the property, including 
operator accounts and including all funds received from any source or 
derived from the operation of the facility, are project assets subject 
to control under

[[Page 378]]

the insured mortgage loan's transactional documents, including, without 
limitation, the operator's regulatory agreement. Except as otherwise 
permitted or approved by HUD, funds generated by the operation of the 
healthcare facility shall be deposited into a federally insured bank 
account, provided that an account held in an institution acceptable to 
Ginnie Mae may have a balance that exceeds the amount to which such 
insurance is limited. Any of the owner's project-related funds shall be 
deposited into a federally insured bank account in the name of the 
borrower provided that an account held in an institution acceptable to 
Ginnie Mae may have a balance that exceeds the amount to which such 
insurance is limited.



Sec.  232.1007  Operating expenses.

    Goods and services purchased or acquired in connection with the 
project shall be reasonable and necessary for the operation or 
maintenance of the project, and the costs of such goods and services 
incurred by the borrower or operator shall not exceed amounts normally 
paid for such goods or services in the area where the services are 
rendered or the goods are furnished, except as otherwise permitted or 
approved by HUD.



Sec.  232.1009  Financial reports.

    (a) The borrower must provide HUD and lender an audited annual 
financial report based on an examination of its books and records, in 
such form and substance required by HUD in accordance with 24 CFR 5.801 
and 24 CFR 200.36.
    (b) Operators must submit financial statements quarterly within 60 
calendar days of the date of the end of each fiscal quarter, setting 
forth both quarterly and fiscal year-to-date information, except that 
the final fiscal year end quarter must be submitted to HUD within 90 
calendar days of the end of the quarter, in accordance with 24 CFR 
5.801(c)(4), or within such additional time as may be provided by the 
Commissioner for good cause shown. HUD may direct that such forms be 
submitted to the lender or another third party in addition to or in lieu 
of submission to HUD.

[79 FR 55362, Sept. 16, 2014]



Sec.  232.1011  Management agents.

    (a) An operator or borrower may, with the prior written approval of 
HUD, execute a management agent agreement setting forth the duties and 
procedures for matters related to the management of the project. The 
management agent, each initial management agent agreement with that 
agent, and any amendments to such management agent agreements deemed 
material by the Commissioner must be acceptable to HUD and approved in 
writing by HUD.
    (b) An operator or borrower may not enter into any agreement that 
provides for a management agent to have rights to or claims on funds 
owed to the operator.



Sec.  232.1013  Restrictions on deposit, withdrawal, and distribution
of funds, and repayment of advances.

    (a) Deposit of funds. An operator must deposit all revenue the 
operator receives directly or indirectly in connection with the 
operation of the healthcare facility in an account with a financial 
institution whose deposits are insured by an agency of the Federal 
Government, provided that an account held in an institution acceptable 
to Ginnie Mae may have a balance that exceeds the amount to which such 
insurance is limited.
    (b) Withdrawal of funds. If a quarterly/year-to-date financial 
statement demonstrates negative working capital as defined by HUD, or if 
the operator fails to timely submit such statement, then until a current 
quarterly/year-to-date financial statement demonstrates positive working 
capital or until otherwise authorized by HUD, the operator may not 
distribute, advance, or otherwise use funds attributable to that 
facility for any purpose other than operating that facility.



Sec.  232.1015  Prompt notification to HUD and mortgagee of
circumstances placing the value of the security at risk.

    (a) HUD and the mortgagee shall be informed of any notification of 
any

[[Page 379]]

failure to comply with governmental requirements including the 
following:
    (1) The licensed operator of a project shall promptly provide HUD 
and the mortgagee with a copy of any notification that has placed the 
licensure, a provider funding source, and/or the ability to admit new 
residents at risk, and any responses to those notices, provided that HUD 
may determine certain information to be exempt from this requirement 
based upon severity level. With respect to the requirements of this 
section:
    (i) The operator shall deliver to HUD and the mortgagee 
electronically, within 2 business days after the date of receipt, unless 
a longer time period is approved by HUD, copies of any and all notices, 
reports, surveys, and other correspondence (regardless of form) received 
by the operator from any governmental authority that includes any 
statement, finding, or assertion that:
    (A) The operator or the project is or may be in violation of (or 
default under) any of the permits and approvals or any governmental 
requirements applicable to the operation of the facility;
    (B) Any of the permits and approvals is to be terminated, limited in 
any way, or not renewed;
    (C) Any civil money penalty (other than a de minimis amount) is 
being imposed with respect to the facility; or
    (D) The operator or the project is subject to any governmental 
investigation or inquiry involving fraud.
    (ii) The operator shall also deliver to HUD and the mortgagee, 
simultaneously with delivery to any governmental authority, any and all 
responses given by or on behalf of the operator to any of the foregoing 
and shall provide to HUD and the mortgagee, promptly upon request, such 
additional information relating to any of the foregoing as HUD or the 
mortgagee may request. The receipt by HUD and/or the mortgagee of 
notices, reports, surveys, correspondence, and other information shall 
not in any way impose any obligation or liability on HUD, the mortgagee, 
or their respective agents, representatives, or designees to take (or 
refrain from taking) any action; and HUD, the mortgagee, and their 
respective agents, representatives, and designees shall have no 
liability for any failure to act thereon or as a result thereof.
    (2) The operator shall provide additional and ongoing information as 
requested by the borrower, mortgagee, or HUD pertaining to matters 
related to that risk. Controlling documents between or among any of the 
parties may provide further requirements with respect to such 
notification and communication.
    (b) This section is applicable to all operators as of October 9, 
2012.



PART 234_CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE--Table of Contents



       Subpart A_Eligibility Requirements_Individually Owned Units

Sec.
234.1 Cross-reference.
234.3 Definitions.
234.17 Mortgagor and mortgagee requirements for maintaining flood 
          insurance coverage.
234.26 Project requirements.
234.54 Eligibility of assigned mortgages and mortgages covering acquired 
          property.
234.63 Location of property.
234.65 Nature of title.
234.66 Free assumability; exceptions.

   Subpart B_Contract Rights and Obligations_Individually Owned Units

234.251 Definitions.
234.255 Cross-reference.
234.256 Substitute mortgagors.
234.259 Claim procedure--graduated payment mortgages.
234.260 Assignment of mortgage and certificate by mortgagee.
234.262 Exception to deed in lieu of foreclosure.
234.265 Contents of deed and supporting documents.
234.270 Condition of the multifamily structure.
234.273 Assessment of taxes.
234.274 Certificate of tax assessment.
234.275 Certificate or statement of condition.
234.280 Cancellation of hazard insurance.
234.285 Waived title objections.

Subpart C_Eligibility Requirements_Projects_Conversion Individual Sales 
                                  Units

234.501 Eligibility requirements.

[[Page 380]]

           Subpart D_Contract Rights and Obligations_Projects

234.751 Cross-reference.

      Subpart E_Servicing Responsibilities_Individually Owned Units

234.800 Cross-reference.

    Authority: 12 U.S.C. 1715b and 1715y; 42 U.S.C. 3535(d).

    Source: 36 FR 24628, Dec. 22, 1971, unless otherwise noted.



       Subpart A_Eligibility Requirements_Individually Owned Units

    Source: 61 FR 60161, Nov. 26, 1996, unless otherwise noted.



Sec.  234.1  Cross-reference.

    (a) All of the provisions of subpart A of part 203 of this chapter 
concerning eligibility requirements of mortgages covering one- to four-
family dwellings under section 203 of the National Housing Act (12 
U.S.C. 1709) apply to mortgages on individually owned units insured 
under section 234 of the National Housing Act (12 U.S.C. 1715y), except 
the following provisions:

Sec.
203.12 Mortgage insurance on proposed or new construction.
203.14 Builders' warranty.
203.18a Solar energy system.
203.18c One-time or up-front mortgage insurance premium excluded from 
          limitations on maximum mortgage amounts.
203.38 Location of dwelling.
203.42 Rental properties.
203.43c Eligibility of mortgages involving a dwelling unit in a 
          cooperative housing development.
203.43d Eligibility of mortgages in certain communities.
203.43f Eligibility of mortgages covering manufactured homes.
203.43g Eligibility of mortgages in certain communities.
203.43h Eligibility of mortgages on Indian land insured pursuant to 
          section 248 of the National Housing Act.
203.43i Eligibility of mortgages on Hawaiian Home Lands insured pursuant 
          to section 247 of the National Housing Act.
203.43j Eligibility of mortgages on Allegany Reservation of Seneca 
          Nation of Indians.
203.50 Eligibility of rehabilitation loans.
    (b) For the purposes of this subpart, all references in part 203 of 
this chapter to section 203 of the Act shall be construed to refer to 
section 234 of the Act.

[61 FR 60161, Nov. 26, 1996, as amended at 64 FR 56111, Oct. 15, 1999]



Sec.  234.3  Definitions.

    The terms Act, Beginning of amortization, Commissioner, FHA, Insured 
Mortgage, Mortgage, Mortgagee, Mortgagor, and State, as used in this 
part, are defined in Sec.  203.251 of this chapter. The following terms, 
as used in this part, are defined as follows:
    Bona fide tenants' organization means an association of tenants 
formed by the tenants to promote their interests in a particular 
project, with membership in the association open to each tenant, and all 
requirements of the association applying equally to every tenant.
    Common areas and facilities means those areas of the project and of 
the property upon which it is located that are for the use and enjoyment 
of the owners of family units located in the project. The areas may 
include the land, roofs, main walls, elevators, staircases, lobbies, 
halls, parking space and community and commercial facilities.
    Conversion means the date on which all documents necessary to create 
a condominium under state law (and under local law, where applicable) 
have been recorded, except that in the case of the Commonwealth of 
Puerto Rico, conversion is defined as the date on which the legal 
documents (which must be in compliance with applicable law) to create a 
condominium are presented for inscription (i.e., recordation) to the 
Commonwealth Office of the Property Registry.
    Family unit means a one-family unit including the undivided interest 
in the common areas and facilities, and such restricted common areas and 
facilities as may be designated.
    Project means a structure or structures containing four or more 
family units.
    Project mortgage means a mortgage which is or has been insured under 
any of the FHA multifamily housing programs, other than sections 
213(a)(1) and 213(a)(2) of the Act (12 U.S.C. 1715e).

[[Page 381]]

    Restricted common areas and facilities means those areas and 
facilities restricted to a particular family unit or number of family 
units.
    Tenant means the occupant(s) named in the lease or rental agreement 
of a housing unit in a project as of the date the condominium conversion 
documents are properly filed for the project, or as of the date on which 
the occupants are notified by management of intent to convert the 
project to a condominium, whichever is earlier.

[61 FR 60161, Nov. 26, 1996, as amended at 68 FR 6597, Feb. 7, 2003]



Sec.  234.17  Mortgagor and mortgagee requirements for maintaining
flood insurance coverage.

    The maintenance of flood insurance coverage on the project by the 
condominium association will satisfy the requirements of Sec.  203.16a 
of this chapter if such coverage protects the interest of the mortgagor 
in the family unit. For this purpose, ``the interest of the mortgagor'' 
is defined as insurance coverage equal to the replacement cost of the 
project less land costs.



Sec.  234.26  Project requirements.

    No mortgage shall be eligible for insurance unless the following 
requirements are met:
    (a) Location of family unit. The family unit shall be located in a 
project that the Commissioner determines to be acceptable.
    (b) Plan of condominium ownership. The project in which the unit is 
located shall have been committed to a plan of condominium ownership by 
a deed, or other recorded instrument, that is acceptable to the 
Commissioner. In the case of condominium documents in the Commonwealth 
of Puerto Rico, the Commissioner will accept documents presented for 
inscription (recordation) to the Commonwealth Office of the Property 
Registry so long as the mortgagor obtains a title insurance policy that 
reflects the condominium regime.
    (c) Releases. The family unit shall have been released from any 
mortgage covering the project or any part of the project.
    (d) Certificate by mortgagee. The mortgagee shall certify that:
    (1) The deed of the family unit and the deed or other recorded 
instrument committing the project to a plan of condominium ownership 
must comply with legal requirements of the jurisdiction. In the case of 
condominium documents in the Commonwealth of Puerto Rico, the Department 
will accept documents presented for inscription (recordation) to the 
Commonwealth Office of Property Registry for certification purposes so 
long as the mortgagor obtains a title insurance policy that reflects the 
condominium regime.
    (2) The mortgagor has good marketable title to the family unit, 
subject only to a mortgage that is a valid first lien on the family 
unit.
    (3) The family unit is assessed and subject to assessment for taxes 
pertaining only to that unit.
    (e) Conditions and provisions. (1) The Commissioner may require such 
conditions and provisions as the Commissioner determines are necessary 
for the protection of consumers and the public interest.
    (2) An application for mortgage insurance of a unit will not be 
approved if approval would result in less than 80 percent of the FHA-
insured mortgages covering units in the project being occupied by 
mortgagors or co-mortgagors as a principal residence or a secondary 
residence (as these terms are defined in Sec.  203.18 of this chapter).
    (3) In addition to the other requirements of this section, in order 
for a project to be acceptable to the Secretary, at least 51 percent of 
all family units (including units not covered by FHA-insured mortgages) 
must be occupied by the owners as a principal residence or a secondary 
residence (as these terms are defined in Sec.  203.18 of this chapter), 
or must have been sold to owners who intend to meet this occupancy 
requirement.
    (f) Limitations on conversion of rental housing to condominium use. 
With respect to a family unit in any project that was converted from 
rental housing, no insurance will be provided under this section unless:
    (1) The conversion occurred more than one year before the 
application for insurance; or
    (2) The mortgagor or comortgagor was a tenant of a unit in the 
rental

[[Page 382]]

housing project converted to condominium use; or
    (3) The conversion of the property is sponsored by a bona fide 
tenants' organization representing a majority of the households in the 
project.
    (g) Projects covered by an insured or Secretary-held mortgage. In 
addition to the requirements contained in paragraphs (a) through (f) of 
this section, projects which are covered by an FHA-insured project 
mortgage, or by a mortgage held by the Secretary, must be in compliance 
with a conversion plan approved by the Commissioner. The conversion plan 
shall provide for:
    (1) The termination by payment in full of the mortgage or by 
voluntary termination of the insurance contract covering any HUD/FHA-
insured or Secretary-held mortgage on the project, unless the 
Commissioner determines that the Commissioner's interests, and those of 
the individuals purchasing the family units, are best served by not 
requiring the termination of the insurance or payment in full of the 
mortgage.
    (2) On release of a family unit from the project mortgage, payment 
shall be made on the outstanding balance of the project mortgage in an 
amount equal to the share of the balance determined by HUD to be 
attributable to the family unit.
    (3) The project mortgagee shall certify that, notwithstanding any 
provisions of the mortgage covering prepayment, no charge is 
contemplated or has been collected for prepayment in full of the project 
mortgage.
    (h) Projects not covered by an insured or Secretary-held mortgage. 
In addition to the requirements contained in paragraphs (a) through (f) 
of this section, projects which are not covered by an insured project 
mortgage or by a Secretary-held mortgage and which have not been 
approved by the Department of Veterans Affairs for its guaranty, 
insurance, or direct loan programs shall meet the requirements of this 
paragraph. Except with the approval of the Commissioner for the purpose 
of constructing or converting the project in phases or stages, any 
special right of the declarant (as declarant and not as a unit owner) to 
do any or all of the following must have expired or must have been 
waived in a recorded instrument:
    (1) Add land or units to the condominium;
    (2) Convert common elements into additional units or limited common 
elements;
    (3) Withdraw land from the condominium;
    (4) Use easements through the common elements for the purpose of 
making improvements within the condominium or within any adjacent land; 
or
    (5) Convert a unit into two or more units, common elements, or into 
two or more units and common elements.
    (i) Notwithstanding the requirements of paragraphs (a) through (h) 
of this section, a loan on a single unit in an unapproved condominium 
project (spot loan) may qualify for mortgage insurance under this part.
    (1) The project must meet the following criteria:
    (i) All units, common elements, and facilities--including those that 
are part of any master association--must have been completed, and the 
project cannot be subject to additional phasing or annexation. The 
project must provide for undivided ownership of common areas by unit 
owners;
    (ii) Control of the owners' association must have been turned over 
to the unit purchasers, and the unit purchasers must have been in 
control for at least one year;
    (iii) At least 90 percent of the total units in the project must 
have been conveyed to the unit purchasers, and at least 51 percent of 
the total units in the project must have been conveyed to purchasers who 
are occupying the units as their principal residences or second homes. 
No single entity (the same individual, investor group, partnership, or 
corporation) may own more than 10 percent of the total units in the 
project;
    (iv) The units in the project must be owned in fee simple or be an 
eligible leasehold interest, as described in Sec.  234.65, and the unit 
owners must have sole ownership interest in, and right to the use of, 
the project's facilities, common elements, and limited common elements 
including parking, recreational facilities, etc.;

[[Page 383]]

    (v) The project must be covered by hazard, flood, and liability 
insurance acceptable to the Commissioner;
    (vi) For projects with more than 30 units, no more than 10 percent 
of the total units in the project may be encumbered by FHA-insured 
mortgages. (If endorsement would result in more than 10 percent of the 
units in such a project being encumbered by FHA-insured mortgages, the 
condominium project must be approved under paragraphs (a) through (h) of 
this section.) For projects with between 5 and 30 units inclusive, no 
more than 20 percent of the total units may be encumbered by FHA-insured 
mortgages. For projects with four units, only one unit may be encumbered 
by an FHA-insured mortgage under the spot loan procedure of this 
paragraph (i); and
    (vii) The assumability provisions of Sec.  234.66 must be satisfied.
    (2) Lenders must perform an underwriting analysis and certify that a 
project satisfies the eligibility criteria for a spot loan in a 
condominium project that has not been approved by FHA. Lenders may use 
information from the appraiser, the owners' association, the management 
company, the real estate broker, and the project developer, but the 
lender must ensure the accuracy of the information obtained from these 
sources.

(Approved by the Office of Management and Budget under control number 
2502-0513)

[61 FR 60161, Nov. 26, 1996, as amended at 72 FR 16689, Apr. 4, 2007]



Sec.  234.54  Eligibility of assigned mortgages and mortgages covering
acquired property.

    The Commissioner may insure under this part, without regard to any 
limitation upon eligibility contained in this subpart (except that the 
property must be located in a condominium project approved under Sec.  
234.26), any mortgage assigned to the Commissioner in connection with 
payment under a contract of mortgage insurance, or executed in 
connection with a sale by the Commissioner of any property acquired in 
the settlement of an insurance claim under any section or title of the 
Act.



Sec.  234.63  Location of property.

    The mortgage, to be eligible for insurance, shall be on property 
located in a State, as defined in Sec.  203.251 of this chapter, and not 
located on ``Hawaiian home lands,'' as that term is defined in section 
247(d)(2) of the Act.



Sec.  234.65  Nature of title.

    A mortgage, to be eligible for insurance, shall be on a fee interest 
in, or on a leasehold interest in, a one-family unit in a project 
including an undivided interest in the common areas and facilities, and 
such restricted common areas and facilities as may be designated. To be 
eligible, a leasehold interest shall be under a lease for not less than 
99 years which is renewable, or under a lease having a period of not 
less than 10 years to run beyond the maturity date of the mortgage.



Sec.  234.66  Free assumability; exceptions.

    For purposes of HUD's policy of free assumability with no 
restrictions, as provided in Sec.  203.41 of this chapter, the 
definition of Legal restrictions on conveyance in Sec.  203.41(a)(3) of 
this chapter does not include rights of first refusal held by a 
condominium association for a project approved by the Secretary under 
this subpart prior to September 10, 1993.



   Subpart B_Contract Rights and Obligations_Individually Owned Units



Sec.  234.251  Definitions.

    The definitions in Sec.  203.251 of this chapter apply to this 
subpart.

[61 FR 60163, Nov. 26, 1996]



Sec.  234.255  Cross-reference.

    (a) Provisions. All of the provisions of Sec. Sec.  203.251 through 
203.436 of this chapter (part 203, subpart B) covering mortgages insured 
under section 203 of the National Housing Act shall apply to mortgages 
insured under section 234(c) of the National Housing Act except the 
following provisions:

Sec.
203.258 Substitute mortgagors.
203.259a Scope.
203.280 One-time MIP.

[[Page 384]]

203.281 Calculation of one-time MIP.
203.282 Mortgagee's late charge and interest.
203.283 Refund of one-time MIP.
203.357 Deed in lieu of foreclosure.
203.378 Property condition.
203.379 Adjustment for damage or neglect.
203.380 Certificate of property condition.
203.389 Waived title objections.
203.420 Nature of Mutual Mortgage Insurance Fund.
203.421 Allocation of Mutual Mortgage Insurance Fund income or loss.
203.422 Right and liability under Mutual Mortgage Insurance Fund.
203.423 Distribution of distributive shares.
203.424 Maximum amount of distributive shares.
203.425 Finality of determination.
203.440 et seq. Insured home improvement loans.

    (b) References. For the purposes of this subpart, all references in 
Sec. Sec.  203.251 through 203.436 of this chapter (part 203, subpart B) 
to section 203 of the Act, one- to four-family, and the Mutual Mortgage 
Insurance Fund, shall be construed to refer to section 234 of the act, 
one-family unit, and the General Insurance Fund. The term property or 
each family dwelling unit as used in Sec. Sec.  203.251 through 203.436 
of this chapter (part 203, subpart B) shall be construed to include 
``the one-family unit and the undivided interest in the common areas and 
facilities as may be designated''.

[36 FR 24628, Dec. 22, 1971, as amended at 41 FR 42949, Sept. 29, 1976; 
42 FR 29305, June 8, 1977; 48 FR 28807, June 23, 1983; 55 FR 34814, Aug. 
24, 1990]



Sec.  234.256  Substitute mortgagors.

    (a) Selling mortgagor. The requirements for the selling mortgagor 
are set forth in Sec.  203.258(a) of this chapter.
    (b) Purchasing mortgagor. (1) If the dwelling is a principal or 
secondary place of residence, the requirements for the purchasing 
mortgagor are set forth in Sec.  203.258(b)(1) of this chapter.
    (2) [Reserved]
    (c) Applicability--current mortgagor. Paragraph (b) of this section 
applies to the Commissioner's approval of a substitute mortgagor only if 
the mortgage executed by the original mortgagor met the conditions of 
Sec.  203.258(c) of this chapter.
    (d) Applicability--earlier mortgagor. The occupancy and similar 
requirements set forth in Sec.  203.258(d) of this chapter apply to 
mortgages insured under subpart A of this part.
    (e) Direct endorsement. Requirements for the direct endorsement 
program are set forth in Sec.  203.258(f) of this chapter.
    (f) Substitute mortgagor is defined in Sec.  203.258(f) of this 
chapter.

[55 FR 34814, Aug. 24, 1990, as amended at 57 FR 38352, Dec. 9, 1992; 61 
FR 60163, Nov. 26, 1996]



Sec.  234.259  Claim procedure--graduated payment mortgages.

    Section 203.436 of this chapter applies to mortgages under this 
subpart.

[61 FR 60163, Nov. 26, 1996]



Sec.  234.260  Assignment of mortgage and certificate by mortgagee.

    In addition to the requirements of Sec. Sec.  203.350 through 
203.353 incorporated by reference, the mortgagee shall certify as to any 
changes in the plan of apartment ownership including the administration 
of the property. Any changes shall require FHA approval.

[36 FR 24628, Dec. 21, 1971, as amended at 42 FR 29305, June 8, 1977]



Sec.  234.262  Exception to deed in lieu of foreclosure.

    All of the provisions of Sec.  203.357 of this chapter relating to 
acceptance of a deed in lieu of foreclosure shall apply to mortgages 
insured under this part only if the mortgagee establishes to the 
satisfaction of the Commissioner that there are no unpaid assessments 
owed the Association or Cooperative of Owners.



Sec.  234.265  Contents of deed and supporting documents.

    In addition to the requirements of Sec.  203.367, incorporated by 
reference, the deed shall comply with the plan of apartment ownership. 
Any changes therein, including the administration of the property, shall 
require FHA approval.



Sec.  234.270  Condition of the multifamily structure.

    (a) When a family unit is conveyed or a mortgage is assigned to the 
Commissioner, the family unit and the common areas and facilities 
designated for

[[Page 385]]

the particular unit shall be undamaged by fire, flood, earthquake, 
tornado, or boiler explosion, or, as to mortgages insured on or after 
January 1, 1977, due to failure of the mortgagee to take action as 
required by Sec.  203.377. If the property has been damaged, either of 
the following actions shall be taken:
    (1) The property may be repaired prior to its conveyance or prior to 
the assignment of the mortgage to the Commissioner.
    (2) If the prior approval of the Commissioner is obtained, the 
damaged property may be conveyed or the mortgage assigned to the 
Secretary without repairing the damage. In such instances, the 
Commissioner shall deduct from the insurance benefits either his 
estimate of the decrease in value of the family unit or the amount of 
any insurance recovery received by the mortgagee, whichever is the 
greater.
    (b) If the property has been damaged by fire and such property was 
not covered by fire insurance at the time of the damage, the mortgagee 
may convey the property or assign the mortgage to the Commissioner 
without deduction from the insurance benefits for any loss occasioned by 
such fire if the following conditions are met:
    (1) The property shall have been covered by fire insurance at the 
time the mortgage was insured.
    (2) The fire insurance shall have been later cancelled or renewal 
shall have been refused by the insuring company.
    (3) The mortgagee shall have notified the Commissioner within 30 
days (or within such further time as the Commissioner may approve) of 
the cancellation of the fire insurance or of the refusal of the insuring 
company to renew the fire insurance. This notification shall have been 
accompanied by a certification of the mortgagee that diligent efforts 
were made, but it was unable to obtain fire insurance coverage at 
reasonably competitive rates and that it will continue its efforts to 
obtain adequate fire insurance coverage at competitive rates, including 
coverage under the FAIR Plan. A reasonable rate is a rate not more than 
25 percent in excess of the rate or the advisory rate filed or used by 
the principal rating organization doing business in the state. If the 
property is located in a state which has no rate or advisory rate as 
provided in the preceding sentence, the mortgagee shall consult the 
Director of the local HUD office as to a reasonable rate. When hazard 
insurance coverage cannot be obtained in an amount equal to the unpaid 
principal balance of the loan but insurance can be obtained in a reduced 
amount from a FAIR Plan or another insurance carrier, the Secretary will 
accept the reduced coverage without reduction of mortgage, insurance 
benefits, if the rates do not exceed the guidelines stated herein. If 
coverage in any amount is only available at rates in excess of a 
reasonable rate as defined herein, the mortgagor may but shall not be 
required to purchase such coverage. If coverage is purchased, the amount 
of any claim for insurance benefits under this part shall be reduced by 
the amount of any recovery of hazard insurance benefits by the 
mortgagee.
    (c) The provisions in paragraph (b) of this section shall be 
applicable with respect to the insurance of all mortgages whether 
insured prior to May 8, 1968, or insured on or after such date.
    (d) The mortgagee shall not be liable for damage to the property by 
waste in connection with mortgage insurance claims paid on or after July 
2, 1968. However, the mortgagee shall be responsible for damage to or 
destruction of security properties on which the loans are in default and 
which properties are vacant or abandoned due to the mortgagee's failure 
to take reasonable action to inspect, protect and preserve such 
properties as required by Sec.  203.377, as to all mortgages insured on 
or after June 8, 1977, but such responsibility shall not exceed the 
amount of its insurance claim as to a particular property.

[36 FR 24628, Dec. 22, 1971, as amended at 42 FR 29305, June 8, 1977]



Sec.  234.273  Assessment of taxes.

    When a family unit is conveyed to the Commissioner or a mortgage is 
assigned to the Commissioner, the unit shall be assessed and subject to 
assessment for taxes pertaining only to that unit.

[[Page 386]]



Sec.  234.274  Certificate of tax assessment.

    The mortgagee shall certify, as of the date of filing for record of 
the deed or assignment of the mortgage to the Commissioner, that the 
family unit is assessed and subject to assessment for taxes pertaining 
only to that unit.



Sec.  234.275  Certificate or statement of condition.

    The mortgagee shall either certify that as of the date of the filing 
of deed for record, or assignment of the mortgage to the Secretary, the 
property was (a) undamaged by fire, flood, earthquake, tornado or boiler 
explosion, and (b) as to mortgages insured or for which commitments to 
insure are issued on or after June 8, 1977, undamaged due to failure of 
the mortgagee to take action as required by Sec.  203.377, or its claim 
shall be accompanied by a statement describing any such damage that may 
still exist together with a copy of the Secretary's authorization to 
convey the property in damaged condition. In the absence of evidence to 
the contrary, the mortgagee's certificate or its statement as to damage 
shall be accepted by the Secretary as establishing the condition of the 
family unit and the common areas and facilities designated for the 
particular unit.

[42 FR 29305, June 8, 1977]



Sec.  234.280  Cancellation of hazard insurance.

    The provisions of Sec.  203.382 incorporated by reference shall 
apply to hazard insurance policies carried solely for the family unit.



Sec.  234.285  Waived title objections.

    The Commissioner shall not object to title by reason of the 
following matters:
    (a) Violations of a restriction based on race, color or creed, even 
where such restriction provides for a penalty of reversion or forfeiture 
of title or a lien for liquidated damage.
    (b) Easements for public utilities along one or more of the property 
lines, provided the exercise of the rights thereunder do not interfere 
with any of the buildings or improvements located on the subject 
property.
    (c) Encroachment on the subject property by improvements on 
adjoining property, provided such encroachments do not interfere with 
the use of any improvements on the subject property.
    (d) Variations between the length of the subject property lines as 
shown on the application for insurance and as shown by the record or 
possession lines, provided such variations do not interfere with the use 
of any of the improvements on the subject property.
    (e) Customary building or use restrictions for breach of which there 
is no reversion and which have not been violated to a material extent.
    (f) Federal tax liens and rights of redemption arising therefrom if 
the following conditions are observed. If the mortgagee acquires the 
property by foreclosure the mortgagee shall give notice to the Internal 
Revenue Service (IRS) of the foreclosure action. The Commissioner will 
not object to an outstanding right of redemption in IRS if: (1) The 
Federal tax lien was perfected subsequent to the date of the mortgage 
lien, and (2) the mortgagee has bid an amount sufficient to make the 
mortgagee whole if the property is in fact redeemed by the IRS.

[36 FR 24628, Dec. 22, 1971, as amended at 42 FR 29305, June 8, 1977]



Subpart C_Eligibility Requirements_Projects_Conversion Individual Sales 
                                  Units



Sec.  234.501  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
blanket mortgages on condominium projects insured under section 234 of 
the National Housing Act (12 U.S.C. 1715y), as amended.

[61 FR 14406, Apr. 1, 1996]



           Subpart D_Contract Rights and Obligations_Projects



Sec.  234.751  Cross-reference.

    (a) All of the provisions, except Sec.  207.258(b) of subpart B of 
this chapter, covering mortgages insured under section 207 of the 
National Housing Act shall apply to mortgages insured under section 
234(d) of such Act.

[[Page 387]]

    (b) For the purposes of this subpart, all references in part 207 of 
this chapter to section 207 of the National Housing Act shall be 
construed to refer to section 234(d) of the act.

[36 FR 24628, Dec. 22, 1971, as amended at 50 FR 38787, Sept. 25, 1985]



      Subpart E_Servicing Responsibilities_Individually Owned Units



Sec.  234.800  Cross-reference.

    All of the provisions of subpart C, part 203 of this chapter 
covering mortgages insured under section 203 of the National Housing Act 
apply to mortgages insured under section 234(c) of the National Housing 
Act.

[42 FR 29306, June 8, 1977]



PART 236_MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENT FOR RENTAL
PROJECTS--Table of Contents



        Subpart A_Eligibility Requirements for Mortgage Insurance

Sec.
236.1 Applicability, cross-reference and savings clause.
236.2 Increased distributions to certain limited distribution 
          mortgagors.
236.3 Annual income exclusions.
236.60 Excess income.

    Subpart B_Contract Rights and Obligations for Mortgage Insurance

236.251 Cross-reference.
236.252 First, second, and third mortgage insurance premiums.
236.253 Premiums--operating loss loans.
236.254 Termination of mortgage insurance.
236.255 Forbearance relief.
236.260 Request by Commissioner for assignment of mortgage.
236.265 Payment of insurance benefits.

                  Subpart C_Interest Reduction Payments

236.501 Interest reduction payments contract.
236.505 Eligible mortgages.
236.510 Term of payments.
236.515 Time of payments.
236.520 Amount of payments.
236.525 Application of payments.
236.530 Mortgagee records.
236.535 Effect of assignment of mortgage.
236.599 Effect of amendments.

                  Subpart D_Rental Assistance Payments

236.701 Scope of rental assistance.
236.705 Projects eligible for benefits.
236.710 Qualified tenant.
236.715 Determination of eligibility.
236.720 Provisions applicable to cooperative members.
236.725 Term of contract.
236.730 Maximum annual rental assistance contract amount.
236.735 Rental assistance payments and rental charges.
236.740 Time of payment under contract.
236.745 Tenant occupancy limitations.
236.750 Form of lease.
236.755 Housing owner's obligation under contract to report tenant 
          income increase.
236.760 Change in tenant income status.
236.765 Determination of eligible immigration status of applicants and 
          tenants; protection from liability.

                            Subpart E_Audits

236.901 Audit.

                 Subpart F_Uniform Relocation Assistance

236.1001 Displacement, relocation, and acquisition.

    Authority: 12 U.S.C. 1715b, 1715z-1, and 1735d; 42 U.S.C. 3535(d).

    Source: 36 FR 24643, Dec. 22, 1971, unless otherwise noted.



        Subpart A_Eligibility Requirements for Mortgage Insurance



Sec.  236.1  Applicability, cross-reference, and savings clause.

    (a) Applicability. This section implements the eligibility 
requirements for mortgage insurance under the Rental and Cooperative 
Housing For Lower Income Families Program contained in section 236 of 
the National Housing Act (12 U.S.C. 1701), as amended. The program 
authorized the Secretary to insure mortgages to support new construction 
or rehabilitation of real property to be used primarily for residential 
rental purposes. A moratorium against issuance of commitments to insure 
new mortgages under section 236 was imposed January 5, 1973. Section 
236(n) prohibits the insurance of mortgages under section 236 after 
November 30, 1983, except to permit the refinance of a mortgage insured 
under section 236, or to finance pursuant to section

[[Page 388]]

236(j)(3), the purchase, by a cooperative or nonprofit corporation or 
association, of a project assisted under section 236. The definition of 
``family'' in 24 CFR 200.3(a) applies to any refinancing of a mortgage 
insured under section 236, or to financing pursuant to section 236(j)(3) 
of the purchase, by a cooperative or nonprofit corporation or 
association of a project assisted under section 236.
    (b) The mortgagor must comply with the financial reporting 
requirements in 24 CFR part 5, subpart H.
    (c) Savings provision. Any mortgage approved by the Commissioner for 
insurance pursuant to sections 236(j) or 236(n) of the National Housing 
Act is governed by subpart A of this part as in effect immediately 
before May 1, 1996, contained in the April 1, 1995 edition of 24 CFR, 
parts 220 to 499, and by subparts B through E of this part, except as 
otherwise provided in this subpart.

[61 FR 14407, Apr. 1, 1996, as amended at 63 FR 46592, Sept. 1, 1998; 65 
FR 61074, Oct. 13, 2000; 77 FR 5675, Feb. 3, 2012]



Sec.  236.2  Increased distributions to certain limited distribution
mortgagors.

    (a) Increased distributions. The Commissioner may permit increased 
distributions of surplus cash in excess of the amounts otherwise 
permitted by subpart A of this part to limited distribution mortgagors 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the mortgagor is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the mortgagor.
    (b) Pre-emption. Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by subpart A of this 
part as in effect immediately before May 1, 1996, contained in the April 
1, 1995 edition of 24 CFR, parts 220 to 499, or permitted by the 
Commissioner under this section is preempted to the extent provided by 
section 524(f) of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997.

[65 FR 61074, Oct. 13, 2000]



Sec.  236.3  Annual income exclusions.

    The exclusions to annual income described in 24 CFR 5.609(c) apply 
to those program participants governed by the regulations at subpart A 
of 24 CFR part 236 in effect immediately before May 1, 1996 (contained 
in the April 1, 1995 edition of 24 CFR, parts 220 to 499), in lieu of 
the annual income exclusions described in 236.3(c) (contained in the 
April 1, 1995 edition of 24 CFR, parts 220 to 499).

[61 FR 54503, Oct. 18, 1996]



Sec.  236.60  Excess income.

    (a) Definition. Excess Income consists of cash collected as rent 
from the residents by the mortgagor, on a unit-by-unit basis, that is in 
excess of the HUD-approved unassisted Basic Rent. The unit-by-unit 
requirement necessitates that, if a unit has Excess Income, the Excess 
Income must be returned to HUD. It is not permissible to do an aggregate 
calculation of the Excess Income for all occupied rent-paying units, and 
then to offset or subtract from that figure any unpaid rent from 
occupied or vacant units, before remitting Excess Income to HUD.
    (b) General requirement to return Excess Income. Except as otherwise 
provided in this section, or as agreed to by HUD pursuant to a plan of 
action approved under 24 CFR part 248 or in connection with an 
adjustment of contract rents under section 8 of the United States 
Housing Act of 1937 Act (1937 Act) (42 U.S.C. 1437f), the mortgagor 
shall agree to pay monthly to HUD the total of all Excess Income in 
accordance with procedures prescribed by HUD.
    (c) Retention of Excess Income for project use--(1) Eligible 
mortgagors. Any mortgagor of a project receiving Section 236 interest 
reduction payments may apply to retain Excess Income for project use 
unless the mortgagor owes prior Excess Income and is not current in 
payments under a HUD-approved Workout or Repayment Agreement.
    (2) Eligible uses. Excess Income retained by a mortgagor for project 
use

[[Page 389]]

may be used for any necessary and reasonable operating expense of the 
project. Examples of necessary and reasonable operating expenses are:
    (i) Project operating shortfalls, including repair costs;
    (ii) Repair costs identified in the Comprehensive Needs Assessment, 
including increasing deposits to the Reserve Fund for Replacements to a 
limit necessary to adequately fund the reserve;
    (iii) Service coordinators;
    (iv) Neighborhood networks located at the project for project 
residents; and
    (v) Enhanced supportive services for the residents.
    (3) Request for approval to retain Excess Income. A mortgagor must 
submit a written request to retain Excess Income for project use to the 
local HUD Field Office. The request must describe:
    (i) The amount or percentage of Excess Income requested;
    (ii) The period from which Excess Income is being requested; and
    (iii) The proposed use of the requested Excess Income.
    (d) Retention of Excess Income for non-project use--(1) Eligible 
mortgagors. Any mortgagor of a project receiving Section 236 interest 
reduction payments may apply to retain Excess Income for non-project use 
unless the mortgagor owes prior Excess Income and is not current in 
payments under a HUD-approved Workout or Repayment Agreement or the 
mortgagor falls within any of the following categories:
    (i) The mortgagor's Reserve for Replacement is not fully funded;
    (ii) The mortgagor's project is not well maintained housing in good 
condition, as evidenced by:
    (A) Failure to maintain the project in decent, safe, and sanitary 
condition and in good repair in accordance with HUD's Uniform Physical 
Condition Standards and Inspection Requirements in 24 CFR part 5, 
subpart G;
    (B) A score below 60 on the physical inspection conducted by HUD's 
Real Estate Assessment Center (REAC);
    (C) The existence of uncorrected Exigent Health and Safety (EHS) 
deficiencies identified by REAC; or
    (D) A Comprehensive Needs Assessment that finds there are 
significant repair or maintenance needs, and those repair or maintenance 
needs are still outstanding;
    (iii) The mortgagor has engaged in any one of the following material 
adverse financial or managerial actions or omissions:
    (A) Materially violating any federal, state, or local law or 
regulation with regard to the project or any other federally assisted 
project, including any applicable civil rights law or regulation, after 
receipt of notice and an opportunity to cure;
    (B) Materially breaching a contract for assistance under section 8 
of the 1937 Act, after receipt of notice and an opportunity to cure;
    (C) Materially violating any applicable regulatory or other 
agreement with HUD or a participating administrative entity, after 
receipt of notice and an opportunity to cure;
    (D) Repeatedly and materially violating any federal, state, or local 
law or regulation, including any applicable civil rights law or 
regulation, with regard to the project or any other federally assisted 
project;
    (E) Repeatedly and materially breaching a contract for assistance 
under section 8 of the 1937 Act;
    (F) Repeatedly and materially violating any applicable regulatory or 
other agreement with HUD or a participating administrative entity, 
including failure to submit audited financial statements or required 
tenant data;
    (G) Repeatedly failing to make mortgage payments at times when 
project income was sufficient to maintain and operate the project;
    (H) Materially failing to maintain the project in decent, safe, and 
sanitary condition and in good repair after receipt of notice and a 
reasonable opportunity to cure; or
    (I) Committing any actions or omissions that would warrant 
suspension or debarment by HUD.
    (2) Eligible uses. Excess Income retained by a mortgagor for non-
project use may be used for any purpose, except that the non-project use 
of Excess Income by a nonprofit entity mortgagor is limited to 
activities that carry out the entity's nonprofit purpose.

[[Page 390]]

    (3) Request for approval to retain Excess Income. A mortgagor must 
submit a written request to retain Excess Income for non-project use to 
the local HUD Field Office. The request must describe:
    (i) The amount or percentage of Excess Income requested; and
    (ii) The period from which Excess Income is being requested.
    (e) Timing of request to retain Excess Income--(1) In general. 
Except as provided in paragraph (e)(2) of this section, a mortgagor must 
submit a request to retain Excess Income at least 90 days before the 
beginning of each fiscal year before any other date during a fiscal year 
that the mortgagor plans to begin retaining Excess Income for that 
fiscal year.
    (2) Specific ongoing purpose. A mortgagor requesting approval to 
retain Excess Income for a specific, ongoing purpose where the purpose 
extends beyond the current fiscal year may submit a request that 
describes the proposed use of Excess Income and advises that the 
intended use will extend beyond the current fiscal year. If HUD approves 
the request, following review of the request in accordance with 
paragraph (f) of this section, the mortgagor will not be required to 
submit a new request each fiscal year provided the use of Excess Income 
remains the same. The mortgagor will still be required to submit the 
Monthly Report of Excess Income and the end of year narrative under 
paragraph (g) of this section. If the use of Excess Income changes, the 
mortgagor must notify HUD of the change and submit a new request to 
retain Excess Income 90 days prior to the date the mortgagor intends to 
begin retaining Excess Income for the new purpose.
    (f) HUD review and response procedure. HUD will review a mortgagor's 
request to retain Excess Income and issue a letter of approval or denial 
as follows:
    (1) Approval letter. The approval letter from HUD permitting the 
mortgagor to retain Excess Income must, at a minimum, assert:
    (i) Retention rights are for the time specified in the approval 
letter, but cannot extend beyond the current fiscal year except as 
provided in paragraph (e)(2) of this section;
    (ii) Failure of the mortgagor to maintain the Reserve for 
Replacement account in a fully funded amount at all times is grounds for 
HUD to rescind the approval;
    (iii) Failure of the mortgagor to maintain the project in a decent, 
safe, and sanitary condition and in good repair at all times is grounds 
for HUD to rescind the approval;
    (iv) If the Excess Income requested for project use is not used for 
the proposed purpose described in the mortgagor's request, the income 
must be returned to HUD, unless the mortgagor has obtained prior HUD 
approval for the alternate use; and
    (v) The failure of a mortgagor to return retained Excess Income to 
HUD for not complying with applicable requirements is a violation of the 
Regulatory Agreement for which there are enforcement remedies that HUD 
may take.
    (2) Denial letter. A letter from HUD denying a mortgagor's request 
to retain Excess Income must cite the specific reasons for denial and 
state what requirements the mortgagor must meet to receive HUD's 
approval to retain Excess Income.
    (3) Environmental review. Before approving a request to retain 
Excess Income for project use, HUD will perform an environmental review 
to the extent required under 24 CFR part 50 for activities that are not 
excluded under 24 CFR 50.19(b).
    (g) Post-approval requirements--(1) Monthly report. A mortgagor 
approved to retain Excess Income must continue to prepare and submit to 
HUD a revised Form HUD-93104, Monthly Report of Excess Income, or 
successor form.
    (2) Other reporting requirements. A mortgagor that retains Excess 
Income for project use must provide HUD, on an annual basis, two copies 
of a narrative description of the amount and the uses made of Excess 
Income during the prior fiscal year of the project. The calendar year or 
HUD's fiscal year is not relevant to this requirement unless the fiscal 
year of the project coincides with the calendar year or HUD's fiscal 
year. HUD may request additional follow-up information on a case-by-case 
basis. The report must contain the following certification: ``I certify 
that (1)

[[Page 391]]

the amount of Excess Income retained and used was for the purposes 
approved by HUD; (2) all eligibility requirements for retaining Excess 
Income were satisfied for the entire reporting period; and (3) all the 
facts and data on which this report is based are true and accurate. 
Warning: HUD will prosecute false claims and statements. Conviction may 
result in criminal or civil penalties, or both (18 U.S.C. 1001, 1010, 
1012; and 31 U.S.C. 3729 and 3802).''
    (h) Return of remitted Excess Income--(1) For project use. A 
mortgagor that is eligible to retain Excess Income for project use under 
paragraph (c)(1) of this section may apply for the return of Excess 
Income remitted to HUD since October 21, 1998, in accordance with the 
procedures of paragraph (c)(3) of this section. A mortgagor that is 
eligible to retain Excess Income for project use may not apply for the 
return of Excess Income that was:
    (i) Repaid in accordance with a Workout or Repayment Agreement with 
HUD; or
    (ii) Generated between October 1, 2000, and October 27, 2000, by 
projects with state agency non-insured Section 236-assisted mortgages or 
HUD-held Section 236 mortgages
    (2) For non-project use. A mortgagor that is eligible to retain 
Excess Income for non-project use under paragraph (d)(1) of this section 
may apply for the return of Excess Income remitted to HUD since October 
21, 1998, in accordance with paragraph (d)(3) of this section. A 
mortgagor that is eligible to retain Excess Income for non-project use 
under paragraph (d)(1) of this section may not apply to retain Excess 
Income that was:
    (i) Repaid in accordance with a Workout or Repayment Agreement with 
HUD; or
    (ii) Generated between October 1, 2000, and October 27, 2000, by 
projects with state agency non-insured Section 236-assisted mortgages or 
HUD-held Section 236 mortgages.
    (3) Reporting requirement. A mortgagor that receives returned Excess 
Income requested for project use is subject to the reporting 
requirements of paragraph (g)(2) of this section with respect to the 
returned Excess Income.
    (4) Time limit. After September 1, 2005, a mortgagor may no longer 
apply for the return of any Excess Income remitted to HUD.
    (i) HUD withdrawal of approval to retain Excess Income--(1) Bases 
for withdrawal of approval. HUD may withdraw approval for any of the 
following reasons:
    (i) If, at any time after approval, a mortgagor fails to meet the 
eligibility requirements of paragraph (c)(1) or (d)(1) of this section, 
as applicable;
    (ii) If the mortgagor does not use the Excess Income requested for 
project use for purposes and activities as approved by HUD; or
    (iii) If at any time during the fiscal year that such approval is in 
effect, mortgagor, approved to retain Excess Income for non-project use, 
fails to maintain the project in decent, safe, and sanitary condition 
and in good repair, or maintain the Reserve for Replacement account in a 
fully funded amount.
    (2) Notification of withdrawal of approval. HUD will notify the 
mortgagor by certified mail that the authorization to retain Excess 
Income is withdrawn. The notification will state:
    (i) Specific reasons for HUD's withdrawal of approval;
    (ii) The effective termination date, which may be the date of the 
violation resulting in the withdrawal or the date of HUD's determination 
that the mortgagor was out of compliance;
    (iii) The amount of retained Excess Income improperly retained that 
must be returned to HUD; and
    (iv) The actions that the mortgagor must take to restore the 
authorization to retain Excess Income.
    (3) Mortgagor's request for reconsideration--(i) Letter of 
reconsideration. A mortgagor may request that HUD reconsider its 
decision by submitting, to the Hub/Field Office Director or other party 
identified by HUD in the notification, within 30 days of receipt of the 
notification of withdrawal, a letter stating the basis for 
reconsideration. The letter must include documentation supporting a 
review of the withdrawal.
    (ii) HUD response. Within 30 days of HUD's receipt of the 
mortgagor's request for reconsideration, HUD will

[[Page 392]]

make a final determination and respond in writing to the mortgagor. 
HUD's response may:
    (A) Affirm the withdrawal of authority to retain Excess Income;
    (B) Reverse the withdrawal of authority to retain Excess Income; or
    (C) Request additional information from the mortgagor before 
affirming or reversing the withdrawal of authority to retain Excess 
Income.

[69 FR 53560, Sept. 1, 2004]



    Subpart B_Contract Rights and Obligations for Mortgage Insurance



Sec.  236.251  Cross-reference.

    All of the provisions of subpart B, part 207 of this chapter 
covering mortgages insured under section 207 of the National Housing 
Act, apply with full force and effect to mortgages insured under section 
236 of the National Housing Act except the following provisions:

Sec.

207.252 First, second, and third premiums.
207.252a Premiums--operating loss loans.
207.259 Insurance benefits.
207.262 No vested right in fund.

[37 FR 8664, Apr. 29, 1972, as amended at 42 FR 59675, Nov. 18, 1977]



Sec.  236.252  First, second, and third mortgage insurance premiums.

    All of the provisions of Sec.  207.252 of this chapter governing the 
first, second, and third mortgage insurance premiums shall apply to 
mortgages insured under this subpart, except:
    (a) Where an application for a loan under section 202 of the Housing 
Act of 1959 has been filed previously in connection with the project, 
but it is being financed with a mortgage insured under this part because 
funds are not available to make the section 202 loan, the mortgage 
insurance premium due and payable between the dates of initial and final 
insurance endorsement shall be at the rate of one-fourth of one percent 
per annum of the average outstanding principal obligation of the 
mortgage and such premiums shall be prorated for any fractional part of 
a year. Following final endorsement, the mortgage insurance premium 
shall be increased to one-half of one percent and shall be paid as 
provided in Sec.  207.252.
    (b) Where a mortgage has been insured under this subpart pursuant to 
section 238(c) of the Act, the mortgage insurance premiums due in 
accordance with Sec.  207.252 shall be calculated on the basis of one 
percent.

[42 FR 59675, Nov. 18, 1977]



Sec.  236.253  Premiums--operating loss loans.

    All of the provisions of Sec.  207.252a of this chapter relating to 
mortgage insurance premiums on operating loss loans shall apply to 
mortgages insured under this subpart, except that for mortgages insured 
pursuant to Section 238(c) of the Act the mortgage insurance premiums 
due in accordance with Sec.  207.252a shall be calculated on the basis 
of one percent.

[42 FR 59675, Nov. 18, 1977]



Sec.  236.254  Termination of mortgage insurance.

    In addition to the provisions of Sec.  207.253a, the following 
requirements apply to multifamily mortgages insured under section 236 of 
the National Housing Act:
    (a) For those projects qualifying as eligible low income housing 
under Sec.  248.201, the contract of insurance may be terminated only as 
provided in part 248.
    (b) For those projects subject to section 250(a) of the National 
Housing Act, the contract of insurance may be terminated only if the 
Commissioner determines that the requirements of section 250(a) are met.

[55 FR 38958, Sept. 21, 1990]



Sec.  236.255  Forbearance relief.

    (a) In a case where the mortgage is in default, the mortgagor and 
the mortgagee may enter into a forbearance agreement for the reduction 
or suspension of the mortgagor's regular mortgage payments for a 
specified period of time, if the Commissioner determines that the 
default was due to circumstances beyond the mortgagor's control and that 
the mortgage probably will be restored to good standing within a 
reasonable period of time.

[[Page 393]]

Such determination shall be evidenced by the Commissioner's written 
approval of the forbearance agreement.
    (b) The time specified in Sec.  207.258(a) of this chapter, within 
which a mortgagee shall give the Commissioner written notice of its 
intention to file an insurance claim, shall be suspended for the period 
of time specified in the forbearance agreement as long as the mortgagor 
complies with the requirements of such agreement.
    (c) If the mortgagor fails to meet the requirements of a forbearance 
agreement or to cure the default under the mortgage at the expiration of 
the forbearance period, and such failure continues for a period of 30 
days, the mortgagee shall notify the Commissioner of such failure. 
Within 45 days thereafter, unless a modification or extension of the 
forbearance agreement has been approved by the Commissioner, the 
mortgagee shall notify the Commissioner of its election to file an 
insurance claim and of its election to either assign the mortgage to the 
Commissioner or acquire and convey title to the property to the 
Commissioner. If the mortgage is assigned to the Commissioner, the 
special insurance benefits prescribed in Sec.  236.265(b) shall be 
applicable.



Sec.  236.260  Request by Commissioner for assignment of mortgage.

    The mortgagee shall, when requested by the Commissioner, assign to 
the Commissioner a mortgage on which interest reduction payments are 
being made pursuant to the provisions of Sec.  236.501 et seq. If the 
mortgage is not in default when the Commissioner requests its 
assignment, the first day of the month following the Commissioner's 
request shall be considered the date of default.



Sec.  236.265  Payment of insurance benefits.

    All of the provisions of Sec.  207.259 of this chapter relating to 
insurance benefits apply to multifamily project mortgages insured under 
this subpart, except as follows:
    (a) [Reserved]
    (b) When the mortgage is assigned to the Commissioner pursuant to 
Sec.  236.260 or is assigned in a case where the mortgagor fails to 
comply with the requirements of a forbearance agreement approved by the 
Commissioner in accordance with the requirements of Sec.  236.255 or is 
assigned in a case where the mortgagor fails to cure the default at the 
expiration of the forbearance period, the insurance benefits shall be 
paid in cash and shall be computed in accordance with Sec.  207.259(b) 
of this chapter, except that in lieu of the allowance for debenture 
interest in Sec.  207.259(b)(1)(iii) of this chapter, the payment shall 
include the amount of the unpaid accrued mortgage interest computed to 
the date the assignment of the mortgage to the Commissioner is filed for 
record. In addition, an amount shall be included equivalent to the 
debenture interest which would have been earned from the date the 
mortgage assignment was filed for record to the date the cash payment is 
made, except that when the mortgagee fails to meet any one of the 
applicable requirements of Sec. Sec.  207.256, 207.258(b), and 
236.255(c) of this chapter within the specified time and in a manner 
satisfactory to the Commissioner (or within such further time as the 
Commissioner may approve in writing), such amount shall be computed only 
to the date on which the particular required action should have been 
taken or to which it was extended.
    (c) Where the assignment of the mortgage is made pursuant to Sec.  
236.260 and the mortgage is not in default at the time of such 
assignment, the one percent deduction prescribed in Sec.  
207.259(b)(2)(iv) of this chapter shall not be applicable.

[36 FR 24643, Dec. 22, 1971, as amended at 59 FR 49817, Sept. 30, 1994; 
80 FR 51468, Aug. 25, 2015]



                  Subpart C_Interest Reduction Payments



Sec.  236.501  Interest reduction payments contract.

    This subpart shall constitute the interest reduction payment 
contract between the mortgagee and the Commissioner with respect to a 
mortgage insured under section 236 of the National Housing Act. The 
endorsement of the mortgage for insurance shall constitute the execution 
of the interest reduction payment contract with respect to the mortgage 
being insured.

[[Page 394]]



Sec.  236.505  Eligible mortgages.

    Interest reduction payments pursuant to this subpart shall be made 
only in connection with a mortgage which is insured under subparts A and 
B of this part.



Sec.  236.510  Term of payments.

    (a) The term for which interest reduction payments shall be made 
shall begin on the following dates:
    (1) With respect to a mortgage involving insurance of advances, on 
the date the Commissioner finally endorses the mortgage not for 
insurance or such earlier date as may be established by the 
Commissioner.
    (2) With respect to a mortgage insured upon completion, the date on 
which the Commissioner endorses the mortgage note for insurance.
    (b) The term of the interest reduction payments shall end upon the 
occurrence of one of the following events:
    (1) The termination of the contract of insurance, except where the 
mortgage has been assigned to the Commissioner.
    (2) The Commissioner's receipt of the mortgagee's notice of 
intention to file an insurance claim and to acquire and convey title to 
the Commissioner pursuant to Sec.  207.258(c) of this chapter. In the 
event the mortgagee fails to provide the Commissioner with such notice 
of intention within the time specified in Sec.  207.258(a) of this 
chapter, the last day on which the Commissioner should have received the 
mortgagor's notice shall be deemed the date the Commissioner receives 
such notice.
    (3) At the discretion of the Commissioner, the mortgagor's failure 
to meet its obligations under the regulatory agreement it has entered 
into with the Commissioner.
    (c) Upon termination of the interest reduction payments contract, 
the payment due on the first of the month in which the termination 
occurs shall be the last payment to which the mortgagee shall be 
entitled.
    (d) Where the term of interest reduction payments is ended pursuant 
to paragraph (b) (2) or (3) of this section, such interest reduction 
payment contract may be reinstated by the Commissioner, in his 
discretion and on such conditions as he may prescribe. In the event of 
such reinstatement, interest reduction payments will be made to the 
mortgagee for those months during which such payments were suspended.



Sec.  236.515  Time of payments.

    The interest reduction payments shall be due on the first day of 
each month following the beginning of the term, and shall be paid upon 
the receipt of a billing (on a form prescribed by the Commissioner) from 
the mortgagee or its authorized agent.



Sec.  236.520  Amount of payments.

    (a) The interest reduction payment to the mortgagee shall be in an 
amount not exceeding the difference between the following:
    (1) The monthly installment for principal, interest, and mortgage 
insurance premium which the mortgagor is obligated to pay under the 
mortgage; and
    (2) The monthly payment for principal and interest the mortgagor 
would be obligated to pay if the mortgage were to bear interest at the 
rate of 1 percent per annum.
    (b) Where individual family units in the project are sold, subject 
to a plan approved by the Commissioner, and as the principal amount of 
the mortgage is reduced by payment of the portion of the mortgage 
attributable to the sold units and as the amount of the mortgage 
payments which the mortgagor is obligated to pay is reduced, 
proportionate reductions will be made in the interest reduction 
payments.
    (c) In addition to the interest reduction payment referred to in 
paragraph (a) of this section, the mortgagee shall be entitled to the 
monthly payment of an amount the Commissioner deems sufficient to 
reimburse the mortgagee for its expenses in servicing the mortgage.



Sec.  236.525  Application of payments.

    The mortgagee shall apply each monthly interest reduction payment, 
together with the mortgagor's monthly payment, to the items and in the 
order set out in the mortgage.



Sec.  236.530  Mortgagee records.

    The mortgagee shall maintain such records as the Commissioner may 
require with respect to the mortgagor's payments and the interest 
reduction

[[Page 395]]

payments received from the Commissioner. Such records shall be kept on 
file for a period of time and in a manner prescribed by the Commissioner 
and shall be made available, when requested, for review and inspection 
by the Commissioner or the Comptroller General of the United States.



Sec.  236.535  Effect of assignment of mortgage.

    In the event a mortgage subject to interest reduction payments is 
assigned to another approved mortgagee, the assignee shall thereupon 
succeed to all the rights and obligations of the assignor under the 
interest reduction contract.



Sec.  236.599  Effect of amendments.

    The regulations in this subpart may be amended by the Commissioner 
at any time and from time to time, in whole or in part, but no such 
amendment shall adversely affect the interests of a mortgagee under a 
contract for interest reduction payments already in effect or to be put 
into effect pursuant to the Commissioner's commitment to enter into such 
contract.



                  Subpart D_Rental Assistance Payments

    Source: 40 FR 31872, July 29, 1975, unless otherwise noted.



Sec.  236.701  Scope of rental assistance.

    The Secretary shall enter into Rental Assistance Contracts with the 
owners of section 236 projects which:
    (a) Had received a commitment for mortgage insurance under this part 
on or before August 22, 1974, but are reprocessed before final 
endorsement with rental assistance pursuant to an agreement between the 
sponsor and the Secretary;
    (b) Had not received a commitment for mortgage insurance under this 
part on or before August 22, 1974, but did so subsequently;
    (c) Had received a reservation of section 236 contract authority (in 
the case of projects processed without HUD mortgage insurance and to be 
financed under a State or local government aided program pursuant to 
section 236(b) of the National Housing Act) on or before August 22, 
1974, but are reprocessed with rental assistance pursuant to an 
Agreement between the sponsor, the State or local agency providing 
additional aid to the project, and the Secretary. Projects in this 
category which are converted from Rent Supplement shall have Rental 
Assistance Contracts with terms which do not exceed the unexpired terms 
of the Rent Supplement Contracts. Projects in this category which have 
no Rent Supplement Contract shall have Rental Assistance Contracts with 
terms which do not exceed the unexpired terms of Agreement for Interest 
Reduction Payments or equivalent documents or 40 years whichever is 
less; or
    (d) Had not received a reservation of section 236 contract authority 
(in the case of projects processed without HUD mortgage insurance) on or 
before August 22, 1974, but did so subsequently.

Projects may not receive the benefit of rent supplement payments under 
part 215 of this Title and rental assistance payments at the same time. 
(Notwithstanding the provisions of this subpart, it shall be a matter of 
the Secretary's discretion whether he enters into contracts for such 
benefits in connection with the sale of HUD-owned projects.) The 
conditions of eligibility for a Rental Assistance Contract and its terms 
are specified in this subpart D.

[40 FR 31872, July 29, 1975, as amended at 45 FR 50734, July 31, 1980]



Sec.  236.705  Projects eligible for benefits.

    (a) Rental assistance payments may be made with respect to section 
236 projects with Rental Assistance Contracts pursuant to this subpart.
    (b) Rental assistance payments to owners of projects pursuant to 
paragraph (a) of this section will normally be made available to 20 
percent of the dwelling units, except that the Secretary may:
    (1) Reduce that percentage in the case of any project if he 
determines that such action is necessary to assure the economic 
viability of the project; or
    (2) Increase that percentage in the case of any project if he 
determines: (i)

[[Page 396]]

That such action is necessary and feasible, after taking into account 
the objective of assuring, insofar as is practicable, that there is in 
the project a reasonable range in the income levels of tenants, or (ii) 
that such action is to be taken to meet the housing needs of elderly or 
handicapped families.



Sec.  236.710  Qualified tenant.

    (a) The benefits of rental assistance payments are available only to 
an individual or a family who is renting a dwelling unit in a project 
that is subject to a contract entered into under the requirements of 
this subpart or who is occupying such a dwelling unit as a cooperative 
member. To qualify for the benefits of rental assistance payments, the 
individual or family must satisfy the definition of Qualified Tenant 
found in Sec.  236.2 of subpart A (contained in the April 1, 1995 
edition of 24 CFR, parts 220 to 499; see the Savings clause at Sec.  
236.1(c)).
    (b) To receive rental assistance under this subpart, the income of 
the individual or family must be determined to be too low to permit the 
individual or family to pay the approved Gross Rent with 30 percent of 
the individual's or family's Adjusted Monthly Income, as defined in 
Sec.  236.2 of subpart A (contained in the April 1, 1995 edition of 24 
CFR, parts 220 to 499). Determination of the Adjusted Monthly Income 
must include the deductions required for adjusted income in 24 CFR 
5.611(a) in lieu of the deductions provided in the definition of 
``adjusted income'' in 24 CFR 236.2 (contained in the April 1, 1995 
edition of 24 CFR, parts 220 to 499; see the Savings clause at Sec.  
236.1(c)).
    (c) For requirements concerning the disclosure and certification of 
Social Security Numbers, see 24 CFR part 5, subpart B. For requirements 
regarding the signing and submitting of consent forms for the obtaining 
of wage and claim information from State Wage Information Collection 
Agencies, see 24 CFR part 5, subpart B. For restrictions on financial 
assistance to noncitizens with ineligible immigration status, see 24 CFR 
part 5, subpart E.
    (d) The definition of ``persons with disabilities'' in paragraph (d) 
of this section replaces the terms ``disabled person'' and ``handicapped 
person'' used in the regulations in 24 CFR part 236, subpart A 
(contained in the April 1, 1995 edition of 24 CFR, parts 220 to 499; see 
the Savings clause at Sec.  236.1(c)). Person with disabilities, as used 
in this part, has the same meaning as provided in 24 CFR 891.305.

[66 FR 6224, Jan. 19, 2001]



Sec.  236.715  Determination of eligibility.

    (a) The housing owner shall determine eligibility following 
procedures prescribed by the Commissioner when processing applications 
for admission and tenant applications for assistance. The requirements 
of 24 CFR part 5 govern the submission and verification of information 
related to citizenship and eligible immigration status for applicants, 
and the procedures for denial of assistance based upon a failure to 
establish eligible immigration status.
    (b) The owner must use good faith efforts to admit tenants according 
to the following list, provided that the number of units authorized for 
a particular category would not be exceeded and provided that there is 
sufficient funding for the category:
    (1) First: Applicants eligible for Rental Assistance Payments;
    (2) Second: Applicants eligible to pay a below market rent under 
section 236;
    (3) Third: Applicants who can pay the Market Rent.
    (c) Before admitting an applicant who can pay the Market Rent, the 
owner must obtain written approval from HUD if at least 10 percent of 
the number of units authorized under the section 236 program are already 
occupied by tenants paying Market Rent.
    (d) Before admitting an applicant who will not receive the benefit 
of Rental Assistance Payments, the owner must obtain written approval 
from HUD if fewer than 90 percent of the number of units authorized 
under the Rental Assistance Payments contract are already occupied by 
tenants receiving such assistance.
    (e) Upon written request of the owner, the Commissioner may issue a 
written waiver of the requirements of paragraphs (b) through (d) of this 
section based on a finding of sufficient justification. Each such waiver 
shall be

[[Page 397]]

supported by a statement of the pertinent facts and grounds.

(Approved by the Office of Management and Budget under control numbers 
2502-0352 and 2502-0354)

[51 FR 21862, June 16, 1986, as amended at 60 FR 14833, Mar. 20, 1995; 
61 FR 13624, Mar. 27, 1996]



Sec.  236.720  Provisions applicable to cooperative members.

    (a) A member of a cooperative who obtains a certificate of 
eligibility shall be required, as a condition of receiving the 
certificate, to agree that upon a sale of his membership, any equity 
increment accumulated through rental assistance payments will not be 
made available to the member, but will be turned over to the cooperative 
housing owner. Funds received by a cooperative representing an equity 
increment accumulated through rental assistance payments shall be 
deposited by the cooperative in a special account to be disbursed as 
directed by the Secretary.
    (b) The term tenant as used in this subpart shall include a member 
of a cooperative, and the term rental payment shall include the carrying 
charges under the occupancy agreement between the members of the 
cooperative and the cooperative housing owner.



Sec.  236.725  Term of contract.

    The rental assistance contract shall be limited to the term of the 
mortgage or 40 years from the date of the first payment made under the 
contract, whichever is the lesser.



Sec.  236.730  Maximum annual rental assistance contract amount.

    The rental assistance contract shall specify the maximum amount of 
the rental assistance payments for the project for the rent-up period, 
or for any such other period of time as the Secretary may prescribe, 
based upon the Secretary's estimate of probable demand and tenant 
income, including a 10 percent contingency allowance. At the end of such 
period of time, and annually thereafter, appropriate adjustments, as the 
Secretary may prescribe, shall be made in the maximum annual rental 
assistance contract amount, to reflect the actual requirements of the 
eligible tenants and a 10 percent contingency allowance.



Sec.  236.735  Rental assistance payments and rental charges.

    (a) Amount of rental assistance payments. The rental assistance 
contract shall provide that the payment on behalf of a Qualified Tenant 
shall not exceed the difference between the Gross Rent and the Total 
Tenant Payment.
    (b) Total tenant payment for qualified tenants who first receive 
rental assistance on or after May 1, 1983. Notwithstanding Sec.  
236.55(b), the Total Tenant Payment payable for these Qualified Tenants 
shall be the highest of the following amounts, rounded to the nearest 
dollar:
    (1) 30 percent of Adjusted Monthly Income as defined in subpart A;
    (2) 10 percent of one-twelfth of Annual Income as defined in subpart 
A;
    (3) If the family receives Welfare Assistance from a public agency 
and a part of such payments, adjusted in accordance with the family's 
actual housing costs, is specifically designated by such agency to meet 
the family's housing costs, the monthly portion of such payments which 
is so designated. If the family's Welfare Assistance is ratably reduced 
from the standard of need by applying a percentage, the amount 
calculated under this paragraph (b)(3) shall be the amount resulting 
from one application of the percentage.
    (c) Total tenant payment for qualified tenants who were receiving 
rental assistance on April 30, 1983 and whose assistance has been 
continuous thereafter. Notwithstanding Sec.  236.55(b), the Total Tenant 
Payment for these Qualified Tenants shall be calculated in accordance 
with paragraph (b) of this section, except that instead of 30 percent, 
the percentage applied to Adjusted Monthly Income shall be as follows:

------------------------------------------------------------------------
             Effective date of recertification                Percentage
------------------------------------------------------------------------
  May 1, 1983 to Sept. 30, 1983............................      27
  Oct. 1, 1983 to Sept. 30, 1984...........................      28
  Oct. 1, 1984 to Sept. 30, 1985...........................      29
  Oct. 1, 1985 and after...................................      30
------------------------------------------------------------------------

    (d) Special conditions. (1) For the purposes of this section, a 
Qualified Tenant whose initial lease was effective before May 1, 1983 
includes the following: A Qualified Tenant that resided

[[Page 398]]

in a unit assisted under the Rental Assistance Programs or Rent 
Supplement Program on April 30, 1983, and whose assistance under those 
programs has been continuous thereafter; and a family that resided in a 
unit with the benefit of section 8 Housing Assistance Payments on July 
31, 1982 and whose participation in the section 8, Rent Supplement or 
the Rental Assistance Payment Program has been continuous thereafter. A 
Qualified Tenant or family shall not be disqualified if, after that 
date, it moved from one unit to another unit in the same project. For 
these purposes, units in buildings located on adjacent sites and managed 
as one project will be considered part of the same project even if they 
have separate project numbers and separate mortgages.
    (2) Notwithstanding paragraphs (b) and (c) of this section, the 
Total Tenant Payment payable by a Qualified Tenant who continues to 
receive assistance in the same project shall not be increased by more 
than 10 percent during any 12-month period as a result of application of 
the percentages in paragraph (c) of this section, and application of the 
revised definitions in Sec. Sec.  236.2 and 236.3. However, this 10 
percent limit does not apply to Families subject to paragraph (b)(3) of 
this section, provided that the welfare agency includes as the housing 
component of the Family's grant an amount equal to their entire rent 
payment, without reduction. The Total Tenant Payment may be increased by 
more than 10 percent during any 12-month period to the extent that the 
portion of such increase above 10 percent is attributable to increases 
in income or changes in family composition or family circumstances that 
are unrelated to the factors set out in this paragraph (d)(2).
    (e) Utility reimbursement. Where applicable, the Utility 
Reimbursement shall be paid to the Qualified Tenant. If the tenant and 
the utility company consent, the owner may pay the Utility Reimbursement 
jointly to the Qualified Tenant and the utility company, or directly to 
the utility company.

[51 FR 21862, June 16, 1986]



Sec.  236.740  Time of payment under contract.

    The rental assistance contract shall provide for payments to be made 
monthly to the housing owner on behalf of qualified tenants in the 
amounts set forth in the certificates of eligibility.



Sec.  236.745  Tenant occupancy limitations.

    Eligible tenants shall not be permitted to occupy units larger than 
the Secretary determines necessary for their family needs, except on a 
temporary basis with the approval of the Secretary.



Sec.  236.750  Form of lease.

    (a) Lease form. Eligible tenants shall be required to execute a 
lease in a form approved by the Commissioner.
    (b) Prohibited lease provisions. Lease clauses of the nature 
described below shall not be included in new leases or occupancy 
agreements covered by paragraphs (a) and (b) of this section and shall 
be deleted from existing leases and agreements either by amendment 
thereto or by execution of a new lease or agreement.
    (1) Confession of judgment. Prior consent by the tenant:
    (i) To any lawsuit the landlord may bring against the tenant in 
connection with the lease; and
    (ii) To a judgment in favor of the landlord.
    (2) Distraint for rent or other charges. Agreement by the tenant 
that the landlord is authorized to take property of the tenant and hold 
it as a pledge until the tenant performs an obligation which the 
landlord has determined that tenant has failed to perform.
    (3) Exculpatory clauses. Agreement by the tenant not to hold the 
landlord or the landlord's agents liable for any acts or omissions, 
whether intentional or negligent, on the part of the landlord or the 
landlord's authorized representatives or agents.
    (4) Waiver of legal notice by tenant before actions for eviction or 
money judgment. Agreement by the tenant that the landlord may institute 
suit without notice to the tenant that the suit has been filed.

[[Page 399]]

    (5) Waiver of legal proceedings. Authorization to the landlord to 
evict the tenant or hold or sell the tenant's possessions whenever the 
landlord determines that a breach or default has occurred, without 
notice to the tenant or determination by a court of the rights and 
liabilities of the parties.
    (6) Waiver of jury trial. Authorization to the landlord's lawyer to 
appear in court on behalf of the tenant and waive the right to a trial 
by jury.
    (7) Waiver of right to appeal judicial error in legal proceeding. 
Authorization to the landlord's lawyer to waive the tenant's right:
    (i) To appeal for judicial error in any suit brought against the 
tenant by the landlord or the landlord's agents; or
    (ii) To file suit to prevent the execution of a judgment.
    (8) Tenant chargeable with cost of legal actions regardless of 
outcome. Provision that the tenant agrees to pay attorney's fees or 
other legal costs if the landlord brings legal action against the tenant 
even if the tenant prevails in the action. Prohibition of this type of 
provision does not mean that the tenant, as a party to lawsuit, may not 
be obligated to pay attorney's fees or other costs if the tenant loses 
the suit.

[51 FR 21863, June 16, 1986]



Sec.  236.755  Housing owner's obligation under contract to report tenant income increase.

    The rental assistance contract shall contain a provision obligating 
the housing owner to notify the Secretary upon receiving a report from a 
tenant of an increase in the tenant's income resulting in the tenant's 
ability to pay the approved basic monthly rental (plus, where 
applicable, the utility allowance established for utility charges paid 
by the tenant) with the amount the tenant is required to pay for rent in 
accordance with Sec.  236.735. The contract shall also obligate the 
housing owner, upon failing to notify the Secretary when a report of 
such increases in income is received from a tenant, to reimburse the 
Secretary for any rental assistance payments made during the period 
following receipt of such report when the tenant is receiving the 
increased income.

[48 FR 13982, Apr. 1, 1983]



Sec.  236.760  Change in tenant income status.

    Appropriate adjustments will be made in rental assistance payments 
to reflect changes in income or other circumstances which are reported 
by a tenant and verified or are shown by the annual tenant income 
recertification, as required by Sec.  236.80. Rental assistance payments 
will be discontinued when it is determined by the Secretary that the 
amount the tenant is required to pay for rent, in accordance with Sec.  
236.735, is sufficient to pay the approved basic monthly rental (plus, 
where applicable, the established utility allowance) for the unit 
occupied by the tenant. Where a tenant is no longer entitled to rental 
assistance payments, he/she may continue to occupy the unit. The rents 
charged for the unit shall not exceed those specified in subpart A.

[48 FR 13982, Apr. 1, 1983]



Sec.  236.765  Determination of eligible immigration status of 
applicants and tenants; protection from liability.

    (a) Housing owner's obligation to make determination. A housing 
owner shall obtain and verify information regarding the citizenship or 
immigration status of applicants and tenants in accordance with the 
procedures of 24 CFR part 5.
    (b) Protection from liability. HUD will not take any compliance, 
disallowance, penalty or other regulatory action against a housing owner 
with respect to any error in its determination to make an individual 
eligible for financial assistance based upon citizenship or eligible 
immigration status, as provided in 24 CFR part 5.

[61 FR 13624, Mar. 27, 1996]



                            Subpart E_Audits



Sec.  236.901  Audit.

    Where a State or local government receives interest reduction 
payments under section 236(b) of the National Housing Act or is the 
mortgagor of a

[[Page 400]]

mortgage insured or held by the Commissioner under this part, it shall 
conduct audits in accordance with HUD audit requirements at 2 CFR part 
200, subpart F.

[58 FR 37813, July 13, 1993, as amended at 80 FR 75936]



                 Subpart F_Uniform Relocation Assistance



Sec.  236.1001  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, mortgagors shall assure that they have taken 
all reasonable steps to minimize the displacement of persons 
(households, businesses, nonprofit organizations, and farms) as a result 
of a project assisted under this part.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily to permit rehabilitation or other work for the 
assisted project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing, any increase in monthly rent/
utility costs, and any incidental expenses.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the repairs; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. A ``displaced 
person'' (defined in paragraph (g) of this section) must be provided 
relocation assistance at the levels described in, and in accordance with 
the requirements of, the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201-4655) 
and implementing regulations at 49 CFR part 24. A ``displaced person'' 
shall be advised of his or her rights under the Fair Housing Act (42 
U.S.C. 3601-19), and, if the representative comparable replacement 
dwelling used to establish the amount of the replacement housing payment 
to be provided to a minority person is located in an area of minority 
concentration, such person also shall be given, if possible, referrals 
to comparable and suitable, decent, safe and sanitary replacement 
dwellings not located in such areas.
    (d) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements of 49 
CFR part 24, subpart B.
    (e) Appeals. A person who disagrees with the mortgagor's 
determination concerning whether the person qualifies as a ``displaced 
person,'' or with the amount of relocation assistance for which the 
person is eligible, may file a written appeal of that determination with 
the mortgagor. A person who is dissatisfied with the mortgagor's 
determination on his or her appeal may submit a written request for 
review of the determination to the HUD Field Office.
    (f) Responsibility of mortgagor. (1) The mortgagor shall certify 
(i.e., provide assurance of compliance as required by 49 CFR part 24) 
that it will comply with the URA, the regulations at 49 CFR part 24, and 
the requirements of this section. The mortgagor shall ensure such 
compliance notwithstanding any third party's contractual obligation to 
the mortgagor to comply with these provisions.
    (2) The cost of required relocation assistance is an eligible 
project cost in the same manner and to the same extent as other project 
costs. Such costs may also be paid for with funds available from other 
sources.
    (3) The mortgagor shall maintain records in sufficient detail to 
demonstrate compliance with the provisions of this section. The 
mortgagor shall maintain data on the race, ethnic, gender, and 
disability status of displaced persons.
    (g) Definition of displaced person. (1) For purposes of this 
section, the term

[[Page 401]]

displaced person means any person (household, business, nonprofit 
organization, or farm) that moves from real property, or moves personal 
property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted under 
this part. The term ``displaced person'' includes, but may not be 
limited to:
    (i) A tenant-occupant of a dwelling unit who moves from the 
building/complex, permanently, after the mortgagor executes the 
agreement covering the rehabilitation, demolition or acquisition, if the 
move occurs before the tenant is provided written notice offering him or 
her the opportunity to lease and occupy a suitable, decent, safe, and 
sanitary dwelling in the same building/complex, under reasonable terms 
and conditions, upon completion of the project. Such reasonable terms 
and conditions include a monthly rent and estimated average monthly 
utility costs that do not exceed the amount approved by HUD;
    (ii) A tenant-occupant of a dwelling who is required to relocate 
temporarily, but does not return to the building/complex, if either:
    (A) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation, 
including the cost of moving to and from the temporarily occupied unit, 
any increased housing costs and incidental expenses; or
    (B) Other conditions of the temporary relocation are not reasonable; 
or
    (iii) A tenant-occupant of a dwelling who moves from the building/
complex permanently after he or she has been required to move to another 
dwelling unit in the same building/complex in order to carry out the 
project, if either:
    (A) The tenant is not offered reimbursement for all reasonable out-
of-pocket expenses incurred in connection with the move; or
    (B) Other conditions of the move are not reasonable; or
    (iv) Any person, including a person who moves before the mortgagor's 
execution of the agreement covering the rehabilitation, demolition, or 
acquisition, if the mortgagor or HUD determines that the displacement 
resulted directly from rehabilitation, demolition or acquisition for the 
assisted project.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, a person does not qualify as a ``displaced person'' (and is not 
eligible for relocation assistance under the URA or this section), if:
    (i) The person has been evicted for serious or repeated violation of 
the terms and conditions of the lease or occupancy agreement, violation 
of applicable Federal, State or local law, or other good cause, and HUD 
determines that the eviction was not undertaken for the purpose of 
evading the obligation to provide relocation assistance;
    (ii) The person moved into the property after the execution of the 
agreement covering the rehabilitation, demolition or acquisition and, 
before signing a lease or commencing occupancy, was provided written 
notice of the project, its possible impact on the person (e.g., the 
person may be displaced, temporarily relocated or suffer a rent 
increase) and the fact that the person would not qualify as a 
``displaced person'' (or for any assistance provided under this section) 
as a result of the project;
    (iii) The person is ineligible under 49 CFR 24.2(g)(2); or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project;
    (3) The mortgagor may request, at any time, HUD's determination of 
whether a displacement is or would be covered by this section.
    (h) Definition of initiation of negotiations. For purposes of 
determining the formula for computing the replacement housing assistance 
to be provided to a residential tenant displaced as a direct result of 
privately undertaken rehabilitation, demolition or acquisition of the 
real property, the term initiation of negotiations means the mortgagor's 
execution of the agreement covering the rehabilitation, demolition or 
acquisition.

(Approved by Office of Management and Budget under OMB Control Number 
2506-0121)

[59 FR 29331, June 6, 1994]

[[Page 402]]



PART 241_SUPPLEMENTARY FINANCING FOR INSURED PROJECT MORTGAGES
--Table of Contents



                   Subpart A_Eligibility Requirements

Sec.
241.1 Eligibility requirements.

                Subpart B_Contract Rights and Obligations

241.251 Cross-reference.
241.260 Definitions.
241.261 Payment of insurance benefits.
241.265 Insurance of property against flood.
241.270 Refund upon termination of insurance.
241.275 No vested right in fund.

    Subpart C_Eligibility Requirements_Supplemental Loans To Finance 
   Purchase and Installation of Energy Conserving Improvements, Solar 
 Energy Systems, and Individual Utility Meters in Multifamily Projects 
               Without a HUD-Insured or HUD-Held Mortgage

241.500 Definitions.

                            Fees and Charges

241.505 Processing of applications and required fees.
241.510 Commitments.
241.515 Inspection fee.
241.520 Fees on increases.
241.525 Refund of fees.
241.530 Maximum fees and charges by lender.

                      Eligible Security Instruments

241.530a Note and security form.
241.535 Loan multiples--minimum principal.
241.540 Method of loan payment and amortization period.
241.545 Covenant against liens.
241.550 Accumulation of next premium.
241.555 Security instrument and lien.
241.560 Agreed interest rate.
241.565 Maximum loan amount.
241.570 Insurance endorsement.
241.580 Application of payments.
241.585 Prepayment privilege and prepayment charge.
241.586 Minimum principal loan amount.

                          Property Requirements

241.590 Eligibility of property.

                                  Title

241.595 Eligibility of title.
241.600 Title evidence.

                            Form of Contract

241.605 Contract requirements.
241.610 Assurance of completion.
241.615 Certification of cost requirements.

                           Eligible Borrowers

241.625 Eligible borrowers.
241.626 Disclosure and verification of Social Security and Employer 
          Identification Numbers.

                          Special Requirements

241.630 Maximum insurance against loss.
241.635 Regulatory agreement.
241.640 Employment discrimination prohibited.
241.645 Labor standards and prevailing wage requirements.

Subpart D_Contract Rights and Obligations_Multifamily Projects Without a 
                    HUD-Insured or HUD-Held Mortgage

241.800 Definitions.

                                Premiums

241.805 Insurance premiums.
241.805a Mortgagee's late charge.
241.815 Termination of insurance.
241.825 Pro rata refund of insurance premium.

       Rights and Duties of Lender Under the Contract of Insurance

241.830 Definition of default.
241.840 Date of default.
241.850 Notice of default.
241.860 Commissioner's right to require acceleration.
241.865 Election by the lender.
241.875 Maximum claim period.
241.880 Items to be delivered on submitting claim.
241.885 Insurance benefits.
241.890 Characteristics of debentures.
241.893 Cash adjustment.

                               Assignments

241.895 Assignment of insured loans.

                            Extension of Time

241.897 Actions to be taken by lender.

                         Rights in Housing Fund

241.900 No vested right in fund.
241.905 Effect of amendments.

 Subpart E_Insurance for Equity Loans and Acquisition Loans_Eligibility 
                              Requirements

241.1000 Purpose and scope.
241.1005 Definitions.
241.1010 Feasibility letter.
241.1015 Processing of applications and required fees.

[[Page 403]]

241.1020 Commitments.
241.1025 Refund of fees.
241.1030 Mortgage insurance premiums.
241.1035 Charges by lender.
241.1040 Eligible lenders.
241.1045 Note and security form.
241.1046 Rental assistance.
241.1050 Method of loan payment.
241.1055 Date of first payment to principal.
241.1060 Maturity.
241.1065 Maximum loan amount--loans insured in connection with a plan of 
          action under subpart C of part 248 of this chapter.
241.1067 Maximum loan amount--loans insured in connection with a plan of 
          action under subpart B of part 248 of this chapter.
241.1068 Renegotiation of an equity loan.
241.1069 Escrow requirements.
241.1070 Agreed interest rate.
241.1080 Eligibility of title.
241.1085 Title evidence.
241.1090 Accumulation of next premium.
241.1095 Application of payments.
241.1100 Prepayment privilege and charges.
241.1105 Late charges.
241.1120 Mortgagee's consent.

  Subpart F_Insurance for Equity Loans and Acquisition Loans_Contract 
                         Rights and Obligations

241.1200 Cross-references.
241.1205 Payment of insurance benefits.
241.1210 Condition for payment of insurance benefits.
241.1215 Calculation of insurance benefits.
241.1220 Termination of insurance benefits.
241.1230 No vested right in fund.
241.1235 Cross default.
241.1245 Insurance endorsement.
241.1250 Effect of endorsement.

     Authority: 12 U.S.C. 1715b, 1715z-6, and 1735d; 42 U.S.C. 3535(d).

    Source: 36 FR 24653, Dec. 22, 1971, unless otherwise noted.



                   Subpart A_Eligibility Requirements



Sec.  241.1  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
multifamily project mortgages insured under section 241 of the National 
Housing Act (12 U.S.C. 1715z-6), as amended.

[61 FR 14407, Apr. 1, 1996]



                Subpart B_Contract Rights and Obligations



Sec.  241.251  Cross-reference.

    (a) Projects with a HUD-insured or HUD-held mortgage. All of the 
provisions of subpart B, part 207 of this chapter, covering mortgages 
insured under section 207 of the National Housing Act, apply with full 
force and effect to multifamily project and group practice facility 
mortgages insured under section 241 of the National Housing Act, except 
the following provisions:

Sec.
207.251 Definitions.
207.253a Termination of insurance contract.
207.259 Insurance benefits.
207.260 Protection of mortgage security.
207.262 No vested right in fund.

    (b) For the purposes of this subpart, the terms mortgagor, mortgagee 
and mortgage, as used in subpart B, part 207 of this chapter shall be 
construed to mean borrower, lender and supplementary loan (including the 
security instrument), respectively.
    (c) Projects without a HUD-insured or HUD-held mortgage. The 
provisions of subpart D of this part shall be applicable to a project 
without a HUD-insured or HUD-held mortgage that is receiving a loan 
insured under subpart A of this part in connection with a plan of action 
approved by the Commissioner under part 248 of this chapter.

[36 FR 24653, Dec. 22, 1971, as amended at 37 FR 8664, Apr. 29, 1972; 48 
FR 57129, Dec. 28, 1983; 57 FR 12037, Apr. 8, 1992]



Sec.  241.260  Definitions.

    All of the definitions contained in Sec.  241.1 shall apply to this 
subpart. In addition, the term contract of insurance, as used in this 
subpart, means the agreement evidenced by endorsement of the credit 
instrument by the Commissioner or his duly authorized representative, 
and includes the provisions of this subpart and of the National Housing 
Act.

[[Page 404]]



Sec.  241.261  Payment of insurance benefits.

    All of the provisions of Sec.  207.259 of this chapter relating to 
insurance benefits shall apply to multifamily loans insured under this 
subpart.

[80 FR 51469, Aug. 25, 2015]



Sec.  241.265  Insurance of property against flood.

    The mortgaged property shall be insured against flood as stipulated 
by the Federal Housing Commissioner. The mortgagee shall obtain such 
coverage in the event the mortgagor fails to do so. If the mortgagee 
fails to pay any premiums necessary to keep the mortgaged premises so 
insured, the contract of mortgage insurance may be terminated at the 
election of the Commissioner.

[39 FR 26023, July 16, 1974]



Sec.  241.270  Refund upon termination of insurance.

    Upon termination of the insurance contract by payment in full or by 
voluntary termination, the Commissioner shall refund to the lender for 
the account of the borrower an amount equal to the pro rata portion of 
the current annual loan insurance premium theretofore paid, which is 
applicable to the portion of the year subsequent to (a) the date of the 
prepayment or (b) the effective date of the voluntary termination of the 
contract of insurance.



Sec.  241.275  No vested right in fund.

    Neither the lender nor the borrower shall have any vested or other 
right in the insurance fund under which the loan is insured.



    Subpart C_Eligibility Requirements_Supplemental Loans To Finance 
   Purchase and Installation of Energy Conserving Improvements, Solar 
 Energy Systems, and Individual Utility Meters in Multifamily Projects 
               Without a HUD-Insured or HUD-Held Mortgage

    Source: 45 FR 57983, Aug. 29, 1980, unless otherwise noted.



Sec.  241.500  Definitions.

    In addition to the definitions contained in subpart A of this part, 
incorporated herein by reference, except Sec.  241.1(f), (h) and (i), 
the following terms, as used in Sec.  241.500 et seq., shall have the 
meaning indicated:
    (a) Approved lender means a financial institution or other mortgagee 
approved by the Commissioner as eligible for insurance under section 2 
of the National Housing Act, or a mortgagee approved under section 
203(b)(1) of the National Housing Act, or a state housing agency 
approved pursuant to 24 CFR 883.102.
    (b) Borrower means the owner of a project held in fee simple or of a 
leasehold interest which is not now covered by a mortgage insured or 
held by the Secretary.
    (c) Energy saving loan means any form of secured obligation used in 
connection with the purchase and installation of energy conserving 
improvements.
    (d) Multifamily project means a project which consists of not less 
than five dwelling units on one site, each such unit providing complete 
living facilities including provisions for cooking, eating, and 
sanitation within the unit and which is not now covered by a mortgage 
insured or held by the Secretary.

                            Fees and Charges



Sec.  241.505  Processing of applications and required fees.

    (a) Preapplication conference. The local HUD Office will determine 
whether participation in a preapplication conference is required as a 
condition to submission of an initial application for a firm commitment 
for insurance of an energy savings improvement loan on a project. An 
application for a firm commitment for insurance must be submitted by 
both the project sponsor and an approved lender. Applications shall be 
submitted to the local HUD Office on HUD-approved forms. No application 
will be considered unless accompanied by all exhibits required by the 
form and program handbooks.
    (b) Application for firm commitment. An application for a firm 
commitment shall be accompanied by the payment

[[Page 405]]

of an application fee of $5 per thousand dollars of the requested loan 
amount to be insured.
    (c) Cross-reference. The provisions of paragraphs (e) (Inspection 
fee), (f)(1) (Fee on increases), (g) (Reopening of expired commitments), 
(i) (Refund of fees), and (j) (Fees not required) of Sec.  200.40 of 
this chapter apply to applications submitted under subpart E of this 
part.

[61 FR 14416, Apr. 1, 1996]



Sec.  241.510  Commitments.

    (a) Firm commitment. The issuance of a firm commitment indicates the 
Commissioner's approval of the application for insurance and sets forth 
the terms and conditions upon which the loan will be insured.
    (b) Types of firm commitment. (1) Where the amount of the loan is 
$250,000 or more, the firm commitment may provide for the insurance of 
advances of loan money made during construction or may provide for the 
insurance of the loan after completion of the improvements.
    (2) Where the amount of the loan is less than $250,000, the firm 
commitment shall provide for insurance of the loan after completion of 
the improvements.
    (c) Term of commitment. (1) A firm commitment to insure advances 
shall be effective for a period of not more than 60 days from the day of 
issuance.
    (2) A firm commitment to insure upon completion shall be effective 
for a designated term within which the borrower is required to begin 
construction, and if construction is begun as required, the commitment 
shall be effective for such additional period, estimated by the 
Commissioner, as will allow for completion of construction.
    (3) The term of a firm commitment may be extended in such a manner 
as the Commissioner may prescribe.

[61 FR 14417, Apr. 1, 1996]



Sec.  241.515  Inspection fee.

    The firm commitment may provide for the payment of an inspection fee 
in an amount not to exceed $5 per thousand dollars of the commitment. If 
an inspection fee is required, it shall be paid as follows:
    (a) If the case involves the insurance of advances, it shall be paid 
at the time of initial endorsement.
    (b) If the case involves insurance upon completion, it shall be paid 
prior to the date construction is begun.



Sec.  241.520  Fees on increases.

    (a) Increase in firm commitment prior to endorsement. An application 
filed prior to initial endorsement (or prior to endorsement in a case 
involving insurance upon completion), for an increase in the amount of 
an outstanding firm commitment shall be accompanied by a combined 
additional application and commitment fee. This combined additional fee 
shall be in an amount which will aggregate $3 per thousand dollars of 
the amount of the requested increase. if an inspection fee was required 
in the original commitment, an additional inspection fee shall be paid 
in an amount computed at the same dollar rate per thousand dollars of 
the amount of increase in commitment as was used for the ispection fee 
required in the original commitment. When insurance of advances is 
involved, the additional inspection fee shall be paid at time of initial 
endorsement. When insurance upon completion is involved, the additional 
inspection fee shall be paid prior to the date construction is begun or 
if construction has begun, it shall be paid with the application for 
increase.
    (b) Increase in loan between initial and final endorsement. Upon an 
application, filed between initial and final endorsement, for an 
increase in the amount of the loan, either by amendment or by 
substitution of a new loan, a combined additional application and 
commitment fee shall accompany the application. This combined additional 
fee shall be in an amount which will aggregate $3 per thousand dollars 
of the amount of the increase requested. If an inspection fee was 
required in the original commitment, an additional inspection fee shall 
accompany the application in an amount not to exceed $5 per thousand 
dollars of the amount of the increase requested.



Sec.  241.525  Refund of fees.

    If the amount of the commitment issued or an increase in loan prior 
to

[[Page 406]]

endorsement is less than the amount applied for, the Commissioner shall 
refund the excess amount of the application and commitment fees 
submitted by the applicant. If an application is rejected before it is 
assigned for processing, or in such other instances as the Commissioner 
may determine, the entire application and commitment fees or any portion 
thereof may be returned to the applicant. Commitment, inspection, and 
reopening fees may be refunded, in whole or in part if it is determined 
by the Commissioner that the installation of energy conserving 
improvements for the project has been prevented because of condemnation 
proceedings or other legal action taken by a governmental body or public 
agency, or in such other instances as the Commissioner may determine.



Sec.  241.530  Maximum fees and charges by lender.

    The lender may collect from the borrower the amount of the fees 
provided for in this subpart. The lender may also collect from the 
borrower an initial service charge in an amount not to exceed 2 percent 
of the original principal amount of the loan to reimburse the lender for 
the cost of originating and closing the transaction. Any additional 
charges shall be subject to the prior approval of the Commissioner.

                      Eligible Security Instruments



Sec.  241.530a  Note and security form.

    The lender shall present for insurance a note and security 
instrument, on forms approved by the Commissioner for use in the 
jurisdiction in which the property to be improved is located.

[45 FR 57983, Aug. 29, 1980, as amended at 45 FR 80276, Dec. 4, 1980]



Sec.  241.535  Loan multiples--minimum principal.

    The loan shall involve a principal obligation in multiples of $100, 
and the minimum principal obligation shall be $10,000.



Sec.  241.540  Method of loan payment and amortization period.

    (a) Monthly payments. The loan shall provide for monthly payments on 
the first day of each month on account of interest and principal and 
shall provide for payment in accordance with the amortization plan as 
agreed upon by the borrower, the lender and the Commissioner.
    (b) Amortization period. (1) The loan shall have an amortization of 
either 5, 10, or 15 years by providing for either 60, 120, or 180 
monthly amortization payments. No energy saving loan shall have an 
amortization period in excess of 15 years unless the amount of the loan 
exceeds $50,000.00, in which event the amortization period may be 
increased to 20 years, with a provision for 240 monthly amortization 
payments.
    (2) In any event, the loan shall have a maturity satisfactory to the 
Commissioner of not less than 2 or more than 20 years from the date of 
the beginning of amortization, or the Commissioner's estimate of the 
remaining economic life of the structure, whichever is the lesser.
    (3) The Commissioner shall establish the date of the first payment 
to principal, which shall be no later than the first day of the second 
month following the date of final endorsement (for projects involving 
insurance of advances) or endorsement (for projects involving insurance 
upon completion) of the loan for insurance.



Sec.  241.545  Covenant against liens.

    The security instrument shall contain a covenant against the 
creation by the borrower of additional liens against the property 
superior or inferior to the lien of such instrument, except with the 
prior approval of the Commissioner.



Sec.  241.550  Accumulation of next premium.

    The security instrument shall provide for payments by the borrower 
to the lender on each interest payment date of an amount sufficient to 
accumulate in the hands of the lender one payment period prior to its 
due date, the next annual insurance premium payable by the lender to the 
Commissioner.



Sec.  241.555  Security instrument and lien.

    (a) The security instrument shall cover the entire property included 
in

[[Page 407]]

the project, shall be a lien on the real property of the project under 
the laws of the jurisdiction in which the project is located, and may be 
junior to such prior liens or mortgage indebtedness as the Commissioner 
may approve. The security instrument shall contain a provision that a 
default under the first mortgage is a default under the supplementary 
loan security instrument.
    (b) For bond-financed projects where the bond resolution contains a 
provision prohibiting the creation of additional liens, the Commissioner 
may accept at his/her option:
    (1) A first lien on another property whose fair market value as 
determined by the Commissioner equals or exceeds the amount of the loan 
insured under this part;
    (2) A Collateral Account in an amount not less than the amount of 
the loan insured under this part funded with cash or negotiable bonds or 
securities backed by the full faith and credit of the United States 
Government; or
    (3) Other security acceptable to the Commissioner.



Sec.  241.560  Agreed interest rate.

    (a) The mortgage shall bear interest at the rate agreed upon by the 
lender and the borrower.
    (b) Interest shall be payable in monthly installments on the 
principal amount of the loan outstanding on the due date of each 
installment.

[45 FR 57983, Aug. 29, 1980, as amended at 49 FR 19459, May 8, 1984]



Sec.  241.565  Maximum loan amount.

    The principal amount of the loan shall in no event exceed the cost 
of the energy conserving improvements including the purchase thereof, 
cost of installation, architect's fees, interest during construction and 
such other miscellaneous fees and charges incident to construction as 
determined by the Commissioner. Nor shall the principal amount of the 
loan exceed the lesser of the following:
    (a) An amount which can be supported by residual income, which is 
the amount of net income remaining after payment of all existing debt 
service requirements and deduction of proprietary earnings, as 
determined by the Commissioner. The computation of net income shall take 
into account the amount which will be saved in operating costs over the 
period of repayment of the loan as a result of the installation of the 
energy conserving improvements.
    (b) An amount which, when added to the existing outstanding 
indebtedness, does not exceed the Commissioner's estimate of the value 
of the project after the energy conserving improvements are installed.



Sec.  241.570  Insurance endorsement.

    (a) Initial endorsement. The Commissioner shall indicate his/her 
insurance of the mortgage by endorsing the original credit instrument 
and identifying the section of the Act and the regulations under which 
the mortgage is insured and the date of insurance.
    (b) Final endorsement. When all advances of mortgage proceeds have 
been made and all the terms and conditions of the commitment have been 
complied with to the satisfaction of the Commissioner, he/she shall 
indicate on the original credit instrument the total approved for 
insurance and again endorse such instrument.
    (c) Effect of endorsement. From the date of initial endorsement, the 
Commissioner and the mortgagee or lender shall be bound by the 
provisions of this subpart to the same extent as if they had executed a 
contract including the provisions of this subpart and the applicable 
sections of the Act.
    (d) Insurance upon completion. When all advances of mortgage 
proceeds have been made and all the terms and conditions of the 
commitment have been complied with to the satisfaction of the 
Commissioner, he/she shall indicate the total approved for insurance and 
endorse the credit instrument, identifying the date of insurance.



Sec.  241.580  Application of payments.

    (a) The security instrument shall provide that all monthly payments 
to be made by the borrower shall be added together and this aggregate 
amount shall be paid by the borrower upon each monthly payment date in a 
single payment. The lender shall apply the payment to the following 
items in the order set forth:

[[Page 408]]

    (1) Premium charges under the contract of insurance;
    (2) Interest on the loan;
    (3) Amortization of the principal of the loan.
    (b) Any deficiency in the amount of any monthly payments required 
under paragraph (a) of this section shall constitute an event of default 
and the loan shall further provide for a grace period of 30 days within 
which time the default must be cured.



Sec.  241.585  Prepayment privileges and prepayment charge.

    The security instrument shall contain a provision permitting 
prepayment of the loan in whole or in part upon any interest payment 
date after giving to the lender 30 days advance written notice and it 
may contain a provision, with the approval of the Commissioner, for a 
reasonable charge in the event of prepayment. The borrower shall be 
permitted to prepay up to 15 percent of the original principal amount of 
the loan in any one calendar year without an additional charge. A 
provision for a charge in the event of prepayment may not be included in 
a loan of $200,000 or less.



Sec.  241.586  Minimum principal loan amount.

    A mortgagee may not require, as a condition of providing a loan 
insured under this subpart, that the principal amount of the mortgage 
exceed a minimum amount established by the mortgagee.

[53 FR 8886, Mar. 18, 1988]

                          Property Requirements



Sec.  241.590  Eligibility of property.

    (a) A loan to be eligible for insurance shall be on real estate 
held:
    (1) In fee simple; or
    (2) On the interest of the lessee under a lease for not less than 
seventy-five years which is renewable; or
    (3) Under a lease having a period of not less than twenty-five years 
to run from the date the loan is executed.
    (b) The property constituting security for the loan transaction must 
be held by an eligible borrower as herein defined and must at the time 
the loan is insured be free and clear of all liens other than those 
specifically approved by the Commissioner.

                                  Title



Sec.  241.595  Eligibility of title.

    In order for the property which is to be the security for a loan to 
be insured under this subpart to be eligible for insurance, the 
Commissioner shall determine that the title to the property is vested in 
the borrower as of the date the security instrument is filed for record. 
The title evidence will be examined by the Commissioner and the 
endorsement of the credit instrument for insurance shall be evidence of 
its acceptability.



Sec.  241.600  Title evidence.

    (a) Upon insurance of the loan, the lender shall furnish to the 
Commissioner a survey, satisfactory to the Commissioner, and a policy of 
title insurance as provided in paragraph (a)(1) of this section. If the 
lender is unable to furnish such policy for reasons satisfactory to the 
Commissioner, the lender shall furnish such evidence of title as 
provided in paragraph (a) (2), (3), or (4) of this section as the 
Commissioner may require. Any survey, policy of title insurance, or 
evidence of title required under this section shall be furnished without 
expense to the Commissioner. The acceptable types of title evidence are:
    (1) A policy of title insurance issued by a company and in a form 
satisfactory to the Commissioner. The policy shall name the lender and 
the Secretary of Housing and Urban Development, as their respective 
interests may appear, as the insured. The policy shall provide that upon 
acquisition of title by the lender or the Secretary, it will continue to 
provide the same coverage as the original policy, and will run to the 
lender upon its acquisition of the property in extinguishment of the 
debt, and to the Secretary upon acquisition of the property pursuant to 
the loan insurance contract.
    (2) An abstract of title satisfactory to the Commissioner, prepared 
by an abstract company or individual engaged in the business of 
preparing abstracts of title, accompanied by a legal

[[Page 409]]

opinion satisfactory to the Commissioner, as to the quality of such 
title, signed by an attorney at law experienced in the examination of 
titles.
    (3) A Torrens or similar title certificate.
    (4) Evidence of title conforming to the standards of a supervising 
branch of the Government of the United States of America, or of any 
State or territory thereof.
    (b) The survey required by paragraph (a) of this section need not be 
furnished in connection with a project where the loan does not exceed 
$200,000.

[45 FR 57983, Aug. 29, 1980, as amended at 58 FR 34217, June 24, 1993]

                            Form of Contract



Sec.  241.605  Contract requirements.

    (a) When the principal amount of the loan is $100,000 or less, the 
form of contract between the borrower and the contractor shall be in 
accordance with the following:
    (1) The contract between the borrower and the general contractor may 
be in the form of either a lump sum contract or a cost plus contract. 
Either form of contract shall include the cost of the energy conserving 
improvements, their installation, and such other work to be performed by 
the contractor as necessary to meet the requirements of the Secretary. A 
lump sum contract shall provide for the payment of a specified amount. A 
cost plus contract shall provide for the payment of the contractor's 
actual cost of compliance with the requirements of the contract, plus 
such allowances for overhead and profit as may be approved by the 
Commissioner and shall provide that the total cost under the contract 
shall not exceed the upset price as approved by the Commissioner.
    (2) If agreed to by the general contractor and borrower, a lump sum 
form of contract between the borrower and the general contractor may be 
used unless the Commissioner determines that a cost plus contract with a 
maximum upset price is necessary to protect the interest of the borrower 
or the Commissioner.
    (b) When the principal amount of the loan is over $100,000, the form 
of contract between the borrower and the contractor shall be in 
accordance with the following:
    (1) Lump sum contract. If the Commissioner determines that there is 
no identity of interest between the borrower or any of the officers, 
directors or stockholders of the borrower and the contractor, there may 
be used a lump sum contract providing for payment of the specified 
amount.
    (2) Cost plus fixed fee contract. (i) If the Commissioner determines 
that there is any identity of interest (financial or otherwise) between 
the borrower, its officers, directors or stockholders and the 
contractor, the form of contract shall provide for payment of the actual 
cost of construction not to exceed an upset price and may provide for 
payment of a fixed fee not exceeding a reasonable allowance as 
established by the Commissioner in accordance with customary practices 
in the area.
    (ii) In any case where the borrower is a nonprofit entity, a cost 
plus fixed fee contract shall be used unless it is established to the 
Commissioner's satisfaction that such form of contract is not required 
to protect his/her interests and the interests of the borrower, in which 
case, a lump sum form of contract may be used.



Sec.  241.610  Assurance of completion.

    (a) The borrower shall furnish assurance of completion of the 
project in the following minimum forms and amounts:
    (1) Where the estimated cost of construction of the improvements is 
$500,000 or less, the borrower shall furnish assurance of completion of 
the project in the form of a personal indemnity agreement executed by 
the principal officers, directors, stockholders, or partners of the 
entity acting as general contractor.
    (2) Where the estimated cost of construction of the improvements is 
more than $500,000 or where such cost is less than $500,000 and a 
personal indemnity agreement is not executed, the assurance shall be in 
the form of corporate surety bonds for payment and performance, each in 
the minimum amount of 25 percent of the construction contract, or a 
completion assurance agreement

[[Page 410]]

secured by a cash deposit in the minimum amount of 15 percent of the 
amount of the construction contract.
    (3) All types of assurance of completion shall be on forms approved 
by the Commissioner. Any surety company executing a bond and any party 
executing a personal indemnity agreement must be satisfactory to the 
Commissioner.
    (4) A mortgagee may prescribe more stringent requirements for 
assurance of completion than the minimum requirements of this section.
    (b) The lender may accept, in lieu of a cash deposit required by 
paragraph (a) of this section, an unconditional irrevocable letter of 
credit issued to the lender by a banking institution. In the event a 
demand under the letter of credit is not immediately met, the lender 
shall forthwith provide cash equivalent to the undrawn balance 
thereunder.



Sec.  241.615  Certification of cost requirements.

    (a) Certification agreement. The lender shall submit with the 
application an agreement on a form prescribed by the Commissioner and 
executed by the borrower and the lender.
    (b) Certificate and adjustment. No loan shall be insured unless:
    (1) A certification of actual cost is made by the contractor in 
cases in which a cost plus form of contract is used; and
    (2) The amount of the loan is adjusted to reflect the actual cost to 
the borrower of the improvements when either a cost plus or lump sum 
form or contract is used.
    (c) Cost computation. The term actual cost of the improvements shall 
mean the cost to the borrower of the improvements, after deducting the 
amount of any kickbacks, rebates or trade discount received in 
connection with the improvements, and including the amounts paid under 
any contract for the improvements, labor, materials, and for any other 
items of expenses approved by the Commissioner.
    (d) Statement of facts. Any agreement, undertaking, statement or 
certification required in connection with cost certification shall 
specifically state that it has been made, presented and delivered for 
the purpose of influencing an official action of the Commissioner and 
may be relied upon as a true statement of the facts contained therein.
    (e) Incontestability. Upon the Commissioner's approval of the cost 
certification, such certification shall be final and incontestable 
except for fraud or material misrepresentation on the part of the 
borrower.
    (f) Records. The borrower shall keep and maintain adequate records 
of all costs of any construction improvements or other cost items not 
representing work under the general contract and shall require the 
contractor to keep similar records and, upon request by the 
Commissioner, both shall make available for examination such records, 
including any collateral agreements.
    (g) Certificate of public accountant. Where required by the 
Commissioner, each certificate of actual cost shall be supported by a 
certificate as to accuracy by an independent Certified Public Accountant 
or independent public accountant licensed by a regulatory authority of a 
State or other political subdivision of the United States on or prior to 
December 31, 1970, which shall include a statement that the accounts, 
records and supporting documents have been examined in accordance with 
generally accepted auditing standards to the extent deemed necessary to 
verify the actual costs.

                           Eligible Borrowers



Sec.  241.625  Eligible borrowers.

    In order to be eligible as a borrower under this subpart, the 
applicant shall be a profit, limited distribution, nonprofit, or 
cooperative owner of a multifamily housing project which is not covered 
by a mortgage insured or held by the Secretary and which the 
Commissioner has determined to be an acceptable risk in that energy 
conservation or solar energy benefits to be derived outweigh the risks 
of possible loss of the Federal Government.



Sec.  241.626  Disclosure and verification of Social Security and 
Employer Identification Numbers.

    To be eligible for loan insurance under this subpart, the borrower 
must

[[Page 411]]

meet the requirements for the disclosure and verification of Social 
Security and Employer Identification Numbers, as provided by part 200, 
subpart U, of this chapter.

(Approved by the Office of Management and Budget under control number 
2502-0118)

[54 FR 39696, Sept. 27, 1989]

                          Special Requirements



Sec.  241.630  Maximum insurance against loss.

    A loan insured under this subpart shall be insured for 90 percent of 
any loss incurred by the person holding the note for the loan.



Sec.  241.635  Regulatory agreement.

    Any borrower obligated on the note for any loan insured under this 
subpart shall be regulated or restricted in a manner and on a form 
prescribed by the Secretary as to rents or sales, charges, capital 
structure, rate of return and methods of operation of the multifamily 
project to such an extent and in such manner as to provide reasonable 
rental to tenants and a reasonable return on the investment until the 
termination of all obligations of the Secretary under the contract of 
insurance.



Sec.  241.640  Employment discrimination prohibited.

    Any contract or subcontract executed for the performance of 
constructing the improvements to the project shall provide that there 
shall be no discrimination against any employee or applicant for 
employment because of race, color, religion, sex, familial status, 
disability, age, or national origin.

[61 FR 14417, Apr. 1, 1996]



Sec.  241.645  Labor standards and prevailing wage requirements.

    (a) Any contract, subcontract, or building loan agreement executed 
for the performance of construction of the project shall comply with all 
applicable labor standards and provisions of the regulations of the 
Secretary of Labor set forth in Sec. Sec.  5.1 through 5.12 of title 29.
    (b) No construction contract shall be entered into with a general 
contractor or any subcontractor if such contractor or any such 
subcontractor or any firm, corporation, partnership or association in 
which such contractor or subcontractor has a substantial interest is 
included on the ineligible list of contractors or subcontractors 
established and maintained by the Comptroller General, pursuant to Sec.  
5.6(b) of title 29.
    (c) No advance under the mortgage shall be eligible for insurance 
after notification from the Commissioner that the general contractor or 
any subcontractor or any firm, corporation, partnership or association 
in which such contractor or subcontractor has a substantial interest, 
was on the date the contract or subcontract was executed, on the 
ineligible list established by the Comptroller General, pursuant to the 
provision of the Secretary of Labor set forth in Sec. Sec.  5.1 through 
5.12 of title 29.
    (d) No advance under any mortgage shall be eligible for insurance 
unless there is filed with the application of such advance a certificate 
or certificates in the form required by the Commissioner, supported by 
such other information as the Commissioner may prescribe, certifying 
that the laborers and mechanics employed in the construction of the 
dwelling or dwellings, or housing project involved, have been paid not 
less than the wage prevailing in the locality in which the work was 
performed for the corresponding classes of laborers and mechanics 
employed on construction of a similar character, as determined by the 
Secretary of Labor prior to beginning of construction and after the date 
of filing of the application for insurance.
    (e) Compliance with the provisions of this subsection shall be 
evidenced at such time and in such manner as the Commissioner may 
prescribe.



Subpart D_Contract Rights and Obligations_Multifamily Projects Without a 
                    HUD-Insured or HUD-Held Mortgage

    Source: 45 FR 57987, Aug. 29, 1980, unless otherwise noted.

[[Page 412]]



Sec.  241.800  Definitions.

    All of the definitions contained in Sec.  241.500 shall apply to 
this subpart. In addition, as used in this subpart, the following terms 
shall have the meaning indicated:
    (a) Contract of insurance means the agreement evidenced by the 
endorsement of the Commissioner upon the note given in connection with 
an insured loan and includes the provisions of this subpart and the 
applicable provisions of the Act.
    (b) Maturity means the date on which the loan indebtedness would be 
extinguished if paid in accordance with periodic payments provided for 
in the loan.

                                Premiums



Sec.  241.805  Insurance premiums.

    (a) First premium. The lender, upon the endorsement of the loan for 
insurance, shall pay to the Commissioner a first loan insurance premium 
equal to one percent of the original face amount of the note.
    (b) Second premium. The lender, on the date of the first principal 
payment, shall pay a second premium equal to one percent of the average 
outstanding principal obligation of the loan for the year following such 
first principal payment date which shall be adjusted as of that date so 
that the aggregate of the first and second premiums shall equal the sum 
of one percent per annum of the average outstanding principal obligation 
of the loan for the period from the date of the insurance endorsement to 
one year following the date of the first principal payment.
    (c) Annual insurance premium. Until the note is paid in full, or 
until the loan is assigned to the Commissioner, or until the contract of 
insurance is otherwise terminated with the consent of the Commissioner, 
the lender, on each anniversary of the date of the first principal 
payment shall pay an annual loan insurance premium equal to one percent 
of the average outstanding principal obligation of the loan for the year 
following the date on which such premium becomes payable.
    (d) Method of premium payment. Premiums shall be payable in cash or 
in debentures of the General Insurance Fund at par plus accrued 
interest. All premiums are payable in advance and no refund can be made 
of any portion thereof except as provided in this part.
    (e) Calculation of premiums. The premiums payable on and after the 
date of the first principal payment shall be calculated in accordance 
with the amortization provisions without taking into account delinquent 
payments or prepayments.



Sec.  241.805a  Mortgagee's late charge.

    Mortgage insurance premiums which are paid to the Commissioner more 
than 15 days after the billing date or due date, whichever is later, 
shall include a late charge of 4 percent of the amount of the payment 
due, except that no late charge shall be required with respect to any 
case for which HUD fails to render a proper billing to the mortgagee.



Sec.  241.815  Termination of insurance.

    (a) Prepayment in full. The contract of insurance shall be 
terminated if the loan is paid in full prior to its maturity. Notice of 
the prepayment shall be given to the Commissioner, on a form prescribed 
by the Commissioner, within 30 days from the date of the prepayment. The 
insurance termination shall become effective as of the date of the 
prepayment, or 30 days prior to the Commissioner's receipt of the 
prepayment notice, whichever is later.
    (b) Voluntary termination. The contract of insurance shall be 
voluntarily terminated upon receipt by the Commissioner of a written 
request, on a form prescribed by the Commissioner, by the borrower and 
the lender for such termination, accompanied by a submission of the 
original credit instrument for cancellation of the insurance endorsement 
and the remittance of all sums to which the Commissioner is entitled. 
The termination shall become effective as of the date these requirements 
are met.



Sec.  241.825  Pro rata refund of insurance premium.

    Upon termination of a loan insurance contract by a payment in full 
or by a voluntary termination, the Commissioner shall refund to the 
lender for the account of the borrower an amount equal to the pro rata 
portion of the

[[Page 413]]

current annual loan insurance premium theretofore paid which is 
applicable to the portion of the year subsequent to the effective date 
of the termination.

       Rights and Duties of Lender Under the Contract of Insurance



Sec.  241.830  Definition of default.

    (a) If the borrower fails to make any payments due under or provided 
to be paid by the terms of the note or security instrument, the note 
shall be considered in default for the purposes of this subpart.
    (b) The failure to perform any other covenant under the note or 
security instrument shall be considered a default: Provided, The lender, 
because of such default, has exercised its rights under the note or 
security instrument and accelerated the debt.
    (c) The failure to make any payment or to perform any covenant under 
the first conventional note and mortgage by reason of which the holder 
thereof declares a default as evidenced by formal written declaration of 
said default to the Commissioner and the lender by the holder of the 
first note and mortgage, shall be considered a default under the insured 
loan.
    (d) If such defaults as defined in paragraphs (a), (b), and (c) of 
this section continue for a period of 30 days, the lender shall be 
entitled to receive the benefits of insurance hereinafter provided.



Sec.  241.840  Date of default.

    In computing loan insurance benefits, the date of default shall be 
considered as:
    (a) The date of the lender's acceleration of the debt because of the 
borrower's uncorrected failure to perform a covenant or obligation under 
the note or security instrument; or
    (b) The date of the first failure to make a monthly payment which 
subsequent payments by the borrower are insufficient to cover when 
applied to the overdue monthly payments in the order in which they 
become due.
    (c) The date of the lender's acceleration of the debt because of the 
borrower's default under the first conventional note and mortgage.



Sec.  241.850  Notice of default.

    (a) If the default is not cured within the 30 day grace period, as 
defined in Sec.  241.530(d), the lender shall, within 30 days 
thereafter, notify the Commissioner in writing of such default.
    (b) The lender shall give notice in writing to the Commissioner of 
the failure of the borrower to comply with any covenant or obligation 
under the security instrument or note regardless of the fact that the 
lender may not have elected to accelerate the debt.



Sec.  241.860  Commissioner's right to require acceleration.

    Upon receipt of notice of the failure of the borrower to comply with 
any covenant or obligation under the security instrument or note, or 
under the conventional note and mortgage, the Commissioner may require 
the lender to accelerate payment of the outstanding principal balance 
due.



Sec.  241.865  Election by the lender.

    Where a real estate mortgage, or other security instrument has been 
used to secure the payment of a loan made under the provisions of this 
subpart and subpart C of this part, the lender may either elect to 
assign the loan to the Commissioner in exchange for the payment of 
insurance benefits or may exercise its rights under the note and 
security instrument in lieu of making a claim for insurance benefits. If 
the lender elects the latter course, the Commissioner shall be so 
notified and the contract of insurance shall be deemed terminated upon 
the date of receipt of such notification.



Sec.  241.875  Maximum claim period.

    Notice of intention to file claim on a form prescribed by the 
Commissioner shall be filed within 45 days after the lender becomes 
eligible for the benefits of the loan insurance, or within such later 
time as may be agreed upon by the Commissioner in writing.



Sec.  241.880  Items to be delivered on submitting claim.

    Within 30 days after the filing of the notice of intention to assign 
the loan to the Commissioner, or within such further period as may be 
agreed upon by the Commissioner in writing, the

[[Page 414]]

lender shall deliver to the Commissioner:
    (a) The fiscal data pertaining to the loan transactions;
    (b) Receipts covering all disbursements as required by the fiscal 
data form;
    (c) The original note and any security instrument or instruments 
which shall be assigned to the Commissioner without recourse or 
warranty, except that the lender must warrant that no act or omission of 
the lender has impaired the validity and priority of such security 
instrument or instruments that the security instrument or instruments 
are prior to all mechanics' and materialmen's liens filed of record 
subsequent to the recording of such security instrument or instruments 
regardless of whether such liens attached prior to such recording date, 
and prior to all liens and encumbrances which may have attached or 
defects which may have arisen subsequent to the recording of such 
security instrument or instruments, except such liens or other matters 
as may be approved by the Commissioner, that the amount stated in the 
instrument of assignment is actually due and owing under the security 
instrument or instruments, that there are no offsets or counterclaims 
thereto, and that the lender has a good right to assign such note and 
security instrument or instruments;
    (d) The assignment to the Commissioner of all rights and interests 
arising under the note and security instrument or instruments so in 
default and all claims of the lender against the borrower or others 
arising out of the loan transaction;
    (e) All policies of title or other insurance or surety bonds, or 
other guarantees and any and all claims thereunder; including evidence 
satisfactory to the Commissioner that the original title coverage has 
been extended to include the assignment of the note and security 
instrument or instruments to the Commissioner;
    (f) All records, ledger cards, documents, books, papers and accounts 
relating to the loan transaction;
    (g) Any additional information or data which the Commissioner may 
require;
    (h) The following cash items, held in connection with the loan 
insured under this subpart, shall either be retained by the lender or 
delivered to the Commissioner at the time the insurance claim is filed.
    (1) Any cash held by the lender or its agents or to which it is 
entitled including deposits made for the account of the borrower and 
which have not been applied in reduction of the principal the loan 
indebtedness.
    (2) All funds held by the lender for the account of the borrower 
received pursuant to any other agreement.
    (i) On the date the assignment of the note and security instrument 
or instruments are filed for record, the lender shall notify the 
Commissioner and the Office of Finance and Accounting by telegram of 
such recordation.



Sec.  241.885  Insurance benefits.

    (a) Method of payment. Payment of insurance claims shall be made in 
cash, in debentures, or in a combination of both, as determined by the 
Commissioner either at, or prior to, the time of payment.
    (b) Amount of payment. Upon acceptable assignment of the note and 
security instrument to the Commissioner, the insurance benefits shall be 
paid in an amount equal to 90 percent of the amount determined as 
follows:
    (1) By adding to the unpaid principal amount of the loan, computed 
as of the date of default, the following items:
    (i) Any accrued interest due as of the date of execution of the 
assignment of the loan to the Commissioner.
    (ii) Any advances approved by the Commissioner made previously by 
the lender under the provisions of the note or security instrument or 
instruments.
    (iii) Reimbursements for such reasonable collection costs, court 
costs, and attorney's fees as may be approved by the Commissioner.
    (iv) Any loan insurance premiums paid after default.
    (v) If payment is made in cash, an amount equivalent to the 
debenture interest which would have been earned thereon, as of the date 
such cash payment is made, except when the lender fails to meet any one 
of the applicable requirements of Sec. Sec.  241.850, 241.875, and 
241.880, within the specified time and in

[[Page 415]]

a manner satisfactory to the Commissioner (or within such further time 
as the Commissioner may approve in writing), the interest allowance in 
such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (2) By deducting from the total of the items computed under 
paragraph (b)(1) of this section the following items:
    (i) Any amount received by the lender on account of the loan after 
the date of default.
    (ii) Any net income received by the lender from the property covered 
by the note or security instrument and not applied to prior debts held 
by the lender.
    (iii) The sum of the cash items retained by the lender pursuant to 
Sec.  241.880(h) (1) and (2).

[45 FR 57987, Aug. 29, 1980, as amended at 80 FR 51469, Aug. 25, 2015]



Sec.  241.890  Characteristics of debentures.

    Debentures issued in settlement of insurance claims under this 
subpart shall have the same characteristics and the same requirements 
for registration and redemption as those issued pursuant to subpart B of 
this part except that debentures shall bear interest at the rate in 
effect as of the date the commitment was issued, or as of the date the 
loan was first endorsed for insurance, whichever rate is higher, and 
shall mature 10 years from the date of issue which date shall be the 
date of execution of the assignment of the loan to the Commissioner.



Sec.  241.893  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a check 
in payment thereof.

[59 FR 49817, Sept. 30, 1994]

                               Assignments



Sec.  241.895  Assignment of insured loans.

    (a) An insured loan may be transferred only to a transferee who is a 
lender approved by the Commissioner. Upon such transfer and the 
assumption by the transferee of all obligations under the contract of 
insurance the transferor shall be released from its obligations under 
the contract of insurance.
    (b) The contract of insurance shall terminate with respect to loans 
described in paragraph (a) of this section upon the happening of either 
of the following events:
    (1) The transfer or pledge of the insured loan to any person, firm 
or corporation, public or private, other than an approved lender.
    (2) The disposal by a lender of any partial interest in the insured 
loan to other than an approved lender.

                            Extension of Time



Sec.  241.897  Actions to be taken by lender.

    With respect to any action required of the lender within a period of 
time prescribed by this subpart, the Commissioner may extend such 
period.

                         Rights in Housing Fund



Sec.  241.900  No vested right in fund.

    Neither the lender nor the borrower shall have any vested or other 
right in the General Insurance Fund.



Sec.  241.905  Effect of amendments.

    The regulations in this subpart may be amended by the Commissioner 
at any time and from time to time in whole or in part, but such 
amendment shall not adversely affect the interests of a lender under the 
contract of insurance on any loan already insured and shall not 
adversely affect the interests of a lender on any loan to be insured on 
which the Commissioner has made a commitment to insure.



 Subpart E_Insurance for Equity Loans and Acquisition Loans_Eligibility 
                              Requirements

    Source: 57 FR 12037, Apr. 8, 1992, unless otherwise noted.

[[Page 416]]



Sec.  241.1000  Purpose and scope.

    (a) Section 231 of the Emergency Low Income Housing Preservation Act 
of 1989 (``ELIHPA'') amended the National Housing Act by adding a new 
subsection (f) to section 241. This section authorizes the Secretary to 
provide insurance for an equity loan as a vehicle for the owner of an 
eligible multifamily project to capture a portion of the project's 
equity, in connection with a plan of action approved by the Commissioner 
under ELIHPA.
    (b) Section 602 of the Low-Income Housing Preservation and Resident 
Homeownership Act of 1990 (``LIHPRHA'') amended section 241 by expanding 
its scope to include both equity loans for owners, and acquisition loans 
for purchasers, under a plan of action approved under the provisions of 
the 1990 Act, and by making other changes. The provisions of section 
241(f) as amended by LIHPRHA are applicable to owners with plans of 
action being processed under part 248, subpart B of this chapter, which 
implements LIHPRHA.
    (c) The provisions of section 241(f) of the Act as they were in 
effect prior to LIHPRHA remain in effect for owners with plans of action 
being processed under part 248, subpart C of this chapter, which 
implements ELIHPA.
    (d) The insurance of an equity loan or acquisition loan under 
subpart E of this part may be provided only as a specific element of a 
plan of action approved by the Commissioner under part 248 of this 
chapter and is not available under any other departmental program.
    (e) Unless otherwise indicated, the provisions of subparts E and F 
of this part are applicable to loans insured in connection with plans of 
action being processed under either subpart B or C of part 248 of this 
chapter.
    (f) An owner or purchaser may obtain both a rehabilitation loan 
under subpart A of this part and an equity loan or acquisition loan 
under subpart E of this part.



Sec.  241.1005  Definitions.

    (a) All of the definitions of Sec.  241.1 apply to equity and 
acquisition loans insured under subpart E of this part except the 
following definitions:

Sec.  241.1(i)--Borrower;
Sec.  241.1(k)--Energy conserving improvements;
Sec.  241.1(1)--Solar energy system.

    (b) As used in subpart E of this part, the following terms have the 
meaning indicated:
    Acquisition loan means a loan or advance of credit made to a 
purchaser of eligible low income housing which is made for the purpose 
of implementing a plan of action approved in accordance with part 248 of 
this chapter.
    Borrower means the owner or qualified purchaser of an eligible low 
income housing project, which owner receives and becomes primarily 
obligated for the repayment of an equity loan. With respect to loans 
insured in connection with a plan of action under part 248, subpart C of 
this chapter, the term includes a public entity, a nonprofit 
organization or a limited equity cooperative, which entity is purchasing 
an eligible low income housing project by means of an equity loan and is 
obligated for the payment of the equity loan.
    Eligible low income housing has the same meaning as provided at 
Sec.  248.101 or Sec.  248.201 of this chapter, with respect to loans 
insured in connection with plans of action under subparts B or C of part 
248 of this chapter.
    Equity means, for purpose of subparts E and F of this part only, the 
difference between the fair market value of the project as determined by 
the Commissioner and the outstanding indebtedness relating to the 
property.
    Equity Loan means a loan or advance of credit to the owner of an 
eligible low income housing project which is made for the purpose of 
implementing a plan of action approved in accordance with part 248 of 
this chapter.
    Extension preservation equity has the same meaning as provided at 
Sec.  248.101 of this chapter.
    Limited equity cooperative means a tenant cooperative corporation 
which, in a manner acceptable to the Commissioner, restricts the initial 
and resale price of the shares of stock in the cooperative corporation 
so that the shares remain affordable to low-income families and moderate 
income families.
    Low-income families has the same meaning as provided at Sec.  
248.101 of this chapter.

[[Page 417]]

    Moderate income families has the same meaning as provided at Sec.  
248.101 of this chapter.
    Plan of action has the same meaning as provided at Sec.  248.101 or 
Sec.  248.201 of this chapter.
    Preservation equity has the same meaning as provided at Sec.  
248.101 of this chapter.
    Priority purchaser has the same meaning as provided at Sec.  248.101 
of this chapter.
    Qualified Purchaser has the same meaning as provided at Sec.  
248.101 of this chapter.



Sec.  241.1010  Feasibility letter.

    (a) Request for study. The owner may request the Commissioner to 
undertake a feasibility analysis of an equity or acquisition loan, and 
issue a feasibility letter. At the discretion of the Commissioner the 
feasibility analysis may be undertaken or denied.
    (b) Findings. The issuance of a feasibility letter indicates 
completion of the Commissioner's preliminary analysis for the insurance 
of an equity or acquisition loan. The feasibility letter shall contain 
the Commissioner's estimate of the supportable loan amount, based upon 
the project's equity in the case of an equity loan and based on the 
project's purchase price in the case of an acquisition loan, but such 
feasibility letter shall neither constitute a commitment to insure nor 
bind the Commissioner in any other manner.
    (c) Fee. The Commissioner shall not charge a fee for undertaking a 
feasibility analysis or for the issuance of a feasibility letter.



Sec.  241.1015  Processing of applications and required fees.

    (a) Application. An application for the issuance of a firm 
commitment for insurance of an equity or acquisition loan on a project 
shall be submitted by an approved lender and by the owner or purchaser 
of the project to the Commissioner on a form prescribed by the 
Commissioner. No application shall be considered unless the exhibits 
called for by such forms are furnished.
    (b) Commitment fees. An application for a firm commitment shall be 
accompanied by the payment of an application-commitment fee of $5.00 per 
thousand dollars of the requested loan amount to be insured.

[61 FR 14417, Apr. 1, 1996]



Sec.  241.1020  Commitments.

    (a) Firm commitment. The issuance of a firm commitment indicates the 
Commissioner's approval of the application for insurance and sets forth 
the terms and conditions upon which the equity or acquisition loan will 
be insured. The firm commitment may provide for the insurance of 
advances of the equity or acquisition loan immediately upon endorsement 
of the note.
    (b) Term of commitment. (1) A firm commitment is effective for 
whatever term is specified in the text of the commitment.
    (2) The term of a firm commitment may be extended in such manner as 
the Commissioner may prescribe.
    (c) Reopening of expired commitments. An expired firm commitment may 
be reopened if a request for reopening is received by the Commissioner 
within 90 days of the expiration of the commitment. The reopening 
request shall be accompanied by a fee of 50 cents per thousand dollars 
of the amount of the expired commitment. If the reopening request is not 
received by the Commissioner within the required 90-day period, a new 
application, accompanied by the required application and commitment fee, 
must be submitted.

[61 FR 14417, Apr. 1, 1996]



Sec.  241.1025  Refund of fees.

    If the amount of the commitment issued is less than the amount 
applied for, the Commissioner shall refund the excess amount of the 
application and commitment fees submitted by the applicant. If an 
application is rejected before it is assigned for processing, or in such 
other instances as the Commissioner may determine, the entire 
application and commitment fees or any portion thereof may be returned 
to the applicant. Commitment and reopening fees may also be refunded to 
the applicant, in whole or in part, in such other instances as the 
Commissioner may determine.

[[Page 418]]



Sec.  241.1030  Mortgage insurance premiums.

    The lender, upon endorsement of the note, shall pay the Commissioner 
a first mortgage insurance premium equal to 0.5 percent of the original 
face amount of the equity or acquisition loan.
    (a) If the date of the first principal payment is more than one year 
following the date of endorsement, the lender upon each anniversary of 
such endorsement date, shall pay a premium equal to 0.5 percent of the 
original face amount of the loan. On the date of the first principal 
payment, the lender shall pay another premium equal to 0.5 percent of 
the average outstanding principal obligation of the loan for the 
following year which shall be adjusted so as to accord with such date 
and so that the aggregate of said premiums shall equal the sum of:
    (1) 0.5 percent of the average outstanding principal obligation of 
the loan for the year following the date of endorsement; and
    (2) 0.5 percent per annum of the average outstanding principal 
obligation of the loan for the period from the first anniversary of the 
date of endorsement to one year following the date of the first 
principal payment.
    (b) If the date of the first principal payment is one year or less 
than one year following the date of endorsement, the lender, upon such 
first principal payment date, shall pay a second premium equal to 0.5 
percent of the average outstanding principal obligation of the loan for 
the following year which shall be adjusted so as to accord with such 
date and so that the aggregate of the said two premiums shall equal the 
sum of:
    (1) 0.5 percent per annum of the average outstanding principal 
obligation of the loan for the period from the date of endorsement to 
the date of the first principal payment; and
    (2) 0.5 percent of the average outstanding principal obligation of 
the loan for the year following the date of the first payment following 
the date of the first principal payment.
    (c) Until the equity or acquisition loan is paid in full or until 
receipt by the Commissioner of an application for insurance benefits, or 
until the contract of insurance is otherwise terminated with the consent 
of the Commissioner, the lender on each anniversary date of the first 
principal payment, shall pay an annual insurance premium equal to 0.5 
percent of the average outstanding principal obligation of the loan for 
the year following the date on which such premium becomes payable.
    (d) The premiums payable on or after the date of the first principal 
payment shall be calculated in accordance with the amortizing provisions 
without taking into account delinquent payments or prepayments.
    (e) Premiums shall be payable in cash or in debentures at par plus 
accrued interest. All premiums are payable in advance and no refund can 
be made of any portion thereof except as hereinafter provided in subpart 
E of this part.



Sec.  241.1035  Charges by lender.

    (a) The lender may collect from the borrower the amount of the fees 
provided for by subpart E of this part.
    (b) The lender may also collect from the borrower an initial service 
charge, as reimbursement for the cost of closing the transaction, in an 
amount not to exceed 2 percent of the original principal amount of the 
loan.
    (c) Any charges to be collected by the lender in addition to those 
prescribed in paragraphs (a) and (b) of this section, shall be subject 
to the prior approval of the Commissioner.



Sec.  241.1040  Eligible lenders.

    Lenders approved as mortgagees under Sec. Sec.  202.6, 202.7 or 
202.9 of this chapter are eligible for insurance of equity loans under 
this subpart.

[62 FR 20088, Apr. 24, 1997]



Sec.  241.1045  Note and security form.

    The lender shall present for insurance a note and security 
instrument on forms approved by the Commissioner for use in the 
jurisdiction in which the property is located, which shall not be 
changed without the prior approval of the Commissioner. The security 
instrument shall provide for accelerated repayment at the request of the 
Commissioner pursuant to Sec.  241.1046(b).

[[Page 419]]



Sec.  241.1046  Rental assistance.

    (a) When underwriting an equity or acquisition loan under subpart E 
of this part, the Commissioner may assume that the rental assistance 
provided in accordance with a plan of action approved under subparts B 
or C of part 248 of this chapter will be extended for the full term of 
the contract entered into under the plan of action.
    (b) In the event that rental assistance is not extended under part 
248 of this chapter, or the Commissioner is unable to develop a revised 
package of incentives to the owner comparable to those received under 
the original approved plan of action, the Commissioner may require the 
mortgagee to accelerate the debt of the equity or acquisition loan.
    (c) If the Commissioner is unable to extend the term of rental 
assistance for the full term of the contract entered into under part 248 
of this chapter, the Commissioner is authorized to take such actions as 
the Commissioner deems appropriate to avoid default, avoid disruption of 
the sound ownership and management of the property or otherwise minimize 
the cost to the Federal Government.



Sec.  241.1050  Method of loan payment.

    The loan shall provide for monthly payments on the first day of each 
month on account of interest and principal and shall provide for 
payments in accordance with the amortization plan as agreed upon by the 
borrower, the lender, and the Commissioner.



Sec.  241.1055  Date of first payment to principal.

    The date for first payment to principal shall be established by the 
Commissioner.



Sec.  241.1060  Maturity.

    (a) Equity loans shall have a term not to exceed 40 years; and
    (b) Acquisition loans shall have a term of 40 years.

[58 FR 37814, July 13, 1993]



Sec.  241.1065  Maximum loan amount--loans insured in connection with
a plan of action under subpart C of part 248 of this chapter.

    The amount of the equity loan shall not exceed ninety percent of the 
owner's equity in the project, as determined by the Commissioner. 
Notwithstanding the above, the equity loan shall not exceed an amount 
which, when added to the existing indebtedness on the property, can be 
supported by 90 percent of the projected net operating income of the 
project, as determined by the Commissioner. The Commissioner, in making 
a determination regarding the amount of an equity loan and sums 
available to service said loan, shall take into account the fact that 
the project's income may increase within the limits established by Sec.  
248.233(d) of this chapter.



Sec.  241.1067  Maximum loan amount--loans insured in connection with
a plan of action under subpart B of part 248 of this chapter.

    (a) The amount of the equity loan shall not exceed:
    (1) The amount of rehabilitation costs as determined under an 
approved plan of action and related charges; plus
    (2) The lesser of 70 percent of the extension preservation equity of 
the project; or
    (3) The amount the Commissioner determines can be supported by the 
project on the basis of an 8 percent return on extension preservation 
equity, assuming normal debt service coverage. To the extent 
practicable, equity loans shall have amortization provisions which will 
support the maximum loan amount authorized under this section.
    (b) The amount of the acquisition loan shall not exceed:
    (1) The amount of rehabilitation costs as determined under an 
approved plan of action and related charges; plus
    (2) Ninety-five percent of the transfer preservation equity of the 
project; and
    (3) If the purchaser is a priority purchaser, the loan may include 
any expenses associated with the acquisition, loan closing, and 
implementation of the plan of action, subject to the approval of the 
Commissioner.

[58 FR 37814, July 13, 1993]

[[Page 420]]



Sec.  241.1068  Renegotiation of an equity loan.

    The Commissioner shall renegotiate and modify the terms of an equity 
loan insured under this subpart at the request of the owner of the 
project for which a loan closing occurred if--
    (a) The loan closing occurred between September 28, 1992 and January 
26, 1993;
    (b) The loan was made pursuant to a plan of action submitted under 
subpart C of part 248 of this chapter; and
    (c) The plan of action was accepted by the Commissioner for 
processing in December 1991.

[58 FR 37814, July 13, 1993]



Sec.  241.1069  Escrow requirements.

    (a) An equity loan provided in connection with a plan of action 
under subpart B of part 248 of this chapter shall provide for the lender 
to deposit, on behalf of the borrower, 10 percent of the loan amount in 
an escrow account, controlled by the Commissioner or a State housing 
finance agency approved by the Commissioner, which shall be made 
available to the borrower upon the expiration of the 5-year period 
beginning on the date the loan is made, subject to compliance with Sec.  
248.147 of this chapter.
    (b) An equity loan provided in connection with a plan of action 
under either subpart B or subpart C of part 248 of this chapter shall 
provide for the lender to phase in advances to reflect project rent 
levels.



Sec.  241.1070  Agreed interest rate.

    The equity or acquisition loan shall bear interest at the rate 
agreed upon by the borrower and the lender.



Sec.  241.1080  Eligibility of title.

    In order for the project to be eligible for insurance, the 
Commissioner shall determine that the title to the property is vested in 
the borrower as of the date the security instrument is filed for record. 
The title evidence will be examined by the Commissioner and the 
endorsement of the credit instrument for insurance shall be evidence of 
its acceptability.



Sec.  241.1085  Title evidence.

    (a) Upon insurance of the loan, the lender shall furnish to the 
Commissioner a policy of title insurance as provided in paragraph (a)(1) 
of this section. If the lender is unable to furnish such policy for 
reasons satisfactory to the Commissioner, the lender shall furnish such 
evidence of title as provided in paragraphs (a)(2), (3) or (4) of this 
section as the Commissioner may require. Any policy of title insurance, 
or evidence of title required under this section shall be furnished 
without expense to the Commissioner. The acceptable types of title 
evidence are:
    (1) A policy of title insurance issued by a company and in a form 
satisfactory to the Commissioner. The policy shall name the lender and 
the Secretary of Housing and Urban Development, as their respective 
interests may appear, as the insured. The policy shall provide that upon 
acquisition of title by the lender or the Secretary, it will continue to 
provide the same coverage as the original policy, and will run to the 
lender upon its acquisition of the property in extinguishment of the 
debt, and to the Secretary upon acquisition of the property pursuant to 
the loan insurance contract.
    (2) An abstract of title satisfactory to the Commissioner, prepared 
by an abstract company or individual engaged in the business of 
preparing abstracts of title, accompanied by a legal opinion 
satisfactory to the Commissioner, as to the quality of such title, 
signed by an attorney at law experienced in the examination of titles;
    (3) A Torrens or similar title certification; or
    (4) Evidence of title conforming to the standards of a supervising 
branch of the Government of the United States of America, or of any 
State or territory thereof.

[57 FR 12037, Apr. 8, 1992, as amended at 58 FR 34217, June 24, 1993]



Sec.  241.1090  Accumulation of next premium.

    The security instrument shall provide for payments by the borrower 
to the lender on each interest payment date of an amount sufficient to 
accumulate in the hands of the lender one

[[Page 421]]

payment period prior to its due date the next annual insurance premium 
payable by the lender to the Commissioner. These payments shall continue 
only as long as the contract of insurance remains in effect.



Sec.  241.1095  Application of payments.

    (a) The security instrument shall provide that all monthly payments 
to be made by the borrower shall be added together and the aggregate 
amount shall be paid by the borrower upon each monthly payment date in a 
single payment. The lender shall apply the payment in the following 
order:
    (1) Premium charges under the contact of insurance;
    (2) Interest on the loan; and
    (3) Amortization of the principal of the loan.
    (b) Any deficiency in the amount of any monthly payments required 
under paragraph (a) of this section shall constitute a default. The 
security instrument shall provide for a grace period of 30 days within 
which time the default must be cured.



Sec.  241.1100  Prepayment privilege and charges.

    (a) Prepayment privilege. (1) Except as otherwise provided in 
paragraph (b) of this section, the security instrument shall contain a 
provision permitting the borrower to prepay the loan, in whole or in 
part, upon any interest payment date after giving to the lender 30 days 
advance notice of its intention to prepay.
    (2) If the loan exceeds $200,000, the security instrument may 
contain a provision for an additional charge in the event of prepayment 
of principal as may be agreed upon between the borrower and lender. 
These charges shall not be imposed if the loan is accelerated at the 
request of the Commissioner, pursuant to Sec.  241.1046(b). The borrower 
shall be permitted to prepay up to 15 percent of the original principal 
amount of the loan in any one calendar year without any additional 
charge. A provision for an additional charge in the event of prepayment 
may not be included in a loan of $200,000 or less.
    (b) Prepayment of bond-financed loan. Where the lender has obtained 
the funds for the loan by the issuance and sale of bonds or bond 
anticipation notes, or both, the loan may contain a prepayment 
restriction and prepayment penalty charges acceptable to the 
Commissioner as to term, amount, and conditions.



Sec.  241.1105  Late charges.

    The note and security instrument may provide for the lender's 
collection of a late charge, not to exceed 2 cents for each dollar of 
each payment to interest or principal more than 15 days in arrears, to 
cover the expense involved in handling delinquent payments. Late charges 
shall be separately charged to and collected from the borrower and shall 
not be deducted from any aggregate monthly payment.



Sec.  241.1120  Mortgagee's consent.

    The holder of an insured mortgage which is recorded prior to the 
equity or acquisition loan shall not withhold its consent to the equity 
or acquisition loan (whether or not such equity or acquisition loan is 
insured by the Commissioner) or the security instrument executed in 
connection therewith, and may not charge a fee as a condition to its 
consent to such loan or security instrument.



  Subpart F_Insurance for Equity Loans and Acquisition Loans_Contract 
                         Rights and Obligations

    Source: 57 FR 12040, Apr. 8, 1992, unless otherwise noted.



Sec.  241.1200  Cross-references.

    (a) Projects with a HUD-insured or HUD-held mortgage. (1) All the 
provisions of part 207, subpart B of this chapter, covering mortgages 
insured under section 207 of the Act, apply to equity loans or 
acquisition loans on a project insured under section 241(f) of the Act, 
except the following provisions:

Sec.
207.251 Definitions.
207.252 First, second and third premium.
207.252a Premiums--operating loss loans.
207.252b Premiums--mortgages insured pursuant to section 223(f) of the 
          Act.

[[Page 422]]

207.252c Premiums--mortgages insured pursuant to section 238(c) of the 
          Act.
207.254 Insurance endorsement.

    (2) For the purposes of subpart F of this part, all references in 
part 207 of this chapter to section 207 of the Act and to the term 
``mortgage'' shall be construed to refer to section 241(f) of the Act 
and ``equity or acquisition loan,'' respectively.
    (b) Projects without a HUD-insured or HUD-held mortgage. The 
provisions of subpart D of this part shall be applicable to a project 
without a HUD-insured or HUD-held mortgage that is receiving an equity 
loan or acquisition loan under subpart E of this part in connection with 
a plan of action approved by the Commissioner under part 248 of this 
chapter.
    (c) All of the definitions in Sec.  241.1005 apply to subpart F of 
this part. In addition, as used in subpart F of this part, the term 
``contract of insurance'' means the agreement evidenced by the 
Commissioner's insurance endorsement and includes the provisions of 
subpart F of this part and of the Act.



Sec.  241.1205  Payment of insurance benefits.

    All the provisions of Sec.  207.259 of this chapter relating to 
insurance benefits shall apply to an equity or acquisition loan insured 
under subpart F of this part.

[80 FR 51469, Aug. 25, 2015]



Sec.  241.1210  Condition for payment of insurance benefits.

    (a) All of the provisions of Sec.  207.258 of this chapter apply to 
subpart F of this part, except that, if the holder of the senior insured 
mortgage institutes a foreclosure action, the lender shall notify the 
Commissioner in a timely manner of such action. The Commissioner, at its 
option, may then direct the lender to assign the equity or acquisition 
loan to the Commissioner, or bid an amount necessary to acquire the 
project and convey the project to the Commissioner.
    (b) If the equity loan or acquisition loan is assigned in accordance 
with this section, the Commissioner at a foreclosure sale may bid, in 
addition to amounts otherwise authorized, any sum not in excess of the 
aggregate unpaid indebtedness secured by the senior insured mortgage and 
equity or acquisition loan, plus taxes, insurance, foreclosure costs, 
fees and other expenses.



Sec.  241.1215  Calculation of insurance benefits.

    All of the provisions of Sec.  207.259 of this chapter apply to 
subpart F of this part, except that if the lender, at the direction of 
the Commissioner, acquires title to the project at a foreclosure sale 
instituted by the holder of the senior insured mortgage, the amount of 
the claim determined under Sec.  207.259(c) of this chapter shall also 
include an amount bid by the lender to satisfy the senior insured 
mortgage at the foreclosure sale.



Sec.  241.1220  Termination of insurance benefits.

    All of the provisions of Sec.  207.253a of this chapter apply to 
subpart F of this part, except that the following shall also constitute 
grounds for terminating the contract of insurance:
    (a) The failure of the lender to notify the Commissioner in a timely 
manner of a foreclosure action initiated by the holder of the senior 
insured mortgage; and
    (b) The failure of the lender when directed by the Commissioner to 
assign the equity or acquisition loan or bid an amount necessary to 
acquire title to the project and convey the project to the Commissioner, 
in accordance with Sec.  241.1210.



Sec.  241.1230  No vested right in fund.

    Neither the lender nor the borrower shall have any vested or other 
right in the insurance fund under which the loan is insured.



Sec.  241.1235  Cross default.

    In the event the borrower commits a default under a prior recorded 
insured mortgage and the holder thereof initiates a foreclosure 
proceeding, said default under the prior recorded insured mortgage shall 
constitute a default under the equity or acquisition loan.

[[Page 423]]



Sec.  241.1245  Insurance endorsement.

    (a) Endorsement. The Commissioner shall indicate his insurance of 
the equity loan or acquisition loan by endorsing the original credit 
instrument and identifying the section of the Act and the regulations 
under which the loan is insured and the date of insurance.
    (b) Endorsement of phased loan. In the event the loan is phased, the 
Commissioner shall indicate his insurance of each amount by endorsing 
the original credit instrument and identifying the section of the Act 
and the regulations under which such amount is insured and the date of 
the insurance.
    (c) Final advance of phased loan. When all advances of a phased loan 
have been made and the terms and conditions of the commitment have been 
complied with to the satisfaction of the Commissioner, the Commissioner 
shall indicate on the original credit instrument the total of all 
advances the Commissioner has approved for insurance and again endorse 
such instrument.



Sec.  241.1250  Effect of endorsement.

    From the date that the equity or acquisition loan is endorsed, the 
Commissioner and the lender shall be bound by the provisions of subpart 
F of this part to the same extent as if they had executed a contract 
including the provisions of subpart F of this part and the applicable 
sections of the Act.



PART 242_MORTGAGE INSURANCE FOR HOSPITALS--Table of Contents



               Subpart A_General Eligibility Requirements

Sec.
242.1 Definitions.
242.2 Program financial self-sufficiency.
242.3 Encouragement of certain programs.
242.4 Eligible hospitals.
242.5 Eligible mortgagees/lenders.
242.6 Property requirements.
242.7 Maximum mortgage amounts.
242.8 Standards for licensure and methods of operation.
242.9 Physician ownership.
242.10 Eligible mortgagors.
242.11 Regulatory compliance required.
242.13 Parents and affiliates.
242.14 Mortgage reserve fund.
242.15 Limitation on refinancing existing indebtedness.

            Subpart B_Application Procedures and Commitments

242.16 Applications.
242.17 Commitments.
242.18 Inspection fee.
242.19 Fees on increases.
242.20 Reopening of expired commitments.
242.21 Refund of fees.
242.22 Maximum fees and charges by mortgagee.
242.23 Maximum mortgage amounts and cash equity requirements.
242.24 Initial operating costs.

                     Subpart C_Mortgage Requirements

242.25 Mortgage form and disbursement of mortgage proceeds.
242.26 Agreed interest rate.
242.27 Maturity.
242.28 Allowable costs for consultants.
242.29 Payment requirements.
242.30 Application of payments.
242.31 Accumulation of accruals.
242.32 Covenant against liens.
242.33 Covenant for malpractice, fire, and other hazard insurance.
242.35 Mortgage lien certifications.
242.37 Mortgage prepayment.
242.38 Late charge.

                   Subpart D_Endorsement for Insurance

242.39 Insurance endorsement.
242.40 Mortgagee certificate.
242.41 Certification of cost requirements.
242.42 Certificates of actual cost.
242.43 Application of cost savings.

                         Subpart E_Construction

242.44 Construction standards.
242.45 Early commencement of work.
242.46 Insured advances--building loan agreement.
242.47 Insured advances for building components stored off-site.
242.48 Insured advances for certain equipment and long lead items.
242.49 Funds and finances: deposits and letters of credit.
242.50 Funds and finances: off-site utilities and streets.
242.51 Funds and finances: insured advances and assurance of completion.
242.52 Construction contracts.
242.53 Excluded contractors.

               Subpart F_Nondiscrimination and Wage Rates

242.54 Nondiscrimination.

[[Page 424]]

242.55 Labor standards.

Subpart G_Regulatory Agreement, Accounting and Reporting, and Financial 
                              Requirements

242.56 Form of regulation.
242.57 Maintenance of hospital facility.
242.58 Books, accounts, and financial statements.
242.59 Inspection of facilities by Commissioner.
242.61 Management.
242.62 Releases of lien.
242.63 Additional indebtedness and leasing.
242.64 Current and future property.
242.65 Distribution of assets.
242.66 Affiliate transactions.
242.67 New corporations, subsidiaries, affiliations, and mergers.

                  Subpart H_Miscellaneous Requirements

242.68 Disclosure and verification of Social Security and Employer 
          Identification Numbers.
242.69 Transfer fee.
242.70 Fees not required.
242.72 Leasing of hospital.
242.73 Waiver of eligibility requirements for mortgage insurance.
242.74 Smoke detectors.
242.75 Title requirements.
242.76 Title evidence.
242.77 Liens.
242.78 Zoning, deed, and building restrictions.
242.79 Environmental quality determinations and standards.
242.81 Lead-based paint poisoning prevention.
242.82 Energy conservation.
242.83 Debarment and suspension.
242.84 Previous participation and compliance requirements.
242.86 Property and mortgage assessment.
242.87 Certifications.
242.89 Supplemental loans.
242.90 Eligibility of mortgages covering hospitals in certain 
          neighborhoods.
242.91 Eligibility of refinancing transactions.
242.92 Minimum principal loan amount.
242.93 Amendment of regulations.

    Authority: 12 U.S.C. 1709, 1710, 1715b, 1715n(f), and 1715u; 42 
U.S.C. 3535(d).

    Source: 72 FR 67546, Nov. 28, 2007, unless otherwise noted.



               Subpart A_General Eligibility Requirements



Sec.  242.1  Definitions.

    As used in this subpart, the following terms shall have the meaning 
indicated:
    Acquisition means the purchase by an eligible mortgagor of an 
existing hospital facility and ancillary property associated therewith.
    Act means the National Housing Act (12 U.S.C. 1701 et seq.).
    Affiliate means a person or entity which, directly orindirectly, 
either controls or has the power to control or exert significant 
influence on the other, or a person and entity both controlled by a 
third person or entity, which may be a parent entity. Indicia of control 
include, but are not limited to: Interlocking management or ownership, 
identity of interests among family members, shared facilities and 
equipment, common use of employees, or a business entity organized 
following the suspension or debarment of a person or entity that has the 
same or similar management, ownership, or principal employees as the 
suspended, debarred, ineligible, or voluntarily excluded person or 
entity or as defined in the Medicare reimbursement regulations.
    AMPO (Allowance for Making Project Operational) relates to nonprofit 
projects and means a fund that is primarily for accruals during the 
course of construction for mortgage insurance premiums (MIPs), taxes, 
ground rents, property insurance premiums, and assessments, when funds 
available for these purposes under the Building Loan Agreement have been 
exhausted; and also for allocation to such accruals after completion of 
construction, if the income from the hospital at that time is 
insufficient to meet such accruals. AMPO may also be used for such other 
purposes as approved by HUD. Any balance remaining unused in the fund at 
final endorsement will be treated in accordance with Sec.  242.43.
    Applicant means a HUD multifamily-approved lender that would be the 
mortgagee of record.
    Capital debt means the outstanding indebtedness used for the 
construction,

[[Page 425]]

rehabilitation, or acquisition of the physical property and equipment of 
a hospital, including those financing costs approved by HUD.
    Chronic convalescent and rest means skilled nursing services, 
intermediate care services, respite care services, hospice services, and 
other services of a similar nature.
    Construction means the creation of a new or replacement hospital 
facility, the substantial rehabilitation of an existing facility, or the 
limited rehabilitation of an existing facility. The cost of acquiring 
new or replacement equipment may be included in the cost of 
construction.
    Days of cash on hand means the number of days of operating cash 
available to the hospital, calculated pursuant to standards determined 
by HUD.
    Debt service coverage ratio is a measure of a hospital's ability to 
pay interest and principal with cash generated from current operations. 
Debt service ratio is calculated as follows: Debt Service Coverage Ratio 
(total debt service coverage on all long-term capital debt) equals the 
excess of revenues over expenses (not-for-profit) or net income (for-
profit) plus interest expense plus depreciation expense plus 
amortization expense, all divided by current portion of long-term debt 
(including capital leases) from the previous year's audited financial 
statement plus interest expense. The calculation can be expressed as:
[GRAPHIC] [TIFF OMITTED] TR28NO07.052

    Hard costs means the costs of the construction and equipment, 
including construction-related fees such as architect and construction 
manager fees.
    Hospital means a facility that has been proposed for approval or has 
been approved by HUD under the provisions of this subpart, and:
    (1) That provides community services for inpatient medical care of 
the sick or injured (including obstetrical care);
    (2) Where not more than 50 percent of the total patient days during 
any year are customarily assignable to the categories of chronic 
convalescent and rest, drug and alcoholic, epileptic, mentally 
deficient, mental, nervous and mental, and tuberculosis, except that the 
50 percent patient day restriction does not apply to Critical Access 
Hospitals (hospitals designated as such under the Medicare Rural 
Hospital Flexibility Program) between January 28, 2008 and July 31, 
2011.
    (3) That is a facility licensed or regulated by the state (or, if 
there is no such state law providing for such licensing or regulation by 
the state, by the municipality or other political subdivision in which 
the facility is located) and is:
    (i) A public facility owned by a state or unit of local government 
or by an instrumentality thereof, or owned by a public benefit 
corporation established by a state or unit of local government or by an 
instrumentality thereof;
    (ii) A proprietary facility; or
    (iii) A facility of a private nonprofit corporation or association.
    Identity of interest means a relationship that must be disclosed and 
may be prohibited pursuant to the requirements of the Regulatory 
Agreement. Examples of a prohibited Identity of Interest relationship 
are, but are not limited to, a financial or family relationship between 
the mortgagor (which includes but is not limited to an officer, 
director, or partner of the mortgagor) and general contractor, 
subcontractor, seller of the land or property, any consultants, or other 
parties to the transaction.
    Limited rehabilitation means additions, expansion, remodeling, 
renovation, modernization, repair, and alteration of existing buildings, 
including acquisition of new or replacement equipment, in cases where 
the hard costs of construction and equipment are less than 20 percent of 
the mortgage amount.
    Mortgage means such classes of first liens as are commonly given to 
secure advances on, or the unpaid purchase

[[Page 426]]

price of, real estate under the laws of the state in which the real 
estate is located, together with any mortgage note secured thereby. The 
mortgage may be in the form of one or more trust mortgages or mortgage 
indentures or deeds of trust securing notes, bonds, or other mortgage 
notes; and, by the same instrument or by a separate instrument, it may 
create a security interest in the personalty, including, but not limited 
to, the equipment, whether or not the equipment is attached to the 
realty, and in the revenues and receivables of the hospital.
    Mortgagee or lender means the applicant for insurance or the 
original lender under a mortgage.
    Mortgagor means the original borrower under a mortgage and its 
successors and assigns.
    Mortgage Reserve Fund means a trust account, or an account held by 
the mortgagee, for and on behalf of the mortgagor, to which the 
mortgagor contributes and from which withdrawals must be approved by 
HUD. The purpose of the fund is to provide HUD a means to assist the 
hospital to avoid mortgage defaults and to preserve the value of the 
mortgaged property and the hospital's business.
    Most recent audited financial statement means the audited financial 
statement required under the regulatory agreement for the prior fiscal 
year.
    Net income means the net income of a for-profit entity, or, in the 
case of a nonprofit entity, the excess of revenues less expenses.
    Non-operating revenues and expenses are those revenues and expenses 
not directly related to patient care, hospital-related patient services, 
or the sale of hospital-related goods. Examples of items classified as 
non-operating are state and federal income tax, general contributions, 
gains and losses from investments, unrestricted income from endowment 
funds, and income from related entities.
    Classification of items as operating or non-operating shall follow 
written guidance by HUD.
    Operating margin is operating income divided by operating revenue, 
where:
    (1) Operating revenue is the revenue from the core patient care 
operations of the hospital. It includes revenues from the provision of 
such items as patient care (including, but not limited to, hospital-
based nursing home and physicians' clinics); transfers from temporarily 
restricted accounts that are used for current operating expenses; and 
patient-related activities such as the operation of the cafeteria, 
parking facilities, television services to patients, sale of medical 
scrap or waste, etc. (Additional sources of revenue, which are 
classified as non-operating, are excluded from this measure, provided, 
however, at HUD's discretion, that revenue that has historically been 
received reliably and is expected to continue to be received may be 
considered operating revenue for underwriting purposes); and
    (2) Operating income is operating revenue minus operating expenses, 
where operating expenses are the expenses incurred in providing patient 
care, including such items as salaries, supplies, and the cost of 
capital.
    Parent means an organization or entity that controls or has a 
controlling interest in another organization or entity.
    Personalty means all furniture, furnishings, equipment, machinery, 
building materials, appliances, goods, supplies, tools, books, records 
(whether in written or electronic form), computer equipment (hardware 
and software) and other tangible or electronically stored personal 
property (other than fixtures) that are owned or leased by the borrower 
or the lessee now or in the future in connection with the ownership, 
management, or operation of the land or the improvements or are located 
on the land or in the improvements, and any operating agreements 
relating to the land or the improvements, and any surveys, plans, 
specifications, and contracts for architectural, engineering, and 
construction services relating to the land or the improvements, chooses 
in action and all other intangible property and rights relating to the 
operation of, or used in connection with, the land or the improvements, 
including all governmental permits relating to any activities on the 
land. Personalty also includes all tangible and intangible personal 
property used for health care (such as major movable

[[Page 427]]

equipment and systems), accounts, licenses, bed authorities, 
certificates of need required to operate the hospital and to receive 
benefits and reimbursements under provider agreements with Medicaid, 
Medicare, state and local programs, payments from health care insurers 
and any other assistance providers (``Receivables''); all permits, 
instruments, rents, lease and contract rights, and equipment leases 
relating to the use, operation, maintenance, repair, and improvement of 
the hospital. Generally, intangibles shall also include all cash and 
cash escrow funds, such as but not limited to: Depreciation reserve fund 
or mortgage reserve fund accounts, bank accounts, residual receipt 
accounts, all contributions, donations, gifts, grants, bequests, and 
endowment funds by donors, and all other revenues and accounts 
receivable from whatever source paid or payable. All personalty shall be 
securitized with appropriate UCC filings and any excluded personalty 
shall be indicated in the Regulatory Agreement.
    Preapplication meeting means a meeting among HUD, a potential 
mortgagee (applicant), and a potential mortgagor for mortgage insurance 
where there has been a positive Preliminary Review of the proposed 
project. The preapplication meeting is an opportunity for the potential 
mortgagee and mortgagor to summarize the proposed project, for HUD to 
summarize the application process, and for issues that could affect the 
eligibility or underwriting of the proposed loan to be identified and 
discussed.
    Preliminary Review Letter means a letter from HUD to a potential 
applicant communicating the result of the Preliminary Review. The letter 
may state that an application for mortgage insurance would probably not 
be successful and provide the reasons for this determination, or state 
that no factors that would cause an application to be rejected have been 
identified, and therefore there appears to be no bar to the applicant 
proceeding to a preapplication meeting.
    Project means the construction (which may include replacement of an 
existing hospital facility), or the substantial or limited 
rehabilitation of an eligible hospital, including equipment, which has 
been proposed for approval or has been approved by HUD under the 
provisions of this subpart, including the financing and refinancing, if 
any, plus all related activities involved in completing the improvements 
to the property. However, in particular closing documents, ``project'' 
may be used to mean the mortgagor entity, the operation of the 
mortgagor, the facility, or all of the mortgaged property, depending on 
the context in which the term ``project'' is used.
    Refinancing means the discharging of the existing capital debt of a 
hospital through entering into new debt.
    Regulatory Agreement means the agreement under which all mortgagors 
shall be regulated by HUD, as long as HUD is the insurer or holder of 
the mortgage, in a published format determined by HUD, and such 
additional covenants and restrictions as may be determined necessary by 
HUD on a case-by-case basis.
    Secretary means the Secretary of Housing and Urban Development or 
his or her authorized representatives.
    Section 242/223(f) refers to a loan insured under Section 242 of the 
Act pursuant to Section 223(f) of the Act.
    Security instrument means a mortgage, deed of trust, and any other 
security for the indebtedness, and shall be deemed to be the mortgage as 
defined by the National Housing Act, as amended, implementing 
regulations, and HUD directives.
    Service area means that geographical area, identified by zip codes, 
from which a substantial majority of a hospital's patients derive.
    Soft costs means reasonable and customary legal, organizational, 
consulting, and such other costs associated with effecting the proposed 
project and its financing or refinancing, including, but not limited to, 
interest capitalized during construction; permanent financing fees; 
initial service charge; tax; title and recording expenses; special tax 
assessments; AMPO; insurance costs during construction; FHA fees and 
charges, including application, commitment, and inspection fees; 
mortgage insurance premium for advances during construction; prepayment 
penalties associated with retiring the hospital's existing

[[Page 428]]

bonds; and termination costs for interest rate protection facilities 
that are integrated into the original financing, as applicable.
    State includes the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, American 
Samoa, and the United States Virgin Islands.
    Substantial rehabilitation means additions, expansion, remodeling, 
renovation, modernization, repair, and alteration of existing buildings, 
including acquisition of new or replacement equipment, in cases where 
the hard costs of construction and equipment are equal to or greater 
than 20 percent of the mortgage amount.
    Surplus Cash means any cash remaining after all of the following 
conditions have been met:
    (1) Final endorsement of the HUD-insured note has occurred;
    (2) Mortgage payments for the preceding 12 months have been made 
when due, including any grace period;
    (3) The Debt Service Coverage Ratio is greater than or equal to 1.50 
in the most recent audited financial statements and as of the date of 
distribution;
    (4) Days in Accounts Receivable are less than or equal to 80 in the 
most recent audited financial statements and as of the date of 
distribution;
    (5) The average payment period is less than or equal to 80 in the 
most recent audited financial statements and as of the date of 
distribution;
    (6) The Mortgage Reserve Fund (MRF) is fully funded as of the date 
of the distribution in conformity with the MRF schedule;
    (7) All income, property, and statutory employer payroll taxes and 
employee payroll withholding contributions (including penalties and 
interest, if applicable) have been deposited as of the date of the 
distribution, as required;
    (8) The Current Ratio is greater than or equal to 1.50 in the most 
recent audited financial statements and immediately after the 
distribution;
    (9) Days of cash on hand are greater than or equal to 21 days in the 
most recent audited financial statements and immediately after the 
distribution;
    (10) The distribution may not be more than 50 percent of Net Income 
as reflected in the most recent audited financial statements, unless the 
Mortgagor has an equity financing ratio equal to or greater than 20 
percent in the most recent audited financial statements and immediately 
after the distribution; and
    (11) The Equity less any assets excluded from the mortgaged property 
is greater than 0.00 in the most recent audited financial statements and 
immediately after the distribution is made. As used in this definition:
    ``Most recent audited financial statements'' refers to the audited 
financial statement required under section 242.58 for the prior fiscal 
year;
    ``Net Income'' means Net Income for for-profit entities; Excess of 
Revenues over Expenses for not-for-profit entities; and Excess of 
Revenues over Expenses before Capital Grants, Contributions, and 
Additions to Permanent Endowment for governmental entities; and
    ``Equity financing ratio'' means (Equity less any assets excluded 
from the mortgaged property)/(total assets less any assets excluded from 
the mortgaged property). Equity is defined as Equity for a for-profit 
entity, Total Net Assets for not-for-profit entities, and Total Net 
Assets for governmental entities.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35922, June 25, 2008; 
78 FR 8341, Feb. 5, 2013]



Sec.  242.2  Program financial self-sufficiency.

    The Commissioner shall administer the Section 242 program in such a 
way as to encourage financial self-sufficiency and actuarial soundness; 
i.e., to avoid mortgage defaults and claims for insurance benefits in 
order to protect the mortgage insurance fund.



Sec.  242.3  Encouragement of certain programs.

    The activities and functions provided for in this part shall be 
carried out so as to encourage provision of comprehensive health care, 
including outpatient and preventive care as well as hospitalization, to 
a defined population, and in the case of public and

[[Page 429]]

certain not-for-profit hospitals, to encourage programs that are 
undertaken to provide essential health care services to all residents of 
a community regardless of ability to pay.



Sec.  242.4  Eligible hospitals.

    (a) The hospital to be financed with a mortgage insured under this 
part shall involve the construction of a new hospital, the substantial 
rehabilitation (or replacement) of an existing hospital, the limited 
rehabilitation of an existing hospital, the acquisition of an existing 
hospital, or the refinancing of the capital debt of an existing hospital 
pursuant to Section 223(a)(7) or Section 223(f).
    (b) This part applies only to applications for FHA mortgage 
insurance submitted after a pre-application meeting (as defined in Sec.  
242.1) with HUD that occurred on and after January 28, 2008. HUD's 
regulations and practices prior to January 28, 2008 apply to 
applications for FHA mortgage insurance submitted after a pre-
application meeting that occurred before January 28, 2008.

[72 FR 67546, Nov. 28, 2007, as amended at 78 FR 8341, Feb. 5, 2013]



Sec.  242.5  Eligible mortgagees/lenders.

    The lender requirements set forth in 24 CFR part 202 regarding 
approval, recertification, withdrawal of approval, approval for 
servicing, report requirements, and conditions for supervised 
mortgagees, nonsupervised mortgagees, investing mortgagees, and 
governmental and similar institutions, apply to these programs.



Sec.  242.6  Property requirements.

    The mortgage, to be eligible for insurance, shall be on property 
located in a state, as defined in Sec.  242.1. The mortgage shall cover 
real estate in which the mortgagor has one of the following interests:
    (a) A fee simple title;
    (b) A lease for not less than 99 years that is renewable; or
    (c) A lease having a term of not less than 50 years to run from the 
date the mortgage is executed.



Sec.  242.7  Maximum mortgage amounts.

    The mortgage shall involve a principal obligation not in excess of 
90 percent of HUD's estimate of the replacement cost of the hospital, 
including the equipment to be used in its operation when the proposed 
improvements are completed and the equipment is installed.



Sec.  242.8  Standards for licensure and methods of operation.

    The Secretary shall require satisfactory evidence that the hospital 
will be located in a state or political subdivision of a state with 
reasonable minimum standards of licensure and methods of operation for 
hospitals, and satisfactory assurance that such standards will be 
applied and enforced with respect to the hospital.



Sec.  242.9  Physician ownership.

    Ownership of an interest in the mortgagor by physicians or other 
professionals practicing in the hospital is permitted within limits 
determined by HUD to avoid insurance risks that may be associated with 
such ownership. The Commissioner shall determine if the proposed 
mortgagor will be at low risk for violation of regulations of the U.S. 
Department of Health and Human Services, other federal regulations, and 
state regulations governing kickbacks, self-referrals, and other issues 
that could increase the risk of eventual default. The Commissioner's 
determination shall be based on an unqualified legal opinion as to 
compliance with applicable federal law, among other considerations.



Sec.  242.10  Eligible mortgagors.

    The mortgagor shall be a public mortgagor (i.e., an owner of a 
public facility), a private nonprofit corporation or association, or a 
profit-motivated mortgagor meeting the definition of ``hospital'' in 
Sec.  242.1. The mortgagor shall be approved by HUD and, except in those 
cases where the hospital is leased as permitted in Sec.  242.72, shall 
possess the powers necessary and incidental to operating a hospital. 
Eligible proprietary or profit-motivated mortgagors may include for-
profit corporations, limited partnerships, and limited liability 
corporations and companies,

[[Page 430]]

but may not include natural persons, joint ventures, and general 
partnerships. Any proposed mortgagor must demonstrate that it has a 
continuity of organization commensurate with the term of the mortgage 
loan being insured. For new organizations, or those whose continuity is 
necessarily dependent upon an individual or individuals, broad community 
participation is required.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35922, June 25, 2008]



Sec.  242.11  Regulatory compliance required.

    An application for insurance of a mortgage under this part shall be 
considered only in connection with a hospital that is in substantial 
compliance with regulations of the Department of Health and Human 
Services and the regulations of the applicable state governing the 
operation and reimbursement of hospitals. A hospital that is under 
investigation by any state or federal agency for statutory or regulatory 
violations is not eligible so long as the investigation is unresolved, 
unless HUD determines that the investigation is minor in nature; that 
is, the investigation is unlikely to result in substantial liabilities 
or to otherwise substantially harm the creditworthiness of the hospital.



Sec.  242.13  Parents and affiliates.

    As a condition of issuing a commitment, HUD may require corporate 
parents, affiliates, or principals of the proposed mortgagor to provide 
assurances, guarantees, or collateral to protect HUD's interests. The 
Commissioner may also require financial and operational information on 
the parent, other businesses owned by the parent, or affiliates of the 
proposed mortgagor and may also require a parent or affiliate to be 
regulated by HUD as to certain actions that could impact on the 
insurance of a mortgage loan for the benefit of the hospital.



Sec.  242.14  Mortgage reserve fund.

    As a condition of issuing a commitment, HUD shall require 
establishment of a Mortgage Reserve Fund (MRF). The mortgagor shall be 
required to make contributions to the MRF such that, with fund earnings, 
the MRF will build to one year of debt service at 5 years following 
commencement of amortization, increasing thereafter to 2 years of debt 
service on and after 10 years following commencement of amortization 
according to a schedule established by HUD, unless HUD determines that a 
different schedule of contributions is appropriate based on the 
mortgagor's risk profile, reimbursement structure, or other 
characteristics. In particular, hospitals that receive cost-based 
reimbursement may be required to have MRFs that build to more than 2 
years of debt service. Expenditures from the fund are made at HUD's sole 
discretion or in accordance with the mortgagor's MRF Schedule. Upon 
termination of insurance, the balance of the MRF shall be returned to 
the mortgagor, provided that all obligations to HUD have been met.



Sec.  242.15  Limitation on refinancing existing indebtedness.

    (a) Some existing capital debt may be refinanced with the proceeds 
of a section 242-insured loan; however, the hard costs of construction 
and equipment must represent at least 20 percent of the total mortgage 
amount.
    (b) In the case of a loan insured under Section 242/223(f), there is 
no requirement for hard costs. However, if there are hard costs, such 
costs must total less than 20 percent of the total mortgage amount.

[78 FR 8341, Feb. 5, 2013]



            Subpart B_Application Procedures and Commitments



Sec.  242.16  Applications.

    (a) Application process--(1) Market need. The approval process 
entails a determination of the market need of the proposal and stresses, 
on a market-wide basis, the impact of the proposed facility on, and its 
relationship to, other health care facilities and services (particularly 
other hospitals with mortgages insured under this part and hospitals 
that have a disproportionate share of Medicaid and uninsured patients or 
provide a substantial amount

[[Page 431]]

of charity care); the number and percentage of any excess beds; and 
demographic projections. Generally, Section 242 insurance may support 
start-up hospitals or major expansions of existing hospitals only if 
existing hospital capacity or services are clearly not adequate to meet 
the needs of the population in the service area.
    (i) If the state has an official procedure for determining need for 
hospitals, HUD shall require that such procedure be followed before the 
application for insurance is submitted, and that the application 
document that need has also been established under that procedure.
    (ii) The following factors are relevant in evaluating market need 
for the project and should be addressed, as applicable, in the study of 
market need and feasibility submitted with the application. Because each 
hospital presents a unique situation, there is no formula or cutoff 
level that applies to all applications:
    (A) Service area definition;
    (B) Existing or proposed hospital;
    (C) Designation as sole community provider, Critical Access 
Hospital, or rural referral center;
    (D) Community-wide use rates (discharges and days/1000);
    (E) Statewide use rates (for benchmarking purposes);
    (F) Current population and 5-year projection by age cohort;
    (G) Staffed versus licensed beds;
    (H) Applicant hospital's occupancy rate;
    (I) Competitors' occupancy rates;
    (J) Outpatient volume;
    (K) Availability of emergency services;
    (L) Teaching hospital status;
    (M) Services offered by hospitals in the service area;
    (N) Migration of patients out of the service area;
    (O) Planned construction at other facilities in the region;
    (P) Historical market share by major service category;
    (Q) Disproportionate Share Hospital designation; and
    (R) Distance to other hospitals.
    (2) Operating margin and debt service coverage ratio. (i) Hospitals 
with an aggregate operating margin of less than 0.00 when calculated 
from the three most recent annual audited financial statements are not 
eligible for Section 242 insurance, unless HUD determines, based on the 
financial data in those statements, that the hospital has achieved a 
financial turnaround resulting in a positive operating margin in the 
most recent year, calculated using classifications of items as operating 
or non-operating in accordance with guidance that shall be provided in 
written directives by HUD. In any event, HUD shall not issue an 
insurance commitment for any hospital in a turnaround situation that has 
not achieved 2 consecutive years of positive operating margin 
immediately prior to issuance of the commitment.
    (ii) Hospitals with an average debt service coverage ratio of less 
than 1.25 in the 3 most recent audited years are not eligible for 
Section 242 insurance, unless HUD determines, based on the audited 
financial data, that the hospital has achieved a financial turnaround 
resulting in a debt service coverage ratio of at least 1.4 in the most 
recent year. In cases of refinancing at a lower interest rate, HUD may 
authorize the use of the projected debt service requirement in lieu of 
the historical debt service in calculating the debt service coverage 
ratios for each of the prior 3 years. In cases where HUD authorizes the 
use of the projected debt service requirement in lieu of the historical 
debt service to determine the debt service coverage ratio, hospitals 
must have an average debt service coverage ratio of 1.4 or greater.
    (3) Threshold requirements--refinancing candidates. For an 
application to be considered for refinancing pursuant to Section 223(f), 
a hospital must meet the following requirements in lieu of those 
described in paragraph (a)(2) of this section:
    (i) The hospital must have an aggregate operating margin and average 
debt service coverage ratio as follows:
    (A) The hospital must have an aggregate operating margin of at least 
zero percent, when calculated from the three most recent annual audited 
financial statements.
    (B) The hospital must have an average debt service coverage ratio of 
at least 1.4 when calculated from the

[[Page 432]]

three most recent annual audited financial statements; or
    (ii) If the requirements of paragraphs (a)(3)(i)(A) and/or (B) of 
this section are not satisfied, HUD will recast the operating margin and 
debt service coverage ratio for prior periods by applying its estimate 
of the projected interest rate at the time the mortgage is expected to 
close in lieu of the historical interest rate(s).
    (iii) In performing the calculations called for in paragraphs 
(a)(3)(i)(A) and (B) of this section, if HUD finds that performance in 
one of the three years was affected by exceptional, one-time events that 
substantially altered financial performance, HUD may calculate the 
three-year performance based on the four most recent years with the 
unusual year omitted.
    (iv) The hospital must document that it provides an essential 
healthcare service to the community in which it operates and that its 
financial performance would be materially improved by refinancing its 
existing capital debt.
    (v) The hospital may show that it provides an essential healthcare 
service to the community in which it operates by submitting an analysis 
quantifying how the community in which it presently operates would 
suffer from inadequate access to an essential healthcare service that 
the hospital presently provides if the hospital were no longer in 
operation.
    (vi) The hospital may show that its financial performance would be 
materially improved by providing documentation of the following:
    (A) There are limited comparable affordable refinancing vehicles 
available to the hospital; and,
    (B) The hospital meets three of the following seven criteria:
    (1) The proposed refinancing would reduce the hospital's total 
operating expenses by at least 0.25 percent;
    (2) The interest rate of the proposed refinancing would be at least 
0.5 percentage points less than the interest rate on the debt to be 
refinanced;
    (3) The interest rate on the debt that the hospital proposes to 
refinance has increased by at least one percentage point at any time 
since January 1, 2008, or is very likely to increase by at least one 
percentage within one year of the date of application;
    (4) The hospital's annual total debt service is in excess of 3.4 
percent of total operating revenues, based on its most recent audited 
financial statement;
    (5) The hospital has experienced a withdrawal or expiration of its 
credit enhancement facility, or the lender providing its credit 
enhancement facility has been downgraded, or the hospital can 
demonstrate that one of these events is imminent;
    (6) The hospital is party to bond covenants that are substantially 
more restrictive than the Section 242 mortgage covenants; and
    (7) There are other circumstances that demonstrate that the 
hospital's financial performance would be materially improved by 
refinancing its existing capital debt.
    (4) Financial feasibility. The approval process entails a 
determination of the financial feasibility of the proposal, i.e., a 
determination that it is probable that the proposed mortgagor will be 
able to meet its debt service requirements during the period projected. 
It includes analysis of the reimbursement structure of the proposed 
hospital (including patient/payer mix); actions of competitors; and the 
probable projected impact on the proposed hospital of general health 
care system trends, such as the development of alternative health care 
delivery systems and new reimbursement methods. In addition to 
historical operating margin, determination of financial feasibility 
includes, but is not limited to, evaluation of the following factors, 
which the application must address and which HUD will review:
    (i) Current and projected gains from operations and a manageable 
debt load using reasonable assumptions;
    (ii) Current debt service coverage ratio of 1.25 or higher and 
projected debt service coverage ratio of 1.40 or higher;
    (iii) Cushion in the balance sheet sufficient to demonstrate the 
ability to withstand short periods of net operating losses without 
jeopardizing financial viability;

[[Page 433]]

    (iv) Patient utilization forecasts (including average length of 
stay, case intensity, discharges, area-wide use rates) that are 
consistent with the hospital's historical trends, future service mix, 
market trends, population forecasts, and business climate;
    (v) The hospital's demonstrated ability to position itself to 
compete in its marketplace;
    (vi) Organizational affiliations or relationships that help optimize 
financial, clinical, and operational performance;
    (vii) Management's demonstrated ability to operate effectively and 
efficiently, and to develop effective strategies for addressing problem 
areas;
    (viii) Systems in place to monitor hospital operations, revenues, 
and costs accurately and in a timely manner;
    (ix) A Board that is appropriately constituted and provides 
effective oversight;
    (x) Required licensures and approvals; and
    (xi) Favorable ratings from the Joint Commission on Accreditation of 
Healthcare Organizations or other organizations acceptable to HUD.
    (5) Preliminary Review. A Preliminary Review is a general overview 
of the acceptability of a potential mortgagor performed at the request 
of a hospital, a financial consultant representing a hospital, or a 
lender, to identify any factors that would likely cause an application 
to be rejected, should an application be submitted.
    (i) The purpose of the preliminary review is for HUD to identify any 
obvious factors that would cause an application to be rejected, before 
the potential mortgagor or mortgagee expends resources to prepare one. 
The hospital, financial consultant, or lender shall submit a preliminary 
information package to HUD that provides evidence of statutory 
eligibility, market need, financial strength, and such other 
documentation as HUD may require. The scope of the preliminary review 
does not include approval of any specific site in the community.
    (ii) If HUD identifies factors that would cause an application to be 
rejected, HUD shall issue a Preliminary Review Letter notifying the 
potential applicant that an application for mortgage insurance would 
probably not be successful and providing the reasons for this decision. 
Also, no further request from the proposed applicant for a Preliminary 
Review shall be entertained for a period of one year from the date of 
HUD's notification. HUD may grant an exception to this one-year 
limitation if, during the year, there is a major change in the 
circumstances that caused HUD to determine that the project would be 
rejected. For example, if the sole reason for HUD's determination was 
the hospital's failure to meet the historical operating margin test, and 
a new audited annual financial statement contains results that would 
cause the hospital to meet the test, then the lender may request a new 
Preliminary Review within one year of HUD's notification.
    (iii) If HUD does not identify any factors that would cause an 
application to be rejected, HUD shall issue a Preliminary Review Letter 
advising the potential applicant that there appears to be no bar to the 
applicant's proceeding to the next step in the application process, 
provided that if a complete application is not received by HUD within 
one year following the date of HUD's letter, another Preliminary Review 
may be required, at HUD's discretion, before the application process may 
proceed.
    (iv) The Commissioner's determination in the preliminary review 
phase that no factors have been identified that would cause an 
application to be rejected shall in no way be construed as an indication 
that a subsequent application will be approved.
    (6) Preapplication meeting. The next step in the application process 
is the preapplication meeting (this step is optional, at HUD's 
discretion, in Section 242/223(f) cases). At HUD's discretion, this 
meeting may be held at HUD Headquarters in Washington, DC, or at another 
site agreeable to HUD and the potential applicant. The preapplication 
meeting is an opportunity for the potential mortgagor to summarize the 
proposed project and refinancing, if any; for HUD to summarize the 
application process; and for issues that could affect the eligibility or 
underwriting of the project to be identified

[[Page 434]]

and discussed to the extent possible. Following the meeting, HUD may:
    (i) Advise the potential applicant that there appears to be no bar 
to submitting an application for mortgage insurance; or
    (ii) Identify issues that must be resolved before a full application 
should be submitted for processing.
    (b) Application contents. The application for mortgage insurance 
shall include exhibits that follow such guidance as to content and 
format that HUD shall provide from time to time. The application shall 
include:
    (1) A description of the proposed sources and uses of funds;
    (2) A description of the mortgagor entity, its ownership structure, 
and its directors and managers;
    (3) A description of the project, the business plan of the hospital, 
and how the project will further that plan, or, for applications 
pursuant to Section 223(f), a description of any limited rehabilitation 
to be financed with mortgage proceeds and how that limited 
rehabilitation will affect the hospital;
    (4) Historical audited financial statements and interim year-to-date 
financial results (for existing hospitals);
    (5) A study of market need and financial feasibility, addressing the 
factors listed in paragraphs (a)(1)(ii) and (a)(2), or (a)(3) of this 
section, (whichever applies), with assumptions and financial forecast 
clearly presented. The study should be prepared by a certified public 
accounting firm acceptable to HUD. In the case of an application for 
Section 242/223(f) mortgage insurance, the study may not be required to 
address market need and there may be no requirement for involvement of a 
certified public accounting firm;
    (6) Architectural plans and specifications in sufficient detail to 
enable a reasonable estimate of cost (not applicable to a Section 242/
223(f) application, except when architectural plans and specifications 
are requested by HUD);
    (7) Evidence that the hospital will be located in a state or 
political subdivision of a state with reasonable minimum standards of 
licensure and methods of operation for hospitals and satisfactory 
assurance that such standards will be applied and enforced with respect 
to the hospital;
    (8) If the state has an official procedure for determining need for 
hospitals, evidence that such procedure has been followed and that need 
has been established under that procedure;
    (9) A Phase I environmental report; and
    (10) Such other exhibits as HUD shall require based upon the facts 
pertaining to the particular case.
    (c) Fee. An application fee of $1.50 per thousand dollars of the 
amount of the loan to be insured shall be paid to HUD at the time the 
application is submitted to HUD for approval.
    (d) Filing of application. An application for insurance of a 
mortgage on a project shall be submitted on an approved FHA form, by an 
approved mortgagee and by the sponsors of such project, to FHA.
    (e) Complete application. Only technically complete applications 
will be processed. Partial applications cannot be processed. Upon 
determination that an application is complete, HUD shall issue a 
Completeness Letter to the applicant stating that the application is 
complete.
    (f) Application review. Upon receipt of a complete application, HUD 
shall evaluate the application to determine if eligibility, market need, 
financial feasibility, and compliance with applicable regulations 
(including but not limited to federal environmental regulations, wage 
rate regulations, and health care regulations) have been demonstrated, 
and to evaluate any other factors, including but not limited to risk to 
the Insurance Fund, that should be considered in determining if the 
application for mortgage insurance should be approved. As a part of this 
review, HUD may solicit the advice of private consultants and expert 
staff in the Department of Health and Human Services and other federal 
agencies. Based on review of the complete application, HUD may request 
additional information from the applicant. The timeliness of the 
applicant's submission of the additional information may affect the 
approval or disapproval of the application. The Commissioner's decision 
shall be communicated in the form of a Commitment Letter or a Rejection 
Letter. HUD will not issue a

[[Page 435]]

Commitment Letter until HUD completes the environmental review under 24 
CFR 242.79.

[72 FR 67546, Nov. 28, 2007, as amended at 78 FR 8341, Feb. 5, 2013]



Sec.  242.17  Commitments.

    (a) Issuance of commitment. Upon approval of an application for 
insurance, a commitment shall be issued by HUD setting forth the terms 
and conditions under which an insurance endorsement shall be issued for 
the hospital. The commitment shall include the following:
    (1) A commitment for insurance of advances reflecting the mortgage 
amount, interest rate, mortgage term, date of commencement of 
amortization, and other requirements pertaining to the mortgage and 
construction project;
    (2) In the case of an application for Section 242/223(f) insurance 
where advances are not needed for funding any limited rehabilitation: a 
commitment for insurance upon completion, reflecting the mortgage 
amount, interest rate, mortgage term, date of commencement of 
amortization, and other requirements pertaining to the mortgage and to 
any limited rehabilitation;
    (3) HUD's computation of the replacement cost and maximum insurable 
mortgage amount;
    (4) Financial requirements for closing;
    (5) Approval covenants, including any special conditions that must 
be satisfied prior to initial endorsement;
    (6) Mortgage Reserve Fund Agreement.
    (b) Type of commitment. The commitment will provide for the 
insurance of advances of mortgage funds during construction. In the case 
of a commitment for Section 242/223(f) insured refinancing or 
acquisition financing of an existing hospital, the commitment shall 
provide for insurance upon completion unless insured advances are needed 
for funding any limited rehabilitation approved by HUD, in which case 
the commitment shall provide for insurance of advances.
    (c) Term of commitment. (1) The initial commitment shall be issued 
for a period of 90 days.
    (2) The term of a commitment may be extended in such manner as HUD 
may prescribe, provided, however, that the combined term of the original 
commitment and any extensions do not exceed 180 days.
    (d) Commitment fee. A commitment fee that, when added to the 
application fee, will aggregate $3 per thousand dollars of the amount of 
the loan set forth in the commitment, shall be paid within 30 days of 
the date of issuance of the commitment. If such fee is not paid within 
this 30-day period, the commitment shall automatically terminate.

[72 FR 67546, Nov. 28, 2007, as amended at 78 FR 8342, Feb. 5, 2013]



Sec.  242.18  Inspection fee.

    (a) The commitment may provide for the payment of an inspection fee 
in an amount not to exceed $5 per thousand dollars of the commitment. 
The inspection fee shall be paid no later than the time of initial 
endorsement.
    (b) In the case of mortgages where the applicant is seeking only 
refinancing or acquisition, the inspection fee will not exceed 10 basis 
points on the loan. For applicants seeking a loan for refinancing or 
acquisition that also involves limited rehabilitation, the commitment 
shall provide for an inspection fee according to the following schedule:

------------------------------------------------------------------------
                                                   Inspection fee limit
         Hard cost % of mortgage amount               (basis points)
------------------------------------------------------------------------
Less than 5%...................................                       10
5% or greater but less than 10%................                       20
10% or greater but less than 15%...............                       30
15% or greater but less than 20%...............                       40
20% or greater.................................                       50
------------------------------------------------------------------------


[[Page 436]]


[78 FR 8343, Feb. 5, 2013]



Sec.  242.19  Fees on increases.

    (a) Increase in commitment prior to endorsement. An application, 
filed prior to initial endorsement, for an increase in the amount of an 
outstanding commitment, shall be accompanied by an additional 
application fee of $1.50 per thousand dollars computed on the amount of 
the increase requested. Any increase in the amount of a commitment shall 
be subject to the payment of an additional commitment fee which, when 
added to the additional application fee, will aggregate $3 per thousand 
dollars of the amount of the increase. The additional commitment fee 
shall be paid within 30 days after the date of the amended commitment. 
If the additional commitment fee is not paid within 30 days, the 
commitment novation providing for the increased amount will 
automatically terminate and the previous commitment will be reinstated. 
If an inspection fee was required in the original commitment, an 
additional inspection fee shall be paid in an amount not to exceed $5 
per thousand dollars of the amount of increase in commitment. The 
additional inspection fee shall be paid at the time of initial 
endorsement.
    (b) Increase in mortgage between initial and final endorsement. Upon 
an application, filed between initial and final endorsement, for an 
increase in the amount of the mortgage, either by amendment, 
consolidation agreement, or by substitution of a new mortgage, an 
additional application fee of $1.50 per thousand dollars computed on the 
amount of the increase requested shall accompany the application. The 
approval of any increase in the amount of the mortgage shall be subject 
to the payment of an additional commitment fee which, when added to the 
additional application fee, will aggregate $3 per thousand dollars of 
the amount of the increase granted. If an inspection fee was required in 
the original commitment, an additional inspection fee shall be paid in 
an amount not to exceed $5 per thousand dollars of the amount of the 
increase granted. The additional commitment and inspection fees shall be 
paid within 30 days after the date that the increase is granted.



Sec.  242.20  Reopening of expired commitments.

    An expired commitment may be reopened if a request for reopening is 
received by HUD no later than 90 days after the date of expiration of 
the commitment. The reopening request shall be accompanied by a fee of 
50 cents per thousand dollars of the amount of the expired commitment. A 
commitment that has expired because of failure to pay the commitment fee 
may be reopened only upon payment of the commitment fee and the 
reopening fee. If the reopening request is not received by HUD within 
the required 90-day period, a new application accompanied by an 
application fee must be submitted. If a commitment for an increased 
amount has expired because of failure to pay an additional commitment 
fee based on the amount of the increase, the reopening fee shall be 
computed on the basis of the amount of the commitment increase rather 
than on the amount of the original commitment.



Sec.  242.21  Refund of fees.

    Commitment, inspection, and reopening fees (but not application 
fees) may be refunded, in whole or in part, if HUD determines that the 
construction or financing of the project has been prevented because of 
condemnation proceedings or other legal action taken by a government 
body or public agency, or in such other instances as HUD may determine 
as being beyond the control of the applicant and resulting from no fault 
of the applicant. A transfer fee may be refunded only in such instances 
as HUD may determine. However, the portion of the inspection fee paid in 
connection with early commencement of work is not refundable.



Sec.  242.22  Maximum fees and charges by mortgagee.

    The mortgagee may collect from the mortgagor the amount of the fees 
provided for in this subpart. The mortgagee may also collect from the 
mortgagor an initial service charge not to exceed 2 percent of the 
original principal amount of the mortgage to reimburse the mortgagee for 
the cost of closing the transaction. A permanent financing fee not to 
exceed 3.5 percent may be collected from the mortgagor;

[[Page 437]]

however, the combined initial service charge and permanent financing fee 
may not exceed 5.5 percent in bond transactions and 3.5 percent in all 
other transactions. Any additional charges or fees collected from the 
mortgagor shall be subject to prior approval of HUD and shall be clearly 
disclosed in the Mortgagee's Certificate.



Sec.  242.23  Maximum mortgage amounts and cash equity requirements.

    (a) Adjusted mortgage amount-rehabilitation projects. A mortgage 
financing the substantial rehabilitation of an existing hospital shall 
be subject to the following limitations, in addition to those set forth 
in Sec.  242.7:
    (1) Property held unencumbered. If the mortgagor is the fee simple 
owner of the property and the property is not encumbered by an 
outstanding indebtedness, the mortgage shall not exceed 100 percent of 
HUD's estimate of the cost of the proposed substantial rehabilitation.
    (2) Property subject to existing mortgage. If the mortgagor owns the 
property subject to an outstanding indebtedness, which is to be 
refinanced with part of the insured mortgage, the mortgage shall not 
exceed the total of the following:
    (i) The Commissioner's estimate of the cost of substantial 
rehabilitation, plus
    (ii) Such portion of the capital debt as does not exceed 90 percent 
of HUD's estimate of the fair market value of such land and improvements 
prior to substantial rehabilitation.
    (3) Property to be acquired. If the property is to be acquired by 
the mortgagor and the purchase price is to be financed with a part of 
the insured mortgage, the mortgage shall not exceed 90 percent of the 
total of the following:
    (i) The Commissioner's estimate of the cost of substantial 
rehabilitation, plus
    (ii) The actual purchase price of the land and improvements or HUD's 
estimate (prior to substantial rehabilitation) of the fair market value 
of such land and improvements, whichever is the lesser.
    (b) Section 242/223(f) refinancing and acquisition--additional 
limits. (1) In addition to meeting the requirements of Sec.  242.7, if 
the hospital's existing capital debt is to be refinanced by the insured 
mortgage (i.e., without a change in ownership or with the hospital sold 
to a purchaser who has an identity of interest as defined by the 
Commissioner with the seller), the maximum mortgage amount must not 
exceed the cost to refinance the existing indebtedness, which will 
consist of the following items, the eligibility and amounts of which 
must be determined by the Commissioner:
    (i) The amount required to pay off the existing capital debt;
    (ii) The estimated hard costs, if any, totaling less than 20 percent 
of the mortgage amount; and
    (iii) Soft costs that would normally be allowable in a Section 242 
insured loan.
    (2) In addition to meeting the requirements of Sec.  242.7, if 
mortgage proceeds are to be used for an acquisition, the maximum 
mortgage amount must not exceed the cost to acquire the hospital, which 
will consist of the following items, the eligibility and amounts of 
which must be determined by the Commissioner:
    (i) The actual purchase price of the land and improvements or HUD's 
estimate (prior to repairs, renovation, and/or equipment replacement) of 
the fair market value of such land plus the replacement cost of 
improvements, whichever is the lesser;
    (ii) The estimated hard costs, if any, totaling less than 20 percent 
of the mortgage amount; and
    (iii) Soft costs that would normally be allowable in a Section 242 
insured loan.
    (c) Reduced mortgage amount--leaseholds. In the event the mortgage 
is secured by a leasehold estate rather than a fee simple estate, the 
value or replacement cost of the property described in the mortgage 
shall be the value or replacement cost of the leasehold estate (as 
determined by HUD), which shall in all cases be less than the value or 
replacement cost of the property in fee simple.
    (d) Cash equity. Depending on the financial circumstances of each 
hospital facility, HUD shall have the discretion to evaluate, on a case-
by-case basis, the amount of equity that a mortgagor

[[Page 438]]

must supply in addition to the value of plant, property, and equipment 
and other values recognized as loan security in the commitment process. 
Exercise of this discretion shall never cause a loan to exceed 90 
percent of estimated replacement cost, although it may cause it to be 
less than 90 percent. The equity contribution may not be made from 
borrowed funds. A private nonprofit or public mortgagor, but not a 
proprietary mortgagor, at the mortgagee's option and subject to 24 CFR 
242.49, may provide any such required equity in the form of a letter of 
credit.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35922, June 25, 2008; 
78 FR 8343, Feb. 5, 2013]



Sec.  242.24  Initial operating costs.

    In the case of a new hospital or a hospital expansion, HUD shall 
establish, on a case-by-case basis, the amount of initial operating 
capital, if any, that must be deposited in cash or a letter of credit 
(or combination) to be available to the new hospital upon commencement 
of operations. Generally, the initial operating capital other than AMPO 
shall not be borrowed funds unless HUD determines that there are 
offsetting financial strengths to compensate for the risk associated 
with borrowing.



                     Subpart C_Mortgage Requirements



Sec.  242.25  Mortgage form and disbursement of mortgage proceeds.

    (a) Mortgage form. The mortgage shall be:
    (1) Executed on a form approved by HUD for use in the jurisdiction 
in which the property covered by the mortgage is situated; the form 
shall not be changed without the prior written approval of HUD.
    (2) Executed by an eligible mortgagor.
    (b) Disbursement of mortgage proceeds. The mortgagee shall be 
obligated, as a part of the mortgage transaction, to disburse the 
principal amount of the mortgage to (or for the account of) the 
mortgagor or to his or her creditors for his or her account and with his 
or her consent.



Sec.  242.26  Agreed interest rate.

    (a) The mortgage shall bear interest at the rate or rates agreed 
upon by the mortgagee and the mortgagor.
    (b) The amount of any increase approved by HUD in the mortgage 
amount between initial and final endorsement in excess of the amount 
that HUD had committed to insure at initial endorsement shall bear 
interest at the rate agreed upon by the mortgagee and the mortgagor.



Sec.  242.27  Maturity.

    The mortgage shall have a maturity not to exceed 25 years from the 
date amortization begins.



Sec.  242.28  Allowable costs for consultants.

    Consulting fees for work essential to the development of the project 
may be included in the insured mortgage. Allowable consulting fees 
include those for analysis of market demand, expected revenues, and 
costs; site analysis; architectural and engineering design; and such 
other fees as HUD may determine to be essential to project development. 
Fees for work performed more than 2 years prior to application are not 
allowable. Fees for work performed by any party with an identity of 
interest with the proposed mortgagor or mortgagee are not allowable.



Sec.  242.29  Payment requirements.

    The mortgage shall provide for payments on the first day of each 
month in accordance with an amortization plan agreed upon by the 
mortgagor, the mortgagee, and HUD.



Sec.  242.30  Application of payments.

    All payments to be made by the mortgagor to the mortgagee shall be 
added together and the aggregate amount thereof shall be paid by the 
mortgagor each month in a single payment. The mortgagee shall apply each 
payment received to the following items in the following order:
    (a) Premium charges under the contract of mortgage insurance;
    (b) Ground rents, taxes, special assessments, and fire and other 
hazard insurance premiums;
    (c) Interest on the mortgage; and

[[Page 439]]

    (d) Amortization of the principal of the mortgage.



Sec.  242.31  Accumulation of accruals.

    (a) The mortgage shall provide for payments by the mortgagor to the 
mortgagee on each interest payment date of an amount sufficient to 
accumulate, in the hands of the mortgagee one payment period prior to 
its due date, the next annual MIP payable by the mortgagee to HUD. Such 
payments shall continue only so long as the contract of insurance shall 
remain in effect.
    (b) The mortgage shall provide for such equal monthly payments by 
the mortgagor to the mortgagee as will amortize the ground rents, if 
any, and the estimated amount of all taxes, water charges, special 
assessments, and fire and other hazard insurance premiums, within a 
period ending one month prior to the dates on which the same become 
delinquent. The mortgage shall further provide that such payments shall 
be held by the mortgagee, for the purpose of paying such items before 
they become delinquent. The mortgage shall also make provision for 
adjustments in case such estimated amounts shall prove to be more, or 
less, than the actual amounts so paid therefore by the mortgagor. 
Notwithstanding the foregoing, in particular circumstances, a mortgagor 
may purchase required fire and hazard insurance through a consortium of 
affiliated institutions or related organizations or, in the case of 
public institutions, through required state purchasing arrangements. In 
such circumstances, the mortgage accrual requirement may be modified to 
reflect circumstances in which it is inappropriate for the mortgagee to 
collect monthly payments and to make payments on behalf of the 
mortgagor.



Sec.  242.32  Covenant against liens.

    The mortgage shall contain a covenant against the creation by the 
mortgagor of any liens against the property, except for such liens as 
may be approved by HUD.



Sec.  242.33  Covenant for malpractice, fire, and other hazard insurance.

    The mortgage shall contain a covenant binding the mortgagor to 
maintain adequate liability, fire, and extended coverage insurance on 
the property. The mortgage shall also contain a covenant binding the 
mortgagor to maintain adequate malpractice coverage. All coverage shall 
be acceptable to the mortgagee or HUD.

[73 FR 35923, June 25, 2008]



Sec.  242.35  Mortgage lien certifications.

    At initial and/or final endorsement of the mortgage note, each of 
the following requirements must be met:
    (a) The mortgage is the first lien upon and covers all of the 
property used in the operation of the entire hospital;
    (b) The property upon which the improvements have been made or 
constructed and the equipment financed with mortgage proceeds are free 
and clear of all liens other than the insured mortgage and such other 
secondary liens as may be approved by HUD;
    (c) The Security Agreement and Uniform Commercial Code filings 
establish a first lien on the personalty of the mortgagor, including but 
not limited to equipment acquired with mortgage proceeds or otherwise 
not subject to a prior lien;
    (d) The mortgagor has notified HUD in writing of all unpaid 
obligations in connection with the mortgage transaction, the purchase of 
the mortgaged property, the construction, limited rehabilitation, or 
substantial rehabilitation of the project, or the purchase of the 
equipment financed with mortgage proceeds.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008; 
78 FR 8343, Feb. 5, 2013]



Sec.  242.37  Mortgage prepayment.

    (a) Prepayment privilege. Except as provided in paragraph (c) of 
this section or otherwise established by HUD, the mortgage shall contain 
a provision permitting the mortgagor to prepay the mortgage in whole or 
in part upon any interest payment date, after giving the mortgagee a 30-
day notice in writing in advance of its intention to so

[[Page 440]]

prepay. The 30-day notice may be extended with the prior written 
approval of HUD.
    (b) Prepayment charge. The mortgage may contain a provision for such 
charge, in the event of prepayment of principal, as may be agreed upon 
between the mortgagor and the mortgagee, subject to the following:
    (1) The mortgagor shall be permitted to prepay up to 15 percent of 
the original principal amount of the mortgage in any one calendar year 
without any such charge.
    (2) Any reduction in the original principal amount of the mortgage 
resulting from the certification of cost, which HUD may require, shall 
not be construed as a prepayment of the mortgage.
    (c) Prepayment of bond-financed or GNMA-securitized mortgages. Where 
the mortgage is given to secure GNMA mortgage-backed securities or a 
loan made by a lender that has obtained the funds for the loan by the 
issuance and sale of bonds or bond anticipation notes, or both, the 
mortgage may contain a prepayment restriction and prepayment penalty 
charge acceptable to HUD as to term, amount, and conditions.
    (d) HUD override of prepayment restrictions. In the event of a 
default, HUD may override any lockout, prepayment penalty, or 
combination of penalties in order to facilitate a partial or full 
refinancing of the mortgaged property and avoid a claim.



Sec.  242.38  Late charge.

    The mortgage may provide for the collection by the mortgagee of a 
late charge in accordance with terms, conditions, and standards of HUD 
for each dollar of each payment to interest or principal more than 15 
days in arrears, to cover the expense involved in handling delinquent 
payments. Late charges shall be separately charged to and collected from 
the mortgagor and shall not be deducted from any aggregate monthly 
payment.



                   Subpart D_Endorsement for Insurance



Sec.  242.39  Insurance endorsement.

    (a) New construction/substantial rehabilitation. Initial endorsement 
of the mortgage note shall occur before any mortgage proceeds are 
insured, and the time of final endorsement shall be as set forth in 
paragraph (a)(2) of this section.
    (1) Initial endorsement. The Commissioner shall indicate the 
insurance of the mortgage by endorsing the original mortgage note and 
identifying the section of the Act and the regulations under which the 
mortgage is insured and the date of insurance.
    (2) Final endorsement. When all advances of mortgage proceeds have 
been made and all the terms and conditions of the commitment have been 
met to HUD's satisfaction, HUD shall indicate on the original mortgage 
note the total of all advances approved for insurance and again endorse 
such instrument.
    (b) Section 242/223(f) refinancing/acquisition. (1) In cases that do 
not involve advances of mortgage proceeds, endorsement shall occur after 
all relevant terms and conditions have been satisfied, including, if 
applicable, completion of any limited rehabilitation, or upon assurance 
acceptable to the Commissioner that all limited rehabilitation will be 
completed by a date certain following endorsement.
    (2) In cases where advances of mortgage proceeds are used to fund 
limited rehabilitation, endorsement shall occur as described in 
paragraph (a) of this section immediately above, for new construction/
substantial rehabilitation.
    (c) Contract rights and obligations. The Commissioner and the 
mortgagee or lender shall be bound from the date of initial endorsement 
by the provisions of the Contract of Mortgage Insurance stated in 
subpart B of part 207, which is hereby incorporated by reference into 
this part.

[78 FR 8343, Feb. 5, 2013]



Sec.  242.40  Mortgagee certificate.

    At initial endorsement, the mortgagee shall execute a Mortgagee 
Certificate in a form prescribed by HUD.

[[Page 441]]



Sec.  242.41  Certification of cost requirements.

    Before initial endorsement of the mortgage for insurance, the 
mortgagor, the mortgagee, and HUD shall enter into an agreement in form 
and content satisfactory to HUD for the purpose of precluding any excess 
of mortgage proceeds over statutory limitations. Under this agreement, 
the mortgagor shall disclose its relationship with the builder, 
including any collateral agreement, and shall agree:
    (a) To execute a Certificate of Actual Costs, upon completion of all 
physical improvements on the mortgaged property.
    (b) To apply any cost savings in accordance with the provisions 
below.



Sec.  242.42  Certificates of actual cost.

    (a) The mortgagor's certificate of actual cost, in a form prescribed 
by HUD, shall be submitted upon completion of the physical improvements 
to the satisfaction of HUD and before final endorsement, except that in 
the case of an existing hospital that does not require substantial 
rehabilitation and where the commitment provides for completion of 
specified repairs after endorsement, a supplemental certificate of 
actual cost will be submitted covering the completed costs of any such 
repairs. The certificate shall show the actual cost to the mortgagor, 
after deduction of any kickbacks, rebates, trade discounts, or other 
similar payments to the mortgagor, any of its officers, directors, 
stockholders, partners, or other entity member ownership, of 
construction and other costs, as prescribed by HUD.
    (b) The Certificate of Actual Cost shall be verified by an 
independent certified public accountant or independent public accountant 
in a manner acceptable to HUD.
    (c) Upon HUD's approval of the mortgagor's certification of actual 
cost, such certification shall be final and incontestable except for 
fraud or material misrepresentation on the part of the mortgagor.



Sec.  242.43  Application of cost savings.

    At the sole discretion of HUD, any cost savings shall be used to:
    (a) Reduce the principal amount of the mortgage and the mortgagor's 
cash equity contribution proportionally, unless the mortgagor elects to 
have a greater portion of the savings used to reduce the mortgage; and/
or
    (b) Fund any additional construction or substantial rehabilitation 
approved by HUD.



                         Subpart E_Construction



Sec.  242.44  Construction standards.

    Work designed and performed under this section shall conform to the 
standards adopted by HUD, which, at a minimum, shall include the 
``Guidelines for Construction and Equipment of Hospital and Medical 
Facilities,'' which is regularly updated and published by the American 
Institute of Architects.



Sec.  242.45  Early commencement of work.

    (a) Site preparation. Prior to or following the submission of an 
application, the mortgagor may request for good cause the commencement 
of certain limited site preparation for the project within legal 
guidelines and state law. Such work can commence only after the review 
of the work and concurrence by HUD, including the environmental review 
under 24 CFR 242.79, previous participation review, and the agreement to 
certain conditions by the applicant. HUD will not approve such request 
until it has completed the environmental review under 24 CFR 242.79. The 
work must meet all requirements and guidelines as if it were approved 
for mortgage insurance and is to be accomplished at the sole risk of the 
mortgagor.
    (b) Construction completed prior to application. Structures 
completed more than 2 years prior to application are eligible to be 
refinanced with insured mortgage proceeds.
    (c) Pre-commitment work. Subsequent to submission of an application 
but prior to the issuance of a commitment or denial by HUD, the hospital 
and lender may request for good cause the commencement of certain 
necessary early site work and limited construction activity in 
connection with the improvements, within legal guidelines

[[Page 442]]

and state law. This work must be requested by both the hospital and the 
lender to be approved. Such work may be eligible to be financed with 
insured mortgage proceeds if the application is approved and the work 
complies with all specified conditions of HUD as set forth in a written 
agreement between the hospital and HUD. It is understood that in some 
cases the application submitted in order for pre-commitment work to 
begin may not be complete in all respects. However, at a minimum, the 
application shall include the approved FHA application form, the 
application fee (based on the amount of the total proposed insured 
loan), the inspection fee (based on the cost of the pre-commitment 
work), a project description of the pre-commitment work and its relation 
to the total project, and plans and specifications for the proposed pre-
commitment work in sufficient detail to allow HUD to conduct its 
architectural and engineering review and obtain the necessary previous 
participation information and evidence of compliance with federal and 
state environmental regulations. Such work can commence only after the 
review of the work and concurrence by the lender and HUD, including 
previous participation review. HUD will not approve such request until 
it has completed the environmental review under 24 CFR 242.79. The work 
must meet all requirements and guidelines as if it were approved for 
mortgage insurance and is to be accomplished at the sole risk of the 
hospital. A request shall be accompanied by documentation required by 
HUD. That documentation shall include:
    (1) A justification explaining the urgent and compelling 
circumstances that make it necessary to begin construction without 
waiting for the application process to run its course. The justification 
must specify the harm the hospital would suffer from waiting.
    (2) A plan detailing how the hospital will finance the limited 
construction if the application for mortgage insurance is denied.
    (3) A statement that financing the limited construction by means 
other than a HUD-insured mortgage in the event the application is denied 
will impose no significant financial hardship on the hospital. The 
statement shall be accompanied by supporting historical and projected 
financial data.
    (4) A statement that the hospital recognizes that HUD's agreement to 
include the cost of the limited construction in a subsequently approved 
application does not in any way indicate that the application will be 
approved.
    (5) A resolution of the governing body (or, at HUD's discretion, the 
executive committee of the governing body) of the mortgagor attesting to 
paragraphs (c)(1) through (4).
    (d) Early Start. Subsequent to the issuance of a commitment, if the 
hospital and lender request the commencement of the project, the work 
may commence after the review and approval of the request by HUD, 
including the agreement by the hospital and the lender to any conditions 
that HUD may require. Any work undertaken prior to the initial 
endorsement shall be at the sole risk of the hospital.
    (e) Prepayment of inspection fee. The hospital shall pay a non-
refundable inspection fee to HUD before the work described in paragraph 
(c) or (d) of this section commences. The fee shall be based on the 
amount of the pre-commitment and/or early start work requested to be 
included in the insured mortgage loan.
    (f) No expressed or implied intent. Approval to proceed under 
paragraphs (c) or (d) of this section shall in no way be construed as 
indicating any intent, expressed or implied, on the part of HUD to 
approve, disapprove, or make any undertaking or promise whatsoever with 
respect to the application or with respect to any commitment for 
mortgage insurance. Any work under paragraphs (c) or (d) of this section 
shall be undertaken at the sole risk and responsibility of the hospital.



Sec.  242.46  Insured advances--building loan agreement.

    Prior to the initial endorsement of the mortgage for insurance, the 
mortgagor and mortgagee shall execute a building loan agreement, 
approved by HUD, setting forth the terms and conditions under which 
progress payments may be advanced during construction. To be covered by 
mortgage insurance, or to be included as an eligible cost,

[[Page 443]]

each progress payment involving mortgage proceeds and the owner's equity 
requirement shall be approved by HUD.



Sec.  242.47  Insured advances for building components stored off-site.

    (a) Building components. In insured advances for building components 
stored off-site, the term building component shall mean any manufactured 
or pre-assembled part of a structure that HUD has specifically 
identified for incorporation into the property and has designated for 
off-site storage because it is of such size or weight that:
    (1) Storage of the number of components required for timely 
construction progress at the construction site is impractical, or
    (2) Weather damage or other adverse conditions prevailing at the 
construction site would make storage at the site impractical or unduly 
costly.
    (b) Storage. (1) An insured advance may be made for up to 90 percent 
of the invoice value (to exclude costs of transportation and storage) of 
the building components stored off-site, if the components are stored at 
a location approved by the mortgagee and HUD.
    (2) Each building component shall be adequately marked so as to be 
readily identifiable in the inventory of the off-site location. Each 
component shall be kept together with all other building components of 
the same manufacturer intended for use in the same project for which 
insured advances have been made and separate and apart from similar 
units not for use in the project.
    (3) Storage costs, if any, shall be borne by the contractor.
    (c) Responsibility for transportation, storage, and insurance of 
off-site building components. The general contractor of the insured 
mortgaged property shall have the responsibility for:
    (1) Insuring the components in the name of the mortgagor while in 
transit and storage; and
    (2) Delivering or contracting for the delivery of the components to 
the storage area and to the construction site, including payment of 
freight.
    (d) Advances. (1) Before an advance for a building component stored 
off-site is insured:
    (i) The mortgagor shall:
    (A) Obtain a bill of sale for the component;
    (B) Give the mortgagee a security agreement; and
    (C) File a financing statement in accordance with the Uniform 
Commercial Code; and
    (ii) The mortgagee shall warrant to HUD that the security 
instruments are a first lien on the building components covered by the 
instruments except for such other liens or encumbrances as may be 
approved by HUD.
    (2) Before each advance for building components stored off-site is 
insured, the mortgagor's architect shall certify to HUD that the 
components, in their intended use, comply with HUD-approved contract 
plans and specifications. Under those circumstances permitted by HUD in 
which there is no architect, compliance with the HUD-approved contract 
plans and specifications shall be determined by HUD.
    (3) Advances may be made only for components stored off-site in a 
quantity required to permit uninterrupted installation at the site.
    (4) At no time shall the invoice value of building components being 
stored off-site, for which advances have been HUD insured, represent 
more than 50 percent of the total estimated construction costs for the 
insured mortgaged project as specified in the construction contract. 
Notwithstanding the preceding sentence and other regulatory requirements 
that set bonding requirements, the percentage of total estimated 
construction costs insured by advances under this section may exceed 25 
percent but not 50 percent if the mortgagor furnishes assurance of 
completion in the form of a corporate surety bond for the payment and 
performance each in the amount of 100 percent of the amount of the 
construction contract. In no event will insurance of advances for 
components stored off-site be made in the absence of a payment and a 
performance bond.
    (5) No single advance that is to be insured shall be in an amount 
less than $10,000.



Sec.  242.48  Insured advances for certain equipment and long lead items.

    The Commissioner may allow advances for certain pieces of equipment

[[Page 444]]

or other construction materials for which a manufacturer, fabricator, or 
other source requires an interim payment(s) in order to assure the 
timely manufacture or fabrication and delivery to the project site. Such 
advances can be made only if a bill of sale or an invoice describes the 
material or equipment and its completion and delivery dates in no 
uncertain terms, and that such displayed timetable is necessary to meet 
the requirements of the overall construction schedule cited in the 
construction contract.



Sec.  242.49  Funds and finances: deposits and letters of credit.

    (a) Deposits. Where HUD requires the mortgagor to make a deposit of 
cash or securities, such deposit shall be with the mortgagee or a 
depository acceptable to the mortgagee and HUD. Any such deposit shall 
be held in a separate account for and on behalf of the mortgagor, and 
shall be the responsibility of that mortgagee or depository.
    (b) Letter of credit. Where the use of a letter of credit is 
acceptable to HUD in lieu of a deposit of cash or securities, the letter 
of credit shall be issued to the mortgagee by a banking institution 
acceptable to the lender. The mortgagee shall be responsible to HUD for 
collection under the letter of credit. In the event a demand for payment 
thereunder is not immediately met, the mortgagee shall forthwith provide 
a cash deposit equivalent to the undrawn balance of the letter of 
credit.
    (c) Mortgagee not issuer. The mortgagee of record may not be the 
issuer of the letter of credit without the prior written consent of HUD.

[72 FR 67546, Nov. 28, 2007, as amended at 78 FR 8343, Feb. 5, 2013]



Sec.  242.50  Funds and finances: off-site utilities and streets.

    The Commissioner shall require assurance of completion of off-site 
public utilities and streets in all cases, except where a municipality 
or other public body has by agreement acceptable to HUD agreed to 
install such utilities and streets without cost to the mortgagor. Where 
such assurance is required, it shall be in the form of a cash escrow 
deposit, a letter of credit, the retention of a specified amount of 
mortgage proceeds by the mortgagee, or a combination thereof. In any 
case, the amount of deposit or retained cash (or both) must be 
sufficient to cover the cost of off-site utilities and streets. If a 
cash escrow is used, it shall be deposited with the mortgagee or with an 
acceptable trustee or escrow agent designated by the mortgagee. If 
mortgage proceeds are used, the mortgagee shall retain under terms 
approved by HUD, rather than disburse at the initial closing of the 
mortgage, a sufficient portion of the mortgage proceeds allocated to 
land in the project analysis. As additional assurance, HUD may also 
require a surety company bond or bonds.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008]



Sec.  242.51  Funds and finances: Insured advances and assurance of
completion.

    (a) Where the estimated cost of construction or substantial 
rehabilitation is more than $500,000, the mortgagor shall furnish 
assurance of completion in the form of corporate surety bonds for 
payment and performance, each in the minimum amount of 100 percent of 
the construction contract (or Guaranteed Maximum Price, in the case of 
construction management) and each satisfactory to HUD.
    (b) All types of assurance of completion shall be on forms approved 
by HUD. All surety companies executing a bond and all parties executing 
a personal indemnity agreement must be satisfactory to HUD.
    (c) A mortgagee may prescribe more stringent requirements for 
assurance of completion than the minimum requirements provided for in 
this section.



Sec.  242.52  Construction contracts.

    (a) Awarding of contract. A contract for the construction or 
substantial rehabilitation of a hospital shall be entered into by a 
mortgagor, with a builder selected by a competitive bidding procedure 
acceptable to HUD.
    (b) Form of contract. The construction contract shall be: A lump sum 
form providing for payment of a specified amount; a construction 
management contract with a guaranteed maximum

[[Page 445]]

price, the final costs of which are subject to a certification 
acceptable to HUD; a design-build contract with terms and certification 
requirements acceptable to HUD; or such other form of contract as may be 
acceptable to HUD.
    (c) Competitive bidding. A competitive bidding procedure acceptable 
to HUD must be used in the selection of bidders to perform work or 
otherwise provide service to the project, the costs of which are 
included in any form of construction contract cited in paragraph (b) of 
this section. Fixed equipment not included in the construction contract, 
and movable equipment, may be purchased by securing quotations or by 
using competitive bidding procedures.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008]



Sec.  242.53  Excluded contractors.

    (a) Contracts relating to the construction of the project shall not 
be made with any person or entity that has been excluded from 
participation in federal programs, including but not limited to: A 
general contractor, a subcontractor, or construction manager (or any 
firm, corporation, partnership, or association in which such contractor, 
subcontractor, or construction manager has a substantial interest). 
Before entering into contracts with any such person or entity, owners 
must consult the government-wide list of excluded parties, and any list 
of excluded parties maintained by HUD.
    (b) Contracts relating to the construction of the project shall not 
be made with a general contractor that has an identity of interest, as 
defined by HUD, with the mortgagor or mortgagee.
    (c) If HUD determines that a contract has been made contrary to the 
requirements of paragraphs (a) or (b) of this section and so notifies 
the mortgagee, HUD will require the contractor or construction manager 
to cost-certify and may require other remedial action in addition to 
taking enforcement action, as HUD deems appropriate.



               Subpart F_Nondiscrimination and Wage Rates



Sec.  242.54  Nondiscrimination.

    Hospital facilities financed with mortgages insured under this part 
must be made available without discrimination as to race, color, 
religion, sex, age, disability, or national origin. Hospitals must be 
operated in compliance with all applicable civil rights laws and 
regulations, including 24 CFR part 200, subpart J (Equal Employment 
Opportunity), and the Americans with Disabilities Act (42 U.S.C. 12101 
et seq.). Racially restrictive covenants are per se illegal and their 
use is prohibited. The aforesaid provisions regarding age and sex 
discrimination do not affect the eligibility of hospitals for women and 
children.



Sec.  242.55  Labor standards.

    (a) Projects financed under this part (except under 24 CFR 242.91) 
must comply with the prevailing wage rates determined under the Davis-
Bacon Act (40 U.S.C. 3141 et seq.), and U.S. Department of Labor 
regulations in 29 CFR parts 1, 3, and 5 for compliance with labor 
standards laws, in accordance with section 212 of the Act, provided that 
supplemental loans under section 241 of the Act made in connection with 
loans insured under this part are subject to labor standards 
requirements in the same manner and to the same extent as mortgages 
insured under section 242 of the National Housing Act.
    (b) The requirements stated in 24 CFR part 70 governing HUD waiver 
of Davis-Bacon prevailing wage rates for volunteers apply to hospitals 
with mortgages insured under this part.
    (c) Each laborer or mechanic employed on any facility covered by a 
mortgage insured under this part (except under 24 CFR 242.91), but 
including a supplemental loan under section 241 of the Act made in 
connection with a loan insured under this part) shall receive 
compensation at a rate not less than one and one-half times the basic 
rate of pay for all hours worked in any workweek in excess of 8 hours in 
any workday or 40 hours in the workweek.
    (d) Project commitments, contracts, and agreements, as determined by 
HUD, and construction contracts and

[[Page 446]]

subcontracts, shall include terms, conditions, and standards for 
compliance with applicable requirements set forth in 29 CFR parts 1, 3, 
and 5 and section 212 of the Act.
    (e) No advance under a loan or mortgage that is subject to the 
requirements of section 212 shall be eligible for insurance unless there 
is filed with the application for the advance a certificate as required 
by HUD certifying that the laborers and mechanics employed in 
construction of the project have been paid not less than the wage rates 
required under section 212.

[72 FR 67546, Nov. 28, 2007, as amended at 78 FR 8344, Feb. 5, 2013]



Subpart G_Regulatory Agreement, Accounting and Reporting, and Financial 
                              Requirements



Sec.  242.56  Form of regulation.

    As long as HUD is the insurer or holder of the mortgage, all 
mortgagors shall be regulated by HUD through the use of a regulatory 
agreement in a published format determined by HUD and such additional 
covenants and restrictions as may be determined necessary by HUD on a 
case-by-case basis. In addition, all mortgagors shall be subject to the 
provisions of 24 CFR part 24 and such other enforcement provisions as 
may be applicable. The mortgagor shall be subject to monitoring by HUD 
and its agents and contractors, on an ongoing basis for the life of the 
insured mortgage to ensure against the risk of default, and the 
mortgagor must make its financial records available to HUD and its 
agents and contractors upon request. In those cases in which the 
hospital facility is leased as permitted by Sec.  242.72, the provisions 
of this section also shall apply to the lessee.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008]



Sec.  242.57  Maintenance of hospital facility.

    The mortgagor shall maintain the hospital's grounds, buildings, and 
the equipment financed with mortgage proceeds in good repair, and shall 
promptly complete such repairs and maintenance as HUD considers 
necessary.



Sec.  242.58  Books, accounts, and financial statements.

    (a) Books and accounts. The mortgagor's books and accounts relating 
to the operation of the physical facilities of the hospital shall be 
established in a manner satisfactory to HUD, and shall be kept in 
accordance with the requirements of HUD as long as the mortgage is 
insured or held by HUD.
    (b) Financial reports. The mortgagor shall file with HUD:
    (i) Annual audited financial statements in accordance with the 
guidance below;
    (ii) Quarterly unaudited financial reports, within 40 days following 
the end of each quarter of the mortgagor's fiscal year;
    (iii) If requested by HUD, monthly financial reports within 40 days 
following the end of each month;
    (iv) Board-certified annual financial results within 120 days 
following the close of the fiscal year (if the annual audited financial 
statement has not yet been filed with HUD) and at such other times as 
HUD may designate on a case-by-case basis; and
    (v) Such other financial and utilization reports as HUD may require.
    (c) Audits. (1) Not-for-profit and state and local governments shall 
conduct audits in accordance with the Consolidated Audit Guide for 
Audits of HUD Programs (Handbook 2000.04) and2 CFR part 200, subpart F.
    (2) For-profit organizations shall conduct audits in accordance with 
the Consolidated Audit Guide for Audits of HUD Programs (Handbook 
2000.04).
    (d) Changes in accounting policies. The annual audited financial 
statements shall identify any changes in accounting policies and their 
financial effect on the balance sheet and on the income statement.
    (e) Compliance reporting. The mortgagor shall instruct the auditor 
of the annual financial statement to include in its report an evaluation 
of the mortgagor's compliance with the Regulatory Agreement.
    (f) Books of management agents. The books and records of management 
agents, lessees, operators, managers, and affiliates, as they pertain to 
the operations of the hospital, shall be

[[Page 447]]

maintained in accordance with Generally Accepted Accounting Principles 
(GAAP) or Governmental Accounting Standards and shall be open and 
available to inspection by HUD, after reasonable prior notice, during 
normal office hours, at the hospital or other mutually agreeable 
location. Every contract executed on behalf of the hospital with any of 
the aforesaid parties shall include the provision that the books and 
records of such entities shall be properly maintained and open to 
inspection during normal business hours by HUD at the hospital or other 
mutually agreeable location.
    (g) Medicare cost reports. Upon request, the mortgagor shall provide 
to HUD a copy of the Medicare Cost Report most recently submitted to the 
Centers for Medicare and Medicaid Services (an agency of the Department 
of Health and Human Services), along with related financial documents.
    (h) In those cases in which the hospital facility is leased as 
permitted by Sec.  242.72, the requirements pertaining to the mortgagor 
in Sec.  242.58 (a) through (g) also shall pertain to the lessee.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008; 
80 FR 75936, Dec. 7, 2015]



Sec.  242.59  Inspection of facilities by Commissioner.

    The mortgaged property (including buildings and equipment) and the 
books, records, and documents relating to the operation of the physical 
facilities of the hospital shall be subject to inspection and 
examination by HUD or its authorized representative at all reasonable 
times.



Sec.  242.61  Management.

    The mortgagor shall provide for management of the hospital in a 
manner satisfactory to HUD.
    (a) Contract Management of Hospital. The mortgagor shall not execute 
a management agreement or any other contract for management of the 
hospital without HUD's prior written approval. (Management of the 
hospital, which requires HUD's prior written approval, refers to 
management of the hospital not management of components within the 
hospital such as the hospital cafeteria or hospital pharmacy.) Any 
management agreement or contract for management of the hospital shall 
contain a provision that it shall be subject to termination without 
penalty and with or without cause, upon written request by HUD addressed 
to the mortgagor and management agent.
    (b) Principals. HUD shall have the authority to require that any 
principals of the mortgagor, including but not limited to board members 
of a corporate entity, be removed, substituted, or terminated for cause 
upon written request by HUD addressed to the mortgagor.
    (c) Employees. HUD shall have the authority to require that any key 
management employees of the mortgagor (as defined and determined solely 
by HUD) be terminated for cause upon written request by HUD addressed to 
the mortgagor.
    (d) Procedures upon receipt of request under paragraphs (a) through 
(c) of this section. Upon receipt of such requests under paragraphs (a) 
through (c) of this section, the mortgagor shall immediately terminate 
said management agreement, principals, or employees within the shortest 
applicable period HUD determines appropriate and shall make arrangements 
satisfactory to HUD for ongoing proper management of the hospital.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008]



Sec.  242.62  Releases of lien.

    The mortgagor shall not sell, dispose of, transfer, or permit to be 
encumbered any security property without the prior approval of the 
lender and Commissioner, subject to thresholds or such other standards 
as HUD may establish for the approval requirement. Where there is a 
partial release of lien, the lender must make a determination, subject 
to prior review and approval by HUD, that the remaining or replacement 
property subject to the first lien provides adequate security for the 
remaining principal indebtedness.



Sec.  242.63  Additional indebtedness and leasing.

    The mortgagor shall not enter into any long-term debt, short-term 
debt (including receivables or line of credit

[[Page 448]]

financing), equipment leases, or derivative-type transactions, except in 
conformance with policies and procedures established by HUD.



Sec.  242.64  Current and future property.

    All current or future property (including personalty) of the 
mortgagor on or off mortgaged real estate (except that specifically 
restricted by donors or specifically excluded by HUD) will be considered 
as part of the HUD-insured hospital and subject to all provisions of the 
HUD regulatory agreement. All equipment acquired by the hospital 
following initial endorsement and at any time during the term of the 
loan shall become subject to the lien of the security agreement and any 
Uniform Commercial Code Financing Statements filed pursuant to the 
security agreement, unless the mortgagor specifically requests and HUD, 
for good cause, approves subordination of the lien of the insured 
mortgagee on specific personalty for specific periods of time. The first 
lien on the realty (as defined in the regulatory agreement and as 
identified in the security instrument) cannot be subordinated in whole 
or in part.



Sec.  242.65  Distribution of assets.

    The Commissioner shall establish financial thresholds and procedures 
for the distribution of surplus cash and other assets. Surplus cash that 
meets the definition in 24 CFR 242.1, or cash that has been expressly 
approved for distribution by HUD, may be distributed to other 
organizations formally affiliated with the mortgagor, a parent 
organization with which the mortgagor is also affiliated, partners, or 
stockholders, in accordance with those financial thresholds and 
procedures set forth in the regulatory agreement. Other assets may be 
distributed to other organizations formally affiliated with the 
mortgagor, a parent organization with which the mortgagor is also 
affiliated, partners, or stockholders, in accordance with those 
financial thresholds and procedures set forth in the regulatory 
agreement, and in accordance with the release of lien conditions in 24 
CFR 242.62, if applicable.



Sec.  242.66  Affiliate transactions.

    Transactions with affiliates that are arms-length are permitted as 
specified in the Regulatory Agreement. Transactions with affiliates that 
are not arms-length are not permitted except with the prior written 
approval of HUD.



Sec.  242.67  New corporations, subsidiaries, affiliations, and mergers.

    The mortgagor shall not establish, develop, organize, acquire, 
become the sole member of, or acquire an interest sufficient to require 
disclosure on the audited financial statements of the mortgagor, in any 
corporation, subsidiary, or affiliate organization other than those with 
which the mortgagor was affiliated as of date of application, without 
the prior approval of HUD. The mortgagor shall obtain HUD's written 
approval for all future mergers.



                  Subpart H_Miscellaneous Requirements



Sec.  242.68  Disclosure and verification of Social Security and 
Employer Identification Numbers.

    The requirements set forth in 24 CFR part 5, regarding the 
disclosure and verification of Social Security Numbers and Employer 
Identification Numbers, and Employer Identification Numbers by 
``applicants for and participants in'' assisted mortgage and loan 
insurance and related programs, apply to this program.



Sec.  242.69  Transfer fee.

    Upon application for review of a transfer of physical assets or the 
substitution of mortgagors, a transfer fee of 50 cents per thousand 
dollars of the outstanding principal balance of the mortgage shall be 
paid to HUD. A transfer fee is not required if both parties to the 
transfer transaction are not-for-profit or public organizations.



Sec.  242.70  Fees not required.

    The payment of an application, commitment, inspection, or reopening 
fee shall not be required in connection with the insurance of a mortgage 
involving the sale by the Secretary of

[[Page 449]]

any property acquired under any section or title of the Act.



Sec.  242.72  Leasing of hospital.

    Leasing of a hospital in its entirety is prohibited. Notwithstanding 
this prohibition, any proposal in which leasing of the entire facility 
is a factor due to state law prohibitions against the mortgaging of 
health care facilities by state entities shall be considered on a case-
by-case basis. Also, leasing of a hospital that has an existing Section 
242-insured loan is permitted if HUD determines that leasing is 
necessary to reduce the risk of default by a financially troubled 
hospital.



Sec.  242.73  Waiver of eligibility requirements for mortgage insurance.

    The Secretary may insure under this part, without regard to any 
limitation upon eligibility contained in this subpart, any mortgage 
assigned to him or her in connection with payment under a contract of 
mortgage insurance, or executed in connection with a sale by him or her 
of any property previously insured under this part and acquired 
subsequent to a claim.



Sec.  242.74  Smoke detectors.

    Each occupied room must include such smoke detectors as are required 
by law.



Sec.  242.75  Title requirements.

    In order for the mortgaged property to be eligible for insurance, 
HUD shall determine that marketable title thereto is vested in the 
mortgagor as of the date the mortgage is filed for record. The title 
evidence shall be examined by HUD and the endorsement of the mortgage 
note for insurance shall be evidence of its acceptability.



Sec.  242.76  Title evidence.

    Upon insurance of the mortgage, the mortgagee shall furnish to HUD a 
survey of the mortgage property, satisfactory to HUD, and a policy of 
title insurance covering the property, as provided in paragraph (a) of 
this section. If, for reasons HUD considers to be satisfactory, title 
insurance cannot be furnished, the mortgagee shall furnish such evidence 
of title in accordance with paragraph (b) or (c) of this section as HUD 
may require. Any survey, policy of title insurance, or evidence of title 
required under this section shall be furnished without expense to HUD. 
The types of title evidence are:
    (a) A policy of title insurance issued by a company and in a form 
satisfactory to HUD. The policy shall name as the insureds the mortgagee 
and the Secretary of Housing and Urban Development, and their successors 
and assigns, as their respective interests may appear. The policy shall 
provide that upon acquisition of title by the mortgagee or the 
Secretary, it will continue to provide the same coverage as the original 
policy, and will run to the mortgagee or the Secretary, as the case may 
be.
    (b) An abstract of title satisfactory to HUD, prepared by an 
abstract company or individual engaged in the business of preparing 
abstracts of title, accompanied by a legal opinion satisfactory to HUD 
as to the quality of such title, signed by an attorney-at-law 
experienced in the examination of titles.
    (c) A Torrens or similar title certificate.



Sec.  242.77  Liens.

    The hospital must be free and clear of all liens other than the 
insured mortgage, except that the property may be subject to a lien as 
provided by terms and conditions established by HUD, as follows:
    (a) An inferior lien made or held by a federal, state, or local 
government instrumentality;
    (b) An inferior lien required in connection with a supplemental loan 
insured pursuant to section 241 of the Act;
    (c) An inferior or superior lien on equipment as may be approved in 
connection with an equipment leasing program approved by HUD;
    (d) An inferior or superior lien on accounts receivable as approved 
by HUD as collateral for a line of credit or other borrowing by a 
hospital insured under this part that has extraordinary needs such as 
cash flow difficulties; or
    (e) Similar liens otherwise approved by HUD.

[[Page 450]]



Sec.  242.78  Zoning, deed, and building restrictions.

    The project when completed shall not violate any material zoning or 
deed restrictions applicable to the project site, and shall comply with 
all applicable building and other governmental codes, ordinances, 
regulations, and requirements.



Sec.  242.79  Environmental quality determinations and standards.

    Requirements set forth in 24 CFR part 50, ``Protection and 
Enhancement of Environmental Quality,'' 24 CFR part 51, ``Environmental 
Criteria and Standards,'' and 24 CFR part 55, ``Floodplain Management,'' 
governing environmental review responsibilities (as applicable) and any 
additional environmental standards, reviews, or determinations required 
by HUD apply to this program.



Sec.  242.81  Lead-based paint poisoning prevention.

    Requirements set forth in 24 CFR part 35 apply to this program.



Sec.  242.82  Energy conservation.

    Construction, mechanical equipment, and energy and metering 
selections shall provide cost-effective energy conservation in 
accordance with standards established by HUD.



Sec.  242.83  Debarment and suspension.

    The requirements set forth in 24 CFR part 24 apply to this program.



Sec.  242.84  Previous participation and compliance requirements.

    The requirements set forth in 24 CFR part 200, subpart H, apply to 
this program.



Sec.  242.86  Property and mortgage assessment.

    The requirements set forth in 24 CFR part 200, subpart E, regarding 
the mortgagor's responsibility for making those investigations, 
analysis, and inspections it deems necessary for protecting its 
interests in the property apply to these programs.



Sec.  242.87  Certifications.

    Any agreement, undertaking, statement, or certification required by 
HUD shall specifically state that it has been made, presented, and 
delivered for the purpose of influencing an official action of the FHA, 
and of HUD, and may be relied upon by HUD as a true statement of the 
facts contained therein.



Sec.  242.89  Supplemental loans.

    A loan, advance of credit, or purchase of an obligation representing 
a loan or advance of credit made for the purpose of financing 
improvements or additions (including the refinancing of any indebtedness 
incurred in connection with the early commencement of work on such 
improvements or additions, subject to the requirements of Sec. Sec.  
242.15 and 242.45) to a hospital covered by a mortgage insured under 
this section of the Act or for a Commissioner-held mortgage, or 
equipment for a hospital, may be insured pursuant to the provisions of 
section 241 of the Act and under the provisions of this part as 
applicable and such additional terms and conditions as established by 
HUD. See subpart B of 24 CFR part 241 with respect to the contract of 
mortgage insurance for all loans insured under section 241 of the Act. 
See 24 CFR part 241, subpart C, for energy improvements.



Sec.  242.90  Eligibility of mortgages covering hospitals in certain
neighborhoods.

    (a) A mortgage financing the repair, substantial rehabilitation, or 
construction of a hospital located in an older declining urban area 
shall be eligible for insurance under this subpart, subject to 
compliance with the additional requirements of this section.
    (b) The mortgage shall meet all of the requirements of this subpart, 
except such requirements (other than those relating to labor standards 
and prevailing wages or environmental review) as are judged to be not 
applicable on the basis of the following determinations to be made by 
HUD.
    (1) That the conditions of the area in which the property is located 
prevent the application of certain eligibility requirements of this 
subpart.
    (2) That the area is reasonably viable, and there is a need in the 
area for an adequate hospital to serve low and moderate income families.

[[Page 451]]

    (3) That the mortgage to be insured is an acceptable risk.
    (c) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 223(e) of the National 
Housing Act. Such mortgages shall be insured under and be the obligation 
of the Special Risk Insurance Fund.

[72 FR 67546, Nov. 28, 2007, as amended at 73 FR 35923, June 25, 2008]



Sec.  242.91  Eligibility of refinancing transactions.

    (a) Refinancing an FHA-insured mortgage. A mortgage given to 
refinance an existing insured mortgage under Section 241 or Section 242 
of the Act covering a hospital may be insured under this subpart 
pursuant to Section 223(a)(7) of the Act. Insurance of the new, 
refinancing mortgage shall be subject to the following limitations:
    (1) Principal amount. The principal amount of the refinancing 
mortgage shall not exceed the lesser of:
    (i) The original principal amount of the existing insured mortgage; 
or
    (ii) The unpaid principal amount of the existing insured mortgage, 
to which may be added loan closing charges associated with the 
refinancing mortgage, and costs, as determined by HUD, of improvements, 
upgrading, or additions required to be made to the property.
    (2) Debt service rate. The monthly debt service payment for the 
refinancing mortgage may not exceed the debt service payment charged for 
the existing mortgage.
    (3) Mortgage term. The term of the new mortgage shall not exceed the 
unexpired term of the existing mortgage, except that the new mortgage 
may have a term of not more than 12 years in excess of the unexpired 
term of the existing mortgage in any case in which HUD determines that 
the insurance of the mortgage for an additional term will inure to the 
benefit of the FHA Insurance Fund, taking into consideration the 
outstanding insurance liability under the existing insured mortgage, and 
the remaining economic life of the property.
    (4) Minimum loan amount. The mortgagee may not require a minimum 
principal amount to be outstanding on the loan secured by the existing 
mortgage.
    (b) Refinancing capital debt not insured by FHA. A mortgage given to 
refinance the capital debt of an existing hospital that is not insured 
under section 241 or section 242 of the Act may be insured under this 
subpart pursuant to Section 223(f) of the National Housing Act. The 
mortgage may be executed in connection with the purchase or refinancing 
of an existing hospital without substantial rehabilitation. A mortgage 
insured pursuant to this subpart shall meet all other requirements of 
this part. The FHA Commissioner shall prescribe such terms and 
conditions as the FHA Commissioner deems necessary to assure that:
    (1) The refinancing is employed to lower the monthly debt service 
costs (taking into account any fees or charges connected with such 
refinancing) of such existing hospital;
    (2) The proceeds of any refinancing will be employed only to retire 
the existing capital debt; pay for limited rehabilitation totaling less 
than 20 percent of the mortgage amount; and pay the necessary cost of 
refinancing on such existing hospital;
    (3) Such existing hospital is economically viable; and
    (4) The applicable requirements of Section 242 for certificates, 
studies, and statements have been met.

[78 FR 8344, Feb. 5, 2013]



Sec.  242.92  Minimum principal loan amount.

    A mortgagee may not require, as a condition of providing a loan 
secured by a mortgage insured under this part, that the principal amount 
of the mortgage exceed a minimum amount established by the mortgagee.



Sec.  242.93  Amendment of regulations.

    The regulations in this subpart may be amended by HUD at any time 
and from time to time, in whole or in part, but such amendment shall not 
adversely affect the interests of a mortgagee or lender under the 
insurance on any mortgage or loan already insured, and shall not 
adversely affect the interests of a mortgagee or lender on any mortgage 
or loan to be insured on

[[Page 452]]

which HUD has issued a commitment to insure.



PART 244_MORTGAGE INSURANCE FOR GROUP PRACTICE FACILITIES [TITLE XI]
--Table of Contents



                   Subpart A_Eligibility Requirements

Sec.
244.1 Eligibility requirements.
244.2 License.

                Subpart B_Contract Rights and Obligations

244.251 Cross-reference.

    Authority: 12 U.S.C. 1715b, 1749aaa-5); 42 U.S.C. 3535(d).

    Source: 36 FR 24663, Dec. 22, 1971, unless otherwise noted.



                   Subpart A_Eligibility Requirements

    Source: 61 FR 14407, Apr. 1, 1996, unless otherwise noted.



Sec.  244.1  Eligibility requirements.

    The requirements set forth in 24 CFR part 200, subpart A, apply to 
group practice facilities (title XI) of the National Housing Act (12 
U.S.C. 1749aaa), as amended.



Sec.  244.2  License.

    The Commissioner shall not insure any mortgage under this part 
unless the appropriate licensing agency for the State, municipality or 
other political subdivision in which a project is or is to be located 
provides such assurances as the Commissioner considers necessary that 
the facility will comply with any applicable State or local standards 
and requirements for such facilities.



                Subpart B_Contract Rights and Obligations



Sec.  244.251  Cross-reference.

    (a) All of the provisions, except Sec.  207.258b, of part 207, 
subpart B of this chapter relating to mortgages insured under section 
207 of the National Housing Act apply to a mortgage covering a group 
practice facility insured under title XI of the National Housing Act.
    (b) For the purposes of this subpart all references in part 207 of 
this chapter to section 207 of the Act shall be construed to refer to 
title XI of the Act.
    (c) All of the definitions in Sec.  244.1 shall apply to this 
subpart. In addition as used in this part, the term contract of 
insurance means the agreement evidenced by the Commissioner's insurance 
endorsement and includes the provisions of this subpart and of the Act.

[36 FR 24663, Dec. 22, 1971, as amended at 50 FR 38787, Sept. 25, 1985]



PART 245_TENANT PARTICIPATION IN MULTIFAMILY HOUSING PROJECTS
--Table of Contents



                      Subpart A_General Provisions

Sec.
245.5 Purpose.
245.10 Applicability of part.
245.15 Notice to tenants.

                     Subpart B_Tenant Organizations

245.100 Right of tenants to organize.
245.105 Recognition of tenant organizations.
245.110 Legitimate tenant organizations.
245.115 Protected activities.
245.120 Meeting space.
245.125 Tenant organizers.
245.130 Tenants' rights not to be re-canvassed.
245.135 Enforcement.

                 Subpart C_Efforts To Obtain Assistance

245.205 Efforts to obtain assistance.
245.210 Availability of information.

 Subpart D_Procedures for Requesting Approval of an Increase in Maximum 
                            Permissible Rents

245.305 Applicability of subpart.
245.310 Notice to tenants.
245.315 Materials to be submitted to HUD.
245.320 Request for increase.
245.325 Notification of action on request for increase.
245.330 Non-insured projects.

    Subpart E_Procedures for Requesting Approval of a Covered Action

245.405 Applicability of subpart.
245.410 Notice to tenants.
245.415 Submission of materials to HUD: Timing of submission.
245.416 Initial submission of materials to HUD: Conversion from project-
          paid utilities to tenant-paid utilities or a reduction in 
          tenant utility allowances.

[[Page 453]]

245.417 Initial submission of materials to HUD: Conversion of 
          residential units to a nonresidential use, or to cooperative 
          housing or condominiums.
245.418 Initial submission of materials to HUD: Partial release of 
          mortgage security.
245.419 Initial submission of materials to HUD: Major capital additions.
245.420 Rights of tenants to participate.
245.425 Submission of request for approval to HUD.
245.430 Decision on request for approval.
245.435 Non-insured projects: Conversion from project-paid utilities to 
          tenant-paid utilities or a reduction in tenant utility 
          allowances.

    Authority: 12 U.S.C. 1715z-1b; 42 U.S.C. 3535(d).



                      Subpart A_General Provisions



Sec.  245.5  Purpose.

    The purpose of this part is to recognize the importance and benefits 
of cooperation and participation of tenants in creating a suitable 
living environment in multifamily housing projects and in contributing 
to the successful operation of such projects, including their good 
physical condition, proper maintenance, security, energy efficiency, and 
control of operating costs.

[50 FR 32402, Aug. 12, 1985]



Sec.  245.10  Applicability of part.

    (a) Except as otherwise expressly limited in this section, this part 
applies in its entirety to a mortgagor of any multifamily housing 
project that meets the following--
    (1) Project subject to HUD insured or held mortgage under the 
National Housing Act. The project has a mortgage that--
    (i) Has received final endorsement on behalf of the Secretary and is 
insured or held by the Secretary under the National Housing Act (12 
U.S.C. 1701--1715z-20); and
    (ii) Is assisted under:
    (A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);
    (B) The Section 221(d)(3) BMIR Program;
    (C) The Rent Supplement Program;
    (D) The Section 8 Loan Management Set-Aside Program following 
conversion to such assistance from the Rent Supplement Program 
assistance;
    (2) Formerly HUD-owned project. The project--
    (i) Before being acquired by the Secretary, was assisted under:
    (A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);
    (B) The Section 221(d)(3) BMIR Program;
    (C) The Rent Supplement Program; or
    (D) The Section 8 LMSA Program following conversion to such 
assistance from assistance under the Rent Supplement Program; and
    (ii) Was sold by the Secretary subject to a mortgage insured or held 
by the Secretary and an agreement to maintain the low- and moderate-
income character of the project;
    (3) State or local housing finance agency project. The project 
receives assistance under section 236 of the National Housing Act (12 
U.S.C. 1715z-1) or the Rent Supplement Program (12 U.S.C. 1701s) 
administered through a state or local housing finance agency, but does 
not have a mortgage insured under the National Housing Act or held by 
the Secretary. Subject to the further limitation in paragraph (b) of 
this section, only the provisions of subparts A, B and C of this part, 
and of subpart E of this part for requests for approval of a conversion 
of a project from project-paid utilities to tenant-paid utilities or of 
a reduction in tenant utility allowances, apply to a mortgagor of such a 
project;
    (4) The project receives project-based assistance under section 8 of 
the United States Housing Act of 1937 (this regulation does not cover 
tenant participation in PHAs that administer such project-based 
assistance);
    (5) The project receives enhanced vouchers under the Low-Income 
Housing Preservation and Resident Homeownership Act of 1990, the 
provisions of the Emergency Low Income Housing Preservation Act of 1987, 
or the Multifamily Assisted Housing Reform and Affordability Act of 
1997, as amended;
    (6) The project receives assistance under the Section 202 Direct 
Loan program or the Section 202 Supportive Housing for the Elderly 
program; or

[[Page 454]]

    (7) The project receives assistance under the Section 811 Supportive 
Housing for Persons with Disabilities program.
    (b) Limitation for cooperative mortgagor. Only the provisions of 
subparts A and C of this part apply to a mortgagor of any multifamily 
housing project described in paragraph (a) of this section if the 
mortgagor is a cooperative housing corporation or association.
    (c) Definitions. Rent Supplement Program means the assistance 
program authorized by section 101 of the Housing and Urban Development 
Act of 1965 (12 U.S.C. 1701s).
    Section 8 LMSA Program means the Section 8 Loan Management Set-Aside 
Program implemented under 24 CFR part 886, subpart A.
    Section 221(d)(3) BMIR Program means the below-market interest rate 
mortgage insurance program under section 221(d)(3) and the proviso of 
section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l(d)(3) and 
1715l(d)(5)).

[61 FR 57961, Nov. 8, 1996, as amended at 65 FR 36280, June 7, 2000; 68 
FR 20325, Apr. 24, 2003]



Sec.  245.15  Notice to tenants.

    (a) Whenever a mortgagor is required under subparts D or E of this 
part to serve notice on the tenants of a project, the notice must be 
served by delivery, except, for a high-rise project, the notice may be 
served either by delivery or by posting. If service is made by delivery, 
a copy of the notice must be delivered directly to each unit in the 
project or mailed to each tenant. If service is made by posting, the 
notice must be posted in at least three conspicuous places within each 
building in which the affected dwelling units are located and, during 
any prescribed tenant period, in a conspicuous place at the address 
stated in the notice where the materials in support of the mortgagor's 
proposed action are to be made available for inspection and copying. 
Posted notices must be maintained intact and in legible form during any 
prescribed notice period.
    (b) For purposes of computing time periods following service of 
notice, service is effected, in the case of service by delivery, when 
all notices have been delivered or mailed and, in the case of service by 
posting, when all notices have been initially posted.

[50 FR 32402, Aug. 12, 1985, as amended at 61 FR 57961, Nov. 8, 1996]



                     Subpart B_Tenant Organizations

    Source: 65 FR 36281, June 7, 2000, unless otherwise noted.



Sec.  245.100  Right of tenants to organize.

    The tenants of a multifamily housing project covered under Sec.  
245.10 have the right to establish and operate a tenant organization for 
the purpose of addressing issues related to their living environment, 
which includes the terms and conditions of their tenancy as well as 
activities related to housing and community development.



Sec.  245.105  Recognition of tenant organizations.

    Owners of multifamily housing projects covered under Sec.  245.10, 
and their agents, must:
    (a) Recognize legitimate tenant organizations; and (b) Give 
reasonable consideration to concerns raised by legitimate tenant 
organizations.



Sec.  245.110  Legitimate tenant organizations.

    A tenant organization is legitimate if it has been established by 
the tenants of a multifamily housing project covered under Sec.  245.10 
for the purpose described in Sec.  245.100, and meets regularly, 
operates democratically, is representative of all residents in the 
development, and is completely independent of owners, management, and 
their representatives.



Sec.  245.115  Protected activities.

    (a) Owners of multifamily housing projects covered under Sec.  
245.10, and their agents, must allow tenants and tenant organizers to 
conduct the following activities related to the establishment or 
operation of a tenant organization:
    (1) Distributing leaflets in lobby areas;
    (2) Placing leaflets at or under tenants' doors;

[[Page 455]]

    (3) Distributing leaflets in common areas;
    (4) Initiating contact with tenants;
    (5) Conducting door-to-door surveys of tenants to ascertain interest 
in establishing a tenant organization and to offer information about 
tenant organizations;
    (6) Posting information on bulletin boards;
    (7) Assisting tenants to participate in tenant organization 
activities;
    (8) Convening regularly scheduled tenant organization meetings in a 
space on site and accessible to tenants, in a manner that is fully 
independent of management representatives. In order to preserve the 
independence of tenant organizations, management representatives may not 
attend such meetings unless invited by the tenant organization to 
specific meetings to discuss a specific issue or issues; and
    (9) Formulating responses to owner's requests for:
    (i) Rent increases;
    (ii) Partial payment of claims;
    (iii) The conversion from project-based paid utilities to tenant-
paid utilities;
    (iv) A reduction in tenant utility allowances;
    (v) Converting residential units to non-residential use, cooperative 
housing, or condominiums;
    (vi) Major capital additions; and
    (vii) Prepayment of loans.
    (b) In addition to the activities listed in paragraph (a) of this 
section, owners of multifamily housing projects covered under Sec.  
245.10, and their agents, must allow tenants and tenant organizers to 
conduct other reasonable activities related to the establishment or 
operation of a tenant organization.
    (c) Owners of multifamily housing projects and their agents shall 
not require tenants and tenant organizers to obtain prior permission 
before engaging in the activities permitted under paragraphs (a) and (b) 
of this section.



Sec.  245.120  Meeting space.

    (a) Owners of multifamily housing projects covered under Sec.  
245.10, and their agents, must reasonably make available the use of any 
community room or other available space appropriate for meetings that is 
part of the multifamily housing project when requested by:
    (1) Tenants or a tenant organization and used for activities related 
to the operation of the tenant organization; or
    (2) Tenants seeking to establish a tenant organization or 
collectively address issues related to their living environment.
    (b) Tenant and tenant organization meetings must be accessible to 
persons with disabilities, unless this is impractical for reasons beyond 
the organization's control. If the complex has an accessible common area 
or areas, it will not be impractical to make organizational meetings 
accessible to persons with disabilities.
    (c) Fees. An owner of a multifamily housing project covered under 
Sec.  245.10 may charge a reasonable, customary and usual fee, approved 
by the Secretary as may normally be imposed for the use of such 
facilities in accordance with procedures prescribed by the Secretary, 
for the use of meeting space. An owner may waive this fee.



Sec.  245.125  Tenant organizers.

    (a) A tenant organizer is a tenant or non-tenant who assists tenants 
in establishing and operating a tenant organization, and who is not an 
employee or representative of current or prospective owners, managers, 
or their agents.
    (b) Owners of multifamily housing projects covered under Sec.  
245.10, and their agents, must allow tenant organizers to assist tenants 
in establishing and operating tenant organizations.
    (c) Non-tenant tenant organizers. (1) If a multifamily housing 
project covered under Sec.  245.10 has a consistently enforced, written 
policy against canvassing, then a non-tenant tenant organizer must be 
accompanied by a tenant while on the property of the multifamily housing 
project, except in the case of recipients of HUD Outreach and Assistance 
Training Grants (``OTAG'') or other direct HUD grants designed to enable 
recipients to provide education and outreach to tenants concerning HUD's 
mark-to-market program (see 24 CFR parts 401 and 402), who are 
conducting eligible activities as defined in

[[Page 456]]

the applicable Notice of Funding Availability for the grant or other 
effective grant document.
    (2) If a multifamily housing project covered under Sec.  245.10 has 
a written policy favoring canvassing, any non-tenant tenant organizer 
must be afforded the same privileges and rights of access as other 
uninvited outside parties in the normal course of operations. If the 
project does not have a consistently enforced, written policy against 
canvassing, the project shall be treated as if it has a policy favoring 
canvassing.



Sec.  245.130  Tenants' rights not to be re-canvassed.

    A tenant has the right not to be re-canvassed against his or her 
wishes regarding participation in a tenant organization.



Sec.  245.135  Enforcement.

    (a) Owners of housing identified in Sec.  245.10, and their agents, 
as well as any principals thereof (as defined in 2 CFR part 2424), who 
violate any provision of this subpart so as to interfere with the 
organizational and participatory rights of tenants, may be liable for 
sanctions under 2 CFR part 2424. Such sanctions may include:
    (1) Debarment. A person who is debarred is prohibited from future 
participation in federal programs for a period of time. The specific 
rules and regulations relating to debarment are found at 2 CFR part 
2424.
    (2) Suspension. Suspension is a temporary action with the same 
effect as debarment, to be taken when there is adequate evidence that a 
cause for debarment may exist and immediate action is needed to protect 
the public interest. The specific rules and regulations relating to 
suspension are found at 2 CFR part 2424.
    (3) Limited Denial of Participation. An LDP generally excludes a 
person from future participation in the federal program under which the 
cause arose. The duration of an LDP is generally up to 12 months. The 
specific rules and regulations relating to LDPs are found at 2 CFR part 
2424, subpart J.
    (b) These sanctions may also apply to affiliates (as defined in 2 
CFR part 2424) of these persons or entities.
    (c) The procedures in 2 CFR part 2424 shall apply to actions under 
this subpart.

[72 FR 73495, Dec. 27, 2007]



                 Subpart C_Efforts To Obtain Assistance



Sec.  245.205  Efforts to obtain assistance.

    (a) Mortgagors subject to the requirements of this subpart shall not 
interfere with the efforts of tenants to obtain rent subsidies or other 
public assistance.
    (b) A mortgagor subject to the requirements of this subpart who is a 
party to a rent supplement contract under section 101 of the Housing and 
Urban Development Act of 1965 (12 U.S.C. 1701s), a rental assistance 
payments contract under part 236, subpart D, of this chapter, or a 
Housing Assistance Payments Contract under 24 CFR part 886 shall not 
refuse to make assistance under such contract available to an existing 
tenant who is eligible therefor, provided that sufficient contract and 
budget authority and contract units are available under the contract. 
However, this provision shall not be deemed to require the mortgagor to 
give priority in the allocation of any such available assistance to an 
existing tenant instead of an eligible applicant on the mortgagor's 
waiting list or otherwise to supersede tenant selection procedures which 
are not otherwise inconsistent with applicable program regulation or 
instructions.
    (c) Subject to the provisions of any contract made in connection 
with the purchase of a multifamily housing project owned by the 
Secretary, this section shall not be deemed to require a mortgagor 
subject to the requirement of this subpart to enter into a Housing 
Assistance Payments Contract pursuant to 24 CFR part 982 for the benefit 
of an existing tenant who obtains a Certificate of Family Participation.

[48 FR 28437, June 22, 1983. Redesignated at 50 FR 32403, Aug. 12, 1985, 
as amended at 61 FR 57961, Nov. 8, 1996]

[[Page 457]]



Sec.  245.210  Availability of information.

    A mortgagor subject to the requirements of this subpart shall make 
available to tenants any information concerning rent subsidies or other 
public assistance that is prepared and distributed by HUD to the project 
for the purpose of distribution to tenants.

[48 FR 28437, June 22, 1983. Redesignated at 50 FR 32403, Aug. 12, 1985]



 Subpart D_Procedures for Requesting Approval of an Increase in Maximum 
                            Permissible Rents

    Source: 50 FR 32403, Aug. 12, 1985, unless otherwise noted.



Sec.  245.305  Applicability of subpart.

    (a) The requirements of this subpart apply to any request by a 
mortgagor, as provided by Sec.  245.10, for HUD approval of an increase 
in maximum permissible rents.
    (b) For purposes of this subpart, an increase in utility charges 
paid directly by the tenant does not constitute an increase in rents.



Sec.  245.310  Notice to tenants.

    (a) At least 30 days before submitting a request to HUD for approval 
of an increase in maximum permissible rents, the mortgagor must notify 
the tenants of the proposed rent increase. Copies of the notice must be 
served on the tenants as provided in Sec.  245.15. The notice must 
contain the following information in the following format or an 
equivalent format:

 Notice to Tenants of Intention To Submit a Request to HUD for Approval 
               of an Increase in Maximum Permissible Rents

________________________________________________________________________
Date of Notice

    Take notice that on [date] we plan to submit a request for approval 
of an increase in the maximum permissible rents for [name of apartment 
complex] to the United States Department of Housing and Urban 
Development (HUD). The proposed increase is needed for the following 
reasons:
    1.
    2.
    3.
    The rent increases for which we have requested approval are:

----------------------------------------------------------------------------------------------------------------
                                         Present rent \1\        Proposed increase \1\      Proposed rent \1\
             Bedrooms              -----------------------------------------------------------------------------
                                       Basic        Market        Basic        Market       Basic       Market
----------------------------------------------------------------------------------------------------------------
5.................................  $..........  $...........  $..........  $..........  ..........  $
0.................................  ...........  ............  ...........  ...........  ..........  ...........
1.................................  ...........  ............  ...........  ...........  ..........  ...........
2.................................  ...........  ............  ...........  ...........  ..........  ...........
3.................................  ...........  ............  ...........  ...........  ..........  ...........
4.................................  ...........  ............  ...........  ...........  ..........  ...........
----------------------------------------------------------------------------------------------------------------
\1\ Separate columns for basic and market rent should be used only for projects assisted under sec. 236 of the
  National Housing Act. In addition, in projects with more than 1 type of apartment having the same number of
  bedroom but different rents, each type should be listed separately.

    A copy of the materials that we are submitting to HUD in support of 
our request will be available during normal business hours at [address] 
for a period of 30 days from the date of service of this notice for 
inspection and copying by tenants of [name of apartment complex] and, if 
the tenants wish, by legal or other representatives acting for them 
individually or as a group.
    During a period of 30 days from the date of service of this notice, 
tenants of [name of apartment complex] may submit written comments on 
the proposed rent increase to us at [address]. Tenant representatives 
may assist tenants in preparing those comments. (If, at HUD's request or 
otherwise , we make any material change during the comment period in the 
materials available for inspection and copying, we will notify the 
tenants of the change or changes, and the tenants will have a period of 
15 days from the date of service of this additional notice (or the 
remainder of any applicable comment period, if longer) in which to 
inspect and copy the materials as changed and to submit comments on the 
proposed rent increase). These comments will be transmitted to HUD, 
along with our evaluation of them and our request for the increase. You 
may also send a copy of your comments directly to HUD at the following 
address: United States Department of Housing and Urban Development 
[address of local HUD field office with jurisdiction over rent increases 
for the project], Attention: Director, Housing Management Division, Re: 
Project No. [Name of Apartment Complex].
    HUD will approve, adjust upward or downward, or disapprove the 
proposed rent increase upon reviewing the request and comments. When HUD 
advises us in writing of its decision on our request, you will be 
notified. If the request is approved, any allowable increase will be put 
into effect only after a period of at least 30 days from the date you 
are served with that notice and in accordance with the terms of existing 
leases.

________________________________________________________________________
[Name of mortgagor or managing agent]

    (b) The mortgagor must comply with all representations made in the 
notice. The materials to be made available to

[[Page 458]]

tenants for inspection and copying are those specified in Sec.  245.315.



Sec.  245.315  Materials to be submitted to HUD.

    When the notice referred to in Sec.  245.310 is served on the 
tenants, the mortgagor must send to the local HUD office copies of the 
following documents described in either paragraph (a) or (b) of this 
section, as specified by the local HUD office:
    (a) Documents to be submitted under profit and loss approach:
    (1) A copy of the notice to tenants;
    (2) An annual Statement of Profit and Loss, Form HUD-92410, covering 
the project's most recently ended accounting year (this statement must 
have been audited by an independent public accountant if the project is 
required by HUD to prepare audited financial statements), and Form HUD-
92410 for the intervening period since the date of the last annual 
statement if more than four months have elapsed since that date;
    (3) A narrative statement of the reasons for the requested increase 
in maximum permissible rents; and
    (4) An estimate of the reasonably anticipated increases in project 
operating costs that will occur within twelve months of the date of 
submission of materials under this section.
    (5) A status report on the project's implementation of its current 
Energy Conservation Plan.
    (b) Documents to be submitted under the forward-budget approach:
    (1) A cover letter summarizing the reasons a rent increase is 
needed;
    (2) A copy of the notice to tenants;
    (3) A rent increase worksheet providing an income and expense budget 
for the 12 months following the anticipated effective date of the 
proposed rent increase;
    (4) A brief statement explaining the basis for the expense lines on 
the rent increase worksheet;
    (5) A partially completed Rent Schedule, Form HUD-92458;
    (6) If the tenants receive utility allowances, the mortgagor's 
recommended utility allowance for each unit type and brief statement 
explaining the basis for the recommended increase; and
    (7) A status report on the project's implementation of its current 
Energy Conservation Plan.

(The information collection requirements in paragraph (a) of this 
section were approved by the Office of Management and Budget under 
control number 2502-0310 and the information collection requirements in 
paragraph (b) were approved under control number 2502-0324)



Sec.  245.320  Request for increase.

    Upon expiration of the period for tenant comments required in the 
notice format in Sec.  245.310 and after review of the comments 
submitted to the mortgagor, the mortgagor must submit to the local HUD 
office, in addition to the materials enumerated in Sec.  245.315 and any 
revisions thereto, the request for an increase in the maximum 
permissible rents, together with the following:
    (a) Copies of all written comments submitted by the tenants to the 
mortgagor;
    (b) The mortgagor's evaluation of the tenants' comments with respect 
to the request;
    (c) A certification by the mortgagor that:
    (1) It has complied with all of the requirements of this subpart;
    (2) The copies of the materials submitted in support of the proposed 
increase were located in a place reasonably convenient to tenants in the 
project during normal business hours and that requests by tenants to 
inspect the materials, as provided for in the notice, were honored;
    (3) All comments received from tenants were considered by the 
mortgagor in making its evaluation; and
    (4) Under the penalties and provisions of title 18 U.S.C., section 
1001, the statements contained in this request and its attachments have 
been examined by me and, to the best of my knowledge and belief, are 
true, correct, and complete.



Sec.  245.325  Notification of action on request for increase.

    (a) When processing a request for an increase in maximum permissible 
rents, HUD shall take into consideration reasonably anticipated 
increases in project operating costs that will

[[Page 459]]

occur (1) within 12 months of the date of submission of materials to HUD 
under Sec.  245.315(a) (profit and loss approach) or (2) within 12 
months of the anticipated effective date of the proposed rent increase 
for submissions under Sec.  245.315(b) (forward-budget approach).
    (b) After HUD has considered the request for an increase in rents, 
has found that it meets the requirements of Sec.  245.320, and has made 
its determination to approve, adjust upward or downward, or disapprove 
the request, it will furnish the mortgagor with a written statement of 
the reasons for approval, adjustment upward or downward, or disapproval. 
The mortgagor must make the reasons for approval, adjustment, or 
disapproval known to the tenants, by service of notice on them as 
provided in Sec.  245.15.



Sec.  245.330  Non-insured projects.

    (a) In the case of a proposed rent increase for a project assisted 
under section 236 of the National Housing Act or section 101 of the 
Housing and Urban Development Act of 1965, but which does not have a 
mortgage insured by HUD or held by the Secretary, the provisions of this 
section and of Sec. Sec.  245.305 through 245.320 shall apply to the 
mortgagor (project owner), except that--
    (1) The notice format prescribed in Sec.  245.310 must be modified 
to reflect the procedural changes made by this section;
    (2) The material (including tenant comments) required to be 
submitted to HUD under Sec. Sec.  245.315 and 245.320 must be submitted 
to the State or local agency administering the section 236 assistance or 
rent supplement assistance contracts, rather than to HUD. An equivalent 
State or local agency form or standard accounting form may be 
substituted for the Statement of Profit and Loss, Form HUD-92410 
required under Sec.  245.315(a)(2), if approved by the local HUD office; 
and
    (3) The State or local agency must certify that the mortgagor has 
complied with the requirements of Sec. Sec.  245.310, 245.315, 245.320, 
and 245.325.
    (b) After the State or local agency has considered the request for 
an increase in maximum permissible rents that meets the requirements of 
Sec.  245.320 (including consideration of anticipated cost increases, as 
provided in Sec.  245.325(a)), it must make a determination to approve, 
adjust upward or downward, or disapprove the request. If the agency 
determines to approve or adjust the request, it must submit to the 
appropriate local HUD office the mortgagor's requests for approval of an 
increase in maximum permissible rents, along with the comments of the 
tenants and the mortgagor's evaluation of the comments, and must certify 
to HUD that the mortgagor is in compliance with the requirements of this 
subpart. HUD shall review the agency's determination and certification 
and, within 30 days, of their submission to HUD, notify the agency of 
its approval, adjustment upward or downward, or disapproval of the 
proposed rent increase. HUD will not unreasonably withhold approval of a 
rent increase approved by the State or local agency.
    (c) If the agency determines to disapprove the request, there is no 
HUD review of the agency's determination.
    (d) The agency must notify the mortgagor of the final disposition of 
the request, and it must furnish the mortgagor with a written statement 
of the reasons for its approval, adjustment, or disapproval. The 
mortgagor must make the reasons for approval, adjustment or disapproval 
known to the tenants, by service of notice on them as provided in Sec.  
245.15.



    Subpart E_Procedures for Requesting Approval of a Covered Action

    Source: 61 FR 57962, Nov. 8, 1996, unless otherwise noted.



Sec.  245.405  Applicability of subpart.

    The requirements of this subpart apply to any request by a 
mortgagor, as provided by Sec.  245.10, for HUD approval of one or more 
of the following covered actions:
    (a) Conversion of a project from project-paid utilities to tenant-
paid utilities, or a reduction in tenant utility allowances.
    (b) Conversion of residential units in a multifamily housing project 
to a nonresidential use or to condominiums, or

[[Page 460]]

the transfer of the project to a cooperative housing mortgagor 
corporation or association. Conversion of a project to a cooperative or 
of a portion of a project to nonresidential use does not constitute a 
change of use requiring mortgagee approval.
    (c) A partial release of mortgage security. The requirements of this 
subpart, however, do not apply to any release of property from a 
mortgage lien with respect to a utility easement or a public taking of 
such property by condemnation or eminent domain.
    (d) Making major capital additions to the project. For the purposes 
of this subpart, the term ``major capital additions'' includes only 
those capital improvements that represent a substantial addition to the 
project. Upgrading or replacing existing capital components of the 
project does not constitute a major capital addition to the project.



Sec.  245.410  Notice to tenants.

    At least 30 days before submitting a request to HUD for approval of 
an action described in Sec.  245.405, the mortgagor must serve notice of 
the proposed covered action on the project tenants, as provided in Sec.  
245.15. The notice shall state that--
    (a) The mortgagor intends to submit a request to HUD for approval of 
the covered action or actions specified in the notice;
    (b) The tenants have the right to participate as provided in Sec.  
245.420, and what those rights are, including the address at which the 
materials required to be made available for inspection and copying under 
that section are to be kept;
    (c) Tenant comments on the proposed covered action may be sent to 
the mortgagor at a specified address or directly to the local HUD 
office, and comments sent to the mortgagor will be transmitted to HUD, 
along with the mortgagor's evaluation of them, when the request for 
HUD's approval is submitted;
    (d) HUD will approve or disapprove the proposed action, based upon 
its review of the information submitted and all tenant comments 
received. In the case of a proposed reduction in tenant-paid utilities, 
the notice must also state that HUD may adjust the proposed reduction 
upward or downward;
    (e) In the case of a proposed conversion of residential units, 
partial release of mortgage security, or major capital additions to the 
project, the proposed action may require the owner to request HUD 
approval of a rent increase; and
    (f) The mortgagor will notify the tenants of HUD's decision and it 
will not begin to effect any approved action (in accordance with the 
terms of existing leases) until at least 30 days from the date of 
service of the notification.



Sec.  245.415  Submission of materials to HUD: Timing of submission.

    (a) Initial submission. The mortgagor must submit the materials 
applicable to the covered action, as specified in Sec. Sec.  245.416 
through 245.419, to the local HUD office when the notice required under 
Sec.  245.410 is served on the tenants.
    (b) Subsequent submission. If additional notice under Sec.  
245.420(c) is required, the mortgagor must submit to HUD any changes to 
the materials required under Sec. Sec.  245.416 through 245.419 when the 
notice required under Sec.  245.420(c) is served on the tenants.



Sec.  245.416  Initial submission of materials to HUD: Conversion from
project-paid utilities to tenant-paid utilities or a reduction in tenant
utility allowances.

    In the case of a conversion from project-paid utilities to tenant-
paid utilities or a reduction in tenant utility allowances, the 
mortgagor must submit the following materials to the local HUD office:
    (a) A copy of the notice to tenants;
    (b) In the case of a proposed conversion from project-paid utilities 
to tenant-paid utilities--
    (1) A statement indicating:
    (i) The type of utility or utilities involved;
    (ii) The number of units in the project by type and size;
    (iii) The average utility consumption data by unit type and size for 
comparable projects, and utility rate information, as obtained from the 
utility supplier;
    (iv) The estimated monthly cost of the utilities to be paid by the 
tenants by unit type and size, based upon the

[[Page 461]]

consumption data and rate information described in paragraph (b)(1)(iii) 
of this section;
    (v) The monthly cost for the past year of paying for the utility or 
utilities involved on a project basis (actual cost) and by unit type and 
size (estimated breakdown);
    (vi) An estimate of the cost of conversion, as obtained from the 
utility supplier or from bids from contractors;
    (vii) The source and terms of financing for the conversion (to the 
extent known); and
    (viii) The estimated effect of the conversion on the total housing 
costs of the tenants by unit type and size, taking into account the 
estimated cost of conversion (including the cost of its financing), the 
estimated monthly cost of utilities to be paid by the tenants by unit 
type and size, the proposed utility allowances, and the estimated change 
in the rents paid to the mortgagor resulting from the conversion; and
    (2) A copy of the portion of the project's Energy Conservation Plan 
which addresses the cost-effectiveness determination associated with 
converting the project to tenant-paid utilities; and
    (c) In the case of a proposed reduction in tenant utility 
allowances, a statement indicating the information described in 
paragraphs (b)(1)(i), (b)(1)(ii), (b)(1)(iii) and (b)(1)(iv) of this 
section, the utility allowances proposed for reduction, and a 
justification of the proposed reduction.

(Approved by the Office of Management and Budget under control number 
2502-0310)



Sec.  245.417  Initial submission of materials to HUD: Conversion of
residential units to a nonresidential use, or to cooperative housing
or condominiums.

    In the case of a conversion of residential units to a nonresidential 
use, or to cooperative housing or condominiums, the mortgagor must 
submit the following materials to the local HUD office in accordance 
with Sec. Sec.  245.415 and 245.419:
    (a) In the case of a proposed conversion of residential rental units 
to nonresidential use:
    (1) A statement describing the proposed conversion;
    (2) A statement describing the estimated effect of the proposed 
conversion on the value of the project, the project rent schedule, the 
number of dwelling units in the project, a list of the units to be 
converted and their occupancy, the amount of subsidy available to the 
project, and the project income and expenses (including property taxes);
    (3) A statement assessing the compatibility of the proposed 
nonresidential use with the residential character of the project;
    (4) Written approval of the mortgagee if required;
    (5) An undertaking by the mortgagor to pay all relocation costs that 
may be required by HUD for tenants required to vacate the project 
because of the conversion; and
    (6) A copy of the notice to tenants.
    (b) In the case of a proposed transfer of the project to a 
cooperative housing mortgagor corporation or association (conversion of 
residential rental units to residential cooperative housing), the 
materials specified in paragraphs (a)(1), (a)(2) and (a)(3) of this 
section and the following additional materials:
    (1) An estimate of the demand for cooperative housing, including an 
estimate of the number of present tenants interested in purchasing 
cooperative housing;
    (2) Estimates of downpayments and monthly carrying charges that will 
be required; and
    (3) Copies of proposed organizational documents, including By-Laws, 
Articles of Incorporation, Subscription Agreement, Occupancy Agreement, 
and Sale Document.
    (c) In the case of a proposed conversion of residential rental units 
to condominium units, the materials specified in paragraphs (a)(1), 
(a)(4), and (a)(6) of this section and the following additional 
materials:
    (1) An estimate of the demand for condominium housing, including an 
estimate of the number of present tenants interested in purchasing 
units;
    (2) Estimates of downpayments, monthly mortgage payments and 
condominium association fees that will be required; and

[[Page 462]]

    (3) A list of the units to be converted and their occupancy.

(Approved by the Office of Management and Budget under control number 
2502-0310)



Sec.  245.418  Initial submission of materials to HUD: Partial release
of mortgage security.

    In the case of a partial release of mortgage security, the mortgagor 
must submit the following materials to the local HUD office:
    (a) A statement describing the portion of the property that is 
proposed to be released and the transaction requiring the release;
    (b) A statement describing the estimated effect of the proposed 
release on the value of the project, the number of dwelling units in the 
project, the project income and expenses (including property taxes), the 
amount of subsidy available to the project, and the project rent 
schedule;
    (c) A statement describing the proposed use of the property to be 
released and the persons who will have responsibility for the operation 
and maintenance of that property, and assessing the compatibility of 
that use with the residential character of the project;
    (d) A statement describing the proposed use of any proceeds to be 
received by the mortgagor as a result of the release; and
    (e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control number 
2502-0310)



Sec.  245.419  Initial submission of materials to HUD: Major capital
additions.

    In the case of major capital additions, the mortgagor must submit 
the following materials to the local HUD office:
    (a) The general plans and sketches of the proposed capital 
additions;
    (b) A statement describing the estimated effect of the proposed 
capital additions on the value of the project, the project income and 
expenses (including property taxes), and the project rent schedule;
    (c) A statement describing how the proposed capital additions will 
be financed and the effect, if any, of that financing on the tenants;
    (d) A statement assessing the compatibility of the proposed capital 
additions with the residential character of the project; and
    (e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control number 
2502-0310)



Sec.  245.420  Rights of tenants to participate.

    (a) The tenants (including any legal or other representatives acting 
for tenants individually or as a group) must have the right to inspect 
and copy the materials that the mortgagor is required to submit to HUD 
pursuant to Sec.  245.415, for a period of 30 days from the date on 
which the notice required under Sec.  245.410 is served on the tenants. 
During this period, the mortgagor must provide a place (as specified in 
the notice) reasonably convenient to tenants in the project where 
tenants and their representatives can inspect and copy these materials 
during normal business hours.
    (b) The tenants have the right during this period to submit written 
comments on the proposed conversion to the mortgagor and to the local 
HUD office. Tenant representatives may assist tenants in preparing these 
comments.
    (c) If the mortgagor, whether at HUD's request or otherwise, makes 
any material change during a tenant comment period in the materials 
submitted to HUD pursuant to Sec.  245.415, the mortgagor must notify 
the tenants of the change, in the manner provided in Sec.  245.15, and 
make the materials as changed available for inspection and copying at 
the address specified in the notice for this purpose. The tenants have a 
period of 15 days from the date of service of this additional notice (or 
the remainder of any applicable comment period, if longer) in which to 
inspect and copy the materials as changed and to submit comments on the 
proposed covered action, before the mortgagor may submit its request to 
HUD for approval of the covered action.

[[Page 463]]



Sec.  245.425  Submission of request for approval to HUD.

    Upon completion of the tenant comment period, the mortgagor must 
review the comments submitted by tenants and their representatives and 
prepare a written evaluation of the comments. The mortgagor must then 
submit the following materials to the local HUD office:
    (a) The mortgagor's written request for HUD approval of the covered 
action;
    (b) Copies of all written tenant comments;
    (c) The mortgagor's evaluation of the tenant comments on the 
proposed conversion or reduction;
    (d) A certification by the mortgagor that it has complied with all 
of the requirements of Sec.  245.410, Sec.  245.415, Sec. Sec.  245.416 
through 245.419, as applicable, Sec.  245.420, and this section; and
    (e) Such additional materials as HUD may have specified in writing.

(Approved by the Office of Management and Budget under control number 
2502-0310)



Sec.  245.430  Decision on request for approval.

    (a) After considering the mortgagor's request for approval and the 
materials submitted in connection with the request, HUD must notify the 
mortgagor in writing of its approval or disapproval of the proposed 
covered action, including, if applicable, its adjustment upward or 
downward of the proposed reduction in tenant-paid utilities. HUD must 
provide its reasons for its determination.
    (b) The mortgagor must notify the tenants of HUD's decision in the 
manner provided in Sec.  245.15. If HUD has approved the proposed 
covered action, the notice must state:
    (1) The effective date of the covered action (which must be at least 
30 days from the date of service of the notice and in accordance with 
the terms of existing leases);
    (2) In the case of HUD's approval of a conversion from project-paid 
utilities to tenant-paid utilities or a reduction in tenant utility 
allowances, the amount of the rent to be paid to the mortgagor and the 
utility allowance for each unit; and
    (3) In the case of HUD's approval of a conversion of residential 
units in a multifamily housing project to a nonresidential use or the 
transfer of the project to a cooperative housing mortgagor corporation 
or association, which residential rental units are to be converted and 
whether the conversion is to nonresidential use or to cooperative or 
condominium units.



Sec.  245.435  Non-insured projects: Conversion from project-paid
utilities to tenant-paid utilities or a reduction in tenant utility
allowances.

    (a) In the case of a proposed conversion from project-paid utilities 
to tenant-paid utilities or a reduction in tenant utility allowances 
involving a project that is assisted under section 236 of the National 
Housing Act (12 U.S.C. 1715z-1) or section 101 of the Housing and Urban 
Development Act of 1965 (12 U.S.C. 1701s) but that does not have a 
mortgage insured by HUD or held by the Secretary, the provisions of this 
section and of Sec. Sec.  245.405 through 245.425 apply to the mortgagor 
(project owner), except that--
    (1) The notice to tenants required under Sec.  245.410 must be 
modified to reflect the procedural changes made by this section;
    (2) The materials (including tenant comments) required to be 
submitted to HUD under Sec. Sec.  245.415 and 245.425 must be submitted 
to the State or local agency administering the Section 236 assistance or 
rent supplement assistance contracts, rather than to HUD; and
    (3) The State or local agency must certify that the mortgagor has 
complied with the requirements of Sec. Sec.  245.410, 245.415, 245.416, 
245.420, and 245.425.
    (b) After the State or local agency has considered the request for 
approval of a conversion or reduction that meets the requirements of 
Sec.  245.425, it must make a determination to approve or disapprove the 
conversion, or to approve, adjust upward or downward, or disapprove the 
reduction. If the agency determines to approve the conversion or 
reduction (as originally proposed or as adjusted), it must submit to the 
appropriate local HUD office the mortgagor's request for approval of the 
conversion or reduction, along with the

[[Page 464]]

comments of the tenants and the mortgagor's evaluation of the comments, 
and must certify to HUD that the mortgagor is in compliance with the 
requirements of this subpart. HUD must review the agency's determination 
and certification and notify the agency of its approval or disapproval 
of the proposed conversion or of its approval, adjustment upward or 
downward, or disapproval of the proposed reduction. HUD will not 
unreasonably withhold approval of a conversion or reduction approved by 
the State or local agency.
    (c) If the agency determines to disapprove the conversion or 
reduction, there is no HUD review of the agency's determination.
    (d) The agency must notify the mortgagor of the final disposition of 
the request, and it must furnish the mortgagor with a written statement 
of the reasons for its approval or disapproval. The mortgagor must make 
the reasons for approval or disapproval known to the tenants, by service 
of notice on them as provided in Sec.  245.15. If the agency has 
approved the proposed conversion or a reduction, the notice must set 
forth the information prescribed in Sec.  245.430(b) (1) and (2).



PART 246_LOCAL RENT CONTROL--Table of Contents



                      Subpart A_General Provisions

Sec.
246.1 Scope and effect of regulations.

                 Subpart B_Unsubsidized Insured Projects

246.4 Applicability.
246.5 Rental charges.
246.6 Initiation.
246.7 Notice to tenants.
246.8 Materials to be submitted to HUD in support of preemption request.
246.9 Request for preemption.
246.10 HUD procedures.
246.11 Notification of action on preemption request.
246.12 Preemption of prospective term of lease.

                  Subpart C_Subsidized Insured Projects

246.20 Applicability.
246.21 Rental charges.
246.22 Procedures.

                      Subpart D_HUD-Owned Projects

246.30 Rental charges.
246.31 Procedures.

    Authority: 12 U.S.C. 1715b; 42 U.S.C. 3535(d).



                      Subpart A_General Provisions



Sec.  246.1  Scope and effect of regulations.

    (a) The regulation of rents for a project coming within the scope of 
``Subpart B--Unsubsidized Insured Projects'' is preempted under these 
regulations only when the Department determines that the delay or 
decision of the local rent control board, or other authority regulating 
rents pursuant to state or local law (hereinafter referred to as board) 
jeopardizes the Department's economic interest in a project covered by 
that subpart. The regulation of rents for projects coming within the 
scope of ``Subpart C--Subsidized Insured Projects'' is preempted in its 
entirety by the promulgation of these regulations. The regulation of 
rents for projects coming within the scope of ``Subpart D--HUD-Owned 
Projects'' rests within the exclusive jurisdiction of the Department.
    (b) Any state or local law, ordinance, or regulation is without 
force and effect insofar as it purports to regulate rents of: (1) 
Projects for which a determination of preemption has been made pursuant 
to subpart B, or (2) projects coming within the scope of subpart C or D. 
Compliance with such law, ordinance, or regulation shall not be required 
as a condition of, or prerequisite to, the remedy of eviction, and any 
law, ordinance, or regulation which purports to require such compliance 
is similarly without force and effect.
    (c) It is the purpose of the Department that these regulations shall 
bar all actions of a board that would in any way frustrate the purpose 
or effect of these regulations or that would in any way delay, prevent 
or interfere with the implementation of any increase in rental charges 
approved by HUD.
    (d) These regulations may be offered as a defense to a proceeding by 
whomever initiated, which may be brought or threatened to be brought 
against any owner, mortgagor or managing

[[Page 465]]

agent of a project subject to these regulations who demands, receives or 
retains, or seeks to demand, receive or retain, rental charges approved 
by HUD, or as a basis for declaratory, injunctive or other relief 
against any person or agency, public or private, who attempts to 
enforce, or threatens to enforce, any state or local law, ordinance, or 
regulation which is without force and effect by reason of this 
regulation.
    (e) This part applies to mortgages insured under the National 
Housing Act. It does not apply to mortgages insured under section 542(c) 
of the Housing and Community Development Act of 1992 (12 U.S.C. 1707).

[40 FR 49318, Oct. 22, 1975. Redesignated at 49 FR 6713, Feb. 23, 1984, 
and amended at 58 FR 64038, Dec. 3, 1993; 59 FR 62524, Dec. 5, 1994]



                 Subpart B_Unsubsidized Insured Projects

    Source: 44 FR 58504, Oct. 10, 1979, unless otherwise noted. 
Redesignated at 49 FR 6713, Feb. 23, 1984.



Sec.  246.4  Applicability.

    This subpart applies to all projects with mortgages insured or held 
by HUD, except those to which subpart C applies.

[40 FR 49318, Oct. 22, 1975. Redesignated at 49 FR 6713, Feb. 23, 1984]



Sec.  246.5  Rental charges.

    The Department will generally not interfere in the regulation of 
rents by a rent control board or agency constituted under State or local 
laws (hereinafter referred to as board) for unsubsidized projects with 
mortgages insured or held by HUD. However, HUD will preempt the 
regulation of rents, together with any board regulations which require 
the mortgagor to offer a lease for a term in excess of one year, under 
certain conditions. This preemption may occur for such a project when 
the Department determines that the delay or decision of a board prevents 
the mortgagor from achieving a level of residential income necessary to 
maintain and operate adequately the project, which includes sufficient 
funds to meet the financial obligations under the mortgage.''



Sec.  246.6  Initiation.

    When a mortgagor determines that the permitted increase in rents as 
prescribed by the board will not provide a rent level necessary to 
maintain and operate adequately the project, and the mortgagor elects to 
request preemption under this subpart, it shall:
    (a) File an application for whatever relief or redetermination is 
permitted under the State or local law and;
    (b) Notify: (1) The tenants in accordance with Sec.  246.7 of this 
subpart, (2) the appropriate HUD office pursuant to Sec.  246.8, and (3) 
the board of the mortgagor's intention to file a request for preemption 
of local rent control regulation pursuant to the provisions of 
regulations in this subpart. This action may be taken if either the 
board's written decision is unacceptable to the mortgagor or no written 
decision is received from the board within 30 days of the mortgagor's 
request under paragraph (a) of this section.



Sec.  246.7  Notice to tenants.

    At least 30 days before filing a formal request to HUD for 
preemption of local rent control regulations, the mortgagor shall notify 
the tenants of its intention to so file. Copies of the Notice shall be:
    (a) Delivered directly or by mail to each tenant; and
    (b) Posted in at least 3 conspicuous places within each structure or 
building in which the affected dwelling units are located.

The Notice shall contain the addresses where the materials, which 
constitute a complete submission as required by Sec.  246.8 in support 
of the proposed preemption request, are to be made available to tenants 
as well as the required information in the following equivalent format:

 Notice to Tenants of Intention To File a Request to HUD for Preemption 
                    of Local Rent Control Regulations

Date of Notice__________________________________________________________
    Take notice that on (Date) we requested the (Name) board to review 
our application for redetermination of permitted rents.
    Take further notice that on (Date), if the (Name) board fails to 
approve an income

[[Page 466]]

level necessary to maintain and operate adequately the project, or to 
act upon our request, we plan to file a request for preemption of local 
rent control regulations for (Name of Apartment Complex) with the United 
States Department of Housing and Urban Development (HUD) which will 
result in an increase in your rental rate as provided within the terms 
of your lease. The requested preemption action is supported by the 
following:
    (1) HUD approved Gross Potential Income: Year approved, __, $_____.
    (2) Current Total Residential Rents Allowed by Local Rent Control 
Board, $_____.
    (3) Projected Total Annual Residential Rents Allowable Under Local 
Board Regulations 6 Months After Date of this Notice, $_____.
    (4) Income Required to Operate Project as Supported by Profit and 
Loss Statement Being Submitted to HUD, $_____.
    Copies of the materials that we intend to submit to HUD in support 
of our request will be available during normal business hours as well as 
one evening a week after business hours which will be (Day) at (Address) 
for a period of 30 days from the date of this Notice. The materials may 
be inspected and copied by tenants of (Name of Apartment Complex and HUD 
Project No.) and if the tenants wish, by legal or other representatives 
duly authorized in writing to act for one or more of the tenants.
    During a period of 30 days from the date of this notice, tenants of 
(Name of Apartment Complex and HUD Project No.) may submit written 
comments on the proposed preemption request to us at (Address). Tenant 
representatives may assist tenants in preparing those comments. The 
inspection and comment period will be extended as necessary to (a) 
assure a 30-day comment period on a complete mortgagor's submission and 
(b) to allow at least 5 days to comment on any written decision made by 
the board, if the decision is received by the mortgagor on or before the 
expiration of the thirty-day period and it was not available to the 
tenants during the first 25 days of the 30-day period. These comments 
will be transmitted to HUD, along with our evaluation of them and our 
preemption request. You may also send a copy of your comments directly 
to HUD at the following address: United States Department of Housing and 
Urban Development, (address of local HUD field office with jurisdiction 
over preemption of rents for the project) Attention: Director, Housing 
Re: (Project No.) and (Name of Apartment Complex). HUD will approve or 
diapprove the preemption request in whole or in part upon reviewing the 
materials and comments. When HUD advises us in writing of its decision 
on our request, you will be notified at least 30 days before any change 
in the rental structure is put into effect, in accordance with the terms 
of existing leases.

________________________________________________________________________
 (Name of mortgagor or managing agent)

    The mortgagor shall comply with all representations made in this 
Notice.



Sec.  246.8  Materials to be submitted to HUD in support of preemption
request.

    (a) After posting or delivery of the Notice as required by Sec.  
246.7, the mortgagor shall immediately send HUD notification of its 
intention to file a preemption request, to include:
    (1) The written Notice to the tenants, which will state the date of 
its posting and distribution.
    (2) An annual Statement of Profit and Loss, on a form prescribed by 
the Commissioner, audited by an independent public accountant and 
covering the most recently ended accounting year, and if more than four 
months have elapsed since the date of the Profit and Loss Statement, an 
unaudited accrual Profit and Loss Statement on a form prescribed by the 
Commissioner for the intervening period since the date of the annual 
statement, with the mortgagor's certification as to its accuracy.
    (3) A certified statement which provides a separate breakdown for 
the percentage of vacancies for the present and previous year.
    (4) A certified statement which provides a separate breakdown of the 
actual rent loss due to nonpayment of rent for the past 2 years.
    (5) A certified statement which provides a separate breakdown of 
rent loss due to tenant turnover for the past 2 years.
    (6) A certified statement covering known approved rate or cost 
increases not yet experienced by the project which can be documented by 
the following:
    (i) Tax rates or appraisals,
    (ii) Utility rates,
    (iii) Contracts for employees or services,
    (iv) Insurance, and
    (7) A certified statement covering known decreases of rates or costs 
not yet experienced by the project which have been approved and can be 
documented as follows:
    (i) Tax rates or appraisals,

[[Page 467]]

    (ii) Utility rates,
    (iii) Contracts for employees or services,
    (iv) Insurance.

If there are none, the mortgagor must so certify.
    (8) A copy of the full application to the board with supporting 
documentation.
    (b) The local HUD office shall review the mortgagor's submission 
promptly upon receipt, to ascertain that it is complete as required by 
paragraph (a) of this section. Should the submission be found to be 
incomplete, the local HUD office shall notify the mortgagor within 48 
hours of the review of its determination that further material is 
necessary to constitute a complete submission as defined in paragraph 
(a) of this section.
    (c) When the submission is complete, the HUD office shall hold the 
mortgagor's submission as specified in paragraph (a) of this section in 
abeyance until a preemption request is received pursuant to Sec.  246.9.
    (d) If the mortgagor subsequently resubmits any change to the 
submission as described in paragraphs (a) (1) through (7) of this 
section, it will be required to provide the tenants with an additional 
30 days to comment.



Sec.  246.9  Request for preemption.

    (a) Upon expiration of the period for tenant comments required by 
this rule and after review of the comments submitted to it, the 
mortgagor may submit its request for preemption. That request must 
include the following:
    (1) A certification by the mortgagor following the requirements 
specified in paragraph (b) of this section;
    (2) Copies of all written comments submitted by the tenants to the 
mortgagor;
    (3) The mortgagor's evaluation of the tenant's comments with respect 
to the request; and
    (4) The board's decision or a statement from the mortgagor 
certifying that a decision from the board has not been received.
    (b) The certification of the mortgagor as required by paragraph 
(a)(1) of this section shall include the following:
    (1) That the Notice required by Sec.  246.7 was given pursuant to 
the provisions of that section;
    (2) That the mortgagor has taken reasonable steps to assure that the 
substance of the Notice has been conveyed to each resident household, 
and that the mortgagor exercised its best efforts to assure that the 
posted Notices were maintained intact and in legible form for the 
specified thirty (30) days;
    (3) That: (i) The copies of the materials submitted in support of 
the preemption request were located in a place reasonably convenient to 
tenants in the project during normal business hours and at least one 
evening a week after business hours, and (ii) that requests by tenants 
to inspect such materials, as provided for in the Notice, were honored;
    (4) That copies of all comments received from the tenants were 
considered and are being transmitted to HUD together with the 
certifications; and
    (5) A statement that ``under the penalties and provisions of title 
18 U.S.C., section 1001, the statements contained in this application 
and its attachments have been examined by me and, to the best of my 
knowledge and belief, are true, correct, and complete.''
    (c) Should the mortgagor receive a delayed decision from the board 
after filing its preemption request, HUD shall be informed immediately 
and furnished with a copy of the board's decision.



Sec.  246.10  HUD procedures.

    (a) The local HUD office will review the information submitted by 
the mortgagor together with the decision of the board, if any. The local 
HUD office will, if it finds that the delay or decision of the board 
fails to provide adequate residential income to protect the Department's 
economic interest in the projects and the board will not modify its 
position to the satisfaction of the local HUD office, make a report with 
appropriate recommendations concerning the actions that should be taken 
by HUD to the Office of Multifamily Housing Management and Occupancy, 
Headquarters. The report shall be sent to the Office of Multifamily 
Housing Management and Occupancy,

[[Page 468]]

Headquarters, and shall include appropriate recommendations concerning 
the action that should be taken by HUD.
    (b) The Office of Multifamily Housing Management and Occupancy will 
review the report and will consider whether to preempt the board's 
regulation. If it finds that the income level permitted by the board is 
inadequate to maintain the project as described in Sec.  246.5, it shall 
issue a formal certification to the board that its authority has been 
preempted as to such rents. Copies of the certification shall be 
transmitted to the mortgagor, the local HUD office, and the board.



Sec.  246.11  Notification of action on preemption request.

    (a) After HUD has considered the preemption request which meets the 
requirements of Sec.  246.9 and has made its determination to approve or 
disapprove the request, it will furnish the mortgagor with a written 
statement of the reasons for approval or disapproval. The mortgagor 
shall make known to tenants, by posting or delivery in the manner 
outlined in Sec.  246.7, the reasons for approval or disapproval.
    (b) The mortgagor may effect collection of the HUD-approved income 
level which is set at the time of the preemption determination after the 
expiration of 30-days notice to the tenants, subject to the terms and 
rights a tenant may have under the existing lease.
    (c) Once the project reaches the income level approved under these 
procedures, the project will be returned to the control of the local 
rent control board covering both the rents and the terms of prospective 
leases.



Sec.  246.12  Preemption of prospective term of lease.

    (a) In those instances where it will take more than 60 days (2 
months) for the project to reach the new income levels, HUD preemption 
of prospective lease terms shall be effective for those new or renewed 
leases which by regulation of a local rent control board would require 
the mortgagor to offer a lease for a term in excess of one year.
    (b) As a condition for HUD preemption, the mortgagor must give only 
one-year leases to tenants whose leases expire during the preemption 
period.



                  Subpart C_Subsidized Insured Projects



Sec.  246.20  Applicability.

    This subpart applies to all projects with mortgages insured or held 
by HUD that receive a subsidy in the form of:
    (a) Interest reduction payments under section 236 of the National 
Housing Act;
    (b) Below-market interest rates under section 221(d)(3) and (5) of 
the National Housing Act;
    (c) Direct loans at below-market interest rates under section 202 of 
the Housing Act of 1959 (as in effect immediately before October 1, 
1991);
    (d) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965;
    (e) Housing assistance payments under 24 CFR part 886, subpart A 
(Section 8 Loan Management Set Aside), for projects that converted their 
rent supplement contracts under section 101 of the Housing and Urban 
Development Act of 1965 to such assistance for the term of the HAP 
contract; or
    (f) Housing assistance payments pursuant to a contract under section 
8 of the United States Housing Act of 1937 or section 23 of that Act (as 
in effect immediately before January 1, 1975), except that this subpart 
will only apply with respect to units occupied by tenants receiving 
housing assistance thereunder if the contract covers fewer than all 
units in the project.

[63 FR 64803, Nov. 23, 1998]



Sec.  246.21  Rental charges.

    The Department finds that it is necessary and desirable to minimize 
defaults by the mortgagor in its financial obligations with regard to 
projects covered by this subpart, and to assist mortgagors to preserve 
the continued viability of those projects as a housing resource for low-
income families. The Department also finds that it is necessary and 
desirable to protect the substantial economic interest of the Federal 
Government in those projects. Therefore, the Department concludes that 
it is in the national interest to

[[Page 469]]

preempt, and it does hereby preempt, the entire field of rent regulation 
by local rent control boards, (hereinafter referred to as board), or 
other authority, acting pursuant to state or local law as it affects 
projects covered by this subpart.

[40 FR 49318, Oct. 22, 1975. Redesignated at 44 FR 58506, Oct. 10, 1979, 
and at 49 FR 6713, Feb. 23, 1984]



Sec.  246.22  Procedures.

    (a) The mortgagor shall file its application for approval of 
increases in rental charges with the appropriate local office of HUD.
    (b) The local HUD office will process the application for increases 
in rental charges in accordance with HUD's regulations, including part 
245 of this chapter, and instructions and procedures, all adopted 
pursuant to the statutory authority described in Sec.  246.8, and shall 
notify in writing any board in the area in which the project is located 
that it is processing the application and, that, pursuant to this 
subpart, HUD has preempted the entire field of rent regulation by a 
board acting pursuant to state or local law as it affects the project.
    (c) The mortgagor may effect collection of the new rents in 
accordance with the procedures described in part 245, subpart D of this 
chapter. The mortgagor shall furnish the board a schedule of any new 
rents approved by HUD within ten (10) days after the approved rents have 
become effective. Notice to the board of the approved increases in rents 
does not confer upon the board a right to approve or disapprove the 
Department's action or to exercise jurisdiction over the implementation 
of the rent increases by the mortgagor. The sole purpose of the notice 
is to inform the board of the lawful rents that may be charged for 
projects covered by this subpart.

[40 FR 49318, Oct. 22, 1975. Redesignated at 44 FR 58506, Oct. 10, 1979, 
and at 49 FR 6713, Feb. 23, 1984]



                      Subpart D_HUD-Owned Projects



Sec.  246.30  Rental charges.

    The Department has exclusive jurisdiction over the rents of all 
projects which it owns, irrespective of the existence, or the 
provisions, of any State or local rent control law or ordinance.

[40 FR 49318, Oct. 22, 1975. Redesignated at 44 FR 58506, Oct. 10, 1979, 
and at 49 FR 6713, Feb. 23, 1984]



Sec.  246.31  Procedures.

    (a) The local HUD office will notify in writing any local rent 
control board (hereinafter referred to as board) in the area in which 
the project is located that it is considering increasing the rents for a 
project within the scope of this subpart, and that the increases are 
expected to become effective after the expiration of thirty (30) days' 
notice to the tenants, subject to whatever rights a tenant may have 
under a lease. The local HUD office will also notify the board that, 
pursuant to this subpart, the Department has exclusive jurisdiction over 
the rents for the project.
    (b) After the increases have become effective, the local HUD office 
will furnish the board a schedule of the new rents that are being 
charged by HUD. Notice to the board of the increased rents does not 
confer upon the board a right to approve or disapprove of the 
Department's action, or to exercise jurisdiction over the implementation 
of the rent increases by the Department. The sole purpose of the notice 
is to inform the board of the lawful rents that may be charged for 
projects covered by this subpart.

[40 FR 49318, Oct. 22, 1975. Redesignated at 44 FR 58506, Oct. 10, 1979, 
and at 49 FR 6713, Feb. 23, 1984]



PART 247_EVICTIONS FROM CERTAIN SUBSIDIZED AND HUD-OWNED PROJECTS
--Table of Contents



                      Subpart A_Subsidized Projects

Sec.
247.1 Applicability.
247.2 Definitions.
247.3 Entitlement of tenants to occupancy.
247.4 Termination notice.
247.5 Inapplicability to substantial rehabilitation or demolition.
247.6 Eviction.
247.7 Implementation.

                      Subpart B_HUD-Owned Projects

247.8 Incorporation by reference.

[[Page 470]]

247.9 Applicability of procedures.
247.10 Inapplicability to substantial rehabilitation or demolition; 
          right of disposition unimpaired.

    Authority: 12 U.S.C. 1701q, 1701s, 1715b, 1715l, and 1715z-1; 42 
U.S.C. 1437a, 1437c, 1437f, and 3535(d).

    Source: 41 FR 43330, Sept. 30, 1976, unless otherwise noted. 
Redesignated at 49 FR 6713, Feb. 23, 1984.



                      Subpart A_Subsidized Projects



Sec.  247.1  Applicability.

    (a) Except as provided in Sec. Sec.  247.5 and 247.6(c), the 
provisions of this subpart shall apply to all decisions by a landlord to 
terminate the occupancy of a tenant in a subsidized project as defined 
in Sec.  247.2(e). (Termination of tenancy of a family assisted with 
tenant-based assistance under the Section 8 Existing Housing Certificate 
or Housing Voucher Program is not subject to this part.)
    (b) Landlords of subsidized projects that have been assisted under a 
covered housing program listed in 24 CFR 5.2003 must comply with 24 CFR 
part 5, subpart L (Protection for Victims of Domestic Violence, Dating 
Violence, Sexual Assault, or Stalking), as described in Sec.  200.38.

[54 FR 236, Jan. 4, 1989, as amended at 81 FR 80806, Nov. 16, 2016]



Sec.  247.2  Definitions.

    Drug-related criminal activity means the illegal manufacture, sale, 
distribution, use or possession with the intent to manufacture, sell, 
distribute, or use, of a controlled substance as defined in section 102 
of the Controlled Substances Act, 21 U.S.C. 802.
    Eviction means the dispossession of the tenant from the leased unit 
as a result of the termination of the tenancy, including a termination 
prior to the end of a term or at the end of a term.
    Landlord means either the owner of the property or his 
representative, or the managing agent or his representative, as shall be 
designated by the owner.
    Rental agreement means all agreements, written or oral, between the 
landlord and tenant (and valid rules and regulations adopted by the 
landlord pursuant to a written agreement) relating to the use and 
occupancy of a dwelling unit and surrounding premises.
    State landlord and tenant act means any state statute or local 
ordinance which imposes obligations on a landlord and tenant in 
connection with the occupancy of a dwelling unit and surrounding 
premises and which provides that violations of such obligations by the 
tenant constitute grounds for eviction.
    Subsidized project means a multifamily housing project (with the 
exception of a project owned by a cooperative housing mortgagor 
corporation or association) that receives the benefit of subsidy in the 
form of: below-market interest rates under section 221(d) (3) and (5), 
interest reduction payments under section 236 of the National Housing 
Act, or below market interest rate direct loans under section 202 of the 
Housing Act of 1959. For purposes of this part, subsidized project also 
includes those units in a housing project that receive the benefit of:
    (1) Rental subsidy in the form of rent supplement payments under 
section 101 of the Housing and Urban Development Act of 1965 (12 U.S.C. 
1701s); or
    (2) Housing assistance payments for project-based assistance under 
Section 8 of the 1937 Act (42 U.S.C. 1437f). However, this part is not 
applicable to Section 8 project-based assistance under parts 880, 881, 
883 and 884 of this title (except as specifically provided in those 
parts).

[41 FR 43330, Sept. 30, 1976. Redesignated at 49 FR 6713, Feb. 23, 1984, 
and amended at 53 FR 3368, Feb. 5, 1988; 54 FR 236, Jan. 4, 1989; 61 FR 
47381, Sept. 6, 1996; 66 FR 28797, May 24, 2001]



Sec.  247.3  Entitlement of tenants to occupancy.

    (a) General. The landlord may not terminate any tenancy in a 
subsidized project except upon the following grounds:
    (1) Material noncompliance with the rental agreement,
    (2) Material failure to carry out obligations under any state 
landlord and tenant act,
    (3) Criminal activity by a covered person in accordance with 
sections 5.858 and 5.859, or alcohol abuse by a

[[Page 471]]

covered person in accordance with section 5.860. If necessary, criminal 
records can be obtained for lease enforcement purposes under section 
5.903(d)(3).
    (4) Other good cause.

No termination by a landlord under paragraph (a)(1) or (2) of this 
section shall be valid to the extent it is based upon a rental agreement 
or a provision of state law permitting termination of a tenancy without 
good cause. No termination shall be valid unless it is in accordance 
with the provisions of Sec.  247.4.
    (b) Notice of good cause. The conduct of a tenant cannot be deemed 
other good cause under Sec.  247.3(a)(4) unless the landlord has given 
the tenant prior notice that said conduct shall henceforth constitute a 
basis for termination of occupancy. Said notice shall be served on the 
tenant in the same manner as that provided for termination notices in 
Sec.  247.4(b).
    (c) Material noncompliance. The term material noncompliance with the 
rental agreement includes:
    (1) One or more substantial violations of the rental agreement;
    (2) Repeated minor violations of the rental agreement that:
    (i) Disrupt the livability of the project,
    (ii) Adversely affect the health or safety of any person or the 
right of any tenant to the quiet enjoyment of the leased premises and 
related project facilities,
    (iii) Interfere with the management of the project, or
    (iv) Have an adverse financial effect on the project;
    (3) If the tenant:
    (i) Fails to supply on time all required information on the income 
and composition, or eligibility factors, of the tenant household, as 
provided in 24 CFR part 5; or
    (ii) Knowingly provides incomplete or inaccurate information as 
required under these provisions; and
    (4) Non-payment of rent or any other financial obligation due under 
the rental agreement (including any portion thereof) beyond any grace 
period permitted under State law, except that the payment of rent or any 
other financial obligation due under the rental agreement after the due 
date, but within the grace period permitted under State law, constitutes 
a minor violation.

(Approved by the Office of Management and Budget under control number 
2502-0204)

[41 FR 43330, Sept. 30, 1976. Redesignated at 49 FR 6713, Feb. 23, 1984, 
and amended at 54 FR 39697, Sept. 27, 1989; 56 FR 7531, Feb. 22, 1991; 
61 FR 13624, Mar. 27, 1996; 61 FR 47382, Sept. 6, 1996; 66 FR 28797, May 
24, 2001]



Sec.  247.4  Termination notice.

    (a) Requisites of Termination Notice. The landlord's determination 
to terminate the tenancy shall be in writing and shall: (1) State that 
the tenancy is terminated on a date specified therein; (2) state the 
reasons for the landlord's action with enough specificity so as to 
enable the tenant to prepare a defense; (3) advise the tenant that if he 
or she remains in the leased unit on the date specified for termination, 
the landlord may seek to enforce the termination only by bringing a 
judicial action, at which time the tenant may present a defense; and (4) 
be served on the tenant in the manner prescribed by paragraph (b) of 
this section.
    (b) Manner of service. The notice provided for in paragraph (a) of 
this section shall be accomplished by: (1) Sending a letter by first 
class mail, properly stamped and addressed, to the tenant at his or her 
address at the project, with a proper return address, and (2) serving a 
copy of the notice on any adult person answering the door at the leased 
dwelling unit, or if no adult responds, by placing the notice under or 
through the door, if possible, or else by affixing the notice to the 
door. Service shall not be deemed effective until both notices provided 
for herein have been accomplished. The date on which the notice shall be 
deemed to be received by the tenant shall be the date on which the first 
class letter provided for in this paragraph is mailed, or the date on 
which the notice provided for in this paragraph is properly given, 
whichever is later.
    (c) Time of service. When the termination of the tenancy is based on 
other good cause pursuant to Sec.  247.3(a)(4), the termination notice 
shall be effective, and the termination notice shall so

[[Page 472]]

state, at the end of a term and in accordance with the termination 
provisions of the rental agreement, but in no case earlier than 30 days 
after receipt of the tenant of the notice. Where the termination notice 
is based on material noncompliance with the rental agreement or material 
failure to carry out obligations under a state landlord and tenant act 
pursuant to Sec.  247.3(a)(1) or (2), the time of service shall be in 
accord with the rental agreement and state law.
    (d) Modification of rental agreement. Notwithstanding any other 
provision of this subpart, the landlord may with the prior approval of 
HUD modify the terms and conditions of the rental agreement, effective 
at the end of the initial term or a successive term, by serving an 
appropriate notice on the tenant, together with the tender of a revised 
rental agreement or an addendum revising the existing rental agreement: 
Any increase in rent shall in all cases be governed by 24 CFR parts 245, 
246 and other applicable HUD regulations. This notice and tender shall 
be served on the tenant in the same manner as provided for in Sec.  
247.4(b) and must be received by the tenant at least 30 days prior to 
the last date on which the tenant has the right to terminate the tenancy 
without being bound by the codified terms and conditions. The tenant may 
accept the modified terms and conditions by executing the tendered 
revised rental agreement or addendum, or may reject the modified terms 
and conditions by giving the landlord written notice in accordance with 
the rental agreement that he intends to terminate the tenancy.
    (e) Specificity of notice in rent nonpayment cases. In any case in 
which a tenancy is terminated because of the tenant's failure to pay 
rent, a notice stating the dollar amount of the balance due on the rent 
account and the date of such computation shall satisfy the requirement 
of specificity set forth in paragraph (a)(2) of this section.
    (f) Failure of tenant to object. The failure of the tenant to object 
to the termination notice shall not constitute a waiver of his rights to 
thereafter contest the landlord's action in any judicial proceeding.

[41 FR 43330, Sept. 30, 1976, as amended at 48 FR 22915, May 23, 1983. 
Redesignated at 49 FR 6713, Feb. 23, 1984, as amended at 61 FR 47382, 
Sept. 6, 1996]



Sec.  247.5  Inapplicability to substantial rehabilitation or demolition.

    This subpart shall not apply in any case in which the landlord 
terminates the occupancy of a tenant as a direct result of a 
determination, concurred in by HUD, to substantially rehabilitate or 
demolish the project or to dispose of the project to a purchaser who 
purchases for the purpose of substantial rehabilitation or demolition.



Sec.  247.6  Eviction.

    (a) General. The landlord shall not evict any tenant except by 
judicial action pursuant to State or local law and in accordance with 
the requirements of this subpart.
    (b) Limitations on allegations of new grounds. In any judicial 
action instituted to evict the tenant, the landlord must rely on grounds 
which were set forth in the termination notice served on the tenant 
under this subpart. The landlord shall not, however, be precluded from 
relying on grounds about which he or she had no knowledge at the time 
the termination notice was sent.
    (c) State and local law. A tenant may rely on State or local law 
governing eviction procedures where such law provides the tenant 
procedural rights which are in addition to those provided by this 
subpart, except where such State or local law has been preempted under 
part 246 of this chapter or by other action of the United States.

[48 FR 22915, May 23, 1983. Redesignated and amended at 49 FR 6713, 
6715, Feb. 23, 1984]



Sec.  247.7  Implementation.

    Every rental agreement entered into or renewed on and after the date 
on which this subpart is applicable to such tenant shall contain 
appropriate provisions implementing this subpart.

[[Page 473]]



                      Subpart B_HUD-Owned Projects



Sec.  247.8  Incorporation by reference.

    All of the provisions of subpart A of this part covering certain 
multifamily projects (excepting Sec.  247.5) apply with full force to 
the property described in Sec.  247.9 and they are hereby incorporated 
by reference.



Sec.  247.9  Applicability of procedures.

The procedures outlined in this subpart apply to all decisions to 
terminate the occupancy of a tenant by the termination of a lease prior 
to the end of its term or at the end of a term where the tenant resides 
in any multifamily project which is presently owned by HUD, regardless 
of whether said project was a subsidized project prior to the 
acquisition of title by HUD.



Sec.  247.10  Inapplicability to substantial rehabilitation or 
demolition; right of disposition unimpaired.

    This subpart shall not apply in any case in which HUD terminates the 
occupancy of a tenant as a direct result of a determination by HUD to 
substantially rehabilitate or demolish the project or to dispose of the 
project to a purchaser who purchases for the purpose of substantial 
rehabilitation or demolition. Nothing in this subpart should be 
construed to affect in any way the right of HUD to exercise its full 
statutory authority and discretion to dispose of property acquired 
pursuant to the National Housing Act.



PART 248_PREPAYMENT OF LOW INCOME HOUSING MORTGAGES--Table of Contents



                            Subpart A_General

Sec.
248.1 Purpose.
248.3 Applicability.
248.5 Election to proceed under subpart B or subpart C of this part.

 Subpart B_Prepayments and Plans of Action Under the Low Income Housing 
           Preservation and Resident Homeownership Act of 1990

248.101 Definitions.
248.103 General prepayment limitation.
248.105 Notice of intent.
248.111 Appraisal and preservation value of eligible low income housing.
248.121 Annual authorized return and aggregate preservation rents.
248.123 Determination of Federal cost limit.
248.127 Limitations on action pursuant to Federal cost limit.
248.131 Information from the Commissioner.
248.133 Second notice of intent.
248.135 Plans of action.
248.141 Criteria for approval of a plan of action involving prepayment 
          and voluntary termination.
248.145 Criteria for approval of a plan of action involving incentives.
248.147 Housing standards.
248.149 Timetable for approval of a plan of action.
248.153 Incentives to extend low income use.
248.157 Voluntary sale of housing not in excess of Federal cost limit.
248.161 Mandatory sale of housing in excess of the Federal cost limit.
248.165 Assistance for displaced tenants.
248.169 Permissible prepayment or voluntary termination and modification 
          of commitments.
248.173 Resident homeownership program.
248.175 Resident homeownership program--limited equity cooperative.
248.177 Delegated responsibility to State agencies.
248.179 Consultation with other interested parties.
248.181 Notice to tenants.
248.183 Preemption of State and local laws.

Subpart C_Prepayment and Plans of Action Under the Emergency Low Income 
                        Preservation Act of 1987

248.201 Definitions.
248.203 General prepayment limitation.
248.211 Notice of intent to prepay.
248.213 Plan of action.
248.215 Notification of deficiencies.
248.217 Revisions to plan of action.
248.218 Tenant notice and opportunity to comment.
248.219 Notification of approval.
248.221 Approval of a plan of action that involves termination of low 
          income affordability restrictions.
248.223 Alternative State strategy.
248.231 Incentives to extend low income use.
248.233 Approval of a plan of action that includes incentives.
248.234 Section 8 rental assistance.
248.241 Modification of existing regulatory agreements.
248.251 Consultation with other interested parties.
248.261 Agreements implementing plans of action and State strategies.

[[Page 474]]

             Subpart D_State Preservation Project Assistance

248.300 General.
248.301 Initial application.
248.303 Approval of a State agency's initial application.
248.305 Applicability of subpart B of this part.
248.307 Authority to process and approve notices of intent and plans of 
          action.
248.311 Notice of intent.
248.315 Preservation agreements.
248.319 Application for assistance.

          Subpart E_Technical Assistance and Capacity Building

248.401 Purposes.
248.405 Grants for building resident capacity and funding predevelopment 
          costs.
248.410 Grants for other purposes.
248.415 Delivery of assistance through intermediaries.
248.420 Definitions.

    Authority: 12 U.S.C. 17151 note, 4101 note, and 4101-4124; 42 U.S.C. 
3535(d).



                            Subpart A_General

    Source: 57 FR 12041, Apr. 8, 1992, unless otherwise noted.



Sec.  248.1  Purpose.

    The purpose of this part is to--
    (a) Preserve and retain to the maximum extent practicable as housing 
affordable to low income families or persons those privately owned 
dwelling units that were produced for such purpose with Federal 
assistance, without unduly restricting the owners' prepayment rights;
    (b) Minimize the involuntary displacement of tenants currently 
residing in such housing;
    (c) Work in partnership with State and local government and the 
private sector in the provision and operation of housing that is 
affordable to very low, low and moderate income families; and
    (d) Facilitate the sale of housing to residents under a resident 
homeownership program.



Sec.  248.3  Applicability.

    The requirements of subparts B and C of this part apply to any 
project that is eligible low income housing, as defined in subparts B 
and C of this part respectively, on or after November 1, 1987, except 
that such requirements shall not apply to a project which receives 
assistance under title IV, subtitle B of the Cranston-Gonzalez National 
Affordable Housing Act in connection with a homeownership program 
approved by the Commissioner thereunder.



Sec.  248.5  Election to proceed under subpart B or subpart C of this part.

    (a) Any owner who has not submitted a notice of intent prior to 
January 1, 1991, pursuant to either Sec.  248.211 or Sec.  248.105, 
shall proceed under subpart B of this part.
    (b) Any owner who has filed a plan of action with the Commissioner 
on or before October 11, 1990 pursuant to subpart C of this part, 
regardless of whether or not the Commissioner has approved such plan of 
action or whether the owner has received incentives thereunder, may 
proceed under subpart B of this part by submitting a notice of intent to 
the Commissioner in accordance with Sec.  248.105 within 30 days after 
publication of revised Appraisal Guidelines or within thirty days after 
the Commissioner notifies the owner of HUD's final approval of the plan 
of action, whichever is later. The notice of intent shall state that the 
owner is exercising its conversion right pursuant to this section. If 
the owner fails to file a notice of intent within that period, the owner 
forfeits its right of conversion. In awarding incentives to an owner who 
elects to proceed under subpart B of this part in accordance with this 
section, the Commissioner shall take into consideration any incentives 
which the owner has already received under subpart C of this part.
    (c) Any owner of housing that becomes eligible low income housing, 
as defined in subpart B of this part, before January 1, 1991, and who 
before such date, filed a notice of intent under Sec.  248.211 of 
subpart C of this part, may, unless a plan of action was submitted after 
October 11, 1990, elect to proceed under subpart B or under subpart C of 
this part. An owner must indicate its election by submitting to the 
Commissioner, within 30 days of the effective date of this part, a 
notice of election to proceed indicating whether it wishes to proceed 
under subpart B or subpart C of this part, or proceed under subpart B

[[Page 475]]

of this part until completion of the appraisals and then elect either 
subpart B or subpart C of this part. An owner who chooses to retain its 
option until after the completion of the appraisals under Sec.  248.111 
must submit a new notice of intent to the Commissioner within 30 days 
after receipt of the information provided by the Commissioner under 
Sec.  248.131. The notice of intent shall be submitted in accordance 
with either Sec.  248.105 (for owners electing to proceed under subpart 
B of this part) or Sec.  248.211 (for owners electing to proceed under 
subpart C of this part). Any owner who fails to file a notice of intent 
within the 30-day period may not proceed under subpart C of this part, 
but may proceed under subpart B of this part by filing a new notice of 
intent thereafter. If an owner who has filed a notice of intent before 
January 1, 1991 elects under this paragraph to proceed under subpart C 
of this part, it may change its election within 30 days after receipt of 
the information provided by the Commissioner under Sec.  248.131 by 
filing a new notice of intent under Sec.  248.211. For purposes of 
calculating any time periods or deadlines under this part for actions 
following the filing of the notice of intent, the date on which the 
owner submits the new notice of intent under this paragraph shall be 
deemed the date of the filing of the notice of intent. Any owner who, 
exercising its option under paragraph (c) of this section, submits a 
notice of intent under Sec.  248.211 after the Commissioner has incurred 
the cost of having an appraisal, or appraisals, performed pursuant to 
Sec.  248.111 of subpart A of this part, shall reimburse the 
Commissioner for these expenses within 30 days of receipt of a bill 
covering these expenses.
    (d) For an owner who has elected under paragraph (c) of this section 
to proceed under subpart C of this part, the Commissioner shall provide 
sufficient assistance to enable a nonprofit organization that has 
purchased, or will purchase, eligible low income housing to meet project 
oversight costs, as that term is defined in Sec.  248.201.
    (e) The Commissioner shall not refuse to offer incentives under 
Sec.  248.231 to any owner who filed a notice of intent under Sec.  
248.211 before October 15, 1991, based solely on the date of filing of 
the plan action.
    (f) An owner who has filed a plan of action after October 11, 1990, 
pursuant to Sec.  248.213, may not elect to proceed under subpart B of 
this part.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37814, July 13, 1993]



 Subpart B_Prepayments and Plans of Action Under the Low Income Housing 
           Preservation and Resident Homeownership Act of 1990

    Source: 57 FR 12041, Apr. 8, 1992, unless otherwise noted.



Sec.  248.101  Definitions.

    Acquisition Loan. A loan or advance of credit made to a qualified 
purchaser of eligible low income housing and insured by the Commissioner 
under part 241, subpart E of this chapter.
    Adjusted Income. Annual income, as specified in part 5 of this 
title, less allowances specified in the definition of ``Adjusted 
Income'' in part 5 of this title.
    Aggregate Preservation Rent. The extension preservation rent or 
transfer preservation rent, as defined under this section.
    Annual Authorized Return. That amount an owner of an eligible low 
income housing project may receive in distributions from the project 
each year, plus debt service payments payable each year attributable to 
the equity take-out portion of any loan approved under the plan of 
action, expressed as a percentage of the project's extension 
preservation equity.
    Bona Fide Offer. A certain and unambiguous offer to purchase an 
eligible low income housing project pursuant to subpart B of this part 
made in good faith by a qualified purchaser with the intent that such 
offer result in the execution of an enforceable, valid and binding 
contract. A bona fide offer shall include, for purposes of subpart B of 
this part, a contract of sale and an earnest money deposit, as set forth 
in Sec.  248.157(g). For mandatory sales under Sec.  248.161, the offer 
must include a contract of sale, an earnest money deposit

[[Page 476]]

and also be for a purchase price which equals the transfer preservation 
value.
    Capital Improvement Loan. A direct loan originated by the 
Commissioner under part 219, subpart C of this chapter.
    Community-Based Nonprofit Organization. A private nonprofit 
organization that--
    (1) Is organized under State or local laws;
    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual;
    (3) Is neither controlled by, nor under the direction of, 
individuals or entities seeking to derive profit or gain from the 
organization.
    (4) Has applied for, or has a tax exemption ruling from the Internal 
Revenue Service under section 501(c) of the Internal Revenue Code of 
1986;
    (5) Does not include a public body (including the participating 
jurisdiction) or an instrumentality of a public body. An organization 
that is State or locally chartered may qualify as a community-based 
nonprofit organization; however, the State or local government may not 
have the right to appoint more than one-third of the membership of the 
organization's governing body and no more than one-third of the board 
members can be public officials;
    (6) Has standards of financial accountability that conform to 2 CFR 
200.302 and 200.303;
    (7) Has among its purposes the provision of decent housing that is 
affordable to low-income and moderate-income persons, as evidenced in 
its charter, articles of incorporation, resolutions or by-laws;
    (8) Maintains accountability to low income community residents by--
    (i) Maintaining at least one-third of its governing board's 
membership for low-income neighborhood residents, other low-income 
community residents, or elected representatives of low-income 
neighborhood organizations. For urban areas, ``community'' may be a 
neighborhood or neighborhoods, city, county, or metropolitan area; for 
rural areas, ``community'' may be a neighborhood or neighborhoods, town, 
village, county, or multi-county area (but not the entire State); and
    (ii) Providing a formal process for low-income, program 
beneficiaries to advise the organization on its decisions regarding the 
acquisition, rehabilitation and management of affordable housing.
    Default. For purposes of Sec.  248.105(a), the failure of the owner 
to make any payment due under the mortgage (including the full amount of 
the debt if the mortgagee has accelerated the debt on the basis of a 
non-monetary default) within 30 days after such payment becomes due.
    Eligible Low Income Housing. Any project that is not subject to a 
use restriction imposed by the Commissioner that restricts the project 
to low and moderate income use for a period at least equal to the 
remaining term of the mortgage, and that is financed by a loan or 
mortgage--
    (1) That is--
    (i) Insured or held by the Commissioner under section 221(d)(3) of 
the National Housing Act and assisted under part 886, subpart A of this 
title because of a conversion from assistance under 215 of this chapter;
    (ii) Insured or held by the Commissioner under part 221 of this 
chapter and bearing a below market interest rate as provided under Sec.  
221.518(b) of this chapter;
    (iii) Insured, assisted, or held by the Commissioner or a State or 
State agency under part 236 of this chapter; or
    (iv) A purchase money mortgage held by the Commissioner with respect 
to a project which, immediately prior to HUD's acquisition, would have 
been classified under paragraphs (1)(i), (ii), or (iii) of this 
definition; and
    (2) That, under regulation or contract in effect before February 5, 
1988, is or will within 24 months become eligible for prepayment without 
prior approval of the Commissioner.
    Equity Loan. A loan or advance of credit to the owner of eligible 
low income housing and insured by the Commissioner under part 241, 
subpart E of this chapter.
    Extension Preservation Equity. The extension preservation equity of 
a project is:
    (1) The extension preservation value of the project determined under 
Sec.  248.111; less

[[Page 477]]

    (2) The outstanding balance of any debt secured by the property.
    Extension Preservation Rent. The extension preservation rent is the 
gross potential income for the project that would be required to 
support:
    (1) The annual authorized return;
    (2) Debt service on any rehabilitation loan for the project;
    (3) Debt service on the federally-assisted mortgage(s) for the 
project;
    (4) Project operating expenses; and
    (5) Adequate reserves.
    Extension Preservation Value. The fair market value of the project 
based on the highest and best use of the project as multifamily market-
rate rental housing.
    Fair market rent. The section 8 existing fair market rent published 
for effect and as defined under Sec.  982.4 of this title, applicable to 
the jurisdiction in which the project is located, with adjustments, 
where appropriate, for projects in which tenants pay their own 
utilities. (No utility adjustments will be made to the fair market rent 
for purposes of determining the Federal cost limit.)
    Federal Cost Limit. The greater of 120 percent of the section 8 
existing fair market rent for the market area in which the project is 
located or 120 percent of the prevailing rents in the relevant local 
market area in which the project is located.
    Federally-assisted Mortgage. Any mortgage as defined in this 
section, any insured operating loss loan secured by the project and any 
loan insured by the Commissioner under part 241 of this chapter.
    Good Cause. With respect to displacement, the temporary or permanent 
uninhabitability of the project justifying relocation of all or some of 
the project's tenants (except where such uninhabitability is caused by 
the actions or inaction of the owner), or actions of the tenant that, 
under the terms of the tenant's lease and applicable regulations, 
constitute a basis for eviction.
    HOME Investment Trust Fund. A public fund established in the general 
local or State government in which a project is located pursuant to 
title II of the Cranston-Gonzalez National Affordable Housing Act.
    Homeownership Program. A program developed by a resident council for 
the sale of an eligible low income housing project to the tenants in 
accordance with the standards in Sec.  248.173 or Sec.  248.175.
    Interest Reduction Payments. Payments made by the Commissioner 
pursuant to a contract to reduce the interest costs on a mortgage 
insured under part 236 of this chapter, as provided under subpart C of 
part 236 of this chapter.
    Limited Equity Cooperative. A tenant cooperative corporation which, 
in a manner acceptable to the Secretary, restricts the initial and 
resale price of the shares of stock in the cooperative corporation so 
that the shares remain affordable to low income families and moderate 
income families.
    Low Income Affordability Restrictions. Limits imposed by regulation 
or regulatory agreement on tenant rents, rent contributions, or income 
eligibility with respect to eligible low income housing.
    Low Income Families. Families or persons whose incomes do not exceed 
the levels established for low income families under part 5 of this 
title.
    Low Vacancy Area. A market area in which the current supply of 
decent, safe and sanitary, vacant, available rental units, as a 
proportion of the total overall rental inventory in the area is not 
sufficient to allow for normal growth and mobility, taking into account 
the need for vacancies resulting from turnover and to meet growth in 
renter households. The determination of a low vacancy area, as set forth 
in Sec.  248.165(h), will be made by the Commissioner, utilizing the 
most recent available data for the market area on the rental inventory, 
renter households, rental vacancy rates and other factors as 
appropriate.
    Moderate Income Families. Families or persons whose incomes are 
between 80 percent and 95 percent of median area income, as determined 
by the Commissioner, with adjustments for smaller and larger families.
    Mortgage. The mortgage or deed of trust insured or held by the 
Commissioner or a State or State agency under parts 221 or 236 of this 
title or the purchase money mortgage taken back by

[[Page 478]]

the Commissioner in connection with the sale of a HUD-owned project and 
held by the Commissioner, where such mortgage, deed or trust or purchase 
money mortgage is secured by eligible low income housing.
    Nonprofit Organization. Any private, nonprofit organization or 
association that--
    (1) Is incorporated under State or local law;
    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual;
    (3) Complies with standards of financial accountability acceptable 
to the Commissioner; and
    (4) Has among its principal purposes significant activities related 
to the provision of decent housing that is affordable to very low, low, 
and moderate income families.
    Notice of Intent. An owner's notification to the Commissioner of its 
intention to terminate the low income affordability restrictions on the 
project through prepayment of the mortgage or voluntary termination of 
the insurance contract, to extend the low income affordability 
restrictions on the project, or to transfer the project to a qualified 
purchaser.
    Owner. The mortgagor or trustor under the mortgage secured by 
eligible low income housing.
    Participating Jurisdiction. For purposes of the resident 
homeownership program established in Sec.  248.173, any State or unit of 
general local government that has been so designated in accordance with 
section 216 of the Cranston-Gonzalez National Affordable Housing Act of 
1990 (42 U.S.C. 12746).
    Plan of Action. A plan providing for the termination of the low 
income affordability restrictions on the project through prepayment of 
the mortgage or voluntary termination of the insurance contract, for 
extension of the low income affordability restrictions on the project, 
or for the transfer of the project to a qualified purchaser. A 
homeownership program constitutes a plan of action for purposes of 
subpart B of this part.
    Prepayment. Prepayment in full of a mortgage, or a partial 
prepayment or series of partial prepayments that reduces the mortgage 
term by a least six months, except where the prepayment in full or 
partial prepayment results from the application of condemnation 
proceeds.
    Preservation Equity. The extension preservation equity or transfer 
preservation equity, as defined under this section.
    Preservation Value. The extension preservation value or transfer 
preservation value, as defined under this section.
    Priority Purchaser. Any entity that is not a related party to the 
owner and that is either--
    (1) A resident council organized to acquire the project in 
accordance with a resident homeownership program that meets the 
requirements of subpart B of this part; or
    (2) Any nonprofit organization or State or local agency that agrees 
to maintain low income affordability restrictions for the remaining 
useful life of the project. A nonprofit organization or State or local 
agency that is affiliated with a for-profit entity for purposes of 
purchasing a project under subpart B of this part shall not be 
considered a priority purchaser.
    Project oversight costs. Reasonable expenses incurred by a priority 
purchaser in carrying out its ongoing ownership responsibilities under 
an approved plan of action. Project oversight costs must be directly 
related to educating the priority purchaser's board of directors or 
otherwise supporting the board in its decision making. Project oversight 
costs may include staff, overhead, or third-party contract costs for:
    (1) Ensuring adequate and responsible participation by the board of 
directors and the membership of the priority purchaser in ownership 
decisions, including ensuring resident input in these decisions;
    (2) Facilitating long-range planning by the board of directors to 
ensure the physical, financial and social viability of the project for 
the entire time the project is maintained as low income housing; and
    (3) Assisting the ownership in complying with regulatory, use, loan 
and grant agreements.
    Proprietary information. That information which cannot be released 
to the

[[Page 479]]

public because it consists of trade secrets, confidential financial 
information, audits, personal financial information about partners in 
the ownership entity, or income data on project tenants. Where 
proprietary information cannot be separated from the rest of a document, 
the entire document shall be deemed ``proprietary information'' and 
shall not be releasable to the public. Where proprietary information can 
be reasonably segregated from the rest of the document, the proprietary 
information shall be deleted and the remainder of the document shall be 
releasable to the public.
    Public Housing Agency. A public housing agency, as defined in 
section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 
1437a(b)).
    Qualified Purchaser. Any entity that is not a related party to the 
owner and that agrees to maintain low income affordability restrictions 
for the remaining useful life of the project, and includes for-profit 
entities and priority purchasers.
    Regulatory Agreement. The agreement executed by the owner and the 
Commissioner or a State agency providing for the regulation of the 
operation of the project.
    Related Party. An entity that, either directly or indirectly, is 
wholly or partially owned or controlled by the owner of the project 
being transferred under subpart B of this part, is under whole or 
partial common control with such owner, or has any financial interest in 
such owner or in which such owner has any financial interest. However, 
this shall not prohibit a nonprofit organization from buying out the 
interest of its limited dividend or for-profit partners in connection 
with the sale of eligible low income housing under subpart B of this 
part, as long as the sale is made on an arm's length basis and the 
partners who sell their interest completely divest themselves of any 
input in the continued operation of the project. The purchaser and the 
owner shall not be deemed related parties on the basis that financing is 
provided to the purchaser by the seller, or a management company 
affiliated with the seller, as long as:
    (1) Only a loan, and not a grant, is provided;
    (2) The financing is provided for the acquisition of the project, 
the rehabilitation of the project, or both;
    (3) In the case of financing for the acquisition of the project, the 
sum of the principal amount of the loan, plus the amount of the 
acquisition loan under section 241(f) of the National Housing Act (12 
U.S.C. 1715z-6(f)), and any Federal grant to cover acquisition of the 
project, does not exceed the sum of the sales price and the expenses 
associated with the acquisition, loan closing and implementation of the 
plan of action; and in the case of financing for the rehabilitation of 
the project, the principal amount of the loan does not exceed the equity 
requirements applicable to the rehabilitation loan or capital 
improvement loan obtained by the purchaser under part 241 or part 219 of 
this chapter;
    (4) The loan is not a condition of accepting a bona fide offer or 
entering into a sales contract;
    (5) The seller has no input in the continued operation of the 
project as a result of the loan; and
    (6) In the case of a loan provided by a management company that is 
affiliated with the seller, the execution of a management contract 
between the purchaser and the management company is not a condition of 
the loan. This rule does not bar an owner, or former owner, from 
membership on a nonprofit organization's board of directors, as long as 
the owner, or former owner, participates only in his or her personal 
capacity, without compensation, and holds a nonvoting membership. The 
purchaser and the owner shall not be deemed related parties solely by 
reason of the purchaser's retention of a property management entity of a 
company that is owned or controlled by the owner or a principal thereof, 
if retention of the management company is neither a condition of sale 
nor part of consideration paid for the project and the property 
management contract is negotiated by the qualified purchaser on an arm's 
length basis.
    Relevant Local Market. An area geographically smaller than the 
market area established by the Commissioner for purposes of determining 
the section 8 existing fair market rent, that is identifiable as a 
distinct rental market

[[Page 480]]

area in which similar projects and units would effectively compete with 
the subject project, for potential tenants.
    Relocation Expenses. Relocation expenses shall consist of payment 
for--
    (1) Advisory services, including timely information, counseling 
(including the provision of information on a resident's rights under the 
Fair Housing Act (42 U.S.C. 3601-3619)), and referrals to suitable, 
affordable, decent, safe and sanitary alternative housing; and
    (2) Payment for actual, reasonable moving expenses.
    Remaining Useful Life. With respect to eligible low income housing, 
the period during which the physical characteristics of the project 
remain in a condition suitable for occupancy, assuming normal 
maintenance and repairs are made and major systems and capital 
components are replaced as becomes necessary.
    Reserve for Replacements. The escrow fund established under the 
regulatory agreement for the purpose of ensuring the availability of 
funds for needed repair and replacement costs.
    Resident Council. Any incorporated nonprofit organization or 
association in which membership is available to all the tenants, and 
only the tenants, of a particular project and--
    (1) Is representative of the residents of the project;
    (2) Adopts written procedures providing for the election of officers 
on a regular basis; and
    (3) Has a democratically elected governing board, elected by the 
residents of the project.
    Residual Receipt Fund. The fund established under the regulatory 
agreement for holding cash remaining after deducting from the surplus 
cash, as defined by the regulatory agreement, the amount of all 
allowable distributions.
    Return on Investment. The amount of allowable distributions that a 
purchaser of a project may receive under a plan of action under Sec.  
248.157 or Sec.  248.161.
    Section 8 Assistance. Assistance provided under parts 880 through 
887 and 982 and 983 of this title.
    Special Needs Tenants. Those ``elderly persons,'' 62 years of age or 
older, ``elderly families,'' or families that include ``disabled 
persons,'' as such terms are defined in part 5 of this title, or large 
families of five or more persons and requiring units with three or more 
bedrooms.
    State assisted or subsidized mortgage. A mortgage which is assisted 
or subsidized by an agency of a State government without any Federal 
mortgage subsidy.
    Tenant Representative. A designated officer of an organization of 
the project's tenants, a tenant who has been elected to represent the 
tenants of the project with respect to subpart B of this part, or a 
person or organization that has been formally designated or retained by 
an organization of the project's tenants to represent the tenants with 
respect to subpart B of this part.
    Termination of Low Income Affordability Restrictions. The 
elimination of low income affordability restrictions under the 
regulatory agreement through termination of mortgage insurance or 
prepayment of the mortgage.
    Transfer Preservation Equity. The transfer preservation equity of a 
project is:
    (1) The transfer preservation value of the project determined under 
Sec.  248.111; less
    (2) The outstanding balance of the federally-assisted mortgage(s) 
for the project.
    Transfer Preservation Rent. For purposes of receiving incentives 
pursuant to a sale of the project, transfer preservation rent shall be 
the gross income for the project that would be required to support:
    (1) Debt service on the loan for acquisition of the project;
    (2) Debt service on any rehabilitation loan for the project;
    (3) Debt service on the federally-assisted mortgage(s) for the 
housing;
    (4) Project operating expenses; and
    (5) Adequate reserves.
    Transfer Preservation Value. The fair market value of the project 
based on its highest and best use.
    Very Low Income Families. Families or persons whose incomes do not 
exceed the level established for very low income families under part 5 
of this title.
    Voluntary Termination of Mortgage Insurance. The termination of all 
rights

[[Page 481]]

under the mortgage insurance contract and of all obligations to pay 
future insurance premiums.

[57 FR 12041, Apr. 8, 1992, as amended at 57 FR 57314, Dec. 3, 1992; 58 
FR 37814, July 13, 1993; 59 FR 14369, Mar. 28, 1994; 64 FR 26639, May 
14, 1999; 80 FR 75936, Dec. 7, 2015]



Sec.  248.103  General prepayment limitation.

    (a) Prepayment. An owner of eligible low income housing may prepay, 
and a mortgagee may accept prepayment of, a mortgage on such project 
only in accordance with a plan of action approved by the Commissioner.
    (b) Termination. A mortgage insurance contract with respect to 
eligible low income housing may be terminated pursuant to Sec.  207.253 
of this chapter only in accordance with a plan of action approved by the 
Commissioner.
    (c) Foreclosure. A mortgagee of a mortgage insured by the 
Commissioner may foreclose the mortgage on, or acquire by deed in lieu 
of foreclosure, any eligible low income housing only if the mortgagee 
also conveys title to the project to the Commissioner in connection with 
a claim for insurance benefits.
    (d) Effect of unauthorized prepayment. A mortgagee's acceptance of a 
prepayment in violation of paragraph (a) of this section, or the 
voluntary termination of a mortgage insurance contract in violation of 
paragraph (b) of this section, shall be null and void and any low income 
affordability restrictions on the project shall continue to apply to the 
project.
    (e) Remedies for unauthorized prepayment. A mortgagee's acceptance 
of a prepayment in violation of paragraph (a) of this section, or 
attempt to obtain voluntary termination of a mortgage insurance contract 
in violation of paragraph (b) of this section, is grounds for 
administrative action under parts 24 and 25 of this title, in addition 
to any other remedies available by law, including rescission of the 
prepayment or reinstatement of the insurance contract.



Sec.  248.105  Notice of intent.

    (a) Eligibility for filing. An owner of eligible low income housing 
intending to prepay the mortgage or voluntarily terminate the mortgage 
insurance contract pursuant to Sec.  248.141, extend the low income 
affordability restrictions of the housing in accordance with Sec.  
248.153, or transfer the housing to a qualified purchaser under Sec.  
248.157, may file a notice of intent unless the mortgage covering the 
project--
    (1) Continued in default or fell into default on or after the 
November 28, 1990, and the mortgage has been assigned to the 
Commissioner as a result of such default;
    (2) Continued in default or fell into default on or after November 
28, 1990, while the mortgage was held by the Commissioner;
    (3) Fell into default prior to November 28, 1990, if the owner 
entered into a workout agreement prior to that date, and on or after 
that date, the owner has defaulted under the workout agreement (and, if 
the agreement was with an insured mortgagee, the mortgage has been 
assigned to the Commissioner as a result of the default under the 
workout agreement); or
    (4) Fell into default prior to November 28, 1990, but has been 
current since that date and the owner has not agreed to recompense the 
appropriate insurance fund for losses sustained by the fund as a result 
of any work-out or other arrangement agreed to by the Commissioner and 
the owner with respect to the defaulted mortgage.
    (b) Filing with the Commissioner. The notice of intent shall be 
filed with the HUD Field Office in whose jurisdiction the project is 
located. The notice of intent shall identify the project by name, 
project number and location. It shall contain a statement indicating 
whether the owner intends to extend the affordability restrictions on 
the project by retaining ownership of the project or transferring it to 
a qualified purchaser, or whether the owner intends to terminate the 
affordability restrictions on the project through prepayment of the 
mortgage or termination of the mortgage insurance contract. The notice 
of intent shall also request the tenants to notify the owner, the 
Commissioner, and the State or local officer identified in the notice of 
intent of any individual or organization that has been designated or 
retained by the tenants to represent the tenants with

[[Page 482]]

respect to the actions to be taken under subpart B of this part.
    (c) Filing with the State or local government and tenants. The owner 
simultaneously shall file the notice of intent with the chief executive 
officer of the appropriate State or local government in which the 
project is located, or any officer designated by executive order or 
State or local law to receive such information, and with the mortgagee. 
In addition, the owner shall deliver a copy of the notice of intent to 
each occupied unit in the project and to any tenant representative, if 
any, known to the owner, and shall post a copy of the notice of intent 
in readily accessible locations within each affected building of the 
project. The copies of the notice of intent delivered to the tenants and 
the tenant representative shall include a summary of possible outcomes 
of the filing which shall be furnished by the Commissioner. Upon the 
request of any non-English speaking tenants residing in the affected 
project, the owner shall tabulate the number and type of translations 
needed by the tenants and request the local HUD field office to provide 
the appropriate translations. The owner shall deliver a copy of the 
translated notice of intent to all of the tenants who requested such 
translation. The failure of an owner to comply with any non-federal 
notice requirements shall not invalidate the notice of intent.



Sec.  248.111  Appraisal and preservation value of eligible low
income housing.

    (a) Appraisal. Upon receiving a notice of intent indicating an 
intent to extend the low income affordability restrictions under Sec.  
248.153 or transfer the project under Sec.  248.157, the Commissioner 
shall provide for determination of the preservation values of the 
project pursuant to this section.
    (b) Notice. Within 30 days after the filing of a notice of intent to 
extend the income restrictions or to transfer the project, the 
Commissioner shall provide the owner with written notice of--
    (1) The need for, and the rules and guidelines governing, an 
appraisal of the project;
    (2) The filing deadline for submission of the appraisal;
    (3) The need for an appraiser retained by the Commissioner to 
inspect the project and the project's financial records; and
    (4) Any delegation to an appropriate State agency, if any, by the 
Commissioner of responsibilities regarding the performance of an 
appraisal pursuant to this section.
    (c) Appraisers. The Commissioner and the owner shall each select and 
compensate an appraiser who shall:
    (1) Neither be an employee of the Federal Government nor an employee 
or officer of any entity that is affiliated with the owner or the 
mortgagee of record;
    (2) Be certified by the appropriate State agency under the standards 
established by the Federal Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (12 U.S.C. 1451-1459); and
    (3) Have six years of experience in the appraisal profession and at 
least three years experience in the practice of appraising multifamily 
residential properties;
    (4) Is not the subject of a charge issued following a reasonable 
cause determination under the Fair Housing Act (42 U.S.C. 3601-3619).
    (d) Guidelines. The Commissioner shall provide to the owner and the 
appraiser retained by the Commissioner guidelines for conducting the 
appraisal. The guidelines established by the Commissioner shall be 
consistent with customary appraisal standards. The guidelines shall 
assume repayment of the existing federally-assisted mortgage(s), 
termination of the existing Federal low income affordability 
restrictions, simultaneous termination of any Federal rental assistance, 
and costs of compliance with any State or local laws of general 
applicability. The guidelines may permit reliance upon assessments of 
rehabilitation needs and other conversion costs determined by an 
appropriate State agency, as determined by the Commissioner.
    (e) Operating expenses. For the purpose of determining preservation 
values, the guidelines shall instruct the appraiser to use the greater 
of actual project operating expenses at the time

[[Page 483]]

of the appraisal, based on the average of the actual project operating 
expenses during the preceding three years, or projected operating 
expenses after conversion, as determined by the Commissioner. However, 
if the current year operating expenses are higher than those of the 
preceding three years and the Commissioner has made a determination that 
these costs are unlikely to decrease in the future, the appraiser shall 
use current year operating expenses rather than operating expenses for 
the preceding three years for purposes of comparison with projected 
operating expenses after conversion. Likewise, if the current year 
operating expenses are lower than those of the preceding years and the 
Commissioner has made a determination that these costs are unlikely to 
increase in the future, the appraiser shall use current year operating 
expenses rather than operating expenses for the preceding three years 
for purposes of comparison with projected expenses after conversion. 
Where the highest and best use of a project is not as rental housing, 
the appraiser shall use projected operating expenses assuming conversion 
of the project to its highest and best use.
    (f) Preservation values. The preservation values will be determined 
on the basis of the appraisals conducted by the owner's and the 
Commissioner's independent appraisers. Each appraiser will determine 
both the extension preservation value and the transfer preservation 
value, regardless of the owner's intentions as indicated in the notice 
of intent.
    (g) Highest and best use as residential property. In determining the 
extension preservation value of the project, the appraiser shall assume 
conversion of the project to market-rate rental housing. The appraiser 
shall, in accordance with the guidelines established by the 
Commissioner, determine the amount of rehabilitation expenditures, if 
any, that would be necessary to bring the project up to quality 
standards required to attract and sustain a market-rate tenancy upon 
conversion and assess other costs that the owner could reasonably be 
expected to incur if the owner converted the property to market-rate 
multifamily rental housing.
    (h) Highest and best use. In determining the transfer preservation 
value for the project, the appraiser shall assume conversion of the 
project to highest and best use for the property, and shall, in 
accordance with the guidelines established by the Commissioner, 
determine the amount of any rehabilitation expenditures, including 
demolition, that would be necessary to convert the project to such use 
and assess other costs that the owner could reasonably be expected to 
incur if the owner converted the property to its highest and best use.
    (i) Submission of appraisal. Within four months after the filing of 
the notice of intent:
    (1) The owner shall submit to the HUD Field Office in whose 
jurisdiction the project is located, the appraisal made by the owner's 
selected appraiser; and
    (2) The Commissioner's selected appraiser shall conduct and submit 
an appraisal to the Commissioner.
    (j) Joint determination of preservation values. No later than one 
month after the owner and the Commissioner exchange appraisals, the 
owner and the Commissioner shall, on the basis of the appraisals 
delivered to them, agree on the preservation values of the project. If 
no agreement as to preservation values can be reached, the owner and the 
Commissioner shall jointly select a third appraiser meeting the 
qualifications set forth in paragraph (c) of this section by the end of 
six months from the date that the notice of intent was filed. The cost 
of this third appraisal shall be borne equally by both parties. The 
third appraiser must comply with the guidelines set forth in paragraph 
(d) of this section and must conduct the appraisal and submit an 
appraisal within two months after accepting the assignment. The 
determination by the third appraiser of the project's preservation 
values shall be binding on both the owner and the Commissioner.
    (k) Timeliness of appraisals. The Commissioner may approve a plan of 
action to receive incentives under Sec. Sec.  248.153, 248.157 or 
248.161 only based upon an appraisal conducted in accordance with this 
section that is not more than 30 months old, unless the failure of the 
Commissioner to approve the plan of

[[Page 484]]

action within the 30-month period was due to circumstances beyond the 
control of the owner.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 4871, Jan. 15, 1993]



Sec.  248.121  Annual authorized return and aggregate preservation rents.

    (a) Annual authorized return. For each eligible low income housing 
project appraised under Sec.  248.111, the Commissioner shall set an 
annual authorized return on the project equal to 8 percent of the 
extension preservation equity.
    (b) Aggregate preservation rents. For each eligible low income 
housing project appraised under Sec.  248.111, the Commissioner shall 
also determine the aggregate preservation rents. The aggregate 
preservation rents shall be used solely for the purposes of comparison 
with the Federal cost limit under Sec.  248.123. Actual rents received 
by the owner (or a qualified purchaser) shall be determined pursuant to 
Sec. Sec.  248.153, 248.157, and 248.161.
    (c) Extension preservation rent. The extension preservation rent 
shall be the gross potential income for the project, as determined by 
the Commissioner, that would be required to support--
    (1) The annual authorized return determined under paragraph (a) of 
this section;
    (2) Debt service on any rehabilitation loan for the project, 
assuming a market rate of interest and customary terms;
    (3) Debt service on the federally-assisted mortgage(s) for the 
project;
    (4) Project operating expenses as determined by the Commissioner; 
and
    (5) Adequate reserves.
    (d) Transfer preservation rent. The transfer preservation rent shall 
be the gross potential income for the project, as determined by the 
Commissioner, that would be required to support--
    (1) Debt service on the loan for acquisition of the project;
    (2) Debt service on any rehabilitation loan for the project, 
assuming a market rate of interest and customary terms;
    (3) Debt service on the federally-assisted mortgage(s) for the 
project;
    (4) Project operating expenses as determined by the Commissioner; 
and
    (5) Adequate reserves.
    (e) Adequate reserves and operating expenses. For purposes of this 
section--
    (1) Adequate reserves are the amount of funds which, when added to 
existing reserves, are sufficient to maintain the project, including 
needed deferred maintenance, at a level that meets the standards set 
forth in Sec.  248.147; and
    (2) Project operating expenses shall be based on operating expenses 
for the preceding 3 years, adjusted for reasonable reductions in 
operating costs due to rehabilitation and energy improvements. For 
purposes of comparison to the gross rents used in determining the 
Federal cost limit, project operating expenses shall include the cost of 
utilities paid by the residents.
    (f) Debt service. For purposes of this section, the amount of debt 
service for an acquisition loan will be estimated based on the maximum 
loan to which the purchaser is entitled under Sec.  241.1067 of this 
chapter. The debt service on any rehabilitation loan will be estimated 
using costs derived from the appraisals conducted under Sec.  248.111, 
taking into account any funds provided for rehabilitation by State or 
local governments and assuming market rate interest rates.



Sec.  248.123  Determination of Federal cost limit.

    (a) Initial determination. For each eligible low income housing 
project appraised under Sec.  248.111, the Commissioner shall determine 
whether the aggregate preservation rents for the project exceed the 
amount determined by multiplying the number of dwelling units in the 
project, according to appropriate unit sizes, by 120 percent of the 
section 8 existing fair market rent for the appropriate unit sizes.
    (b) Relevant local markets. If either the extension or transfer 
preservation rent for a project exceeds the amount determined under 
paragraph (a) of this section, the Commissioner shall determine whether 
such extension or transfer preservation rent exceeds the amount 
determined by multiplying the number of units in the project, according 
to the appropriate unit sizes, by 120 percent of the prevailing rents in 
the local market area. The relevant local market, and the prevailing 
rents in

[[Page 485]]

such relevant local market, shall be determined on the basis of the 
appraisal conducted by the appraiser selected by the Commissioner 
pursuant to Sec.  248.111 and any other information that the 
Commissioner determines is appropriate. If there are no comparables in 
the relevant local market and it is not otherwise possible to determine 
prevailing rents in that area, the section 8 existing fair market rent 
shall be the sole measure for determining the Federal cost limit.
    (c) Effect. The extension or transfer preservation rent for an 
eligible low income housing project appraised under Sec.  248.111 shall 
be considered to exceed the Federal cost limit only if the extension or 
transfer preservation rent exceeds the amount determined under 
paragraphs (a) and (b) of this section.



Sec.  248.127  Limitations on action pursuant to Federal cost limit.

    (a) Retention of the project. With respect to owners who seek to 
retain the project, the owner may file a plan of action to receive 
incentives under Sec.  248.153, except that if the extension 
preservation rent exceeds the Federal cost limit, the amount of the 
incentives may not exceed an amount that can be supported by a projected 
income stream equal to the Federal cost limit.
    (b) Transfer of the project. With respect to owners who seek to 
transfer the project--
    (1) If the transfer preservation rent does not exceed the Federal 
cost limit, or if the transfer preservation rent exceeds the Federal 
cost limit and the owner is willing to transfer the project at a price 
which will result in project rents that, on an aggregate level, do not 
exceed the Federal cost limit, the owner may file a second notice of 
intent indicating an intention to transfer the project under Sec.  
248.157; or
    (2) If the transfer preservation rent exceeds the Federal cost 
limit, the owner may file a second notice of intent to transfer the 
project under Sec.  248.161 or, if no bona fide offers are received, to 
prepay the mortgage or terminate the mortgage insurance.



Sec.  248.131  Information from the Commissioner.

    (a) Information to owners terminating affordability restrictions. 
Within six months after receipt of a notice of intent to terminate the 
low income affordability restrictions under Sec.  248.141, the 
Commissioner shall provide the owner with a description of the criteria 
for such termination and with information that the owner needs to 
prepare a plan of action. This shall include information concerning the 
standards under Sec.  248.141 regarding the approval of a plan of action 
and a list of the Federal incentives authorized under Sec.  248.153 and 
available to those projects for which a plan of action involving 
termination of low income affordability restrictions, through prepayment 
of the mortgage or termination of the mortgage insurance contract, would 
not be approvable. The Commissioner shall also provide the owner with 
any other relevant information which the Commissioner may possess.
    (b) Information to owners extending affordability restrictions. 
Within nine months of receipt of a notice of intent to extend the low 
income affordability restrictions under Sec.  248.153 or to transfer the 
project under Sec.  248.157, the Commissioner shall provide the owner 
who submitted the notice with--
    (1) A statement of the preservation values of the project as 
determined under Sec.  248.111;
    (2) A statement of the aggregate preservation rents for the project 
as calculated under Sec.  248.121;
    (3) A statement of the applicable Federal cost limit for the market 
area (or relevant local market, if applicable) in which the project is 
located, and an explanation of the limitations under Sec.  248.127 on 
the amount of assistance the Commissioner may provide based on such cost 
limits;
    (4) A statement of whether either of the aggregate preservation 
rents exceeds the Federal cost limit; and
    (5) A direction to file a plan of action and the information 
necessary to file a plan of action; or
    (6) A direction to submit a second notice of intent under Sec.  
248.133.
    (c) Information to tenants and State or local governments. The 
Commissioner shall provide any information provided

[[Page 486]]

to the owner under paragraphs (a) and (b) of this section to the tenant 
representative, if any, known to the Commissioner, and shall post a 
notice in each affected building informing tenants of the name(s), 
address(es), and telephone number(s) of the tenant representative(s) and 
appropriate personnel in the local HUD field office, from whom they may 
obtain this information. The Commissioner shall also provide this 
information to that officer of State or local government to whom the 
owner submitted a notice of intent pursuant to Sec.  248.105(c). The 
Commissioner shall include in the information packet made available to 
the tenants any other information relating to their rights and 
opportunities, including--
    (1) The potential opportunity of the tenants to become priority 
purchasers under Sec. Sec.  248.157 and 248.161; and
    (2) The potential opportunity of resident homeownership under 
Sec. Sec.  248.173 or 248.175.



Sec.  248.133  Second notice of intent.

    (a) Filing. A second notice of intent must be filed by all owners 
who, after receiving the information provided by the Commissioner in 
Sec.  248.131, elect to transfer the project under Sec. Sec.  248.157 or 
248.161.
    (b) Timeliness. A second notice of intent must be submitted not 
later than 30 days after receipt of the information provided by the 
Commissioner under Sec.  248.131. If an owner who is required to submit 
a second notice of intent fails to do so within this time period, the 
original notice of intent submitted under Sec.  248.105 shall be void 
and ineffective for purposes of subpart B of this part.
    (c) Filing with the State or local government and tenants. The owner 
simultaneously shall file the second notice of intent with that officer 
of State and local government to whom the owner submitted a notice of 
intent under Sec.  248.105(c) and with the mortgagee. In addition, the 
owner shall deliver a copy of the second notice of intent to each tenant 
representative known to the owner, and if none is known, then to each 
occupied unit in the project.



Sec.  248.135  Plans of action.

    (a) Submission. An owner seeking to terminate the low income 
affordability restrictions through prepayment of the mortgage or 
voluntary termination under Sec.  248.141, or to extend the low income 
affordability restrictions on the project under Sec.  248.153, shall 
submit a plan of action to the Commissioner in the form and manner 
prescribed in paragraph (d) or (e) of this section respectively, within 
6 months after receipt of the information from the Commissioner under 
Sec.  248.131.
    (b) Joint Submission. An owner and purchaser seeking a transfer of 
the project under Sec. Sec.  248.157 or 248.161 shall jointly submit a 
plan of action to the Commissioner in the form and manner prescribed in 
paragraph (e) of this section within six months after the owner's 
acceptance of a bona fide offer under Sec.  248.157 or the purchaser's 
making of a bona fide offer under Sec.  248.161.
    (c) Filing with the State or local government and tenants. The owner 
shall notify the tenants of the plan of action by posting in each 
occupied building a summary of the plan of action and by delivery of a 
copy of the plan of action to the tenant representative, if any. In 
addition, the summary must indicate that a copy of the plan of action 
shall be available from the tenant representatives, whose names, 
addresses and telephone numbers are indicated on the summary, the local 
HUD field office, and the on-site office for the project, or if one is 
not available, in the location where rents are collected, for inspection 
and copying, at a reasonable cost, during normal business hours. 
Simultaneously with the submission to the Commissioner, the owner shall 
submit the plan of action to that officer of State or local government 
to whom the owner submitted a notice of intent under Sec.  248.105(c). 
The Commissioner shall submit a copy of the plan of action to the chief 
executive officer of the appropriate agency of such State or local 
government which shall review the plan of action and advise the tenants 
of the project of any programs that are available to assist the tenants 
in carrying out the purposes of this subpart. The summary of the plan of 
action posted by the owner and the copies of the plan of action 
submitted

[[Page 487]]

to the tenant representative, the officer of State or local government 
to whom the owner submitted a notice of intent under Sec.  248.105(c) 
and the chief executive officer of the appropriate State or local 
government, shall all state that, upon request, the tenants and the 
State or local government, may obtain from the owner or from the local 
HUD field office a copy of all documentation supporting the plan of 
action except for that documentation deemed ``proprietary information'' 
under Sec.  248.101.
    (d) Termination of affordability restrictions. If the plan of action 
proposes to terminate the low income affordability restrictions through 
prepayment or voluntary termination in accordance with Sec.  248.141, it 
shall include:
    (1) A description of any proposed changes in the status or terms of 
the mortgage or regulatory agreement;
    (2) A description of any proposed changes in the low income 
affordability restrictions;
    (3) A description of any change in ownership that is related to 
prepayment or voluntary termination;
    (4) An assessment of the effect of the proposed changes on existing 
tenants;
    (5) An analysis of the effect of the proposed changes on the supply 
of housing affordable to low and very low income families or persons in 
the community within which the project is located and in the area that 
the housing could reasonably be expected to serve;
    (6) A list of any waivers requested by the owner pursuant to Sec.  
248.7; and
    (7) Any other information that the Commissioner determines is 
necessary to achieve the purposes of subpart B of this part.
    (e) Extension of affordability restrictions. If the plan of action 
proposes to extend the low income affordability restrictions of the 
project in accordance with Sec.  248.153 or transfer the project to a 
qualified purchaser in accordance with Sec. Sec.  248.157 or 248.161, 
the plan of action shall include:
    (1) A description of any proposed changes in the status or terms of 
the mortgage or regulatory agreement;
    (2) A description of the Federal incentives requested, including 
cash flow projections and analyses of how the owner will address any 
physical or financial deficiencies and maintain the low income 
affordability restrictions of the project;
    (3) A description of any assistance from State or local government 
agencies, including low income housing tax credits that have been 
offered to the owner or purchaser or for which the owner or purchaser 
has applied or intends to apply;
    (4) A description of any transfer of the property, including the 
identity of the transferee and a copy of any documents of sale;
    (5) An income profile of the tenants as of the date of submission of 
the plan of action and as of January 1, 1987 (based on the area median 
income limits established by the Commissioner in February 1987), or if 
the January 1, 1987 profile is unavailable, a certification from the 
owner stating its unavailability and a profile as of January 1, 1988, 
or, if that is also unavailable, a profile as of January 1, 1989;
    (6) A transfer of physical assets package, if a transfer is 
proposed;
    (7) A list of any waivers requested by the owner pursuant to Sec.  
248.7; and
    (8) Any other information that the Commissioner determines is 
necessary to achieve the purposes of subpart B of this part.
    (f) Revisions. The owner or owner and purchaser may from time to 
time revise and amend the plan of action as may be necessary to obtain 
approval under subpart B of this part and must amend the plan of action 
no later than 30 days after a change in any of the information required 
in paragraphs (d) or (e) of this section. The owner shall submit any 
revision to the Commissioner, and provide a copy of the revision and all 
documentation supporting the revision except for that documentation 
deemed ``proprietary information'' under Sec.  248.101, to the parties, 
and in the manner, specified in paragraph (c) of this section.
    (g) Failure to Submit. If the owner fails to submit a plan of action 
to the Commissioner, when prepayment or termination is sought, within 
the 6 month period set forth in paragraph (a) of this section or, when a 
transfer is sought, if the owner and purchaser fail to submit a plan of 
action within the 6

[[Page 488]]

month time period set forth in paragraph (b) of this section, the notice 
of intent filed by the owner under Sec.  248.105 shall be ineffective 
for the purposes of subpart B of this part and the owner shall be barred 
from submitting another notice of intent under Sec.  248.105 until 6 
months after expiration of such period.
    (h) Comment Period for tenants and State or local governments. Upon 
submission of the plan of action by the owner, the tenants of the 
affected project and the State or local government shall have 60 days in 
which to provide comments on the plan of action to the Commissioner or 
to the owner, who will then submit the comments to the Commissioner. The 
Commissioner shall not approve a plan of action under subpart B of this 
part before the end of this 60-day period and all comments received 
during this period will be considered by the Commissioner in making its 
determination to approve or disapprove a plan of action.
    (i) Notification to tenants and the State or local government of 
plan of action approval. Upon the Commissioner's approval of the plan of 
action, the owner shall notify tenants of the terms thereof by posting 
in each occupied building a summary of the plan of action and by 
delivery of a copy of the plan of action to the tenant representative, 
if any. In addition, the summary must indicate that a copy of the plan 
of action shall be available for inspection and copying during 
reasonable hours in a location convenient to the tenants.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37814, July 13, 1993]



Sec.  248.141  Criteria for approval of a plan of action involving
prepayment and voluntary termination.

    (a) Approval. The Commissioner may approve a plan of action that 
provides for the termination of the low income affordability 
restrictions through prepayment of the mortgage or voluntary termination 
of the mortgage insurance contract only upon a written finding that--
    (1) Implementation of the plan of action will not--
    (i) Materially increase economic hardship for current tenants, and 
will not in any event result in a monthly rental payment by any current 
tenant that exceeds 30 percent of the monthly adjusted income of the 
tenant or an increase in the monthly rental payment in any year that 
exceeds 10 percent (whichever is lower); or in the case of a current 
tenant who already pays more than such percentage, an increase in the 
monthly rental payment in any year that exceeds the increase in the 
Consumer Price Index or 10 percent (whichever is lower); or
    (ii) Involuntarily displace current tenants (except for good cause) 
where comparable and affordable housing is not readily available, 
determined without regard to the availability of Federal housing 
assistance that would address any such hardship or involuntary 
displacement; and
    (2) The supply of vacant, comparable housing is sufficient to ensure 
that such prepayment will not materially affect--
    (i) The availability of decent, safe, and sanitary housing 
affordable to low income and very low income families or persons in the 
area that the housing could reasonably be expected to serve;
    (ii) The ability of low income and very low income families or 
persons to find affordable, decent, safe, and sanitary housing near 
employment opportunities; or
    (iii) The housing opportunities of minorities in the community 
within which the housing is located.
    (3) There are no open audit findings, open findings of noncompliance 
with title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d); the 
Fair Housing Act (42 U.S.C. 3601-3619); Executive Order 11063 (3 CFR 
1959-1963 comp., p. 652); the Age Discrimination Act of 1975 (42 U.S.C. 
6101-6107); section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794); and all regulations promulgated under such statutes and 
authorities (including, but not limited to 24 CFR part 100), or 
outstanding violations of the regulatory agreement.
    (b) For purposes of approving a plan of action under this section, 
the Commissioner shall find that the requirements of paragraph (a)(1) of 
this section have been met if the owner agrees to execute a use 
agreement which provides that rents for all tenants residing

[[Page 489]]

at the project at the time of plan of action approval will not exceed 
the limit established in paragraph (a)(1)(i) of this section and that no 
tenant residing in the project at the time of plan of action approval 
will be involuntarily displaced without good cause.
    (c) For purposes of approving a plan of action under this section, 
the Commissioner shall find that the requirements of paragraph (a)(2) of 
this section have been met if the project is located in a housing market 
area which has been determined to have an adequate supply of decent, 
safe and sanitary rental housing; and it has been determined, based on 
the specific characteristics of the project, that the prepayment would 
not materially affect the housing opportunities of low and very-low 
income families.
    (1) For purposes of this section, a ``housing market area'' is 
defined as an area where rental housing units of similar characteristics 
are in relative competition with each other. If a project is in a non-
metropolitan area, the housing market area is the county in which the 
project is located. If the project is located in a metropolitan area the 
housing market area is the primary metropolitan statistical area (PMSA), 
or in the case of very large metropolitan areas, the housing market area 
may be a portion of the PMSA.
    (2) For purposes of this section, a housing market area may be 
determined to have an adequate supply of decent, safe, and sanitary 
rental housing if the housing market area has a soft rental market. A 
soft rental market is a housing market area in which the supply of 
vacant available rental housing significantly exceeds the demand. A soft 
rental market exists if:
    (i) There is currently a surplus of rental housing such that the 
current excess supply of vacant available housing, plus units currently 
under construction, is expected to exceed demand for at lest the next 24 
months; or
    (ii) Within the next 12 months, based on the housing production 
(units currently under construction or with firm planning commitments), 
in combination with the current supply of available vacant units, supply 
is expected to exceed demand for at least 24 months.
    (3) In order to determine whether the housing market area has a soft 
rental market, the Commissioner shall consider data from the 1990 
Decennial Census and the most recent available local data concerning 
changes in population, households, employment, the housing inventory, 
residential construction activity, and the current and anticipated 
supply/demand conditions within the overall rental market, as well as 
the occupancy and vacancy situation in assisted housing projects in the 
area, including information on waiting lists and the experience of 
voucher holders in finding units.
    (4) A determination must also be made on whether the prepayment 
would materially affect the housing opportunities of low and very-low 
income families in the area, based on the specific characteristics of 
the project including unit sizes, the type of tenants, e.g., elderly, 
handicapped, large families, minorities, the location of the project 
with respect to its proximity to employment opportunities; and the 
availability of other assisted housing within the immediate area. The 
prepayment would be determined to materially affect housing 
opportunities if:
    (i) The project is needed to assist in preserving low income housing 
in a neighborhood which is being revitalized;
    (ii) The project represents a rare source or the only source of low-
and moderate-income rental housing in the immediate area;
    (iii) There is a shortage of the particular type of rental housing 
provided by the project such as units suitable for the disabled, single 
room occupancy, or units for large families;
    (iv) The preservation of the housing would be necessary to avoid 
adversely affecting the housing opportunities of low and very-low income 
families to find housing near employment opportunities; or
    (v) The preservation of the housing would be necessary to avoid 
adversely affecting the housing opportunities of minorities in the 
community within which the housing is located.
    (d) Once the Commissioner has compiled the necessary data and 
conducted the analysis under paragraph (c) of this section the 
Commissioner shall issue a

[[Page 490]]

written finding to the owner stating whether the plan of action to 
terminate the low income affordability restrictions is approved or 
disapproved. The written finding shall contain a specific determination 
of whether the market area is a soft rental market and prepayment would 
materially affect housing opportunities. The written finding shall 
include:
    (1) A statement as to whether the owner has agreed to execute a use 
agreement to protect current tenants, in accordance with paragraph (b) 
of this section;
    (2) A description of the geographic boundaries of the housing market 
area in which the project is located;
    (3) An analysis of current and anticipated supply/demand conditions 
in both the overall rental market and the assisted housing inventory; 
and
    (4) A discussion of whether the prepayment would materially affect 
the housing opportunities, given the specific characteristics of the 
project.
    (e) Disapproval. If the Commissioner determines a plan of action to 
prepay a mortgage or terminate an insurance contract fails to meet the 
requirements of paragraph (a) of this section, the Commissioner shall 
disapprove the plan and within a reasonable time, shall inform the owner 
of the reasons for disapproval and suggest alternatives. In the case of 
disapproval of the plan of action, except for the failure to meet the 
requirement of paragraph (a)(3) of this section, the notice of intent 
filed under Sec.  248.105 shall be rendered ineffective for the purposes 
of this subtitle, and the owner, in order to receive incentives, must 
file a new notice of intent under such section. If the plan of action is 
disapproved because of an outstanding civil rights or audit finding, the 
finding must be closed before the Commissioner will approve a plan of 
action under this section.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37815, July 13, 1993; 64 
FR 26639, May 14, 1999]



Sec.  248.145  Criteria for approval of a plan of action involving 
incentives.

    (a) Approval. The Commissioner may approve a plan of action for 
extension of the low income affordability restrictions on an eligible 
low income housing project or for transfer of the housing to a qualified 
purchaser, other than a resident council acquiring the project under a 
resident homeownership plan, only upon a finding that--
    (1) Due diligence has been given to ensuring that the package of 
incentives set forth in the plan of action is, for the Federal 
Government, the least costly alternative that is consistent with the 
full achievement of the purposes of this subpart.
    (2) The project will be retained as housing affordable for very low, 
low and moderate income families and persons, as determined under 
paragraph (a)(8) of this section, for the remaining useful life of the 
project;
    (3) Throughout the remaining useful life of the project, adequate 
expenditures will be made for maintenance and operation of the project 
and the project meets the housing standards established in Sec.  248.147 
as determined by inspections conducted by the Commissioner;
    (4) Current tenants will not be involuntarily displaced, except for 
good cause;
    (5) Any increase in rent contributions for current tenants will be 
to a level that does not exceed 30 percent of the adjusted income of the 
tenant or the fair market rent, whichever is lower. However, the rent 
contributions of any tenants occupying the project at the time of any 
increase may not be reduced by reason of this paragraph, except with 
respect to tenants receiving section 8 assistance in accordance with 
paragraph (a)(7) of this section;
    (6) Any resulting increase in rents for current tenants (except for 
increases made necessary by increased operating costs) shall be phased 
in as follows:
    (i) If such increase is 30 percent or more, the increase shall be 
phased in equally over a period of not less than three years, with the 
first increase occurring upon the effective date of the plan of action, 
and the subsequent two increases occurring annually thereafter;
    (ii) If such increase is more than 10 percent but less than 30 
percent, it shall be limited to not more than 10 percent per year;
    (7) Section 8 assistance shall be provided, to the extent 
appropriations are

[[Page 491]]

available, if necessary to mitigate any adverse effect on current very 
low and low income tenants;
    (8) Rents for units becoming available to new tenants shall be at 
levels approved by the Commissioner, taking into account any incentives 
provided under subpart B of this part, that will ensure, to the extent 
practicable, that the units will be available and affordable to the same 
proportions of very low, low and moderate income families and persons, 
including families and persons whose incomes are 95 percent or more of 
area median income, as based on the area median income limits 
established by the Commissioner in February 1987, as resided in the 
project as of the date of the tenant income profile submitted under 
Sec.  248.135(e)(5), or the date the plan of action is approved, 
whichever date results in the highest proportion of very low income 
families. This limitation shall not prohibit a higher proportion of very 
low income families and persons from occupying the project;
    (9) Future rent adjustments shall be--
    (i) Made by applying an annual factor, to be determined by the 
Commissioner, to the portion of rent attributable to operating expenses 
for the project, and, where the owner is a priority purchaser, to the 
portion of rent attributable to project oversight costs, as that term is 
defined in Sec.  248.101; and
    (ii) Subject to a procedure, established by the Commissioner, for 
owners to apply for rent increases not adequately compensated by annual 
adjustment under paragraph (a)(9)(i) of this section, under which the 
Commissioner may increase rents in excess of the amount determined under 
paragraph (a)(9)(i) of this section only if the Commissioner determines 
such increases are necessary to reflect extraordinary necessary expenses 
of owning and maintaining the project;
    (10) Any savings from reductions in operating expenses due to 
management efficiencies shall be deposited in project reserves for 
replacement and the owner shall have periodic access to such reserves, 
to the extent the Commissioner determines that the level of the reserves 
is adequate and that the project is maintained in accordance with the 
standards established in Sec.  248.147;
    (11) The mortgage on the project is current; and
    (12) There are no open audit findings, open findings of 
noncompliance with title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d); the Fair Housing Act (42 U.S.C. 3601-3619); Executive Order 
11063 (3 CFR 1959-1963 comp., p. 652); the Age Discrimination Act of 
1975 (42 U.S.C. 6101-6107); section 504 of the Rehabilitation Act of 
1973 (29 U.S.C. 794); and all regulations promulgated under such 
statutes and authorities (including, but not limited to, 24 CFR part 
100), or outstanding violations of the regulatory agreement.
    (b) Compliance with housing standards. No incentives under Sec.  
248.153 may be provided, other than to qualified purchasers under 
Sec. Sec.  248.157 and 245.161, and no distributions may be taken by the 
owner or purchaser, until the Commissioner determines that the project 
meets the housing standards set forth in Sec.  248.147, except that 
incentives designed to correct deficiencies in the project may be 
provided.
    (c) Implementation. Any agreement to maintain the low income 
affordability restrictions for the remaining useful life of the project 
may be made through execution of a new regulatory agreement, 
modifications to the existing regulatory agreement or mortgage, or in 
the case of prepayment of a mortgage or voluntary termination of 
mortgage insurance, a recorded instrument.
    (d) Determination of remaining useful life. The Commissioner shall 
make determinations, on the record and after opportunity for a hearing, 
as to when the useful life of an eligible low income housing project has 
expired. Under procedures and standards to be established by the 
Commissioner, owners of eligible low income housing may petition the 
Commissioner for a determination that the useful life of such project 
has expired. Such petition may not be filed before the expiration of the 
50-year period beginning upon the approval of a plan of action under 
subpart B of this part with respect to such project. In making a 
determination pursuant to a petition under paragraph (d) of this 
section, the Commissioner shall presume that the useful life of the 
project

[[Page 492]]

has not expired, and the owner shall have the burden of proof in 
establishing such expiration. The Commissioner may not determine that 
the useful life of any project has expired if such determination results 
primarily from failure to make regular and reasonable repairs and 
replacement, as became necessary. In making a determination regarding 
the useful life of any project pursuant to a petition submitted under 
paragraph (d) of this section, the Commissioner shall provide for 
comment by tenants of the project and interested persons and 
organizations with respect to the petition. The Commissioner shall also 
provide the tenants and interested persons and organizations with an 
opportunity to appeal a determination under paragraph (d) of this 
section.
    (e) In the case of any plans of action involving incentives the 
owner must agree to comply with title VI of the Civil Rights Act of 1964 
(42 U.S.C. 2000d); the Fair Housing Act (42 U.S.C. 3601-3619); Executive 
Order 11063 (3 CFR 1959-1963 comp., p. 652); the Age Discrimination Act 
of 1975 (42 U.S.C. 6101-6107); section 504 of the Rehabilitiation Act of 
1973 (29 U.S.C. 794) (including the Department's Accessibility 
Guidelines (24 CFR chapter I, subchapter A, appendix II) and all 
regulations issued pursuant to these authorities.

[57 FR 12041, Apr. 8, 1992, as amended at 57 FR 57314, Dec. 3, 1992; 58 
FR 37815, July 13, 1993]



Sec.  248.147  Housing standards.

    (a) Standards. As a condition to receiving incentives under subpart 
B of this part, the owner shall agree to maintain the project in 
accordance with local housing codes and the housing quality standards 
set forth in Sec.  886.307 of this title. Where a housing quality 
standard conflicts with local housing codes, the owner shall maintain 
the project in compliance with the standard that is stricter.
    (b) Annual inspections. The Commissioner shall inspect each project 
at least annually in order to determine compliance with the housing 
quality standards. At least 30 days prior to the inspection, the 
Commissioner shall notify any tenant representatives, or if none exist, 
the Commissioner shall provide the owner with a notice to be posted in 
each affected building, stating the time and date of the inspection and 
advising any interested tenants that they may accompany HUD personnel on 
the inspection and/or submit any comments they may have on the physical 
condition of the project. The Commissioner shall notify the owner of any 
deficiencies within 30 days following the inspection. The owner shall 
have 90 days from the date of such notification to correct any 
deficiencies cited by the Commissioner and shall promptly notify the 
Commissioner when such deficiencies have been corrected. The 
Commissioner shall reinspect the project upon such notification or, if 
the owner does not notify the Commissioner, upon the expiration of the 
90-day period.
    (c) Sanctions for noncompliance. If the Commissioner determines, 
upon reinspection of the project, that the project is still not in 
compliance with the standards set forth in paragraph (a) of this 
section, the Commissioner shall take any action appropriate to bring the 
project into compliance, including--
    (1) Directing the mortgagee, with respect to an equity take-out loan 
provided under part 241 of this chapter, to withhold the disbursement to 
the owner of any escrowed loan proceeds and requiring that such proceeds 
be used for repair of the project; and
    (2) Reduce the amount of the allowable distributions to 4 percent of 
extension preservation equity or (in the case of a purchaser 4 percent 
of cash invested, as appropriate, for the period ending upon a 
determination by the Commissioner that the project is in compliance with 
the standards and requiring that such amounts be used for repair.
    (d) Continued compliance. To ensure continued compliance with the 
standards set forth in paragraph (a) of this section for a project 
subject to any action under paragraph (c) of this section, the 
Commissioner may limit access of and use by the owner of such amounts 
set forth in paragraph (c) of this section, for not more than the 2-year 
period beginning upon the determination that the project is in 
compliance with the housing standards.

[[Page 493]]

    (e) Sanctions for continuous noncompliance. If, upon inspection, the 
Commissioner determines that any eligible low income housing project has 
failed to comply with the standards established under this section for 
two consecutive years, the Commissioner may, upon notification to the 
owner of the noncompliance, take one or more of the following actions;
    (1) Subject to the availability of appropriations, provide 
assistance, other than project-based assistance attached to the project, 
under part 982 of this title for any tenant eligible for such assistance 
who desires to terminate occupancy in the project. For each unit in the 
project vacated pursuant to the provision of assistance under this 
paragraph, the Commissioner may, notwithstanding any other law or 
contract for assistance, cancel the provision of project-based 
assistance attached to the project for one dwelling unit, if the project 
is receiving such assistance, or convert the project-based assistance 
allocation for that unit to assistance under part 982 of this title;
    (2) In the case of projects for which an equity take-out loan has 
been made under part 241 of this chapter, direct the mortgagee to 
declare such a loan to be in default and accelerate the maturity date of 
the loan;
    (3) Declare, or direct the insured mortgagee to declare, any 
rehabilitation loan insured or provided by the Commissioner with respect 
to the project, including loans provided under part 219 of this chapter, 
to be in default and accelerate the maturity date of the loan; and
    (4) Suspend payments under or terminate any contract for project-
based rental assistance under section 8 of the United States Housing Act 
of 1937 (42 U.S.C. 1437f).
    (f) Sanctions not exclusive. The Commissioner may take any other 
action authorized by law or the project regulatory agreement to ensure 
that the project will be brought into compliance with the standards 
established under this section or with other requirements pertaining to 
the condition of the project.

[57 FR 12041, Apr. 8, 1992, as amended at 64 FR 26639, May 14, 1999]



Sec.  248.149  Timetable for approval of a plan of action.

    (a) Notification of deficiencies. Not later than 60 days after 
receipt of a plan of action, the Commissioner shall notify the owner in 
writing of any deficiencies that prevent the plan of action from being 
approved. Such notice shall describe alternative ways in which the plan 
may be revised to meet the criteria for approval set forth in Sec.  
248.145.
    (b) Notification of approval. Not later than 180 days after receipt 
of a plan of action, or such longer period as the owner requests, but 
not more than 365 days, the Commissioner shall notify the owner in 
writing whether the plan of action, including any revisions, is 
approved. If approval is withheld, the notice shall describe--
    (1) The reasons for withholding approval; and
    (2) Suggestions to the owner for meeting the criteria for approval.
    (c) Opportunity to revise. The Commissioner shall give the owner a 
reasonable opportunity of not more than 60 days to revise the plan of 
action when approval is denied. If the owner fails to comply with this 
time period, it shall not be eligible for relief under paragraph (d) of 
this section.
    (d) Delayed approval. If the Commissioner fails to approve a plan of 
action within the time set forth in paragraph (b) of this section, the 
Commissioner shall provide incentives and assistance under subpart B of 
this part, to an owner who is entitled to receive such incentives and 
assistance, in the amount that the owner would have received if the 
Commissioner had complied with such time limitations. Paragraph (d) of 
this section does not apply to plans of action that are not approved 
because of deficiencies.



Sec.  248.153  Incentives to extend low income use.

    (a) Agreements by the Commissioner. After approving a plan of action 
filed pursuant to Sec.  248.145, from an owner of eligible low income 
housing that includes the owner's plan to extend the low income 
affordability restrictions of the project, the Commissioner shall, 
subject to the availability of appropriations for such purpose, enter 
into

[[Page 494]]

such agreements as are necessary to enable the owner to--
    (1) Receive the annual authorized return for the project as 
determined under Sec.  248.121 for each year after the approval of the 
plan of action;
    (2) Pay debt service on the federally-assisted mortgage(s) covering 
the project;
    (3) Pay debt service on any loan for rehabilitation of the project;
    (4) Meet project operating expenses; and
    (5) Establish adequate reserves.
    (b) Permissible incentives. Such agreements may include one or more 
of the following incentives, as determined necessary by the 
Commissioner:
    (1) Increased access to residual receipts accounts as necessary to 
enable the owner to realize the annual authorized return;
    (2) An increase in the rents permitted under an existing project-
based section 8 contract;
    (3) Additional project-based section 8 assistance or an extension of 
any project-based assistance attached to the housing;
    (4) An increase in the rents on non-section 8 units occupied by 
current tenants up to the maximum allowable rents;
    (5) Financing of capital improvements under part 219 of this 
chapter;
    (6) Financing of rehabilitation through provision of insurance for a 
second mortgage under part 241 of this chapter;
    (7) Redirection of the Interest Reduction Payment subsidies to a 
second mortgage for projects which are insured, assisted, or held by the 
Commissioner or a State or State agency under part 236 of this chapter;
    (8) Access by the owner to a portion of the preservation equity in 
the project through provision of insurance for an acquisition or equity 
loan insured under part 241, subpart E of this chapter or through a non-
insured mortgage loan approved by the Commissioner and the mortgagee;
    (9) An increase in the amount of allowable distributions up to the 
annual authorized return; and
    (10) Other incentives authorized in law.
    (c) Limitation on the provision of permissible incentives. (1) The 
total amount of incentives provided to a project under paragraphs 
(b)(2), (3), and (4) of this section shall not result in a projected 
rental income stream which exceeds the Federal cost limit.
    (2) The debt service on the loan obtained by the owner under 
paragraph (b)(8) of this section, when added to the allowable 
distributions under paragraph (b)(9) of this section, shall not exceed 
the annual authorized return.
    (d) Rent phase-in period. To the extent necessary to ensure that 
owners receive the annual authorized return during the tenant rent 
phase-in period established in Sec.  248.145(a)(6), the Commissioner 
shall permit owners to receive the following additional incentives:
    (1) Access to residual receipts accounts;
    (2) Deferred remittance of excess rent payments; and
    (3) Increases in rents, as permitted under an existing Section 8 
contract.

These incentives shall be provided to owners in the order listed. An 
owner will not be eligible to receive these additional incentives unless 
it can demonstrate that it is not receiving the annual authorized 
return. Once an owner has adequately demonstrated that it is not 
receiving the annual authorized return, the Commissioner will provide 
the owner with each incentive in turn during the rent phase-in period, 
until it has been determined that the owner is receiving the annual 
authorized return.
    (e) Interest reduction subsidies. Where Interest Reduction Payment 
subsidies are sought to be redirected, pursuant to paragraph (b)(7) of 
this section, the lender may not unreasonably withhold its consent to 
such redirection.
    (f) Recalculation of section 236 basic rent and market rent. With 
respect to any project with a mortgage insured or otherwise assisted 
pursuant to part 236 of this chapter, the basic rent and market rent, as 
defined in Sec.  236.2 of this chapter, for each unit in such project 
may be increased to take into account the allowable distributions 
permitted under this section and the debt service on any equity loan, 
rehabilitation loan or acquisition loan approved under a

[[Page 495]]

plan of action under subpart B of this part.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37815, July 13, 1993]



Sec.  248.157  Voluntary sale of housing not in excess of Federal cost limit.

    (a) Offer to sell. Where an owner has submitted a second notice of 
intent under Sec.  248.133 for the purpose of transferring the project 
to a qualified purchaser, and the transfer preservation rent does not 
exceed the Federal cost limit, the owner shall offer the housing for 
transfer as provided in this section. The owner shall not be obligated 
to accept any offer made under this section, but may instead elect to 
retain the project and receive incentives under Sec.  248.145.
    (b) Notification of qualified purchasers. Upon receipt of a second 
notice of intent to transfer the project to a qualified purchaser, the 
Commissioner shall notify potential qualified purchasers of the 
availability of the project for sale, and of the names and addresses of 
the owner, or of a person representing the owner in the sale of the 
project, by--
    (1) Mailing notices to non-profit organizations;
    (2) Placing notices in the major local newspaper(s) in the 
jurisdiction in which the project is located;
    (3) Mailing notices to clearinghouse networks; and
    (4) Using any other means of notification which the Commissioner 
determines would be effective to notify potential qualified purchasers 
of the sale of the project.
    (c) Right of first offer to priority purchasers. (1) For the 6-month 
period beginning on the date of receipt by the Commissioner of a second 
notice of intent under Sec.  248.133, the owner may accept a bona fide 
offer only from:
    (i) A resident council intending to purchase the project under 
Sec. Sec.  248.173 or 248.175, which has met the requirements for tenant 
support, pursuant to those sections;
    (ii) A resident council intending to purchase the project and retain 
it as rental housing, which has the support of a majority of the 
tenants; or
    (iii) A community-based nonprofit organization which has the support 
of a majority of the tenants.
    (2) If no bona fide offer to purchase the project is made and 
accepted during or at the end of the 6-month period specified in 
paragraph (c)(1) of this section, the owner may offer to sell the 
project during the next 6 months to any priority purchasers.
    (3) If no bona fide offer to purchase the project is made and 
accepted during or at the end of the 6-month period specified in 
paragraph (c)(2) of this section, the owner may offer to sell the 
project during the 3 months immediately following that period only to 
qualified purchasers.
    (d) Purchase price. The sale price, including assumption of the debt 
on the federally-assisted mortgage(s), or the amount of the debt on the 
federally-assisted mortgage(s) that the project is taken subject to, may 
not exceed the transfer preservation value of the project.
    (e) Expression of interest. Any priority purchaser seeking to make 
an offer during the 6-month periods specified in paragraph (c) of this 
section shall, and other qualified purchasers may, submit written notice 
thereof to the Commissioner. Such notice, if made by a priority 
purchaser seeking to make an offer during either 6-month priority 
purchaser marketing period, shall contain the following:
    (1) A statement identifying the priority purchaser as a State or 
local government agency, a nonprofit organization, or a resident 
council;
    (2) A copy of its articles of incorporation, charter and list of 
officers and directors, if the purchaser is a nonprofit organization or 
a resident council and in the case of a nonprofit organization, proof 
that the organization is, or has applied to be, a tax exempt 
organization in accordance with 26 U.S.C. 501(c); and
    (3) A statement as to whether the purchaser is affiliated with any 
other entity for purposes of purchasing the project and whether any Low 
Income Housing Tax Credits may be awarded in connection with the 
purchase of the project.
    (f) Information from the Commissioner. Within 30 days of receipt of 
an expression of interest by a priority purchaser, the Commissioner 
shall determine the status of the priority purchaser with

[[Page 496]]

respect to the categories listed in paragraph (h) of this section, and 
provide such purchaser with:
    (1) A list of all possible assistance available from the Federal 
Government to facilitate a transfer of the project;
    (2) The appraisal reports for the project as submitted under Sec.  
248.111;
    (3) The Commissioner's determination as to the priority status of 
the purchaser and as to whether the purchaser qualifies as a resident 
council, community-based nonprofit organization or State or local 
government entity;
    (4) A worksheet indicating the level of the earnest money deposit 
required upon the submission of a bona fide offer;
    (5) An acknowledgment of the purchaser's right to inspect the 
project; and
    (6) Any other relevant financial information that the Commissioner 
possesses concerning the project, including the information determined 
under Sec.  248.121.

Within the same 30-day period, the Commissioner shall also notify the 
owner of the purchaser's expression of interest and instruct the owner 
to provide to the purchaser any information concerning the project that 
the Commissioner deems relevant to the transfer of the project.
    (g) Bona fide offer. A bona fide offer is an offer to purchase 
eligible low-income housing at a sales price which does not exceed the 
transfer preservation value of the project.
    (1) A bona fide offer must include the following:
    (i) A contract of sale signed by the purchaser, which states that 
acceptance of the contract is contingent upon approval by the 
Commissioner;
    (ii) An earnest money deposit from every qualified purchaser equal 
to the lesser of one percent of the transfer preservation value, $50,000 
or $500 per unit, unless the purchaser is a resident council purchasing 
the project under a resident homeownership plan under Sec.  248.173 or 
Sec.  248.175, in which case the earnest money deposit shall be equal to 
$200 per unit from 75% of the occupied units; and
    (iii) If the purchaser is a resident council intending to purchase 
the project pursuant to a resident homeownership plan, the information 
required under Sec.  248.173(b); or
    (iv) If the purchaser is a resident council intending to retain the 
project as rental housing, or a community-based nonprofit and the offer 
is submitted within the marketing period established in paragraph (c)(1) 
of this section, a resolution of the resident council, or a petition 
signed by tenants representing a majority of the units indicating their 
support of the offer.
    (2) An owner may waive the requirement of an earnest money deposit 
or agree to accept a smaller deposit for all qualified purchasers, 
except resident councils who intend to purchase the project pursuant to 
a resident homeownership plan under Sec.  248.173 or Sec.  248.175. In 
order to be effective:
    (i) The waiver must be indicated in the second notice of intent 
submitted under Sec.  248.133 and the waiver must apply equally to all 
qualified purchasers, except resident councils who intend to purchase 
the project pursuant to a resident homeownership plan under Sec.  
248.173 or Sec.  248.175; or
    (ii) If the second notice of intent has already been submitted, the 
owner must submit to the Commissioner, in writing, its decision to waive 
the earnest money deposit. The Commissioner shall notify all qualified 
purchasers who have submitted an expression of interest under paragraph 
(e) of this section that the owner has waived the earnest money deposit 
requirement.
    (h) Retention and acceptance of offers. The owner shall accept or 
reject any bona fide offer within 30 days of receipt of such offer. For 
an offer to be bona fide, it must meet the requirements of paragraph (g) 
of this section, as well as be submitted to the owner within the 
appropriate marketing period under paragraph (c) of this section. If an 
owner rejects any offer, it must return the earnest money deposit to the 
offeror at the time of rejection. A bona fide offer which is rejected by 
the owner will still be considered a bona fide offer for purposes of 
this section, even after the earnest money deposit has been returned. If 
an owner decides to accept the offer at a later date, the purchaser may 
renew the offer by resubmitting the earnest money deposit, if a deposit

[[Page 497]]

had originally been required, within 30 days of notification of the 
owner's acceptance of the offer.
    (i) Submission of offer to HUD. The purchaser shall submit the offer 
to the Commissioner. The Commissioner shall review the offer which is 
preliminarily accepted by the owner to determine whether it meets the 
requirements of a bona fide offer. The Commissioner shall notify the 
owner and purchaser, within 30 days after acceptance, whether the offer 
meets such requirements. The owner's preliminary acceptance of any offer 
pursuant to this section shall be conditional upon the Commissioner's 
certification that the offer is bona fide. If the Commissioner 
determines that the offer is not a bona fide offer, the offer will be 
considered invalid for the purposes of subpart B of this part.
    (j) Submission of plan of action. Upon a determination by the 
Commissioner that the offer is bona fide and final acceptance of such an 
offer, the owner and purchaser shall jointly submit a plan of action to 
the Commissioner pursuant to Sec.  248.135. The plan of action shall 
include any request for assistance from the Commissioner for purposes of 
transferring the project.
    (k) Requirements for plan of action approval. If the qualified 
purchaser of the project is a resident council seeking to purchase the 
project under a resident homeownership program, the Commissioner may 
approve a plan of action only if the resident council's proposed 
resident homeownership program meets the requirements under Sec.  
248.173 or Sec.  248.175. For all other qualified purchasers, the 
Commissioner may approve a plan of action submitted pursuant to this 
section only if the plan of action meets the criteria listed in Sec.  
248.145.
    (l) Failure to consummate sales transaction. (1) If the owner 
accepts an offer from a priority purchaser during either of the two 6-
month periods specified in paragraph (c) of this section, and before the 
expiration of the period specified in paragraph (c) of this section, the 
sales transaction either falls through or does not close within 90 days 
after the Commissioner's approval of the plan of action, the owner 
shall:
    (i) Immediately notify the Commissioner that the sale has fallen 
through;
    (ii) Notify any other purchaser that had submitted an offer to 
purchase the project; and
    (iii) Resume holding the project open for sale for the remainder of 
the time periods specified in paragraph (c) of this section.
    (2) If the owner accepts an offer from a purchaser, and during the 
3-month period specified in paragraph (c) of this section, or 
thereafter, the sales transaction either falls through or does not close 
within 90 days after the Commissioner's approval of the plan of action, 
the owner shall take the following steps:
    (i) Immediately notify the Commissioner that the sale has fallen 
through;
    (ii) Contact any other purchaser that had submitted an offer to 
purchase the project and give such purchaser and any other qualified 
purchaser 60 days from the date of notification to the Commissioner in 
which to resubmit an offer to purchase the project.
    (3) At any time during the 60-day period the owner may accept an 
offer submitted under paragraph (l)(2) of this section.
    (4) If an offer submitted during the 60-day period specified in 
paragraph (l)(2) of this section is made and accepted, but the sale is 
not consummated within 90 days of the Commissioner's approval of the 
plan of action for reasons not attributable in whole or in part to the 
owner, the owner may terminate the low-income affordability restrictions 
through prepayment or voluntary termination, subject to compliance with 
the provisions of Sec.  248.165.
    (m) Assistance. Subject to the availability of amounts approved in 
appropriation acts, the Commissioner shall, for approvable plans of 
action, provide assistance sufficient to enable qualified purchasers to:
    (1) Acquire the eligible low income housing project from the current 
owner for a purchase price not greater than the transfer preservation 
value of the project;
    (2) Pay the debt service on the federally-assisted mortgage(s) 
covering the project;

[[Page 498]]

    (3) Pay the debt service on any loan for the rehabilitation of the 
project;
    (4) Meet project operating expenses and establish adequate reserves 
for the housing, and in the case of a priority purchaser, meet project 
oversight costs;
    (5) Receive a distribution equal to an 8 percent annual return on 
any actual cash investment made to acquire or rehabilitate the project;
    (6) In the case of a priority purchaser, receive reimbursement for 
all reasonable transaction expenses associated with the acquisition, 
loan closing and implementation of an approved plan of action; and
    (7) In the case of an approved resident homeownership program, cover 
the costs of training for the resident council, homeownership counseling 
and training, the fees for the nonprofit entity or public agency working 
with the resident council, if such entity or agency is approved by the 
Commissioner, and costs related to relocation of tenants who elect to 
move. Assistance for such costs, exclusive of relocation expenses, shall 
not exceed $500 per unit or $200,000 for the project, whichever is less.
    (n) Incentives. The Commissioner may provide assistance for all 
qualified purchasers under this subpart in the form of one or more of 
the incentives authorized under Sec.  248.153. The incentives provided 
by the Commissioner to any qualified purchaser may include an 
acquisition loan under subpart E of part 241 of this chapter.
    (o) Grants to priority purchasers. The Commissioner may provide 
assistance for priority purchasers under subpart B of this part in the 
form of a grant for each unit in the project in an amount, as determined 
by the Commissioner, that does not exceed the present value of the total 
of the projected fair market rent for the next ten years, or such longer 
period if additional assistance is necessary to cover the costs set 
forth in paragraph (m) of this section.
    (p) Reimbursement of assistance. The Commissioner reserves the right 
to seek reimbursement from a priority purchaser who, within ten years of 
approval of a plan of action, becomes affiliated with or transfers the 
project to any non-priority purchaser. The Commissioner shall be 
entitled to receive reimbursement for the difference between the 
assistance provided to the priority purchaser and the assistance that 
would have been provided in the same circumstances to a non-priority 
purchaser.
    (q) Seller financing. In order to finance the acquisition or 
rehabilitation of a project under this section, a qualified purchaser 
may receive take-back financing from the owner of the project. If the 
purpose of the seller financing is to aid acquisition of the project, 
the principal amount of such financing, together with an acquisition 
loan provided under part 241 of this chapter, may not exceed the 
transfer preservation equity of the project, plus, in the case of 
priority purchasers, any expenses associated with the acquisition, loan 
closing, and implementation of the plan of action. If the purpose of the 
seller financing is to fund rehabilitation of the project, the principal 
amount of such financing may not exceed the equity requirements for a 
rehabilitation loan under Sec.  241.70 or Sec.  219.305 of this chapter. 
The seller may not charge interest on any seller financing at a rate in 
excess of that of the Federal acquisition or rehabilitation loan.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37816, July 13, 1993]



Sec.  248.161  Mandatory sale of housing in excess of the Federal cost limit.

    (a) In general. With respect to any eligible low income housing for 
which the transfer preservation rent determined under Sec.  248.121 
exceeds the Federal cost limit, the owner shall offer the housing for 
transfer to qualified purchasers as provided in this section.
    (b) Applicability of voluntary sale provisions. The provisions of 
Sec.  248.157, other than paragraphs (a) and (p) of this section 
thereof, shall be applicable to any sale conducted under this section. 
If the owner receives an offer to purchase the project for a sale price 
equal to the transfer preservation value of the project, as determined 
under Sec.  248.111, the owner shall be obligated to accept the offer 
upon its receipt and sell the project to the purchaser. If the owner 
receives an offer to purchase the project for a sale price less than the

[[Page 499]]

transfer preservation value of the project, the owner may accept the 
offer, but is not obligated to do so. Any offer to purchase a project 
under this section for less than the transfer preservation value must 
comply with the requirements of a bona fide offer in Sec.  248.101, 
except for the requirement that the sale price equal the transfer 
preservation value. At the time of submission of the offer, the 
potential purchaser must also submit the documentation required in Sec.  
248.157(g).
    (c) Section 8 assistance. Subject to the availability of amounts 
approved in appropriation acts, the Commissioner shall, for approvable 
plans of action, provide assistance to qualified purchasers under part 
886, subpart A of this title sufficient to produce a gross potential 
income equal to the amount determined by multiplying 120 percent of the 
prevailing rents in the relevant local market in which the project is 
located by the number of units in the project, according to appropriate 
unit size, and any other incentives authorized under Sec.  248.153 that 
would have been provided to a qualified purchaser under Sec.  248.157.
    (d) Grants to qualified purchasers. From amounts made available by 
Congress, the Commissioner may make grants to assist in the completion 
of transfers under this section to any qualified purchasers. Any grant 
made pursuant to paragraph (d) of this section shall be in an amount not 
exceeding the difference between the amount of assistance provided under 
paragraph (c) of this section and the amount of assistance specified in 
Sec.  248.157(m).
    (e) Securing State and local funding. The Commissioner shall assist 
any qualified purchaser of a project pursuant to this section in 
securing funding and other assistance, including tax and assessment 
reductions from State and local governments to facilitate a transfer 
under this section.



Sec.  248.165  Assistance for displaced tenants.

    (a) Section 8 assistance. Each low income family that is displaced 
as a result of the prepayment of the mortgage, or voluntary termination 
of an insurance contract, on eligible low income housing shall, subject 
to the availability of funds, be offered the opportunity to receive 
tenant-based assistance under the Housing Choice Voucher Program in 
accordance with part 982 of this title.
    (b) Notification of Commissioner. The owner of any eligible low 
income housing project who prepays the mortgage or voluntarily 
terminates the mortgage insurance contract pursuant to subpart B of this 
part, shall notify the Commissioner of:
    (1) The names and addresses of all of the tenants in the project who 
will be displaced;
    (2) The size of the unit in which each of the displaced tenants is 
currently dwelling; and
    (3) The names of all of the displaced tenants who are special needs 
tenants, as that term is defined in Sec.  248.101, as well as a 
statement as to the nature of their special need.
    The owner shall provide the Commissioner with this information 
within 30 days of identifying such tenants for displacement, but in no 
event less than 30 days prior to the date when the tenants must vacate 
the premises.
    (c) Relocation of displaced tenants. The Commissioner shall 
coordinate with public housing agencies to ensure that any very low or 
low income family displaced from eligible low income housing as the 
result of prepayment of the mortgage or termination of the mortgage 
insurance contract on such project is able to acquire a suitable, 
affordable dwelling unit in the area where the project from which the 
displaced family is located. The Commissioner, upon receiving 
information from the owner under paragraph (b) of this section stating 
that certain tenants will be displaced, shall request from the public 
housing agencies located in the same area as the affected project, 
notices of vacancies in other affordable projects which would be 
suitable for the displaced tenants. The Commissioner shall convey the 
notices of vacancies to the tenants who will be displaced along with the 
addresses of the local public housing agencies.
    (d) Relocation expenses. The Commissioner shall require the owner of 
eligible low income housing who prepays or terminates the insurance 
contract resulting in the displacement of tenants

[[Page 500]]

to pay 50 percent of the relocation expenses of each family which is 
relocated, except that the Commissioner shall increase such percentage 
to the extent that State or local law of general applicability requires 
a higher payment by the owner.
    (e) Continued occupancy. Each owner who prepays the mortgage or 
terminates the mortgage insurance contract on eligible low income 
housing shall, as provided in paragraph (g) of this section, allow the 
tenants occupying units in such project on the date of submission of a 
notice of intent under Sec.  248.105 to remain in the project for a 
period of three years, commencing on the date of prepayment or contract 
termination, at rent levels existing at the time of prepayment or 
termination, except for rent increases made necessary due to increased 
operating costs.
    (f) Replacement unit. In any case in which the Commissioner requires 
an owner to allow tenants to occupy units under paragraph (e) of this 
section, an owner may fulfill the requirements of such paragraph by 
providing such assistance necessary for the tenant to rent a decent, 
safe, and sanitary unit in another project for the same 3-year period 
and at a rental cost to the tenant not in excess of the rental amount 
the tenant would have been required to pay to the owner in the owner's 
project, except that the tenant must freely agree to waive the right to 
occupy the unit in the owner's project. The provisions of paragraph (d) 
of this section requiring an owner who prepays or terminates an 
insurance contract to pay a portion of the relocation expenses incurred 
by displaced tenants shall also be applicable to tenants who relocate 
pursuant to this paragraph.
    (g) Applicability. The provisions of paragraphs (e) and (f) of this 
section shall apply only to:
    (1) All tenants in eligible low income housing projects located in a 
low-vacancy area; and
    (2) Special needs tenants.
    (h) Low Vacancy Areas. The Commissioner shall notify the owner, 
within 30 days of the owner's request to prepay under Sec.  248.169, 
whether the project is located in a low vacancy area for purposes of 
paragraph (g) of this section.
    (i) Required acceptance of section 8 assistance. Any owner who 
prepays the mortgage or terminates the mortgage insurance contract on 
eligible low income housing and maintains the project for residential 
rental occupancy may not refuse to rent, refuse to negotiate for the 
rental of, or otherwise make unavailable or deny the rental of a 
dwelling unit in such project to any person, or discriminate against any 
person in the terms, conditions, or privileges or rental of a unit, or 
in the provision of services or facilities in connection therewith, 
because the person receives tenant-based assistance under the Housing 
Choice Voucher Program.
    (j) Regional pools. In providing assistance under this section, the 
Commissioner shall allocate the assistance on a regional basis through 
the regional offices of the Department of Housing and Urban Development. 
The Commissioner shall allocate assistance under this section in a 
manner so that the total number of assisted units in each such region 
available for occupancy by, and affordable to, low income families and 
persons does not decrease because of the prepayment of a mortgage on 
eligible low income housing or the termination of an insurance contract 
on such project.
    (k) This section shall only apply to prepayments and terminations 
occurring pursuant to Sec. Sec.  248.157(l) and 248.169.

[57 FR 12041, Apr. 8, 1992, as amended at 64 FR 26639, May 14, 1999]



Sec.  248.169  Permissible prepayment or voluntary termination and
modification of commitments.

    (a) In general. Notwithstanding any limitations on prepayment or 
voluntary termination under subpart B of this part, an owner may 
terminate the low income affordability restrictions through prepayment 
or voluntary termination, subject to compliance with the provisions of 
Sec.  248.165, under one of the following circumstances:
    (1) The Commissioner approves a plan of action under Sec.  
248.153(a), but does not provide the assistance approved in such plan 
and contained in an executed use agreement between the Commissioner and 
the owner, including section 8 assistance or a loan provided under part

[[Page 501]]

219 of this chapter, but not including insurance of a rehabilitation or 
equity take-out loan under part 241 of this chapter, during the 15-month 
period beginning on the date of final approval of the plan of action;
    (2) After the date that the project would have been eligible for 
prepayment pursuant to the terms of the mortgage, notwithstanding this 
part, the Commissioner approves a plan of action under Sec.  248.157 or 
Sec.  248.161, but does not provide the assistance approved in such 
plan, including section 8 assistance, a loan provided under part 219 of 
this chapter, a grant provided under Sec.  248.157(o), or a grant under 
Sec.  248.161(d), before the earlier of:
    (i) The expiration of the 2-month period beginning on the 
commencement of the first fiscal year beginning after such final 
approval; or
    (ii) The expiration of the 6-month period beginning on the date of 
final approval.
    (3) The Commissioner approves a plan of action under Sec. Sec.  
248.157 or 248.161 for any eligible low income housing not covered by 
paragraph (a)(2) of this section, but does not provide the assistance 
approved in such plan before the earlier of:
    (i) The expiration of the 2-month period beginning on the 
commencement of the first fiscal year beginning after such final 
approval; or
    (ii) The expiration of the 9-month period beginning on the date of 
final approval.
    (4) An owner who intended to transfer the project to a qualified 
purchaser under Sec.  248.157 or Sec.  248.161, and fully complied with 
the provisions of such section,
    (i) Did not receive any bona fide offers from any qualified 
purchasers within the applicable time periods; or
    (ii) Received and accepted a bona fide offer from a qualified 
purchaser, but the sales transaction fell through for reasons not 
attributable in whole or in part to the owner, and the owner then 
complied with the requirements of Sec.  248.157(l) and did not receive 
another bona fide offer from any qualified purchasers.
    (b) Section 8 assistance. When providing section 8 assistance, the 
Commissioner may enter into a contract with an owner, contingent upon 
the future availability of appropriations, for the purpose of renewing 
expiring contracts for rental assistance as provided in appropriations 
acts, to extend the term of such rental assistance for such additional 
period or periods necessary to carry out an approved plan of action. The 
contract and approved plan of action shall provide that, if the 
Commissioner is unable to extend the term of such rental assistance or 
is unable to develop a revised package of incentives providing benefits 
to the owner comparable to those received under the original approved 
plan of action, the Commissioner, upon the request of the owner, shall 
take the following actions, subject to the limitations under the 
following paragraphs:
    (1) Modify the binding commitments made pursuant to Sec.  
248.145(a)(2)-(10) that are dependent upon such rental assistance; or
    (2) If the Commissioner determines that such modification is 
infeasible, permit the owner to prepay the mortgage and terminate the 
plan of action and any implementing use agreements or restrictions, but 
only if the owner agrees in writing to comply with the provisions of 
Sec.  248.165.
    (c) Failure to provide section 8 assistance. With regard to 
paragraph (b) of this section, the Commissioner shall notify the owner 
of an inability to either extend the term of section 8 rental assistance 
or to develop a revised package of incentives providing benefits 
comparable to those received under the original plan of action as soon 
as practicable upon discovering that fact. The owner shall inform the 
Commissioner in writing, within 30 days of receipt of the notice that, 
since the Commissioner is unable to fulfill the terms of the original 
plan of action, the owner intends to request that the Commissioner take 
action under paragraphs (b)(1) or (2) of this section. The Commissioner 
shall, no later than 90 days from receiving the owner's notice, take 
action to extend the rental assistance contract and to continue the 
binding commitments under Sec.  248.145(a)(2)-(10).

[[Page 502]]



Sec.  248.173  Resident homeownership program.

    (a) Formation of resident council. Tenants seeking to purchase 
eligible low income housing in accordance with Sec. Sec.  248.157 and 
248.161 shall organize a resident council for the purpose of developing 
a resident homeownership program in accordance with standards 
established by the Commissioner. In order to fulfill the purposes of 
this section, the resident council shall work with a public or private 
nonprofit organization or a public body, including an agency or 
instrumentality thereof. Such organization shall have sufficient 
experience to enable it to help the tenants to consider their options 
and to develop the capacity necessary to own and manage the project, 
where appropriate, and shall be approved by the Commissioner.
    (b) Submission of expression of interest. A resident council shall 
identify itself as such in an expression of interest submitted pursuant 
to Sec.  248.157 or Sec.  248.161 and shall state that, it is interested 
in purchasing the project pursuant to a homeownership program.
    (c) Bona fide offer. When submitting an offer to purchase the 
project pursuant to this section, the resident council must 
simultaneously submit a certified list of project tenants representing 
at least 75 percent of the occupied units in the project, and 
representing at least 50 percent of all of the units in the project, who 
have expressed an interest in participating in the homeownership program 
developed by the resident council. An offer made without this certified 
list will not be considered a bona fide offer for the purposes of 
subpart B of this part.
    (d) Submission of a homeownership program. (1) The resident council 
shall prepare a homeownership program acceptable to the Commissioner for 
giving all residents of the project an opportunity to become homeowners. 
The plan shall describe the major elements of, and schedules for, the 
homeownership program and demonstrate how the program complies with all 
applicable requirements of this section. The plan shall also describe 
the resident council's current abilities and proposed capacity-building 
activities to successfully carry out the homeownership program in 
compliance with this section. The homeownership program shall include, 
at a minimum, the following information:
    (i) The amount of grant funds requested from the Commissioner, and 
the expected amounts and sources of other funding;
    (ii) The proposed use of the grant funds to be received from HUD and 
of all other funds, including proceeds from the sale of units to initial 
purchasers, consistent with paragraph (h) of this section;
    (iii) A summary of major rehabilitation activities to be carried 
out, including repairs, replacements and improvements;
    (iv) The price at which the resident council intends to transfer 
ownership interests in, or shares representing, units in the project, 
broken down by unit size and/or type; the factors that will influence 
the establishment of such price, including, but not limited to, the 
resident council's acquisition cost, estimated rehabilitation costs, 
capitalization of reserves and organizational costs; how the price 
arrived at by the resident council compares to the estimated appraised 
value of the ownership interests or shares; and the underwriting 
standard that the resident council plans to use, or reasonably expects a 
public or private lender to use, for potential tenant purchasers, 
consistent with paragraph (g)(2) of this section;
    (v) The expected number of very low, low and moderate income tenants 
that will be initial owners under the program, consistent with paragraph 
(g)(1) of this section;
    (vi) A pro forma analysis which demonstrates the financial 
feasibility and viability of the homeownership program, based on the 
required conditions specified in paragraph (g) of this section;
    (vii) The financing arrangements that the tenants are expected to 
pursue or to be provided, including financing available through the 
resident council or a State or local governmental entity, and criteria 
for acceptability of conventional financing;
    (viii) A description of the estimated costs expected to be paid by 
the homeowner at closing;

[[Page 503]]

    (ix) The type of homeownership contemplated, consistent with 
paragraph (f) of this section;
    (x) How the marketing of currently vacant units and units occupied 
by nonpurchasing tenants that become vacant will affect the sales price 
and occupancy charges to purchasers;
    (xi) A workable schedule of sale, subject to the limitations of 
paragraph (o) of this section, based on estimated tenant incomes;
    (xii) Any restrictions on resale by homeowners over and above those 
specified in paragraph (i) of this section, and any restrictions on 
homeowners' equity, over and above those specified in paragraph (k) of 
this section;
    (xiii) The qualifications of the resident council or the proposed 
management entity to manage the project, in compliance with paragraph 
(n) of this section;
    (xiv) The expected number of non-purchasing tenants and their 
eligibility for section 8 rental assistance under paragraph (m)(2) of 
this section;
    (xv) Expected scope and expenses of relocation activities, both for 
any temporary relocation due to rehabilitation as well as relocation 
assistance for nonpurchasing tenants, consistent with paragraph (m)(4) 
of this section;
    (xvi) Expected scope and costs of technical assistance, training and 
counseling for the resident council, purchasers and non-purchasing 
tenants; and
    (xvii) A certification that the resident council shall comply with 
the provisions of the Fair Housing Act (42 U.S.C. 3601-3619); title VI 
of the Civil Rights Act of 1964 (42 U.S.C. 2000d); Executive Order 11063 
(3 CFR 1959-1963 comp., p. 652); section 504 of the Rehabilitation Act 
of 1973 (29 U.S.C. 794); the Age Discrimination Act of 1975 (42 U.S.C. 
6101-6107); and all regulations issued pursuant to these statutes and 
authorities.
    (2) The Commissioner shall give the resident council a reasonable 
opportunity to revise the homeownership program if approval is denied.
    (e) Approval of a homeownership program; assistance provided. (1) 
When the Commissioner determines that the homeownership program 
submitted by the resident council meets the requirements of this 
section, is financially feasible, and is the least costly alternative 
that is consistent with establishing a viable homeownership program, the 
Commissioner shall approve the program.
    (2) In connection with an approved homeownership program the 
Commissioner shall provide assistance sufficient to pay the following 
costs:
    (i) The debt service on the federally-assisted mortgage(s) covering 
the project, when such mortgage is assumed by the resident council;
    (ii) The purchase price, which shall not exceed the transfer 
preservation value;
    (iii) Transaction costs, as provided in Sec.  248.157(m)(6);
    (iv) Other costs, as provided in Sec.  248.157(m)(7);
    (v) The costs of rehabilitation;
    (vi) The establishment of an adequate reserve for replacements; and
    (vii) If necessary, the establishment of operating reserve escrows 
including contingencies against unexpected increases in expenses or 
shortfalls in homeowners' payments.
    (3) Upon approval of the homeownership program, the Commissioner and 
the resident council shall enter into an agreement, which shall include, 
among other matters, procedures governing the drawdown of funds and 
remedies for noncompliance with the requirements of this section.
    (f) Method of conversion. The Commissioner shall approve the method 
for converting the project to homeownership, which may involve 
acquisition of ownership interests in, or shares representing, the units 
in a project under any arrangement determined by the Commissioner to be 
appropriate, such as cooperative ownership, and fee simple ownership, 
including condominium ownership.
    (g) Required conditions. The Commissioner shall require that the 
form of homeownership impose appropriate conditions, including 
conditions to assure that:
    (1) To the extent practicable, the number of initial owners that are 
very low, low, and moderate income persons at initial occupancy are of 
the same

[[Page 504]]

proportion of very low, low, and moderate income tenants (including 
families and persons whose incomes are 95 percent or more of area median 
income) as resided in the project on January 1, 1987 (or if the January 
1, 1987 profile is unavailable, a certification from the owner stating 
its unavailability and a profile as of January 1, 1988, or, if that is 
also unavailable, a profile as of January 1, 1989) or as of the date of 
approval of the plan of action, whichever date results in the higher 
proportion of very low income families, except that the resident council 
may, at its option, increase the proportions of very low income and low 
income initial owners, however, no current tenant may be denied 
homeownership as a result of this paragraph;
    (2) Projected debt service payments, occupancy charges and utilities 
payable by the owners shall not exceed 35 percent of the monthly 
adjusted gross income of the owners;
    (3) The aggregate incomes of initial owners and other sources of 
funds for the project are sufficient to permit occupancy charges to 
cover the full operating costs of the project and any debt service; and
    (4) Each initial owner occupies the unit it acquires for at least 
the initial 15 years of ownership, unless the resident council 
determines that the initial owner is required to move outside the market 
area due to a change in employment or an emergency situation.
    (5) All units which remain as rental units, from the date of 
approval of the resident homeownership program, until they are purchased 
by an initial owner under the resident homeownership program, shall be 
maintained in accordance with Sec.  248.145 (a)(5), (a)(6), (a)(7), 
(a)(8), and (a)(9).
    (h) Use of proceeds from sales to eligible families. The entity that 
transfers ownership interests in, or shares representing, units to 
eligible families, or another entity specified in the approved 
application, may use 50 percent of the proceeds, if any, from the 
initial sale for costs of the homeownership program, including 
improvements to the project, operating and replacement reserves for the 
project, additional homeownership opportunities in the project, and 
other project-related activities approved by the Commissioner. The 
remaining 50 percent of such proceeds shall be returned to the 
Commissioner for use under Sec. Sec.  248.157 and 248.161, subject to 
the availability of appropriations. Such entity shall keep, and make 
available to the Commissioner, all records necessary to calculate 
accurately payments due the Commissioner under paragraph (h) of this 
section.
    (i) Restrictions on resale by homeowners. Resale of a homeowner's 
interest in a project with an approved homeownership program may occur 
subject to any reasonable restrictions placed on such a transfer by the 
resident council and approved by the Commissioner.
    (1) Transfer permitted. A homeowner may transfer the homeowner's 
ownership interest in the unit, subject to the right to purchase under 
paragraph (i)(2) of this section, the requirement for the purchaser to 
execute a promissory note, if required under paragraph (i)(3) of this 
section and the restrictions on retention of sales proceeds in paragraph 
(k) of this section. An applicant may propose in its application, and 
HUD may approve, reasonable restrictions on the resale of units under 
the program.
    (2) Right to purchase. Where a resident management corporation, 
resident council, or cooperative has jurisdiction over the unit, it 
shall have the right to purchase the ownership interest in the unit from 
the initial homeowner for the amount specified in a firm contract 
between the homeowner and a prospective buyer. Where a resident 
management corporation, resident council, or a cooperative exercises a 
right to purchase, it shall resell the unit to an eligible family within 
a reasonable period of time.
    (3) Promissory note required. At closing, the initial homeowner 
shall execute a nonrecourse promissory note for a term of twenty years, 
in a form acceptable to HUD, equal to the difference between the fair 
market value of the unit and the purchase price, payable to the 
Commissioner, together with a mortgage securing the obligation of the 
note.

[[Page 505]]

    (i) With respect to a sale by an initial homeowner, the note shall 
require payment upon sale by the initial homeowner, to the extent 
proceeds of the sale remain after paying off other outstanding debt 
incurred in connection with the purchase of the property, paying any 
other amounts due in connection with the sale, including closing costs 
and transfer taxes, and paying the family the amount of its equity in 
the property, computed in accordance with paragraph (k) of this section.
    (ii) With respect to a sale by an initial homeowner during the first 
six years after acquisition, the family may retain only the amount 
computed under paragraph (k) of this section. Any excess is distributed 
as provided in paragraph (1) of this section.
    (iii) With respect to a sale by an initial homeowner six to twenty 
years after acquisition, the amount payable under the note shall be 
reduced by 1/168th of the original principal amount of the note for each 
full month of ownership by the family after the end of the sixth year. 
The homeowner may retain all other proceeds of the sale.
    (j) Execution of promissory note by subsequent purchaser. Where a 
subsequent purchaser during the 20-year period, measured by the term of 
the initial promissory note, purchases the property for less than the 
then current fair market value, the purchaser shall also execute at 
closing such a promissory note and mortgage, for the amount of the 
discount. The term of the promissory note shall be the period remaining 
of the original 20-year period. The note shall require payment upon sale 
by the subsequent homeowner, to the extent proceeds of the sale remain 
after paying off other outstanding debt incurred in connection with the 
purchase of the property, and paying any other amounts due in connection 
with the sale (such as closing costs and transfer taxes). The amount 
payable on the note shall be reduced by a percentage of the original 
principal amount of the note for each full month of ownership by the 
subsequent homeowner. The percentage shall be computed by determining 
the percentage of the term of the promissory note that the homeowner has 
owned the property. The remainder may be retained by the subsequent 
homeowner selling the property.
    (k) Homeowners' equity. The amount of equity an initial homeowner 
has in the property is determined by computing the sum of the following:
    (1) The contribution to equity paid by the family, if any, including 
any down payment and any amount paid towards principal on a mortgage 
loan during the period of ownership;
    (2) The value of any improvements installed at the expense of the 
family during the family's tenure as owner, as determined by the 
resident council based on evidence of amounts spent on the improvements, 
including the cost of material and labor; and
    (3) The appreciated value, determined by applying the Consumer Price 
Index (urban consumers) against the contribution to equity under 
paragraphs (k) (1) and (2) of this section, excluding the value of any 
sweat equity or volunteer labor used to make improvements to the unit. 
The resident council may, at the time of initial sale, enter into an 
agreement with the family to set a maximum amount which this 
appreciation may not exceed.
    (l) Use of recaptured funds. Any net sales proceeds that may not be 
retained by the homeowner under the homeownership program approved under 
this section shall be paid to the HOME Investment Trust Fund for the 
unit of general local government in which the project is located. If the 
project is located in a unit of general local government that is not a 
participating jurisdiction, as such term is defined in Sec.  248.101, 
any such net sales proceeds shall be paid to the HOME Investment Trust 
Fund for the State in which the project is located. With respect to any 
proceeds transferred to a HOME Investment Trust Fund under paragraph (1) 
of this section, the Commissioner shall take such actions as are 
necessary to ensure that the proceeds shall be immediately available for 
eligible activities to expand the supply of affordable housing under 
section 212 of the Cranston-Gonzalez National Affordable Housing Act of 
1990 (42 U.S.C. 12742). The Commissioner shall monitor the HOME 
Investment Trust Fund for each State and unit of local government and 
shall require

[[Page 506]]

maintenance of any records necessary to calculate accurately payments 
due under this paragraph (1) of this section.
    (m) Protection of nonpurchasing families. Nonpurchasing families who 
continue to reside in a project subject to a homeownership program 
approved under this section shall be protected as follows:
    (1) Eviction. No tenant residing in an eligible property on the date 
the Commissioner approves a plan of action may be evicted by reason of a 
homeownership program approved under this section. This does not 
preclude evictions for material violation of the terms of occupancy of 
the unit.
    (2) Section 8 assistance. If a tenant decides not to purchase a 
unit, or is not qualified to do so, the Commissioner shall ensure that 
tenant-based assistance under the Housing Choice Voucher Program in 
accordance with part 982 of this title is available for use in that or 
another property by each tenant that meets the eligibility requirements 
thereunder.
    (3) Rent increases for ineligible tenants. Rents for tenants who do 
not purchase a unit but are ineligible for assistance under paragraph 
(m)(2) of this section may be increased to a level that does not exceed 
30 percent of the tenant's adjusted income or the section 8 existing 
fair market rent, whichever is lower. Rent increases shall be phased in 
in accordance with Sec.  248.145(a)(6).
    (4) Relocation assistance. The resident council shall also inform 
each tenant that if the tenant chooses to move, the resident council, as 
owner of the project, will pay relocation expenses in accordance with 
the approved homeownership program. The provisions of Sec.  248.165 
shall not apply to resident councils who are project owners pursuant to 
an approved homeownership program under this section.
    (n) Qualified management. As a condition of approval of a 
homeownership program under subpart B of this section, the resident 
council shall have demonstrated its abilities to manage eligible 
properties by having done so effectively and efficiently for a period of 
not less than three years or by entering into a contract with a 
qualified management entity that meets such standards as the 
Commissioner may prescribe to ensure that the project will be maintained 
in a decent, safe and sanitary condition.
    (o) Timely homeownership. The resident council shall acquire 
ownership of the project no later than 90 days after final approval of a 
plan of action pursuant to this section. The resident council shall 
transfer ownership of units in the project (other than units occupied by 
nonpurchasing tenants) to the tenants within a reasonable time 
thereafter, but in no event more than 4 years from the date of transfer 
of the project to the resident council. The Commissioner may seek 
contractual remedies against any resident council which fails to 
transfer ownership of all units within the 4-year period. During the 
interim period when the project continues to be operated and managed as 
rental housing, the resident council shall utilize written tenant 
selection policies and criteria that are approved by the Commissioner as 
consistent with the purpose of providing housing for very low income 
families. The resident council shall promptly notify in writing any 
rejected applicant of the grounds for any rejection.
    (p) Housing standards; inspections. (1) Until the resident council 
has transferred all units in the project (other than those occupied by 
nonpurchasing tenants) to the initial purchasers, the project shall be 
maintained in accordance with the housing standards set forth in Sec.  
248.147.
    (2) The Commissioner shall inspect the project at least annually in 
order to determine compliance with paragraph (p)(1) of this section.
    (q) Audits. Each resident council shall be subject to the audit 
requirements in 2 CFR part 200, subpart F, and shall submit an annual 
audit to the Commissioner in such form as the Commissioner may 
prescribe. The resident council shall keep such records as may be 
reasonably necessary to fully disclose the amount and the disposition by 
such resident council of the proceeds of assistance received under 
subpart B of this part, including any proceeds from sales under 
paragraphs (h) and (l) of this section, the total cost of the 
homeownership program in connection with which such assistance is

[[Page 507]]

given or used, and the amount and nature of that portion of the program 
supplied by other sources, and such other sources as will facilitate an 
effective audit.
    The Commissioner or his or her duly authorized representative shall 
have access for the purpose of audit and examination to any books, 
documents, papers, and records of the resident council that are 
pertinent to assistance received under subpart B of this part. The 
Comptroller General of the United States, or any of the duly authorized 
representatives of the Comptroller General, shall also have access, for 
the purpose of audit and examination, to any books, documents, papers, 
and records of the resident council that are pertinent to assistance 
received under subpart B of this part.
    (r) Reports. The resident council shall submit reports, as required 
by the Commissioner, in order to demonstrate continued compliance with 
the requirements of this section.
    (s) Assumption of the federally assisted mortgage(s). In connection 
with a resident homeownership plan, the resident council may assume a 
mortgage insured, held or assisted by the Commissioner under part 236 of 
this chapter or under part 221 of this chapter and bearing a below 
market interest rate as provided under Sec.  221.518(b) of this chapter 
or may choose to pay off the mortgage. If the resident council decides 
to assume the mortgage, the project must be sold pursuant to Sec.  
248.175 and the project must be operated as a limited equity 
cooperative.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37816, July 13, 1993; 64 
FR 26639, May 14, 1999; 80 FR 75936, Dec. 7, 2015]



Sec.  248.175  Resident homeownership program--limited equity cooperative.

    (a) Tenants may carry out a resident homeownership program through 
the purchase of eligible low income housing by a limited equity 
cooperative and the operation of the project as a limited equity 
cooperative.
    (b) The purchase of a project by a limited equity cooperative and 
the operation of the project by the limited equity cooperative shall be 
carried out in accordance with the provisions of Sec.  248.173 (a), (b), 
(c), (d), (except that paragraph (d)(1)(i) of this section shall include 
a statement of the amount and type of incentives requested, rather than 
only the amount of grant funds requested), (e), (g)(3), (i) (except 
paragraphs (i)(1) and (3)), (m) and (n).
    (c) The purchase and operation of eligible low income housing by a 
limited equity cooperative under this section shall be carried out in 
accordance with all provisions of subpart B of this part otherwise, 
applicable to the transfer and operation of a project with continued low 
income affordability restrictions, except as provided in this section.

[57 FR 12041, Apr. 8, 1992, as amended at 58 FR 37816, July 13, 1993]



Sec.  248.177  Delegated responsibility to State agencies.

    (a) In general. The Commissioner shall delegate some or all 
responsibility for implementing subpart B of this part to a State 
housing agency if such agency submits a preservation plan acceptable to 
the Commissioner.
    (b) Approval. State preservation plans shall be submitted in such a 
form and in accordance with such procedures as the Commissioner shall 
establish. The Commissioner may approve plans that contain:
    (1) An inventory of low income housing located within the State that 
is or will be eligible low income housing under subpart B of this part 
within five years;
    (2) A description of the agency's experience in the area of 
multifamily financing and restructuring;
    (3) A description of the administrative resources that the agency 
will commit to the processing of plans of action in accordance with 
subpart B of this part;
    (4) A description of the administrative resources that the agency 
will commit to the monitoring of approved plans of action in accordance 
with subpart B of this part;
    (5) An independent analysis of the performance of the multifamily 
housing inventory financed or otherwise monitored by the agency;
    (6) A certification by the public official responsible for 
submitting the consolidated plan under 24 CFR part 91

[[Page 508]]

that the proposed activities are consistent with the approved 
consolidated plan of the State within which the eligible low income 
housing is located; and
    (7) Such other certifications or information that the Commissioner 
determines to be necessary to implement an approved State preservation 
plan, which may include incentives that are authorized under other 
provisions of subpart B of this part.
    (c) Implementation agreements. The Commissioner may enter into any 
agreements necessary to implement an approved State preservation plan, 
which may include incentives that are authorized under other provisions 
of subpart B of this part.
    (d) Fees. Any State agency with responsibility so delegated under 
subpart B of this part may not charge any owner of eligible low income 
housing any fee for accepting notices of intent, processing plans of 
action or any other process pursuant to approval of a plan of action 
under subpart B of this part. This prohibition shall not preclude:
    (1) An owner paying for its appraisal or share of a joint appraisal 
under the provisions of Sec.  248.111; or
    (2) A State agency from collecting fees normally associated with 
providing and processing financing insured under part 241 of this 
chapter.

[57 FR 12041, Apr. 8, 1994, as amended at 60 FR 16379, Mar. 30, 1995]



Sec.  248.179  Consultation with other interested parties.

    The Commissioner shall confer with any appropriate State or local 
government agency to confirm any State or local assistance that is 
available to achieve the purposes of subpart B of this part and shall 
give consideration to the views of any such agency when making 
determinations under subpart B of this part. The Commissioner shall also 
confer with appropriate interested parties that the Commissioner 
believes could assist in the development of a plan of action that best 
achieves the purposes of subpart B of this part.



Sec.  248.181  Notice to tenants.

    Except as provided in Sec. Sec.  248.105 and 248.133, with respect 
to the first and second notices of intent, with regard to all provisions 
of subpart B of this part which mandate that information or material be 
given to the tenants, by the Commissioner, the owner, or a qualified 
purchaser, or other party, this requirement shall be satisfied where the 
notifying entity:
    (a) Posts a copy of the information or material in readily 
accessible locations within each affected building, or posts notices in 
each location describing the information or material and specifying a 
location, as convenient to the tenants as is reasonably practical, where 
a copy may be examined and copied during reasonable hours; and
    (b) Supplies a copy of the information or material to a tenant 
representative, if any.



Sec.  248.183  Preemption of State and local laws.

    (a) In general. No State or political subdivision of a State may 
establish, continue in effect, or enforce any law or regulation that:
    (1) Restricts or inhibits the prepayment of any mortgage described 
in Sec.  248.101 or the voluntary termination of any insurance contract 
pursuant to Sec.  207.253 of this chapter on eligible low income housing 
projects;
    (2) Restricts or inhibits an owner of such projects from receiving 
the authorized annual return provided under Sec.  248.121;
    (3) Is inconsistent with any provision of subpart B of this part, 
including any law, regulation, or other restriction that limits or 
impairs the ability of any owner of eligible low income housing to 
receive incentives authorized under subpart B of this part, including 
authorization to increase rental rates, transfer the project, obtain 
secondary financing, or use the proceeds of any such incentives; or
    (4) In its applicability to low income housing is limited only to 
eligible low income housing for which the owner has prepaid the mortgage 
or terminated the insurance contract.
    (b) Effect. Any law, regulation or restriction described in 
paragraph (a) of this section shall be ineffective and any eligible low 
income housing exempt from the law, regulation, or restriction, only to 
the extent that it violates the provisions of this section.

[[Page 509]]

    (c) Laws of general applicability: contractual restrictions. This 
section shall not prevent the establishment, continuing in effect, or 
enforcement of any law or regulation of any State or political 
subdivision of a State not inconsistent with the provision of this 
subpart, such as any law or regulation relating to building standards, 
zoning limitations, health, safety, or habitability standards for 
housing, rent control, or conversion of rental housing to condominium or 
cooperative ownership, to the extent such law or regulation is of 
general applicability to both projects receiving Federal assistance and 
nonassisted projects. This section shall not preempt, annul or alter any 
contractual restrictions or obligations existing before November 28, 
1990 or voluntarily entered into by an owner of eligible low income 
housing on or after that date, and that limit or prevent that owner from 
prepaying the mortgage on the project or terminating the mortgage 
insurance contract.

[57 FR 12041, Apr. 8, 1992, as amended at 57 FR 57314, Dec. 3, 1992]



Subpart C_Prepayment and Plans of Action Under the Emergency Low Income 
                        Preservation Act of 1987

    Source: 55 FR 38952, Sept. 21, 1990, unless otherwise noted. 
Redesignated at 57 FR 12041, Apr. 8, 1992.



Sec.  248.201  Definitions.

    The terms Fair Market Rent (FMR) and Section 8 are defined in 24 CFR 
part 5.
    Adjusted Income. Annual income, as specified in Sec.  251.21 of this 
chapter, less allowances specified in the definition of Adjusted Income 
in Sec.  215.1 of this chapter.
    Allowable Distributions. The amount of cash or other assets that the 
owner may withdraw from the project under the terms of the regulatory 
agreement, applicable regulations, and administrative instructions, 
including the segregation of cash or assets for subsequent withdrawal, 
and excluding repayment of advances made for reasonable and necessary 
expenses incident to the operation and maintenance of the project.
    Capital Improvement Loan. A direct loan originated by the 
Commissioner under part 219, subpart C of this chapter.
    Eligible Low Income Housing. Any housing financed by a mortgage--
    (a) That is--
    (1) Insured or held by the Commissioner under section 221(d)(3) of 
the National Housing Act and assisted under part 886, subpart A of this 
title because of a conversion from assistance under part 215 of this 
chapter;
    (2) Insured or held by the Commissioner under part 221 of this 
chapter and bearing a below market interest rate as provided under Sec.  
221.518(b) of this chapter;
    (3) Insured, assisted, or held by the Commissioner or a State or 
State agency under part 236 of this chapter; or
    (4) A purchase money mortgage held by the Commissioner with respect 
to a project which, immediately prior to HUD's acquisition, would have 
been classified under paragraph (a) (1), (2), or (3) of this definition; 
and
    (b) That, under regulation or contract in effect before November 1, 
1987, is, or within one year from the date of the notice of intent would 
become, eligible for prepayment without the prior approval of the 
Commissioner.
    Equity. The Owner's investment in the housing project, as approved 
or determined by the Commissioner.
    Equity Loan. A loan insured by the Commissioner under part 241, 
subpart E of this chapter.
    Flexible Subsidy Assistance. Assistance provided by the Commissioner 
under part 219 of this chapter, other than a capital improvement loan.
    Good Cause. Temporary or permanent uninhabitability of the project 
justifying relocation of all or some of the project's tenants (except 
where such uninhabitability is caused by the actions or inaction of the 
owner), or actions of the tenant that, under the terms of the tenant's 
lease and applicable regulations, constitute a basis for eviction.
    Limited Equity Cooperative. A cooperative housing corporation in 
which income eligibility of purchasers or appreciation upon resale of 
membership

[[Page 510]]

shares, or both, are restricted in order to maintain the housing as 
available to and affordable by low and moderate income families and 
persons.
    Low Income Affordability Restrictions. Limits imposed by regulation 
or regulatory agreement on tenant rents, rent contributions, or income 
eligibility with respect to eligible low income housing.
    Low-Income Families. Families or persons whose incomes do not exceed 
the levels established for low-income families under part 5 of this 
title.
    Moderate Income Families. Families or persons whose incomes are 
between 80 percent and 95 percent of median area income, as determined 
by the Commissioner with adjustments for smaller and larger families.
    Mortgage. The mortgage or deed of trust insured or held by the 
Commissioner or a State or State agency under parts 221 or 236 of this 
chapter, or the purchase money mortgage taken back by the Commissioner 
in connection with the sale of a HUD-owned project and held by the 
Commissioner, where such mortgage, deed of trust or purchase money 
mortgage is secured by eligible low income housing.
    Notice of Intent. An owner's notification of its intent to seek 
prepayment of its mortgage, termination of the mortgage insurance 
contract or amendment of the mortgage or regulatory agreement pursuant 
to this part.
    Owner. The mortgagor or trustor under the mortgage secured by 
eligible low income housing.
    Plan of Action. A plan providing for prepayment of the mortgage, 
termination of the mortgage insurance contract, or continuation of the 
mortgage in place, and providing for either the termination of low 
income affordability restrictions, or the continuation of the project's 
use as low-income housing under modified terms and conditions.
    Prepayment. Prepayment in full of a mortgage, or a partial 
prepayment or series of partial prepayments that reduce the mortgage 
term by at least six months, except where the prepayment in full or 
partial prepayment results from the application of condemnation 
proceeds.
    Project oversight costs. Reasonable expenses incurred by a nonprofit 
purchaser in carrying out its ongoing ownership responsibilities under 
an approved plan of action. Project oversight costs must be directly 
related to educating the nonprofit purchaser's board of directors or 
otherwise supporting the board in its decision making. Project oversight 
costs may include staff, overhead, or third-party contract costs for:
    (1) Ensuring adequate and responsible participation by the board of 
directors and the membership of the nonprofit purchaser in ownership 
decisions, including ensuring resident input in these decisions;
    (2) Facilitating long-range planning by the board of directors to 
ensure the physical, financial and social viability of the project for 
the entire time the project is maintained as low income housing; and
    (3) Assisting the ownership in complying with regulatory, use, loan 
and grant agreements.
    Regulatory Agreement. The agreement executed by the owner and the 
Commissioner or a State agency providing for the Commissioner's 
regulation of the operation of the project.
    Reserve for Replacements. The escrow fund established under the 
regulatory agreement for the purpose of ensuring the availability of 
funds for needed repair and replacement costs.
    Residual Receipt Fund. The fund established under the regulatory 
agreement for holding cash remaining after deducting from the surplus 
cash, as defined by the regulatory agreement, the amount of all 
allowable distributions.
    Return on Investment. The amount of allowable distributions, tax 
benefits, and other income or benefits received by the owner, as a 
percentage of the equity.
    Termination of Low Income Affordability Restrictions. The 
elimination of low income affordability restrictions under the 
regulatory agreement through termination of mortgage insurance or 
prepayment of the mortgage.
    Use Agreement. An agreement or covenant which is executed and 
recorded

[[Page 511]]

in the appropriate land records in connection with an approved plan of 
action, has lien priority over other mortgages and liens, is binding 
upon the owner and its successors and assigns, is enforceable by the 
Commissioner and by tenants, contains appropriate reporting 
requirements, and restricts or governs the use and operation of the 
project with respect to rent levels and increases, relocation, and, 
where appropriate, tenant eligibility, civil rights and other 
requirements. All tenants in occupancy at the time that the plan of 
action is approved will receive a copy of the use agreement.
    Very Low Income Families. Families or persons whose incomes do not 
exceed the level established for very low income families under section 
3(b) of the 1937 Act (42 U.S.C. 1437a(b)).

[55 FR 38952, Sept. 21, 1990. Redesignated at 57 FR 12041, Apr. 8, 1992, 
and amended at 57 FR 57314, Dec. 3, 1992; 58 FR 37816, July 13, 1993; 61 
FR 5207, Feb. 9, 1996; 64 FR 26639, May 14, 1999]



Sec.  248.203  General prepayment limitation.

    (a) An owner of eligible low income housing may prepay, and a 
mortgagee may accept prepayment of, a mortgage on such housing only in 
accordance with a plan of action approved by the Commissioner.
    (b) A mortgage insurance contract with respect to eligible low 
income housing may be terminated pursuant to section 229 of the National 
Housing Act only in accordance with a plan of action approved by the 
Commissioner.
    (c) A mortgagee's acceptance of a prepayment in violation of 
paragraph (a) or termination of a mortgage insurance contract in 
violation of paragraph (b) of this section is grounds for administrative 
action under parts 24 and 25 of this title, in addition to any other 
remedies available by law, including rescission of the prepayment or 
reinstatement on the insurance contract.



Sec.  248.211  Notice of intent to prepay.

    (a) An owner of eligible low-income housing seeking to prepay its 
mortgage or to negotiate changes in the terms of the mortgage or 
regulatory agreement in accordance with this part, including termination 
of the insurance contract pursuant to section 229 of the National 
Housing Act, shall file a notice of intent with the HUD field office in 
whose jurisdiction the project is located, and shall file a duplicate 
copy with the HUD Headquarters Office of Multifamily Housing Management, 
451-7th Street, SW., Washington, DC 20410. The notice of intent shall 
identify the project by name, project number and location, briefly 
describe the owner's plans for the project, including any timetables or 
deadlines for actions to be taken, and the reason the owner seeks to 
prepay the mortgage or change the terms of the mortgage or regulatory 
agreement, and briefly describe any contacts that the owner has made or 
is making with other governmental agencies or other interested parties 
in connection with the notice of intent.
    (b) An owner simultaneously shall file the notice of intent with:
    (1) The chief executive officer of the appropriate State or local 
government in which the project is located, or any officer designated by 
executive order or State or local law to receive such information;
    (2) Each tenant in the project; and
    (3) The mortgagee.

In addition, the owner shall post a copy of the notice of intent in each 
occupied building in the project.
    (c) Upon receipt of a notice of intent, the Commissioner will 
provide the owner with information that the owner needs to prepare a 
plan of action. This information shall include information regarding the 
Commissioner's standards under Sec.  248.221 of this part regarding the 
approval of a plan of action involving termination of low income 
affordability restrictions, and any relevant market area and demographic 
information that the Secretary has custody of and that the owner may use 
in preparing the plan of action; in addition, it shall include at a 
minimum a list of the Federal incentives authorized under Sec.  248.231 
of this part for those projects for which a plan of action involving 
termination of low income affordability restrictions would not be 
approvable.
    (d) Filing a notice of intent with the Commissioner will lead to one 
of the following results:

[[Page 512]]

    (1) Where the project meets the requirements of Sec.  248.221 of 
this part--
    (i) The Commissioner will approve the prepayment or the termination 
of mortgage insurance pursuant to Sec.  248.221 of this part, and all 
low income affordability restrictions will be terminated with respect to 
some or all of the units; however, the owner would be responsible for 
ensuring that displaced current tenants are relocated to affordable 
housing, if necessary.
    (ii) The Commissioner will approve the prepayment or termination of 
mortgage insurance pursuant to Sec.  248.221 of this part, and all low 
income affordability restrictions will be terminated, except (where 
necessary because the project is located in a housing market where there 
is insufficient comparable, decent, safe and sanitary affordable housing 
to meet the needs of all current tenants) with regard to protection of 
current very low income, low income and moderate income tenants;
    (2) Where the plan of action would not be approvable under Sec.  
248.221 of this part--
    (i) The Commissioner will approve prepayment or the termination of 
mortgage insurance, but the owner will receive assistance under a State, 
local or other Federal government housing program, and will receive 
incentives pursuant to Sec.  248.231 of this part from the Federal 
government in return for agreeing to conditions related to the continued 
use of the project as low income housing in accordance with Sec.  
248.233 of this part.
    (ii) The Commissioner will not approve prepayment or the termination 
of mortgage insurance, but will provide incentives to the owner pursuant 
to Sec.  248.231 of this part in accordance with a plan of action 
meeting the standards of Sec.  248.233 of this part;
    (iii) The Commissioner will not approve prepayment or the 
termination of mortgage insurance, but, after failing to reach agreement 
on a negotiated plan of action, the owner and the Commissioner will 
agree to a package of incentives and restrictions prescribed by Sec.  
248.241 of this part; or
    (iv) The Commissioner will not approve prepayment or the termination 
of mortgage insurance, and will not offer incentives of any kind.

(Approved by the Office of Management and Budget under control number 
2502-0378)

[55 FR 38952, Sept. 21, 1990. Redesignated at 57 FR 12041, Apr. 8, 1992, 
and amended at 58 FR 37816, July 13, 1993]



Sec.  248.213  Plan of action.

    (a) Preparation and submission. The owner shall submit the plan of 
action to the Commissioner in such form and manner as the Commissioner 
shall prescribe. The owner may submit the plan of action simultaneously 
to any appropriate State or local government agency, which shall, in 
reviewing the plan, consult with representatives of the tenants of the 
housing. An owner shall submit the plan of action to the Commissioner in 
such form and manner as the Commissioner shall prescribe. The owner 
shall notify the tenants of the plan of action by posting in each 
occupied building a summary of the plan of action and by delivery of a 
copy of the plan of action to the tenant representative, if any. In 
addition, the summary must indicate that a copy of the plan of action 
shall be available from the tenant representatives, whose names, 
addresses and telephone numbers are indicated on the summary, the local 
HUD field office, and the on-site office for the project, or if one is 
not available, in the location where rents are collected, for inspection 
and copying, at a reasonable cost, during normal business hours. 
Simultaneously with the submission to the Commissioner, the owner shall 
submit the plan of action to that officer of State or local government 
to whom the owner submitted a notice of intent under Sec.  248.211(b). 
The summary of the plan of action posted by the owner and the copies of 
the plan of action submitted to the tenant representative and the 
officer of State or local government shall all state that, upon request, 
the tenants and the State or local government, may obtain from the owner 
or from the local HUD field office a copy of all documentation 
supporting the plan of action except for that documentation deemed 
``proprietary information'' under Sec.  248.101.
    (b) Contents. The plan of action shall include:

[[Page 513]]

    (1) A description of any proposed changes in the status or terms of 
the mortgage or regulatory agreement, which may include a request for 
incentives to extend the low income use of the housing, as authorized 
under Sec.  248.231 of this part; or may include a request to terminate 
the insurance contract.
    (2) A description of any assistance that could be provided by State 
or local government agencies, as determined by prior consultation 
between the owner and the agencies;
    (3) A description of any proposed changes in the low income 
affordability restrictions;
    (4) A description of any proposed changes in ownership related to 
the plan of action, prepayment or termination of mortgage insurance;
    (5) An assessment of the effect of the proposed changes on existing 
tenants.
    (6) In the case of a plan of action involving incentives, an 
appraisal using the residential income approach;
    (7) In the case of a plan of action involving the termination of low 
income affordability restrictions, a statement of the effect, if any, of 
the proposed changes on the supply of housing affordable to low and very 
low income families in the community within which the housing is located 
and in the area that the housing could reasonably be expected to serve; 
and
    (8) A market study which demonstrates that the project is located in 
a market area that would enable the Commissioner to make the findings 
set forth at Sec.  248.221(b)(1); and
    (9) A list of any waivers requested by the owner pursuant to Sec.  
248.7 of this part; and
    (10) Any other information which the owner may choose to submit 
which would enable the owner to meet the criteria for approval of the 
proposed plan of action.

(Approved by the Office of Management and Budget under control number 
2502-0378)

[55 FR 38952, Sept. 21, 1990. Redesignated and amended at 57 FR 12041, 
12060, Apr. 8, 1992; 58 FR 37816, July 13, 1993]



Sec.  248.215  Notification of deficiencies.

    Not later than 60 days after receipt of a plan of action, the 
Commissioner will notify the owner in writing of any deficiencies that 
prevent the plan of action from being approved. If deficiencies are 
found, the notice shall describe ways, if any, in which the plan of 
action could be revised to meet the criteria for approval.



Sec.  248.217  Revisions to plan of action.

    The owner may from time to time revise the plan of action before its 
approval as may be necessary to obtain the commissioner's approval 
thereof. An owner shall submit any revision to the Commissioner, and 
provide a copy of the revision and all documentation supporting the 
revision except for that documentation deemed ``proprietary 
information'' under Sec.  248.101, to the parties, and in the manner, 
specified in Sec.  248.213(a).

[58 FR 37817, July 13, 1993]



Sec.  248.218  Tenant notice and opportunity to comment.

    When the owner and the Commissioner have reached preliminary 
agreement on the terms of a plan of action, the Commissioner shall 
prepare a summary of such terms and the anticipated impact of the plan 
of action on the current tenants. The owner shall send a copy of the 
summary to each tenant in the project, and shall post a copy of the 
summary in each occupied building in the project. The summary shall 
notify tenants that they have sixty calendar days in which to submit any 
comments to the Commissioner, who shall take any such comments into 
account before giving final approval to the plan of action.

(Approved by the Office of Management and Budget under control number 
2502-0378)



Sec.  248.219  Notification of approval.

    (a) Not later than 180 days after initial receipt of a plan of 
action, or within such longer period as the owner requests, the 
Commissioner shall notify the owner in writing whether the plan of 
action, including any revisions, is approved.
    (b) If approval is withheld, the notice will--
    (1) Describe the reasons for withholding approval, including 
prolonged delay by the owner in submitting a revised plan of action;

[[Page 514]]

    (2) Describe the actions that could be taken to meet the criteria 
for approval; and
    (3) Afford the owner a reasonable opportunity to revise the plan of 
action and seek approval.



Sec.  248.221  Approval of a plan of action that involves termination of
low income affordability restrictions.

    The Commissioner may approve a plan of action that involves 
termination of the low income affordability restrictions only upon a 
written finding that--
    (a) Implementation of the plan of action will not materially 
increase economic hardship for current tenants (and will not in any 
event result in: (1) A monthly rental payment by a current tenant that 
exceeds 30 percent of the monthly adjusted income of the tenant or an 
increase in the monthly rental payment in any year that exceeds 10 
percent, whichever is lower, or (2) in the case of a current tenant who 
already pays more than such percentage, an increase in the monthly 
rental payment in any year that exceeds the increase in the Consumer 
Price Index or 10 percent, whichever is lower) or involuntarily displace 
current tenants (except for good cause) where comparable and affordable 
housing is not readily available, determined without regard to the 
availability of Federal housing assistance that would address any such 
hardship or involuntary displacement. Notwithstanding this limitation, 
the Commissioner may provide housing assistance to tenants if such 
assistance is not essential to the Commissioner's determination that the 
requirements of this paragraph have been met. The owner will agree to 
execute and allow the recordation of use agreements, where such 
agreements are necessary to safeguard current tenants against such 
adverse effects. Such use agreements will include a requirement that the 
owner comply with those provisions of part 247 of this chapter which 
relate to evictions; and
    (b)(1) The supply of vacant, comparable housing is sufficient to 
ensure that the prepayment will not materially affect--
    (i) The availability of decent, safe and sanitary housing affordable 
to low-income and very low income families in the area that the housing 
could reasonably be expected to serve;
    (ii) The ability of low-income and very low income families to find 
decent, safe and sanitary housing near employment opportunities; or
    (iii) The housing opportunities of minorities in the community 
within which the housing is located; or
    (2) The plan of action has been approved by the appropriate State 
agency and any appropriate local government agency for the jurisdiction 
in which the housing is located as being in accordance with a State 
strategy approved by the Commissioner under Sec.  248.223 of this part.
    (c) There are no open audit findings, open findings of noncompliance 
with title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d); the 
Fair Housing Act (42 U.S.C. 3601-3619); Executive Order 11063 (3 CFR 
1959-1963 comp., p. 652); the Age Discrimination Act of 1975 (42 U.S.C. 
6101-6107); section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794); and all regulations promulgated under such statutes and 
authorities (including, but not limited to, 24 CFR part 100), or 
outstanding violations of the regulatory agreement.
    (d) Any plan of action approved under this section shall specify 
actions that the Commissioner and the owner shall take to ensure that 
tenants displaced as a result of the termination of low income 
affordability restrictions are relocated to affordable housing.

[55 FR 38952, Sept. 21, 1990. Redesignated and amended at 57 FR 12041, 
12060, Apr. 8, 1992]



Sec.  248.223  Alternative State strategy.

    (a) The Commissioner may approve a State strategy providing for 
State approval of plans of action that involve termination of low income 
affordability restrictions only upon finding that it is a practicable 
statewide strategy that ensures at a minimum that--
    (1) Current tenants will not be involuntarily displaced (except for 
good cause);
    (2) Housing opportunities for minorities will not be adversely 
affected in the communities in which the housing is located;
    (3) Any increase in rent for current tenants will be to a level that 
does not

[[Page 515]]

exceed 30 percent of the adjusted income of the tenants or fair market 
rent, whichever is lower, and any increase not necessitated by increased 
operating costs shall be phased in equally over not less than 3 years if 
the increase exceeds 10 percent;
    (4) Housing approved under the State strategy will remain affordable 
to very low income, low income and moderate income families for not less 
than the remaining term of the mortgage, if the housing is to be made 
available for rental use, or for not less than 40 years, if the housing 
is to be made available for homeownership;
    (5)(i) Not less than 80 percent of all units in eligible low income 
housing approved under the State strategy will be retained as affordable 
to families or persons meeting the income eligibility standards for 
initial occupancy that applied to housing on January 1, 1987; and
    (ii) Not less than 60 percent of the units in any one project will 
remain available to and affordable by such families or persons, within 
which not less than 20 percent of the units will remain available to and 
affordable by very low income families;
    (6) Expenditures for rehabilitation, maintenance and operation will 
be at a level necessary to maintain the housing as decent, safe and 
sanitary and for the period specified in paragraph (a)(4) of this 
section;
    (7) Not less than 25 percent of new assistance required to maintain 
the housing as available to and affordable by low income families in 
accordance with this section shall be provided through State and local 
actions, such as tax exempt financing, low income tax credits, State or 
local tax concessions, the provision of funds from housing finance 
agency reserves or housing trust funds, taxable bonds, and other 
incentives provided by the State or local governments; and
    (8) For each unit of eligible low income housing approved under the 
State strategy that is not retained as affordable housing to families or 
persons meeting the income eligibility standards for initial occupancy 
on January 1, 1987, the State will provide, with State funds, one 
additional unit of comparable housing in the same market area that is 
available to and affordable by such families and persons. Such units 
will be provided by conversion of existing units or construction of new 
units. These units or funds will be made available before the 
Commissioner approves the State strategy.
    (b) Additional requirements. (1) The State must enter into all 
agreements necessary to carry out the State strategy before receiving 
the Commissioner's approval.
    (2) Each State strategy shall include any other provision that the 
Commissioner determines to be necessary to implement the approved State 
strategy.



Sec.  248.231  Incentives to extend low income use.

    The Commissioner may agree to provide one or more of the following 
incentives to induce the project owner to extend the low income use of 
the project, if the Commissioner determines that such incentives are 
warranted under the standards in Sec.  248.233 of this part:
    (a) An increase in the allowable distribution, or other measures to 
increase the rate of return;
    (b) Revisions to the method of calculating equity;
    (c) Increased access to residual receipts funds or excess reserve 
for replacements funds;
    (d) Provision of insurance for an equity loan;
    (e) An increase in the rents permitted under an existing section 8 
contract, within statutory and regulatory limits otherwise applicable, 
or (subject to the availability of amounts provided in appropriations 
Acts) additional assistance under section 8 or an extension of any 
project-based assistance attached to the housing;
    (f) Provision of a capital improvement loan;
    (g) Other actions to facilitate a transfer or sale of the housing to 
a qualified nonprofit organization, limited equity tenant cooperative, 
public agency, or other entity acceptable to the Commissioner, such as 
expedited review of a request for approval of a transfer of physical 
assets;
    (h) Provision of flexible subsidy assistance;

[[Page 516]]

    (i) Termination of HUD's limitations on distributions, and release 
of residual receipts and reserve for replacements funds, through 
prepayment of the mortgage; and
    (j) Any other incentives for which the owner is eligible.



Sec.  248.233  Approval of a plan of action that includes incentives.

    The Commissioner may approve a plan of action that includes 
incentives, whether or not the plan of action allows for the prepayment 
of the mortgage, only upon a finding that--
    (a) After taking into account local market conditions, the 
incentives are necessary to achieve the purposes of this part;
    (b) The incentives are necessary to provide a fair rate of return to 
the owner. Incentives will only be provided in cases where the project's 
current use does not represent its highest and best use;
    (c) The incentives are the least costly alternative for the Federal 
government to achieve the purposes of this part with respect to the 
housing;
    (d) Binding commitments have been made to ensure that--
    (1) The housing will be retained as housing affordable for very low 
income families, low-income families, and moderate income families for 
the remaining term of the mortgage;
    (2) Throughout the remaining term of the mortgage, adequate 
expenditures will be made for the proper maintenance and operation of 
the housing;
    (3) Current tenants will not be involuntarily displaced (except for 
good cause);
    (4) Any increase in rent contributions for current tenants will be 
to a level that does not exceed 30 percent of the adjusted income of the 
tenant or the fair market rent, whichever is lower;
    (5) Any resulting increase in rents for current tenants (except for 
increases made necessary by increased operating costs) will be phased in 
equally over a period of not less than 3 years, if the increase is 30 
percent or more, and will be limited to not more than 10 percent per 
year, if the increase is more than 10 percent but less than 30 percent;
    (6) Subject to the availability of funds, the Commissioner shall 
provide, and the owner shall accept, assistance under section 8 if the 
Commissioner determines that such assistance is necessary to mitigate 
any adverse effect of the rent increases on current tenants eligible for 
section 8 assistance; and
    (7) Rents for units becoming available to new tenants will be at 
levels approved by the Commissioner that will ensure, to the extent 
practicable, that the units will be available to and affordable, with 30 
percent of adjusted income, by the same proportion of very low income 
families, low-income families, and moderate income families as resided 
in the housing as of January 1, 1987 (based on the area median income 
limits established by the Commissioner in February 1987), or the date 
the plan of action is approved, whichever date results in the highest 
proportion of very low income families.
    (i) For purposes of paragraph (d)(7) of this section--
    (A) The percentage of moderate income families in occupancy as of 
January 1, 1987 shall include families who were admitted to the project 
as very low income, low income, or moderate income families but whose 
incomes had increased beyond the limit for moderate income families by 
January 1, 1987; and
    (B) The proportions established shall not prohibit a higher 
proportion of very low income families from occupying the housing.
    (ii) In approving rents under paragraph (d)(7) of this section, the 
Commissioner will take into account any additional incentives provided 
under this part and will make provision for annual rent adjustments 
necessary as a result of future reasonable increases in operating costs.
    (e) In cases where the owner agrees to maintain only a portion of 
the project as low income housing, the incentives provided under Sec.  
248.231 of this part and the standards imposed under this section shall 
be adjusted accordingly.
    (f) The Commissioner shall not approve a plan of action under this 
section if there are open findings of noncompliance with title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d); the Fair Housing Act (42 
U.S.C. 3601-3619); Executive Order 11063 (3 CFR 1959-1963

[[Page 517]]

comp., p. 652); the Age Discrimination Act of 1975 (42 U.S.C. 6101-
6107); section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794); 
and all regulations promulgated under such statutes and authorities, or 
if there are open audit findings with respect to violations of the 
regulatory agreement.

[55 FR 38952, Sept. 21, 1990. Redesignated and amended at 57 FR 12041, 
12060, Apr. 8, 1992]



Sec.  248.234  Section 8 rental assistance.

    (a) When providing rental assistance under section 8, the 
Commissioner may enter into a contract with an owner, contingent upon 
the future availability of appropriations for the purpose of renewing 
expiring contracts for rental assistance as provided in appropriations 
Acts, to extend the term of such rental assistance for such additional 
period or periods as is necessary to carry out an approved plan of 
action.
    (b) The contract and the approved plan of action shall provide that, 
if the Commissioner is unable to develop a revised package of incentives 
providing benefits to the owner comparable to those received under the 
original approved plan of action, the Commissioner, upon the request of 
the owner, shall take the following actions (subject to the limitations 
under the following paragraphs):
    (1) Modification of the binding commitments made pursuant to Sec.  
248.233(d) that are dependent on such rental assistance.
    (2) If action under paragraph (b)(1) is not feasible, release of an 
owner from the binding commitments made pursuant to Sec.  248.233(d) 
that are dependent on such rental assistance.
    (3) If actions under paragraphs (b)(1) and (2) would, in the 
determination of the Commissioner, result in the default of the insured 
loan, approveal of the revised plan of action, notwithstanding Sec.  
248.221, that involves the termination of low-income affordability 
restrictions.
    (c) The approved plan of action shall specify actions that the 
Commissioner and the owner shall take to ensure that any tenants 
displaced as a result of actions taken under paragraph (b) of this 
section are relocated to affordable housing.
    (d) At least 30 days prior to making a request under the preceding 
sentence, an owner shall notify the Commissioner of the owner's 
intention to submit the request. The Commissioner shall have a period of 
90 days following receipt of such notice to take action to extend the 
rental assistance contract and to continue the binding commitments under 
paragraph (b).

[55 FR 38952, Sept. 21, 1990. Redesignated and amended at 57 FR 12041, 
12060, Apr. 8, 1992]



Sec.  248.241  Modification of existing regulatory agreements.

    (a) If a plan of action is not approved within 300 days after 
initial submission, the Commissioner may, upon request of the owner and 
upon making a determination that the project's current use does not 
represent its highest and best use, modify existing regulatory 
agreements to--
    (1) Prevent involuntary displacement of current tenants (except for 
good cause);
    (2) Ensure that adequate expenditures will be made for maintenance 
and operation of the housing;
    (3) Extend (subject to the availability of funds) any expiring 
project-based assistance on the housing for the term of the agreement;
    (4) Permit an increase in the allowable distribution that could be 
accommodated by an increase in the rents on occupied units to a level no 
higher than 30 percent of the adjusted income of the tenants, as 
determined by the Commissioner, except that rents shall not exceed the 
fair market rent, and any resulting increase in rents for current 
tenants shall be phased in equally over a period of no less than 3 
years, unless such increase is less than 10 percent; and
    (5) Ensure that units becoming vacant during the term of the 
agreement are made available in accordance with Sec.  248.233(d)(7) of 
this part.
    (b) Expiration. Agreements entered into under this section shall 
expire on February 5, 1992, unless earlier superseded by an agreement 
implementing a HUD-approved plan of action. Upon such expiration of the 
agreement on February 5, 1992, the housing covered by the agreement 
shall be subject to

[[Page 518]]

any law then affecting low income affordability restrictions.



Sec.  248.251  Consultation with other interested parties.

    The Commissioner will confer with any appropriate State or local 
government agency to confirm any State or local assistance that is 
available to achieve the purposes of this part and will give 
consideration to the views of the State or local agency when making the 
determinations under Sec. Sec.  248.221 and 248.233 of this part. The 
Commissioner also will confer with other interested parties that the 
Commissioner believes could assist in the development of a plan of 
action that best achieves the purposes of this part.



Sec.  248.261  Agreements implementing plans of action and State strategies.

    The Commissioner is authorized to enter into agreements, including 
those for the provision of incentives, necessary to implement any plan 
of action or State strategy approved by the Commissioner under this 
part.



             Subpart D_State Preservation Project Assistance

    Source: 57 FR 12060, Apr. 8, 1992, unless otherwise noted.



Sec.  248.300  General.

    Upon application by a State agency or a local public housing agency, 
the Commissioner may make available assistance for use in preventing the 
loss of housing affordable for low and moderate income families that is 
assisted under a State program under the terms of which the owner may 
prepay a State assisted or subsidized mortgage on such housing.



Sec.  248.301  Initial application.

    A State agency shall make an initial application to the Commissioner 
which:
    (a) Describes the manner by which the State housing program provides 
mortgage assistance or subsidy to private mortgagors to provide housing 
opportunities for low and moderate income families;
    (b) Includes copies of the authorizing legislation, any implementing 
regulations and any administrative guidance provided to owners;
    (c) Includes a comprehensive description of the terms and conditions 
under which a private owner may prepay the assisted or subsidized 
mortgage without the prior consent of the State agency;
    (d) Includes a complete set of pro forma mortgage and/or regulatory 
documents which evidence an owner's ability to prepay the assisted or 
subsidized mortgage without the consent of the State agency;
    (e) Includes a list of all properties assisted under the State or 
local housing program whose owners are eligible to prepay the assisted 
or subsidized mortgages without the consent of the State agency.



Sec.  248.303  Approval of a State agency's initial application.

    (a) The Commissioner will evaluate the State agency's application 
and will notify the State agency within 90 days of receipt that the 
program and properties qualify under subpart D of this part or that the 
program and properties do not qualify under subpart D of this part.
    (b) If the Commissioner determines that the program and projects do 
not qualify under subpart D of this part, it will state the reasons why 
the program and properties do not qualify and will give the State agency 
an opportunity to provide additional information, as the Commissioner 
determines, which would assist the Commissioner in qualifying the 
program and properties.



Sec.  248.305  Applicability of subpart B of this part.

    The provisions of subpart B of this part shall be applicable to any 
application of a State agency or local housing authority for assistance 
under subpart D of this part, except the following provisions:

Sec.

248.103 General prepayment limitation.
248.105 Notice of intent.
248.131 Information from the Commissioner: Only paragraph (a).
248.141 Criteria for approval of a plan of action involving prepayment 
          and voluntary termination.
248.153 Incentives to extend low income use: Only paragraphs (a)(7), (d) 
          and (e).

[[Page 519]]

248.165 Assistance for displaced tenants.
248.169 Permissible prepayment or voluntary termination and modification 
          of commitments.
248.173 Resident homeownership program: Only paragraph (s).
248.177 Delegated responsibility to State agencies.



Sec.  248.307  Authority to process and approve notices of intent and
plans of action.

    (a) Delegation of authority. State agencies which regulate or 
otherwise supervise owners of projects with State assisted or subsidized 
mortgages shall have the authority, reserved to the Commissioner under 
subpart B of this part, to process and approve all notices of intent and 
plans of action submitted to the State agency or local housing authority 
under subpart D of this part. State agencies may redelegate such 
authority to local housing authorities at their discretion.
    (b) Designation of processing agency. The Executive Director of the 
State agency whose State assisted or subsidized mortgage program has 
been approved under Sec.  248.303 shall inform all owners of projects 
with State assisted or subsidized mortgages that the State agency or a 
designated local housing authority shall accept and process notices of 
intent and plans of action.



Sec.  248.311  Notice of intent.

    (a) Eligibility for filing. An owner of a project with a State 
assisted or subsidized mortgage intending to extend the low income 
affordability restrictions of the housing in accordance with Sec.  
248.153 or transfer the housing to a qualified purchaser under Sec.  
248.157 may file a notice of intent.
    (b) Filing with the State agency. The notice of intent shall be 
filed with the agency specified in Sec.  248.307(b) or the agency which 
regulates or otherwise supervises the State assisted or subsidized 
mortgage. The notice of intent shall also request the tenants to notify 
the owner and the State agency of any individual or organization that 
has been designated or retained by the tenants to represent the tenants 
with respect to the actions to be taken under subpart B and subpart D of 
this part.
    (c) Filing with HUD, mortgagee and tenants. The owner simultaneously 
shall file the notice of intent with the local HUD field office having 
jurisdiction over the area in which the project is located and with the 
mortgagee, if any. In addition, the owner shall deliver a copy of the 
notice of intent to each tenant in the project and to any tenant 
representative, if any, known to the owner, and shall post a copy of the 
notice of intent in readily accessible locations within each affected 
building of the project. The copies of the notice of intent delivered to 
the tenants and the tenant representative shall include a summary of 
possible outcomes of the filing which shall be furnished by the State 
agency. Upon the request of any non-English speaking tenants residing in 
the affected project, the owner shall tabulate the number and type of 
translations needed by the tenants and request the State agency to 
provide the appropriate translations. The owner shall deliver a copy of 
the translated notice of intent to all of the tenants who requested such 
a translation. The failure of an owner to comply with any non-federal 
notice requirements shall not invalidate the notice of intent.



Sec.  248.315  Preservation agreements.

    (a) Agreements required. Owners of projects with State assisted or 
subsidized mortgages whose plans of action have been approved under 
Sec.  248.307 shall enter into agreements, contracts and/or mortgage 
modifications with the State agency or local housing authority to 
maintain the housing as affordable to tenants in accordance with Sec.  
248.145. Such agreements may provide for the renewal of any assistance 
made available under Sec.  248.319(c).
    (b) Term of agreement. Preservation agreements shall be coterminous 
with the expiration of any assistance provided under Sec.  248.153 and 
made available in accordance with Sec.  248.319(c).



Sec.  248.319  Application for assistance.

    (a) Application for assistance. State agencies or local housing 
authorities shall submit an application for assistance in a form 
prescribed by the Commissioner with the local HUD field office having 
jurisdiction over the project. The application shall include:

[[Page 520]]

    (1) A copy of the approved plan of action, including all applicable 
notices of intent;
    (2) A copy of any worksheet or other document which demonstrates the 
extension and transfer preservation values of the project, the Federal 
cost limits (including the determination of relevant local market rents 
if applicable), and the preservation rents;
    (3) A request for each incentive required as part of the approved 
plan of action and the amount thereof;
    (4) A demonstration and certification by the Executive Director of 
the State agency or local housing authority that the assistance and 
incentives requested as part of the approved plan of action do not 
exceed the level of incentives required for a similarly situated project 
which is eligible low income housing as defined in subpart B of this 
part;
    (5) Copies of proposed agreements, contracts and mortgage 
modifications proposed pursuant to Sec.  248.315.
    (b) Notification of approval. Not later than 90 days after receipt 
of the application for assistance, the local HUD field office shall 
notify the Executive Director of the State agency or local housing 
authority of the approval or disapproval of the application. If the 
application is disapproved, the notification shall state the reasons 
therefor and afford the State agency or local housing authority the 
opportunity to revise the application to make it approvable.
    (c) Funding. After approving the State agency's or local housing 
authority's application for assistance, the HUD field office shall make 
the assistance in the approved application available to the State agency 
or local housing authority within the time frames specified in Sec.  
248.169.
    (d) Agreements. The State agency or local housing authority shall 
provide the local HUD field office with a copy of all agreements entered 
into with the owner pursuant to Sec.  248.315.
    (e) Section 8 contract administration. Any contract for Section 8 
assistance made pursuant to the approved plan of action, the State 
agency's or local housing authority's application for assistance and the 
regulations at 24 CFR 886, subpart A shall be administered by the State 
agency or local housing authority pursuant to Sec.  886.120 of this 
title.



          Subpart E_Technical Assistance and Capacity Building

    Source: 58 FR 37817, July 13, 1993, unless otherwise noted.



Sec.  248.401  Purposes.

    The purposes of this subpart are:
    (a) To promote the ability of residents of eligible low income 
housing to participate meaningfully in the preservation process 
established by this part and affect decisions about the future of their 
housing;
    (b) To promote the ability of community-based nonprofit 
organizations and resident councils to acquire, rehabilitate, and 
competently own and manage eligible housing as rental or cooperative 
housing for low and moderate income people; and
    (c) To assist the Commissioner in discharging the obligation under 
Sec.  248.157(b) to notify potential qualified purchasers of the 
availability of projects for sale and to otherwise facilitate the 
coordination and oversight of the preservation program established under 
this part.



Sec.  248.405  Grants for building resident capacity and funding
predevelopment costs.

    (a) General. Assistance made available under this subpart shall be 
used for direct assistance grants to resident organizations and 
community-based nonprofit housing developers and resident councils to 
assist the acquisition of specific projects (including payment of 
reasonable administrative expense to participating intermediaries.) 
Assistance made available under subpart E of this part will be 
distributed on a noncompetitive basis. HUD will publish a Notice in the 
Federal Register announcing the availability of assistance, as well as 
the application requirements and procedures and selection criteria that 
HUD will use in making the assistance available.
    (b) Allocation. Thirty percent of the assistance made available 
under this

[[Page 521]]

subpart shall be used for resident capacity grants in accordance with 
paragraph (d) of this section. The remainder shall be used for 
predevelopment grants in connection with specific projects in accordance 
with paragraph (e) of this section.
    (c) Limitation on grant amounts. A resident capacity grant under 
paragraph (d) of this section may not exceed $30,000 per project and a 
grant under paragraph (e) of this section for predevelopment costs may 
not exceed $200,000 per project, exclusive of any fees paid to a 
participating intermediary by the Commissioner for administering grants 
under this subpart.
    (d) Resident Capacity grants--(1) Use. Resident capacity grants 
under paragraph (d) of this section shall be available to eligible 
applicants to cover expenses for resident outreach, incorporation of a 
resident organization or council, conducting democratic elections, 
training, leadership development, legal and other technical assistance 
to the board of directors, staff and members of the resident 
organization or council.
    (2) Eligible housing. Grants under this paragraph (d) of this 
section may be provided with respect to eligible low income housing for 
which the owner has filed a notice of intent under subpart B or subpart 
C of this part.
    (e) Predevelopment grants--(1) Use. Predevelopment grants under 
paragraph (e) of this section shall be made available to community-based 
nonprofit housing developers and resident councils to cover the cost of 
organizing a purchasing entity and pursuing an acquisition, including 
third party costs for training, development consulting, legal, 
appraisal, accounting, environmental, architectural and engineering, 
application fees, and sponsor's staff and overhead costs.
    (2) Eligible housing. These grants may only be made available with 
respect to any eligible low income housing project for which the owner 
has filed a notice of intent to transfer the housing to a qualified 
purchaser in accordance with Sec.  248.105 or Sec.  248.211, or has 
filed a notice of intent and entered into a binding agreement to sell 
the housing to a resident organization or nonprofit organization.
    (3) Phase-in of grant payments. Grant payments under paragraph (e) 
of this section shall be made in phases, based on performance benchmarks 
established by the Commissioner in consultation with intermediaries 
selected under Sec.  248,415.
    (f) Grant applications. Grant applications for assistance under 
paragraphs (d) and (e) of this section shall be received monthly on a 
rolling basis and approved or rejected on at least a quarterly basis by 
intermediaries selected under Sec.  248.415(b).
    (g) Appeal. If an application for assistance under paragraphs (d) or 
(e) of this section is denied, the applicant shall have the right to 
appeal the denial to the Commissioner and receive a binding 
determination within 30 days of the appeal.



Sec.  248.410  Grants for other purposes.

    The Commissioner may provide grants under this subpart E:
    (a) To resident-controlled or community-based nonprofit 
organizations with experience in resident education and organizing for 
the purpose of conducting community, city or countywide outreach and 
training programs to identify and organize residents of eligible low 
income housing; and
    (b) To State and local government agencies and nonprofit 
intermediaries for the purpose of carrying out such activities as the 
Commissioner deems appropriate to further the purposes of this part.



Sec.  248.415  Delivery of assistance through intermediaries.

    (a) General. The Commissioner shall approve and disburse assistance 
under Sec.  248.405 and Sec.  248.410 through eligible intermediaries 
selected by the Commissioner under paragraph (b) of this section. If the 
Commissioner does not receive an acceptable proposal from an 
intermediary offering to administer assistance under this section in a 
given State, the Commissioner shall administer the program in such State 
directly.
    (b) Selection of eligible intermediaries--(1) In General. The 
Commission shall invite applications from and shall select eligible 
intermediaries to administer assistance under subpart E of this

[[Page 522]]

part through Notices of Funding Availability published in the Federal 
Register. The process shall include provision for a reasonable 
administrative fee.
    (2) Priority. With respect to all forms of grants available under 
Sec.  248.405, the criteria for selecting eligible intermediaries shall 
give priority to applications from eligible intermediaries with 
demonstrated expertise under subpart B or subpart C of this part.
    (3) Criteria. The criteria developed under this section shall:
    (i) Not assign any preference or priority to applications from 
eligible intermediaries based on their previous participation in 
administering or receiving Federal grants or loans (but may exclude 
applicants who have failed to perform under prior contracts of a similar 
nature);
    (ii) Require an applicant to prepare a proposal that demonstrates 
adequate staffing, qualifications, prior experience, and a plan for 
participation; and
    (iii) Permit an applicant to serve as the administrator of 
assistance made available under Sec.  248.405(d) and (e), based on the 
applicant's suitability and interest.
    (4) Geographic coverage. The Commissioner may select more than one 
State or regional intermediary for a single State or region. The number 
of intermediaries chosen for each State or region may be based on the 
number of eligible low income housing projects in the State or region, 
provided there is no duplication of geographic coverage by 
intermediaries in the administration of the direct assistance grant 
program.
    (5) National nonprofit intermediaries. National nonprofit 
intermediaries shall be selected to administer the assistance made 
available under Sec.  248.405 only with respect to State or regions for 
which no other eligible intermediary, acceptable to the Commissioner, 
has submitted a proposal to participate.
    (6) Preference. With respect to assistance made available under 
Sec.  248.410, preference shall be given to eligible regional, State and 
local intermediaries, over national nonprofit organizations.
    (c) Conflicts of interest. Eligible intermediaries selected under 
paragraph (b) of this section to disburse assistance under Sec.  248.405 
shall certify that they will serve only as delegated program 
administrators, charged with the resposibility for reviewing and 
approving grant applications on behalf of the Commissioner. Selected 
intermediaries shall:
    (1) Establish appropriate procedures for grant administration and 
fiscal management, pursuant to standards established by the 
Commissioner; and
    (2) Receive a reasonable administrative fee, except that they may 
not provide other services to grant recipients with respect to projects 
that are the subject of the grant application and may not receive 
payment, directly or indirectly, from the proceeds of grants they have 
approved.



Sec.  248.420  Definitions.

    Community-based nonprofit housing developer means a nonprofit 
community development corporation that:
    (1) Has been classified by the Internal Revenue Service as an exempt 
organization under section 501(c)(3) of the Internal Revenue Code of 
1986;
    (2) Has been in existence for at least two years prior to the date 
of the grant application;
    (3) Has a record of service to low and moderate income people in the 
community in which the project is located;
    (4) Is organized at the neighborhood, city, county, or multi-county 
level; and
    (5) In the case of a corporation acquiring eligible low income 
housing under subpart B of this part, agrees to form a purchaser entity 
that conforms to the definition of a community-based nonprofit 
organization under such subpart and agrees to use its best efforts to 
secure majority tenant consent to the acquisition of the project for 
which grant assistance is requested.
    Eligible intermediaries. For purposes of this subpart, the term 
``eligible intermediary'' means a State, regional, or national nonprofit 
organization (including a quasi-public organization) or a State or local 
housing agency that:
    (1) Has as a central purpose the preservation of existing affordable 
housing and the prevention of displacement;
    (2) Does not receive direct Federal appropriations for operating 
support;

[[Page 523]]

    (3) In the case of a national nonprofit organization, has been in 
existence for at least five years prior to the date of application and 
has been classified by the Internal Revenue Service as an exempt 
organization under section 501(c)(3) of the Internal Revenue Code of 
1986;
    (4) In the case of a regional or State nonprofit organization, has 
been in existence for at least three years prior to the date of 
application and has been classified by the Internal Revenue Service as 
an exempt organization under section 501(c)(3) of the Internal Revenue 
Code of 1986 or is otherwise a tax-exempt entity;
    (5) Has a record of service to low income individuals or community-
based nonprofit housing development in multiple communities and, with 
respect to intermediaries administering assistance under Sec.  248.405, 
has experience with the allocation or administration of grant or loan 
funds; and
    (6) Meets standards of fiscal responsibility established by the 
Commissioner.



PART 251_COINSURANCE FOR THE CONSTRUCTION OR SUBSTANTIAL REHABILITATION 
OF MULTIFAMILY HOUSING PROJECTS--Table of Contents



Sec.
251.1 Termination of program.
251.2 GNMA right to assignment.
251.3 Case-by-case conversion to full insurance.
251.6 Method of payment of mortgage insurance premiums.

    Authority: 12 U.S.C. 1715b, 1715z-9; 42 U.S.C. 3535(d).



Sec.  251.1  Termination of program.

    (a) Effective on November 12, 1990, the authority to coinsure 
mortgages under this part is terminated, except that the Department
    (1) Will honor legally binding and validly issued commitments issued 
before November 12, 1990 and
    (2) Will accept for review the coinsurance applications described in 
paragraph (b) of this section.

Part 251, as it existed immediately before November 12, 1990, will 
continue to govern the rights and obligations of coinsured lenders, 
mortgagors, and the Department of Housing and Urban Development with 
respect to loans coinsured under this part.
    (b) A precommitment review procedure applies to any application for 
mortgage coinsurance for which a lender has accepted a non-refundable 
application fee before November 12, 1990 under this part and for which a 
legally binding Conditional or Firm Commitment is proposed to be issued. 
This procedure applies to lenders with preliminary as well as full 
approval to process coinsurance applications and without regard to 
whether the lender is under probation. For any coinsurance application 
for which the lender has accepted an application and a non-refundable 
application fee before November 12, 1990, the lender shall, prior to 
commitment, submit to HUD headquarters and to the HUD field office with 
jurisdiction for the proposed project such exhibits and other 
information as has been specified in administrative instructions of the 
Commissioner. The lender shall not issue a commitment without written 
approval from the Commissioner. Field Offices shall not endorse any case 
covered by this precommitment review requirement unless the lender 
submits with the endorsement package evidence of the Commissioner's 
approval of the processing and evidence of compliance with any 
conditions imposed by the Commissioner.
    (c) Extensions of commitments for projects which had outstanding 
legally binding commitments as of November 12, 1990 are limited as 
follows:
    (1) Firm commitments for insurance of advances may be granted two 
60-day extensions;
    (2) Conditional commitments may be granted one 60-day extension;
    (3) Firm commitments for insurance upon completion may not be 
extended.

However, should any underwriting conclusions be altered and reflected in 
the extension, the project must be submitted for precommitment review in 
accordance with paragraph (b) of this section. In the event an extension 
is required beyond those provided for in this paragraph, the case will 
be subject to the precommitment review process described in paragraph 
(b) of this section.

[[Page 524]]

    (d) Reopened expired commitments are subject to precommitment review 
under paragraph (b) of this section.
    (e) HUD considers a commitment to be legally binding if:
    (1) It conforms to the format prescribed in the appropriate HUD 
Handbook and contains only such modifications as have been approved by 
HUD in writing;
    (2) All required underwriting, analyses, reviews and approvals have 
been accomplished prior to issuance of the commitment;
    (3) It conforms to HUD requirements pertaining to initial term and 
extension;
    (4) It obligates the lender and HUD to proceed to the next stage 
(i.e., firm commitment in the case of a conditional commitment, or 
endorsement in the case of a firm commitment) if the applicant mortgagor 
complies with all conditions of such commitment;
    (5) It does not permit the lender to change unilaterally the 
conditions or terms of the commitment; and
    (6) It is signed by an official of the coinsuring lender who has 
been designated and authorized in accordance with HUD requirements.

(Information collection requirements in paragraph (b) were approved by 
the Office of Management and Budget under control number 2502-0437)

[55 FR 41318, Oct. 10, 1990]



Sec.  251.2  GNMA right to assignment.

    If the lender-issuer defaults on its obligations under the GNMA 
Mortgage-Backed Securities Program, GNMA will have the right to cause 
all Coinsured Mortgages held in GNMA pools by the defaulting coinsuring 
lender-issuer to be assigned to another GNMA-approved coinsuring lender-
issuer, or to GNMA itself.
    (a) For any Coinsured Mortgage that is not in default and is held by 
a defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the mortgage to itself. However, before exercising this 
right, GNMA will attempt to have the Mortgage assigned to another 
eligible coinsuring lender (unless GNMA determines, with the agreement 
of the Commissioner, that the attempt would prove ineffectual because of 
market conditions or other factors). This attempt will be undertaken by 
soliciting offers to assume the defaulting lender-issuer's rights and 
obligations under the Mortgage from those eligible coinsuring lenders 
that are also GNMA issuers and that are indicated on a periodically 
updated listing furnished to GNMA by the Commissioner.
    (b) For any Coinsured Mortgage that is in default and held by a 
defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the Coinsured Mortgage directly to itself before 
extinguishing the Mortgage by completion of foreclosure action or 
acquisition of title by deed-in-lieu of foreclosure.
    (c) GNMA, as assignee, will give the Commissioner written notice, 
within 30 days after taking a Mortgage by assignment in accordance with 
this section, in order to allow an appropriate endorsement and necessary 
changes in the Commissioner's records.
    (d) The Commissioner will endorse any Mortgage assigned to GNMA as 
provided by this section for full insurance, effective as of the date of 
assignment in accordance with the appropriate provisions of 24 CFR part 
221. Any future claim by GNMA, or any assignment of the fully insured 
Mortgage, will be governed by the appropriate provisions of 24 CFR part 
221, except that any payment will be made in cash instead of debentures.

[59 FR 1475, Jan. 11, 1994]



Sec.  251.3  Case-by-case conversion to full insurance.

    Upon the request of a coinsuring lender, the Commissioner may 
endorse a coinsured Mortgage for full insurance, effective as of the 
date of such endorsement, if the Commissioner is satisfied that:
    (a) Continuing the Mortgage under coinsurance could jeopardize the 
lender's viability and ability to service its remaining portfolio of 
coinsured Mortgages;
    (b) The lender has made reasonable efforts to work out any Mortgage 
default consistent under 24 CFR 251.811 (1990), but the remedies 
available to the lender have not been adequate to reinstate the 
Mortgage;

[[Page 525]]

    (c) The conversion would be less costly to HUD than if the Mortgage 
remained coinsured;
    (d) The lender has paid HUD the fee set forth through Federal 
Register notice; and
    (e) The lender agrees to give the Commissioner written notice under 
24 CFR 207.258 of its intent to file an insurance claim upon the 
Commissioner's endorsement of the Mortgage for full insurance.

[61 FR 49038, Sept. 17, 1996]



Sec.  251.6  Method of payment of mortgage insurance premiums.

    In the cases that the Commissioner deems appropriate, the 
Commissioner may require, by means of instructions communicated to all 
affected lenders, that mortgage insurance premiums be remitted 
electronically.

[63 FR 1303, Jan. 8, 1998]



PART 252_COINSURANCE OF MORTGAGES COVERING NURSING HOMES, INTERMEDIATE
CARE FACILITIES, AND BOARD AND CARE HOMES--Table of Contents



Sec.
252.1 Termination of program.
252.2 GNMA right to assignment.
252.3 Case-by-case conversion to full insurance.
252.6 Method of payment of mortgage insurance premiums.

    Authority: 12 U.S.C. 1715b, 1715z-9; 42 U.S.C. 3535(d).



Sec.  252.1  Termination of program.

    (a) Effective on November 12, 1990, the authority to coinsure 
mortgages under this part is terminated, except that the Department
    (1) Will honor legally binding and validly issued commitments issued 
before November 12, 1990, and
    (2) Will accept for review the coinsurance applications described in 
paragraph (b) of this section.

Part 252, as it existed immediately before November 12, 1990, will 
continue to govern the rights and obligations of coinsured lenders, 
mortgagors, and the Department of Housing and Urban Development with 
respect to loans coinsured under this part.
    (b) A precommitment review procedure applies to any application for 
mortgage coinsurance for which a lender has accepted a non-refundable 
application fee before November 12, 1990 under this part and for which a 
legally binding Conditional or Firm Commitment is proposed to be issued. 
This procedure applies to lenders with preliminary as well as full 
approval to process coinsurance applications and without regard to 
whether the lender is under probation. For any coinsurance application 
for which the lender has accepted an application and a non-refundable 
application fee before November 12, 1990, the lender shall, prior to 
commitment, submit to HUD headquarters and to the HUD field office with 
jurisdiction for the proposed project such exhibits and other 
information as has been specified in administrative instructions of the 
Commissioner. The lender shall not issue a commitment without written 
approval from the Commissioner. Field Offices shall not endorse any case 
covered by this precommitment review requirement unless the lender 
submits with the endorsement package evidence of the Commissioner's 
approval of the processing and evidence of compliance with any 
conditions imposed by the Commissioner.
    (c) Extensions of commitments for projects which had outstanding 
legally binding commitments as of November 12, 1990 are limited as 
follows:
    (1) Firm commitments for insurance of advances may be granted two 
60-day extensions;
    (2) Conditional commitments may be granted one 60-day extension;
    (3) Firm commitments for insurance upon completion may not be 
extended.

However, should any underwriting conclusions be altered and reflected in 
the extension, the project must be submitted for precommitment review in 
accordance with paragraph (b) of this section. In the event an extension 
is required beyond those provided for in this paragraph, the case will 
be subject to the precommitment review process described in paragraph 
(b) of this section.
    (d) Reopened expired commitments are subject to precommitment review 
under paragraph (b) of this section.

[[Page 526]]

    (e) HUD considers a commitment to be legally binding if:
    (1) It conforms to the format prescribed in the appropriate HUD 
Handbook and contains only such modifications as have been approved by 
HUD in writing;
    (2) All required underwriting, analyses, reviews and approvals have 
been accomplished prior to issuance of the commitment;
    (3) It conforms to HUD requirements pertaining to initial term and 
extensions;
    (4) It obligates the lender and HUD to proceed to the next stage 
(i.e., firm commitment in the case of a conditional commitment, or 
endorsement in the case of a firm commitment) if the applicant mortgagor 
complies with all conditions of such commitment;
    (5) It does not permit the lender to change unilaterally the 
conditions or terms of the commitment; and
    (6) It is signed by an official of the coinsuring lender who has 
been designated and authorized in accordance with HUD requirements.

(Information collection requirements in paragraph (b) were approved by 
the Office of Management and Budget under control number 2502-0437)

[55 FR 41319, Oct. 10, 1990]



Sec.  252.2  GNMA right to assignment.

    If the lender-issuer defaults on its obligations under the GNMA 
Mortgage-Backed Securities Program, GNMA will have the right to cause 
all Coinsured Mortgages held in GNMA pools by the defaulting coinsuring 
lender-issuer to be assigned to another GNMA-approved coinsuring lender-
issuer, or to GNMA itself.
    (a) For any Coinsured Mortgage that is not in default and is held by 
a defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the mortgage to itself. However, before exercising this 
right, GNMA will attempt to have the Mortgage assigned to another 
eligible coinsuring lender (unless GNMA determines, with the agreement 
of the Commissioner, that the attempt would prove ineffectual because of 
market conditions or other factors). This attempt will be undertaken by 
soliciting offers to assume the defaulting lender-issuer's rights and 
obligations under the Mortgage from those eligible coinsuring lenders 
that are also GNMA issuers and that are indicated on a periodically 
updated listing furnished to GNMA by the Commissioner.
    (b) For any Coinsured Mortgage that is in default and held by a 
defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the Coinsured Mortgage directly to itself before 
extinguishing the Mortgage by completion of foreclosure action or 
acquisition of title by deed-in-lieu of foreclosure.
    (c) GNMA, as assignee, will give the Commissioner written notice, 
within 30 days after taking a Mortgage by assignment in accordance with 
this section, in order to allow an appropriate endorsement and necessary 
changes in the Commissioner's records.
    (d) The Commissioner will endorse any Mortgage assigned to GNMA as 
provided by this section for full insurance, effective as of the date of 
assignment in accordance with the appropriate provisions of 24 CFR part 
232. Any future claim by GNMA, or any assignment of the fully insured 
Mortgage, will be governed by the appropriate provisions of 24 CFR part 
232, except that any payment will be made in cash instead of debentures.

[59 FR 1475, Jan. 11, 1994]



Sec.  252.3  Case-by-case conversion to full insurance.

    Cross Reference: The provisions of 24 CFR 251.3 apply to this part.

[61 FR 49038, Sept. 17, 1996]



Sec.  252.6  Method of payment of mortgage insurance premiums.

    The provisions of 24 CFR 251.6 shall apply to this part.

[63 FR 1303, Jan. 8, 1998]



PART 255_COINSURANCE FOR THE PURCHASE OR REFINANCING OF EXISTING
MULTIFAMILY HOUSING PROJECTS--Table of Contents



Sec.
255.1 Termination of program.
255.2 GNMA right to assignment.

[[Page 527]]

255.3 Case-by-case conversion to full insurance.
255.6 Method of payment of mortgage insurance premiums.

    Authority: 12 U.S.C. 1515b, 1715z-9; 42 U.S.C. 3535(d).



Sec.  255.1  Termination of program.

    (a) Effective on November 12, 1990, the authority to coinsure 
mortgages under this part is terminated, except that the Department:
    (1) Will honor legally binding and validly issued commitments issued 
before November 12, 1990 and
    (2) Will accept for review the coinsurance applications described in 
paragraph (b) of this section.

Part 255, as it existed immediately before November 12, 1990, will 
continue to govern the rights and obligations of coinsured lenders, 
mortgagors, and the Department of Housing and Urban Development with 
respect to loans coinsured under this part.
    (b) A precommitment review procedure applies to any application for 
mortgage coinsurance for which a lender has accepted a non-refundable 
application fee before November 12, 1990 under this part and for which a 
legally binding Conditional or Firm Commitment is proposed to be issued. 
This procedure applies to lenders with preliminary as well as full 
approval to process coinsurance applications and without regard to 
whether the lender is under probation. For any coinsurance application 
for which the lender has accepted an application and a non-refundable 
application fee before November 12, 1990, the lender shall, prior to 
commitment, submit to HUD headquarters and to the HUD field office with 
jurisdiction for the proposed project such exhibits and other 
information as has been specified in administrative instructions of the 
Commissioner. The lender shall not issue a commitment without written 
approval from the Commissioner. Field Offices shall not endorse any case 
covered by this precommitment review requirement unless the lender 
submits with the endorsement package evidence of the Commissioner's 
approval of the processing and evidence of compliance with any 
conditions imposed by the Commissioner.
    (c) Extensions of commitments for projects which had outstanding 
legally binding commitments as of November 12, 1990 are limited as 
follows:
    (1) Conditional commitments may be extended not to exceed 180 days 
from the date of original issuance;
    (2) Firm commitments may be granted two 60-day extensions.

However, should any underwriting conclusions be altered and reflected in 
the extension, the project must be submitted for precommitment review in 
accordance with paragraph (b) of this section. In the event an extension 
is required beyond those provided for in this paragraph, the case will 
be subject to the precommitment review process described in paragraph 
(b) of this section.
    (d) Reopened expired commitments are subject to precommitment review 
under paragraph (b) of this section.
    (e) HUD considers a commitment to be legally binding if:
    (1) It conforms to the format prescribed in the appropriate HUD 
Handbook and contains only such modifications as have been approved by 
HUD in writing;
    (2) All required underwriting, analyses, reviews and approvals have 
been accomplished prior to issuance of the commitment;
    (3) It conforms to HUD requirements pertaining to initial term and 
extension;
    (4) It obligates the lender and HUD to proceed to the next stage 
(i.e., firm commitment in the case of a conditional commitment, or 
endorsement in the case of a firm commitment) if the applicant mortgagor 
complies with all conditions of such commitment;
    (5) It does not permit the lender to change unilaterally the 
conditions or terms of the commitment; and
    (6) It is signed by an official of the coinsuring lender who has 
been designated and authorized in accordance with HUD requirements.

(Information collection requirements in paragraph (b) were approved by 
the Office of Management and Budget under control number 2502-0437)

[55 FR 41320, Oct. 10, 1990, as amended at 56 FR 14642, Apr. 11, 1991]

[[Page 528]]



Sec.  255.2  GNMA right to assignment.

    If the lender-issuer defaults on its obligations under the GNMA 
Mortgage-Backed Securities Program, GNMA will have the right to cause 
all Coinsured Mortgages held in GNMA pools by the defaulting coinsuring 
lender-issuer to be assigned to another GNMA-approved coinsuring lender-
issuer, or to GNMA itself.
    (a) For any Coinsured Mortgage that is not in default and is held by 
a defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the mortgage to itself. However, before exercising this 
right, GNMA will attempt to have the Mortgage assigned to another 
eligible coinsuring lender (unless GNMA determines, with the agreement 
of the Commissioner, that the attempt would prove ineffectual because of 
market conditions or other factors). This attempt will be undertaken by 
soliciting offers to assume the defaulting lender-issuer's rights and 
obligations under the Mortgage from those eligible coinsuring lenders 
that are also GNMA issuers and that are indicated on a periodically 
updated listing furnished to GNMA by the Commissioner.
    (b) For any Coinsured Mortgage that is in default and held by a 
defaulting lender-issuer, GNMA will have the right to perfect an 
assignment of the Coinsured Mortgage directly to itself before 
extinguishing the Mortgage by completion of foreclosure action or 
acquisition of title by deed-in-lieu of foreclosure.
    (c) GNMA, as assignee, will give the Commissioner written notice, 
within 30 days after taking a Mortgage by assignment in accordance with 
this section, in order to allow an appropriate endorsement and necessary 
changes in the Commissioner's records.
    (d) The Commissioner will endorse any Mortgage assigned to GNMA as 
provided by this section for full insurance, effective as of the date of 
assignment in accordance with the appropriate provisions of 24 CFR part 
207. Any future claim by GNMA, or any assignment of the fully insured 
Mortgage, will be governed by the appropriate provisions of 24 CFR part 
207, except that any payment will be made in cash instead of debentures.

[59 FR 1475, Jan. 11, 1994]



Sec.  255.3  Case-by-case conversion to full insurance.

    Cross Reference: The provisions of 24 CFR 251.3 apply to this part.

[61 FR 49038, Sept. 17, 1996]



Sec.  255.6  Method of payment of mortgage insurance premiums.

    The provisions of 24 CFR 251.6 shall apply to this part.

[63 FR 1303, Jan. 8, 1998]



PART 266_HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED
AFFORDABLE MULTIFAMILY PROJECT LOANS--Table of Contents



                      Subpart A_General Provisions

Sec.
266.1 Purpose and scope.
266.5 Definitions.
266.10 Allocations of assistance and credit subsidy.
266.15 Risk-Sharing Agreement.
266.20 Effect of amendments.
266.25 Limitation on HUD insurance liability.
266.30 Nonapplicability of 24 CFR part 246.

              Subpart B_Housing Finance Agency Requirements

266.100 Qualified housing finance agency (HFA).
266.105 Application requirements.
266.110 Reserve requirements.
266.115 Program monitoring and evaluation.
266.120 Actions for which sanctions may be imposed.
266.125 Scope and nature of sanctions.
266.130 Reinsurance.

                     Subpart C_Program Requirements

266.200 Eligible projects.
266.205 Ineligible projects.
266.210 HUD-retained review functions.
266.215 Functions delegated by HUD to HFAs.
266.220 Nondiscrimination in housing and employment.
266.225 Labor standards.

[[Page 529]]

             Subpart D_Processing, Development, and Approval

266.300 HFAs accepting 50 percent or more of risk.
266.305 HFAs accepting less than 50 percent of risk.
266.310 Insurance of advances or insurance upon completion; 
          applicability of requirements.
266.315 Recordkeeping requirements.

      Subpart E_Mortgage and Closing Requirements; HUD Endorsement

266.400 Property requirements--real estate.
266.402 Recordation.
266.405 Title.
266.410 Mortgage provisions.
266.415 Mortgage lien and other obligations.
266.417 Authority to adjust mortgage insurance amount.
266.420 Closing and endorsement by the Commissioner.

               Subpart F_Project Management and Servicing

266.500 General.
266.505 Regulatory agreement requirements.
266.507 Maintenance requirements.
266.510 HFA responsibilities.
266.515 Record retention.
266.520 Program monitoring and compliance.

                Subpart G_Contract Rights and Obligations

                       Mortgage Insurance Premiums

266.600 Mortgage insurance premium: Insurance upon completion.
266.602 Mortgage insurance premium: Insured advances.
266.604 Mortgage insurance premium: Other requirements.
266.606 Mortgage insurance premium: Duration and method of paying.
266.608 Mortgage insurance premium: Pro rata refund.
266.610 Method of payment of mortgage insurance premiums.

                          Insurance Endorsement

266.612 Insurance endorsement.

                               Assignments

266.616 Transfer of partial interest under participation agreement.

                               Termination

266.620 Termination of Contract of Insurance.
266.622 Notice and date of termination by the Commissioner.

                            Claim Procedures

266.626 Notice of default and filing an insurance claim.
266.628 Initial claim payments.
266.630 Partial payment of claims.
266.632 Withdrawal of claim.
266.634 Reinstatement of the contract of insurance.
266.636 Insuring new loans for defaulted projects.
266.638 Issuance of HFA Debenture.
266.640 Foreclosure and acquisition.
266.642 Appraisals.
266.644 Application for final claim settlement.
266.646 Determining the amount of loss.
266.648 Items included in total loss.
266.650 Items deducted from total loss.
266.652 Determining share of loss.
266.654 Final claim settlement and HFA Debenture redemption.
266.656 Recovery of costs after final claim settlement.
266.658 Program monitoring and compliance.

    Authority: 12 U.S.C. 1707; 42 U.S.C. 3535(d).

    Source: 59 FR 62524, Dec. 5, 1994, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  266.1  Purpose and scope.

    (a) Authority and scope. (1) Section 542 of the Housing and 
Community Development Act of 1992 directs the Secretary of the 
Department of Housing and Urban Development, acting through the Federal 
Housing Administration, to carry out programs that will demonstrate the 
effectiveness of providing new forms of Federal credit enhancement for 
multifamily loans. Section 542, entitled, ``Multifamily Mortgage Credit 
Demonstrations,'' provides new independent insurance authority that is 
not under the National Housing Act.
    (2) Section 542(c) of the Housing and Community Development Act of 
1992 specifically directs the Secretary to carry out a pilot program of 
risk-sharing with qualified State and local housing finance agencies 
(HFAs). The qualified HFAs are authorized to underwrite and process 
loans. HUD will provide full mortgage insurance on affordable 
multifamily housing projects processed by such HFAs under this program. 
Through risk-sharing agreements with HUD, HFAs contract to reimburse HUD

[[Page 530]]

for a portion of the loss from any defaults that occur while HUD 
insurance is in force.
    (3) The extent to which HUD will direct qualified HFAs regarding 
their underwriting standards and loan terms and conditions is related to 
the proportion of the risk taken by an HFA.
    (b) Purpose. The primary purpose of this pilot program is to test 
the effectiveness of providing new forms of credit enhancement for 
multifamily loans, i.e., utilization of full insurance by HUD, pursuant 
to risk-sharing agreements with qualified housing finance agencies, for 
the development of affordable housing. The utilization of Federal credit 
enhancements should increase access to capital markets and, thereby, 
increase the supply of affordable multifamily housing. By permitting 
HFAs to underwrite, process, and service loans and to manage and dispose 
of properties that fall into default, HUD expects affordable housing to 
be made available to eligible families and individuals in a timely 
manner.



Sec.  266.5  Definitions.

    Act means the Housing and Community Development Act of 1992, as 
amended.
    Affordable housing means a project in which 20 percent or more of 
the units are both rent-restricted and occupied by families whose income 
is 50 percent or less of the area median income as determined by HUD, 
with adjustments for household size, or in which 40 percent (25 percent 
in New York City) or more of the units are both rent-restricted and 
occupied by families whose income is 60 percent or less of the area 
median income as determined by HUD, with adjustments for household size. 
A residential unit is rent-restricted if the gross rent with respect to 
such unit does not exceed 30 percent of the imputed income limitation 
applicable to such unit.
    Board and Care/Assisted Living Facility means a residential facility 
for independent living that is regulated by State or local government 
that provides continuous protective oversight and assistance with the 
activities of daily living to frail elderly persons or other persons 
needing such assistance. Continuous protective oversight may range from 
as little as awareness on the part of management staff of residents' 
whereabouts (and the ability to intervene in the event of crisis) to a 
higher level of services and assistance. Assistance with the activities 
of daily living may include, but is not limited to, bathing, dressing, 
eating, getting in and out of bed or chairs, walking, going outdoors, 
using the toilet, laundry, home management, meal preparation, shopping, 
supervision of medication, and housework.
    Commissioner means the Federal Housing Commissioner or his or her 
authorized representative.
    Contract of insurance means the agreement evidenced by the 
endorsement of the Commissioner upon the credit instrument given in 
connection with an insured mortgage, incorporating by reference the 
regulations in this part and the applicable provisions of the Act.
    Credit subsidy means the cost of a direct loan or loan guarantee 
under the Federal Credit Reform Act of 1990 as defined in subpart B of 
title 13 of the Omnibus Budget Reconciliation Act of 1990 (Pub.L. 101-
508, approved Nov. 5, 1990).
    Debenture means the instrument issued by the HFA to HUD upon payment 
of an insurance claim by HUD. The instrument must be in the standard 
form of a State or Municipal Debenture issued under the Uniform 
Commercial Code, where applicable, and must be supported by the full 
faith and credit of the HFA. The instrument must define the terms and 
conditions and the risk-sharing portion which the HFA will pay at the 
end of the term of the Debenture, and must be for the full amount of the 
claim payment. The term Debenture may include similar instruments, such 
as promissory notes and bonds, as mutually agreed upon by the 
Commissioner and the HFA.
    Designated offices means the HUD Field Offices that are assigned the 
responsibility for program monitoring, imposing or recommending 
sanctions for program violations, and conducting informal hearings.
    Firm approval letter means a letter issued by HUD to an HFA upon the 
positive completion of the HUD-retained reviews described in Sec.  
266.210.

[[Page 531]]

The letter will apportion units to the project and provide that, so long 
as the HFA is in good standing and absent fraud or misrepresentation by 
the HFA, HUD will endorse the project mortgage for insurance upon 
presentation by the HFA of the required Closing Docket and 
certifications required by this part and the Commissioner's 
administrative requirements.
    Gross rent includes any utility allowance (including charges for the 
occupancy of a cooperative unit) determined by the Secretary after 
taking into account such determination under section 8 of the U.S. 
Housing Act of 1937 (42 U.S.C. 1437f). It does not include any payment 
under section 8 or any comparable rental assistance program (with 
respect to such unit or occupants thereof), nor does it include any fee 
for a supportive service that is paid to the owner of the unit (on the 
basis of the low-income status of the tenant of the unit) by any 
governmental program of assistance (or by an organization described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) and 
exempt from tax under section 501(a) of the Code (26 U.S.C. 501(a)) if 
such program (or organization) provides assistance for rent and the 
amount of assistance provided for rent is not separable from the amount 
of assistance provided for supportive services. It also does not include 
any rental payment to the owner of the unit to the extent such owner 
pays an equivalent amount to the Farmers Home Administration under 
section 515 of the Housing Act of 1949 (42 U.S.C. 1485).
    Housing finance agency or HFA means any public body, agency, or 
instrumentality created by a specific act of a State legislature or 
local municipality empowered to finance activities designed to provide 
housing and related facilities, through land acquisition, construction 
or rehabilitation. The term State includes the several States, Puerto 
Rico, the District of Columbia, Guam, the Trust Territory of the Pacific 
Islands, American Samoa and the Virgin Islands.
    Insured mortgage means a valid single first lien given to secure 
advances on, or the unpaid purchase price of, real estate, under the 
laws of the State in which the real estate is located, together with the 
credit instrument, if any, secured thereby. Any other financing 
permitting on property insured under this part must be expressly 
subordinate to the insured mortgage.
    Level I participants means HFAs that elect to take 50 percent or 
more of the risk of loss in 10 percent increments on mortgages issued 
under this program.
    Level II participants means HFAs that elect to take 10 or 25 percent 
of the risk of loss on mortgages issued under this program, dependent on 
the loan-to-replacement cost or loan-to-value ratio of the project to be 
insured.
    Mortgage means such a single first lien upon the real estate as is 
commonly given to secure advances on, or the unpaid purchase price of, 
real estate under the laws of the jurisdiction where the real estate is 
situated, together with the credit instruments, if any, secured thereby.
    Mortgagee means the original lender under a mortgage and its 
successors and assigns approved by the Commissioner.
    Mortgagor means the original borrower under a mortgage and its 
successor and assigns.
    Multifamily housing means housing accommodations on the mortgaged 
property that are designed principally for residential use, conform to 
standards satisfactory to the Secretary, and consist of not less than 5 
rental units (including cooperative units) on 1 site. These units may be 
detached, semidetached, row house, or multifamily structures.
    Qualified HFA means an HFA that meets the requirements described in 
Sec.  266.100(a).
    Risk-Sharing Agreement means a contract between an HFA and the 
Commissioner that incorporates the terms, obligations, and conditions 
specified in this part.
    Secondary financing means any grant, loan, inferior lien, or other 
form of indebtedness used during loan origination prior to HUD 
endorsement to finance a multifamily property insured under this part 
which is inferior to the insured mortgage as defined above and does not 
have first priority for payment.

[[Page 532]]

    Single Room Occupancy, or SRO, projects means multifamily projects 
consisting of units that are not required to contain food preparation or 
sanitary facilities for occupancy by single individuals capable of 
independent living.
    Supportive services means any service provided under a planned 
program of services designed to enable residents of a residential rental 
property to remain independent and avoid placement in a hospital, 
nursing home, or intermediate care facility for the mentally or 
physically handicapped. In the case of a single room occupancy unit, the 
term includes any service provided to assist tenants in locating and 
retaining permanent housing. This definition is to be used in 
conjunction with the ``gross rent'' calculation.



Sec.  266.10  Allocations of assistance and credit subsidy.

    (a) Notice of availability of assistance. HUD will announce the 
availability of assistance under this program through publication of a 
Notice in the Federal Register. Such Notice will invite qualified HFAs 
to submit an application for approval and/or for additional units under 
this part. The Notice will indicate the deadline date for submission of 
applications, required documentation, the address to which the 
applications must be submitted and other relevant information.
    (b) Credit subsidy will be obligated and allocated in accordance 
with outstanding Department instructions.



Sec.  266.15  Risk-Sharing Agreement.

    Execution of a Risk-Sharing Agreement is a prerequisite to 
participation in this program. The Risk-Sharing Agreement shall be in a 
form acceptable to the Commissioner.

[61 FR 7947, Feb. 29, 1996]



Sec.  266.20  Effect of amendments.

    The Commissioner may amend the regulations in this part from time to 
time. Amendments to the regulations will not adversely affect the 
interest of a lender under a Contract of Insurance on any mortgage 
already insured or on any mortgage to be insured on which HUD has 
already issued its firm approval letter.



Sec.  266.25  Limitation on HUD insurance liability.

    The Commissioner shall have no obligation to recognize or deal with 
anyone other than the HFA in its role as mortgagee of record and as 
party to a risk-sharing agreement with HUD with respect to the rights, 
benefits, and obligations of the HFA under the contract of insurance.



Sec.  266.30  Nonapplicability of 24 CFR part 246.

    The provisions of 24 CFR part 246 do not apply to projects that are 
security for mortgages insured under this part.



              Subpart B_Housing Finance Agency Requirements



Sec.  266.100  Qualified housing finance agency (HFA).

    (a) Qualifications. To participate in the program, an HFA must apply 
and be specifically approved for the pilot program described in this 
part, in addition to being approved as a mortgagee under Sec.  202.10. 
The HFA must maintain eligibility by continuing to comply with the 
requirements set forth in the Risk-Sharing Agreement and this part. To 
qualify for participation in the program described in this part, an HFA 
must:
    (1) Carry the designation of ``top tier'' or its equivalent as 
evaluated by Standard and Poor's or any other nationally recognized 
rating Agency; or
    (2) Receive an overall rating of ``A'' for the HFA for its general 
obligation bonds from a nationally recognized rating agency; or
    (3) Otherwise demonstrate its capacity as a sound and experienced 
HFA based on, but not limited to, experience in financing multifamily 
housing, fund balances, administrative capabilities, investment policy, 
internal controls, financial management, portfolio quality, and State or 
local support; and
    (4) Be a HUD-approved multifamily mortgagee in good standing; and
    (5) Have at least five years experience in multifamily underwriting; 
and
    (6) Certify that:
    (i) The Department of Justice has not brought a civil rights suit 
against the Agency, and no suit is pending;

[[Page 533]]

    (ii) There has not been an adjudication of a civil rights violation 
in a civil action brought against the HFA by a private individual, 
unless the HFA is operating in compliance with a court order, or 
implementing a HUD-approved compliance agreement designed to correct the 
areas of noncompliance;
    (iii) There are no outstanding findings of noncompliance with civil 
rights statutes, Executive Orders, or regulations as a result of formal 
administrative proceedings, or the Secretary has not issued a charge 
against the HFA under the Fair Housing Act, unless the HFA is operating 
under a compliance agreement designed to correct the areas of 
noncompliance.
    (b) Approval levels. Approval levels consist of the following:
    (1) Level I approval to originate, service, and dispose of 
multifamily mortgages where the HFA uses its own underwriting standards 
and loan terms and conditions, and assumes 50 to 90 percent of the risk 
of loss (increments of 10 percent).
    (2) Level II approval to originate, service, and dispose of 
multifamily mortgages where the HFA uses underwriting standards and loan 
terms and conditions approved by HUD, and:
    (i) When the loan-to-replacement cost ratio for new construction and 
substantial rehabilitation projects or the loan-to-value ratio for 
existing projects is greater than or equal to 75 percent, the HFA shall 
assume 25 percent of the risk of loss.
    (ii) When the loan-to-replacement cost ratio for new construction 
and substantial rehabilitation or the loan-to-value ratio for existing 
projects is less than 75 percent, the HFA shall assume 10 percent, or 25 
percent at the HFA's option, of the risk of loss.
    (3) For HFAs who plan to use Level I and Level II processing, the 
underwriting standards and loan terms and conditions to be used on Level 
II loans must be approved by HUD.

[59 FR 62524, Dec. 5, 1994, as amended at 62 FR 20088, Apr. 24, 1997]



Sec.  266.105  Application requirements.

    (a) Applications for approval as a HUD-approved multifamily 
mortgagee. HFAs that are not HUD-approved mortgagees at the time of 
their application to participate in the program under this part must 
submit, concurrently, separate applications for approval to participate 
in the program and for approval to operate as a HUD-approved mortgagee. 
Application for approval as a HUD-approved mortgagee must be submitted 
to HUD in accordance with the applicable HUD requirements.
    (b) Applications for participation in program. Applications from 
HFAs for approval to participate in the program under this part will be 
submitted in response to a notice published in the Federal Register. The 
notice will include the required application exhibits and any other 
information or documentation necessary for approval for participation in 
the Risk-Sharing Program.

[61 FR 7947, Feb. 29, 1996]



Sec.  266.110  Reserve requirements.

    (a) HFAs with top-tier designation or overall rating of ``A'' on 
general obligation bonds. An HFA with a top tier or equivalent 
designation or an HFA with an overall rating of ``A'' on its general 
obligation bonds is not required to have additional reserves so long as 
the HFA maintains that designation or rating, unless the Commissioner 
determines that a prescribed level of reserves is necessary. If the 
designation or rating is lost, the HFA must immediately establish a 
reserve account funded in accordance with the requirements set forth in 
paragraph (b) of this section. The reserve account must reflect all 
loans in the HFA's portfolio endorsed under this part.
    (b) Other HFAs. (1) For other HFAs, a specifically identified 
dedicated account consisting entirely of liquid assets (i.e., cash or 
cash equivalents or readily marketable securities) must be established 
and maintained in a financial institution acceptable to HUD. This 
account may be drawn upon by HUD and may be used by the HFA only with 
the prior written approval of HUD for the purpose of meeting the HFA's 
risk-sharing obligations under this part. The account must be 
established prior to the execution of any Risk Sharing Agreement under 
this part in an initial amount of not less than

[[Page 534]]

$500,000. Thereafter, the HFA must deposit at each loan closing and 
thereafter maintain the following additional amounts in the dedicated 
account:
    (i) $10.00 per $1,000 of the unpaid principal balance that is equal 
to or less than $50 million; plus
    (ii) $7.50 per $1,000 of the unpaid principal balance that is 
greater than $50 million and less than $150 million; plus
    (iii) $5.00 per $1,000 of the unpaid principal balance that is 
greater than $150 million.
    (2) The Commissioner may determine that higher levels of reserves 
may be necessary.



Sec.  266.115  Program monitoring and evaluation.

    (a) HFA certifications. HUD will rely heavily on the certifications 
required of an HFA under this part and such additional certifications as 
the Commissioner may require in his or her administrative procedures. An 
HFA's continued participation in the program is predicated upon 
compliance with these certifications and its recommending for 
endorsement only those mortgages that comply with requirements of the 
program, including the HFA's origination, underwriting and closing 
procedures incorporated by reference into the Risk-Sharing Agreement.
    (b) Monitoring and evaluation. Monitoring and evaluation activities 
will focus on compliance with program requirements and performance of 
the HFA in meeting program objectives of providing affordable housing. 
They will enable HUD to evaluate the effectiveness of the program as 
required by section 542(d)(3) of the Act.
    (c) Responsibility for monitoring and evaluation. The Commissioner 
or his or her designee will be responsible for overall program 
monitoring and evaluation.
    (d) HFA submissions. (1) For each loan insured under this part, 
basic underwriting and closing information must be submitted in a format 
specified by HUD and must accompany the closing docket submitted in 
accordance with Sec.  266.420(b). Information relative to project 
management and servicing (including disposition) will be required after 
endorsement.
    (2) The HFA must submit semi-annual reports setting forth the 
original mortgage amounts and outstanding principal balances on 
mortgages the HFA has underwritten, and the status of all projects 
insured under this part (e.g., current, in default, acquired, under 
workout agreement, in bankruptcy). For projects where the mortgagor has 
declared bankruptcy, the HFA must submit information containing the date 
the bankruptcy was filed and the date the HFA requested the Court to 
dismiss the bankruptcy proceedings.



Sec.  266.120  Actions for which sanctions may be imposed.

    Results of monitoring or other reviews may serve as the basis for 
the Commissioner's imposing sanctions on the HFA. Violations for which 
sanctions may be imposed include, but are not limited to:
    (a) Commission of fraud or making a material misrepresentation by 
the HFA with respect to any mortgage insured or to any other matter 
under this part.
    (b) Assignment or transfer of interest in any insured mortgage not 
in accord with the requirements of this part.
    (c) Engagement in business practices that do not conform to 
generally accepted practices of prudent lenders or that demonstrate 
irresponsibility.
    (d) Actions or conduct for which sanctions may be imposed against 
the HFA by HUD's Mortgagee Review Board under 24 CFR 25.9.
    (e) Failure to:
    (1) Reveal in its application for participation in the program all 
the information required by this part;
    (2) Notify HUD in a timely manner of any pending or actual changes 
that would adversely affect HFA operations or financial status;
    (3) Comply with all eligibility requirements for participation in 
the program;
    (4) Issue debentures in the event of an initial claim payment by 
HUD, or to reimburse HUD for payment of a claim;
    (5) Maintain its top tier designation or overall rating of ``A'' on 
general obligation bonds (or if such designation or rating is lost, 
comply with paragraph (e)(6) of this section);

[[Page 535]]

    (6) Establish and maintain a dedicated account, if required, or meet 
other financial obligations under this program;
    (7) Perform underwriting, insurance of advances, cost certification, 
management, servicing or property disposition functions in a prudent and 
acceptable manner based on the standards incorporated by reference into 
the Risk-sharing Agreement;
    (8) Submit financial and other reports required by this part;
    (9) Comply with any regulatory requirement or with the Risk-Sharing 
Agreement;
    (10) Maintain any other standards HUD may establish for 
participation in this program;
    (11) Enforce the regulatory agreement provisions with respect to 
individual projects;
    (12) Maintain a default ratio acceptable to HUD relative to the 
HFA's own portfolio and the defaults experienced under this part by 
other program participants;
    (13) Consider adequately special risk circumstances without 
compensating for the higher risks of such transactions (e.g., high loan-
to-value ratios in areas with high vacancy or default rates); or
    (14) Remit mortgage insurance premiums on a timely basis or failure 
to refund or credit mortgagor's accounts with overpaid mortgage 
insurance premiums.



Sec.  266.125  Scope and nature of sanctions.

    (a) Actions by Designated Office. Depending on the nature and extent 
of the noncompliance with the requirements of this part, the Designated 
Office may take any of the following actions:
    (1) Require that the HFA execute a trust agreement, establish a 
trust account in accordance with such agreement, and fund such account 
which may be drawn upon by HUD for purposes of meeting the HFA's risk-
sharing obligations;
    (2) Require the HFA to assume a higher portion of risk for the 
subject and future mortgages;
    (3) Recommend to the Commissioner that the HFA be required to 
contract its loan servicing or property disposition functions to a third 
party;
    (4) Recommend to the Commissioner that the mortgage insurance be 
terminated in cases of fraud or material misrepresentation by the HFA, 
or transfer of interest in an insured mortgage or assignment of the 
mortgage not in accord with the requirements of this part;
    (5) Recommend to the Commissioner that approval for the HFA to 
participate in the program be suspended or withdrawn;
    (6) Recommend to the Commissioner that the HFA's mortgagee approval 
be withdrawn pursuant to 24 CFR part 25 and/or that penalties be imposed 
pursuant to 24 CFR part 30;
    (7) Require additional financial or other reports as may be 
necessary to monitor the activities of the HFA more closely.
    (b) Actions by Headquarters. HUD Headquarters may impose any of the 
sanctions set forth or recommended in paragraph (a) of this section 
based upon its responsibilities for monitoring and overall program 
oversight.
    (c) Effect of suspension or withdrawal. A suspension or withdrawal 
action will not affect any mortgage insurance endorsement in effect on 
the date of the suspension or withdrawal action.
    (d) HFA right to informal hearing. (1) Any sanction imposed by a 
Designated Office in writing will be immediately effective, will state 
the grounds for the action, and provide for the HFA's right to an 
informal hearing before the Designated Office Representative or his or 
her designee in the Designated Office. The HFA may request an informal 
hearing within 10 working days of receipt of the suspension or 
withdrawal action and the Designated Office shall give the HFA an 
opportunity to be heard within 10 working days of receipt of the HFA's 
request. The HFA may be represented by counsel. The Designated Office 
Representative, or his or her designee, will advise the HFA in writing 
of the decision within 10 working days of the informal hearing, which 
decision will constitute final HUD action.
    (2) Sanctions imposed by Headquarters will be handled in a similar

[[Page 536]]

manner, except that the informal hearing shall be before the 
Commissioner or his or her designee.



Sec.  266.130  Reinsurance.

    Reinsurance will be permitted for the portion of the HFA risk, 
subject to the following requirements:
    (a) Neither HUD's nor the HFA's position shall be subordinated;
    (b) The reinsurance may not be used to reduce any reserve or fund 
balance requirements; and
    (c) Such reinsurance does not incur an obligation to the Federal 
Government.



                     Subpart C_Program Requirements



Sec.  266.200  Eligible projects.

    (a) Minimum project size. Projects insured under this part must 
consist of five or more rental dwelling units (including cooperative 
dwelling units) on one site. The site may consist of two or more non-
contiguous parcels of land situated so as to comprise a readily 
marketable real estate entity within an area small enough to allow 
convenient and efficient management. The units may be detached, semi-
detached, row houses, multifamily structures, or mobile home parks 
(exclusive of the mobile homes).
    (b) New construction or substantial rehabilitation. Insurance under 
this part shall be for the purpose of financing the new construction or 
substantial rehabilitation of projects meeting the other requirements of 
this part as follows:
    (1) New construction occurs when all project and construction 
elements are installed as part of the work.
    (2) Substantial rehabilitation is any combination of the following 
work to the existing facilities of a project that aggregates to at least 
15 percent of project's value after the rehabilitation and that results 
in material improvement of the project's economic life, liveability, 
marketability, and profitability: Replacement, alteration and/or 
modernization of building spaces, long-lived building or mechanical 
system components, or project facilities. Substantial rehabilitation may 
include but not consist solely of any combination of: minor repairs, 
replacement of short-lived building or mechanical system components, 
cosmetic work, or new project additions.
    (c) Existing projects. Financing of existing properties without 
substantial rehabilitation is allowed.
    (1) If an existing multifamily project is being acquired and HUD 
insurance under this part will be used to facilitate the acquisition of 
projects to increase the supply of affordable housing, such acquisitions 
are permissible if the HUD insured mortgage does not exceed the sum of 
the total cost of acquisition, cost of financing, cost of repairs, and 
reasonable transaction costs as determined by the Commissioner.
    (2) If the property is subject to an HFA-financed loan to be 
refinanced and such refinancing will result in the preservation of 
affordable housing, refinancing of these properties is permissible if 
project occupancy is not less than 93 percent (to include consideration 
of rent in arrears), based on the average occupancy in the project over 
the most recent 12 months, and the mortgage does not exceed an amount 
supportable by the lower of the unit rents being collected under the 
rental assistance agreement or the unit rents being collected at 
unassisted projects in the market area that are similar in amenities and 
location to the project for which insurance is being requested. The HUD-
insured mortgage may not exceed the sum of the existing indebtedness, 
cost of refinancing, the cost of repairs and reasonable transaction 
costs as determined by the Commissioner. If a loan to be refinanced has 
been in default within the 12 months prior to application for 
refinancing, the HFA must assume not less than 50 percent of the risk.
    (d) Projects receiving Section 8 rental subsidies or other rental 
subsidies. Projects receiving project-based housing assistance payments 
under section 8 of the U.S. Housing Act of 1937 or other rental 
subsidies and meeting the requirements of this part may be insured under 
this part only if the mortgage does not exceed an amount supportable by 
the lower of the unit rents being or to be collected under the rental 
assistance agreement or the unit rents being collected at unassisted

[[Page 537]]

projects in the market that are similar in amenities and location to the 
project for which insurance is being requested.
    (e) SRO projects. Single room occupancy (SRO) projects, as defined 
in Sec.  266.5, are eligible for insurance under this part. Units in SRO 
projects must be subject to 30-day or longer leases; however, rent 
payments may be made on a weekly basis in SRO projects.
    (f) Board and care/assisted living facilities. Board and care 
projects and assisted living facilities may be insured if the facilities 
meet the definition of those terms in Sec.  266.5.
    (g) Elderly projects. Projects or parts of projects specifically 
designed for the use and occupancy by elderly families. An elderly 
family means any household where the head or spouse is 62 years of age 
or older, and also any single person who is 62 years of age or older.
    (h) Zoning requirements. Projects insured under this part must meet 
applicable zoning and other State/local government requirements.



Sec.  266.205  Ineligible projects.

    The following projects and facilities are not eligible for insurance 
under this part:
    (a) Transient housing or hotels. Rental for transient or hotel 
purposes. For purposes of this part, rental for transient or hotel 
purposes means:
    (1) Rental for any period less than 30 days, or
    (2) Any rental, if the occupants of the housing accommodations are 
provided customary hotel services such as room service for food and 
beverages, maid service, furnishing and laundering of linens, or valet 
service.
    (b) Projects in military impact areas. A project located in a 
military impact area, as determined by HUD. A military impact area is 
generally a small or medium size metropolitan housing market area or a 
remote or isolated nonmetropolitan area where:
    (1) Military-connected households comprise 25 percent or more of the 
total households in the market area. Military-connected households 
include active duty military personnel, civilian employees of the 
military service (Department of Defense) or other Federal agency at or 
in support of the installation, and employees of contractors and sub-
contractors directly associated with the military installation, and 
their dependents. Unaccompanied active duty military personnel housed in 
military-controlled group quarters housing (barracks, BOQ's) are 
excluded; and
    (2) There is concern about the continued stability of the current 
level of military strength and mission at the installation based on 
public announcements from the Department of Defense or the military 
service of impending changes; and
    (3) The complete reduction of military-connected households living 
in nonmilitary rental housing over a 5 year period, at an annual average 
decline of 20 percent, would, taking into account growth in the civilian 
economy and normal changes in the housing inventory, cause an adverse 
impact on the private rental market resulting in an increase in the 
rental vacancy rate in the housing market of 10 percent or more at the 
end of that period.
    (c) Retirement service centers. Projects designed for the elderly 
with extensive services and luxury accommodations that provide for 
central kitchens and dining rooms with food service or mandatory 
services.
    (d) Nursing homes or intermediate care facilities. Nursing homes and 
intermediate care facilities licensed and regulated by State or local 
government and providing nursing and medical care.



Sec.  266.210  HUD-retained review functions.

    Certain functions are retained by the Commissioner. The HFA must 
submit any information or certification required by the Commissioner to 
permit determination of compliance with requirements concerning:
    (a) Previous participation of principals. Previous participation of 
the principals of the mortgagor, general contractor, consultant or 
management agent in accordance with the Previous Participation and 
Clearance Review Procedures of 24 CFR 200.210 through 200.218.
    (b) Environmental review requirements. To determine compliance with 
the requirements of the National Environmental Policy Act of 1969 and 
related

[[Page 538]]

laws and authorities, the HUD Field Office (or other responsible entity 
through such delegation as may be in effect by regulation hereafter) 
will visit each project site proposed for insurance under this part and 
prepare the applicable environmental reviews as set forth in 24 CFR part 
50 (or as set forth in 24 CFR part 58 for the other responsible entity). 
These requirements must be completed before HUD may issue the firm 
approval letter.
    (c) Intergovernmental review. Intergovernmental review of Federal 
programs under Executive Order 12372, as implemented in 24 CFR part 52.
    (d) Subsidy layering. The Commissioner, or Housing Credit Agencies 
through such delegation as may be in effect by regulation hereafter, 
shall review all projects receiving tax credits and some form of HUD 
assistance for any excess subsidy provided to individual projects and 
reduce subsidy sources in accordance with outstanding guidelines.
    (e) Davis-Bacon Act. The Commissioner shall obtain and provide to 
the HFA the appropriate Department of Labor wage rate determinations 
under the Davis-Bacon Act, where they apply under this part.

[59 FR 62524, Dec. 5, 1994, as amended at 60 FR 16573, Mar. 31, 1995]



Sec.  266.215  Functions delegated by HUD to HFAs.

    The following functions are delegated by HUD to the HFAs:
    (a) Affirmative Fair Housing Marketing Plan (AFHMP). The HFA will 
perform information collection, reviews and ministerial activities 
associated with the review and approval of the AFHMP for all projects. 
(Enforcement of fair housing and equal opportunity laws is the 
responsibility of HUD.)
    (b) Labor standards and prevailing wage requirements. The HFA will 
perform information collection (e.g., payroll review and routine 
interviews) and other routine administration and enforcement functions 
regarding labor standards, in accordance with Sec.  266.225(e). 
(Enforcement of Davis-Bacon prevailing wage requirements and labor 
standards is the responsibility of HUD.)
    (c) Insurance of advances. In cases involving insured advances, the 
HFA will approve periodic advances of mortgage insurance proceeds during 
construction of the project subject to terms specified by the 
Commissioner.
    (d) Cost certification. The HFA will perform cost certification 
functions on each insured loan subject to terms specified by the 
Commissioner.
    (e) Lead-Based Paint. The HFA will perform functions related to 
Lead-Based Paint requirements subject to terms specified by the 
Commissioner.



Sec.  266.220  Nondiscrimination in housing and employment.

    The mortgagor must certify to the HFA that, so long as the mortgage 
is insured under this part, it will:
    (a) Not use tenant selection procedures that discriminate against 
families with children, except in the case of a project that constitutes 
``housing for older persons'' as defined in section 807(b)(2) of the 
Fair Housing Act (42 U.S.C. 3607(b)(2));
    (b) Not discriminate against any family because of the sex of the 
head of household;
    (c) Comply with the Fair Housing Act (42 U.S.C. 3601-3619), as 
implemented by 24 CFR part 100; titles II and III of the Americans with 
Disabilities Act of 1990 (42 U.S.C. 12101-12213), as implemented by 28 
CFR part 35; section 3 of the Housing and Urban Development Act of 1968 
(12 U.S.C. 1701u), as implemented by 24 CFR part 135; the Equal Credit 
Opportunity Act (15 U.S C. 1691-1691f), as implemented by 12 CFR part 
202; Executive Order 11063, as amended by Executive Order 12259 (3 CFR 
1958-1963 Comp., p. 652 and 3 CFR 1980 Comp., p. 307), and implemented 
by 24 CFR part 107; Executive Order 11246 (3 CFR 1964-1965 Comp., p. 
339), as implemented by 41 CFR part 60; other applicable Federal laws 
and regulations issued pursuant to these authorities; and applicable 
State and local fair housing and equal opportunity laws. In addition, a 
mortgagor that receives Federal financial assistance must also certify 
to the HFA that, so long as the mortgage is insured under this part, it 
will comply with title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d), as implemented

[[Page 539]]

by 24 CFR part 1; the Age Discrimination Act of 1975 (42 U.S.C. 6101-
6107), as implemented by 24 CFR part 146; and section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), as implemented by 24 CFR 
part 8.



Sec.  266.225  Labor standards.

    (a) Applicability of Davis-Bacon. (1) All laborers and mechanics 
employed by contractors or subcontractors on a project insured under 
this part shall be paid not less than the wages prevailing in the 
locality in which the work was performed for the corresponding classes 
of laborers and mechanics employed in construction of a similar 
character, as determined by the Secretary of Labor in accordance with 
the Davis-Bacon Act, as amended (40 U.S.C. 276a-276a-5), where the 
project meets all of the following conditions:
    (i) Advances for the project are insured under this part;
    (ii) The project involves new construction or substantial 
rehabilitation; and
    (iii) The project will contain 12 or more dwelling units.
    (2) Projects that do not meet these conditions are not subject to 
Davis-Bacon wage rates except to the extent required as a condition of 
other Federal assistance to the project.
    (b) Volunteers. The provisions of this section shall not apply to 
volunteers under the conditions set out in 24 CFR part 70. In applying 
part 70, insurance under this part shall be treated as a program for 
which there is a statutory exemption for volunteers.
    (c) Labor standards. Any contract, subcontract, or building loan 
agreement executed for a project subject to Davis-Bacon wage rates under 
paragraph (a) of this section shall comply with all labor standards and 
provisions of 29 CFR parts 1, 3 and 5 that would be applicable to a 
mortgage insurance program to which Davis-Bacon wage rates are made 
applicable by statute.
    (d) Advances. (1) No advance under a mortgage on a project subject 
to Davis-Bacon wage rates under paragraph (a) of this section shall be 
eligible for insurance under this part unless the HFA determines (in 
accordance with the Commissioner's administrative procedures) that the 
general contractor or any subcontractor or any firm, corporation, 
partnership or association in which the contractor or subcontractor has 
a substantial interest was not, on the date the contract or subcontract 
was executed, on the ineligible list established by the Comptroller 
General, pursuant 29 CFR 5.12, issued by the Secretary of Labor.
    (2) No advance under any mortgage on a project subject to Davis-
Bacon wage rates under paragraph (a) of this section shall be insured 
under this part unless there is filed with the application for the 
advance, and no such mortgage shall be insured under this part unless 
there is filed with the HFA after completion of the construction or 
substantial rehabilitation, a certificate or certificates in the form 
required by the Commissioner, supported by such other information as the 
Commissioner may prescribe, certifying that the laborers and mechanics 
employed in the construction of the project involved have been paid not 
less than the wages determined by the Secretary of Labor to be 
prevailing in accordance with paragraph (a) of this section.
    (e) Responsibility for enforcement and administration. The 
Commissioner retains responsibility for enforcement of labor standards 
under this section, but the Commissioner may delegate to the HFA 
information collection (e.g., payroll review and routine interviews) and 
other routine administration and enforcement functions, subject to 
monitoring by the Commissioner. Where routine administration and 
enforcement functions are delegated to the HFA, the HFA shall bear 
financial responsibility for any deficiency in payment of prevailing 
wages or, where applicable under 29 CFR part 1, any increase in 
compensation to a contractor, that is attributable to any failure 
properly to carry out its delegated functions. For example, failure of 
an HFA to supply or ensure inclusion of the proper contract clauses or 
wage determination in a contract or building loan agreement may require 
the HFA to fund increased compensation to a contractor as the result of 
increased wages attributable to incorporation of the proper clauses and 
wage determination.

[[Page 540]]



             Subpart D_Processing, Development, and Approval



Sec.  266.300  HFAs accepting 50 percent or more of risk.

    (a) Underwriting standards. An HFA electing to take 50 percent or 
more of the risk on loans may use its own underwriting standards and 
loan terms and conditions (as disclosed and submitted with its 
application) to underwrite and approve loans without further review by 
HUD.
    (b) HFA responsibilities. The HFA is responsible for the performance 
of all functions except those HUD-retained functions specified in 
Sec. Sec.  266.210 and 266.225(e). After acceptance of an application 
for a loan to be insured under this part, the HFA must:
    (1) Determine that a market for the project exists, taking into 
consideration any comments from the HUD Field Office relative to the 
potential adverse impact the project will have on existing or proposed 
Federally insured and assisted projects in the area.
    (2) Establish the maximum insurable mortgage and review plans and 
specifications for compliance with HFA standards;
    (3) Determine the acceptability of the proposed mortgagor and 
management agent;
    (4) Approve the Affirmative Fair Housing Marketing Plan; and
    (5) Make any other determinations necessary to ensure acceptability 
of the proposed project.
    (c) HUD-retained reviews. After positive completion of the HUD-
retained reviews specified in Sec.  266.210(a), (b), and (c), the HUD 
Field Office will issue a firm approval letter.
    (d) Inspections and other reviews. The HFA is responsible for 
inspections during construction, processing and approving advances of 
mortgage proceeds during construction, review and approval of cost 
certification, and closing of the loan.
    (e) Endorsement of mortgage note for insurance. So long as the HFA 
is in good standing, and absent fraud or material misrepresentation on 
the part of the HFA, the Commissioner or designee will endorse the 
mortgage note for insurance upon presentation by the HFA of the Closing 
Docket and certifications required in Sec.  266.420(b), subject to HUD's 
right to adjust under Sec.  266.417.



Sec.  266.305  HFAs accepting less than 50 percent of risk.

    (a) Underwriting standards. The underwriting standards and loan 
terms and conditions of any HFA electing to take less than 50 percent of 
the risk on certain projects are subject to review, modification, and 
approval by HUD in accordance with Sec.  266.100(b)(2). These HFAs may 
assume 25 percent or 10 percent of the risk depending upon the loan-to-
replacement-cost or loan-to-value ratios of the projects to be insured 
as specified in Sec.  266.100(b)(2)(i) and (ii).
    (b) HFA responsibilities. The HFA is responsible for the performance 
of all functions except those HUD-retained functions specified in Sec.  
266.210 and 266.225(e). After acceptance of an application for a loan to 
be insured under this part, the HFA must:
    (1) Determine that a market for the project exists, taking into 
consideration any comments from the HUD Field Office relative to the 
potential adverse impact the project will have on existing or proposed 
Federally insured and assisted projects in the area;
    (2) Establish the maximum insurable mortgage, and review plans and 
specifications for compliance with HFA standards as approved by HUD;
    (3) Determine the acceptability of the proposed mortgagor and 
management agent;
    (4) Approve the Affirmative Fair Housing Marketing Plan; and
    (5) Make any other determinations necessary to ensure acceptability 
of the proposed project.
    (c) HUD-retained reviews. After positive completion of the HUD-
retained reviews specified in Sec.  266.210 (a), (b), and (c), the HUD 
Field Office will issue a firm approval letter which, among other 
things, will apportion units and obligate credit subsidy to the project.
    (d) Inspections and other reviews. The HFA is responsible for 
inspections during construction, processing and approving advances of 
mortgage proceeds during construction, review and approval of cost 
certification, and closing of the loan.

[[Page 541]]

    (e) Endorsement of mortgage note for insurance. So long as the HFA 
is in good standing, and absent fraud or material misrepresentation on 
the part of the HFA, the Commissioner or designee will endorse the 
mortgage note for insurance upon presentation by the HFA of the Closing 
Docket and certifications required in Sec.  266.420(b), subject to HUD's 
right to adjust under Sec.  266.417.



Sec.  266.310  Insurance of advances or insurance upon completion;
applicability of requirements.

    (a) General. HUD will agree to insure periodic advances of mortgage 
proceeds or to insure the entire mortgage upon completion of 
construction for projects involving new construction or substantial 
rehabilitation. Existing projects without the need for substantial 
rehabilitation will be considered insurance upon completion cases. In 
insurance upon completion cases, only the permanent loan is insured and 
a single endorsement is required after satisfactory completion of 
construction, substantial rehabilitation or repairs. In periodic 
advances cases, progress payments approved by the HFA and both an 
initial and final endorsement on the mortgage are required.
    (b) Insurance of advances. Periodic advances will be authorized by 
the HFA subject to terms specified by the Commissioner.
    (c) Insurance upon completion--(1) New construction and substantial 
rehabilitation. An HFA may approve a loan that will be insured upon 
completion of construction of the project. The HFA approval must 
prescribe a designated period during which the mortgagor must start 
construction or substantial rehabilitation. If construction or 
rehabilitation is started as required, the approval will be valid for 
the period estimated by the HFA for construction and loan closing, 
including any extension approved by the HFA.
    (2) Existing projects with no substantial rehabilitation. Existing 
projects with or without repairs are only insured upon completion, 
although HFAs may permit noncritical repairs to be completed after 
endorsement upon establishment of escrows acceptable to the HFA.
    (d) Requirements applicable to both periodic advances and insurance 
upon completion cases--(1) Inspections. The HFA must inspect projects 
under this part at such times during construction, substantial 
rehabilitation, or repairs as the HFA determines. The inspections must 
be conducted to assure compliance with plans and specifications, work 
write-ups, and other contract documents.
    (2) Approval of advances. At all times, the loan must be kept in 
balance, and advances approved only if warranted by construction 
progress evidenced through HFA inspection, as well as in accord with 
plans, specifications, work write-ups and other contract documents. In 
approving advances, HFAs must make certain that other mortgageable items 
are supported with proper bills and/or receipts before funds can be 
approved and advanced for insurance.
    (3) Cost certification. In order to ensure that the final amount for 
insurance is supported by certified costs:
    (i) The mortgagor (and general contractor, if there is an identity 
of interest with the mortgagor) must execute a certificate of actual 
costs, in a form acceptable to the HFA, when all physical improvements 
are completed to the satisfaction of the HFA and before final 
endorsement; and
    (ii) The cost certification provided by the mortgagor must be 
audited by an independent public accountant.
    (4) Contestability. Although the HFA has authority to approve the 
mortgagor's (and general contractor's) certification of cost, the 
certification will be contestable by the Commissioner during the period 
up to and including final endorsement of the mortgage. After final 
endorsement, the certification will be final and incontestable except 
for fraud or material misrepresentation on the part of the mortgagor 
(and/or general contractor).
    (5) Assurance of completion. The mortgagor must furnish assurance of 
completion of the project in accordance with any requirements of the HFA 
as to form and amount.
    (6) Latent defects escrow. The mortgagor must furnish an escrow or 
other form of assurance required by the HFA to ensure that latent 
defects can be remedied within the time period required by the HFA.

[[Page 542]]

    (e) Mortgagee of record. The HFA must remain the mortgagee of record 
as long as mortgage insurance is in force.



Sec.  266.315  Recordkeeping requirements.

    The mortgagor and the builder, if there is an identity of interest 
with the mortgagor, shall keep and maintain records of all costs of any 
construction or other cost items not representing work under the general 
contract and to make available such records for review by the HFA or 
HUD, if requested.



      Subpart E_Mortgage and Closing Requirements; HUD Endorsement



Sec.  266.400  Property requirements--real estate.

    The mortgage must be on real estate held:
    (a) In fee simple;
    (b) Under a renewable lease of not less than 99 years; or
    (c) Under a lease executed by a governmental agency, or other lessor 
approved by the HFA, that has a term at least 10 years beyond the end of 
the mortgage term.



Sec.  266.402  Recordation.

    At the time of initial endorsement in the case of insurance of 
advances or at the time of final endorsement in the case of insurance 
upon completion, the HFA shall make certain that the mortgage and the 
regulatory agreement are recorded.



Sec.  266.405  Title.

    (a) Eligibility of title. Marketable title to the mortgaged property 
must be vested in the mortgagor on the date the mortgage is filed for 
record.
    (b) Title evidence. The HFA must receive a title insurance policy 
that ensures that marketable title is vested in the mortgagor, that a 
survey acceptable to the HFA has been performed, and that no existing 
impediments to title concern, or exist on, the property.



Sec.  266.410  Mortgage provisions.

    (a) Form. The mortgage and note must be executed on a form approved 
by the HFA for use in the jurisdiction in which the property is located.
    (b) Mortgagor. The mortgage must be executed by a mortgagor 
determined eligible by the HFA.
    (c) First lien. The mortgage must be a single first lien on property 
that has first priority for payment and that conforms with property 
standards prescribed by the HFA.
    (d) Single asset mortgagor. The mortgage must require that the 
mortgagor is a single asset mortgagor.
    (e) Amortization. The mortgage must provide for complete 
amortization (i.e., regularly amortizing) over the term of the mortgage.
    (f) Use restrictions. The mortgage must contain a covenant 
prohibiting the use of the property for any purpose other than the 
purpose intended on the day the mortgage was executed. The conversion of 
a project from rental to cooperative is not a ``change in use'' as that 
term is employed in the mortgage since the property will continue to 
have a residential use both before and after conversion.
    (g) Hazard insurance. The mortgage must contain a covenant, 
acceptable to the HFA, that binds the mortgagor to keep the property 
insured by one or more standard policies for fire and other hazards 
stipulated by the HFA. A standard mortgagee clause making loss payable 
to the HFA must be included in the mortgage. The HFA is responsible for 
assuring that insurance is maintained in force and in the amount 
required by this paragraph and the mortgage. The HFA must ensure that 
the insurance coverage is in an amount that will comply with the 
coinsurance clause applicable to the location and character of the 
property, but not less than 80 percent of the actual cash value of the 
insurable improvements and equipment. If the mortgagor does not obtain 
the required insurance, the HFA must do so and assess the mortgagor for 
such costs. These insurance requirements apply as long as the HFA 
retains an interest in the project and final claim settlement has not 
been completed or the contract of insurance has not been otherwise 
terminated.
    (h) Modification of terms. The mortgage must contain a covenant 
requiring that, in the event that the HFA and owner agree to a 
modification of the terms of the mortgage (e.g., to reflect a

[[Page 543]]

reduction of the interest rate if reductions are realized in the 
underlying bond rates for the project), Section 8 rents would be reduced 
in accordance with HUD guidelines.
    (i) Regulatory Agreement. The mortgage must contain a provision 
incorporating the Regulatory Agreement by reference.



Sec.  266.415  Mortgage lien and other obligations.

    (a) Liens. At the initial and final closing of the loan, the 
mortgagor and the HFA must certify, and the HFA must determine, that the 
property covered by the mortgage is free from all liens other than the 
lien of the insured mortgage, except that the property may be subject to 
such inferior lien or liens as approved by the HFA as long as the 
insured mortgage has first priority for payment.
    (b) Contractual obligations. At the final closing of the loan, the 
mortgagor and the HFA must certify, and the HFA must determine, that all 
contractual obligations in connection with the mortgage transaction, 
including the purchase of the property and the improvements to the 
property, are paid. An exception is made for obligations that are 
approved by the HFA and determined by the HFA to be of a lesser priority 
for payment than the obligation of the insured mortgage.



Sec.  266.417  Authority to adjust mortgage insurance amount.

    In order to protect the mortgage insurance funds, the Commissioner 
has authority in his or her sole discretion, at any time prior to and 
including final endorsement, to adjust the amount of the mortgage 
insurance.



Sec.  266.420  Closing and endorsement by the Commissioner.

    (a) Closing. Before disbursement of loan advances in periodic 
advances cases, and in all cases after completion of construction, 
repair or substantial rehabilitation, the HFA must hold a closing and 
submit a closing docket with required documentation to the Commissioner 
or the Commissioner's authorized Departmental representative for 
insurance of the mortgage by endorsement of the mortgage note. The note 
must provide that the mortgage is insured under section 542(c) of the 
Housing and Community Development Act of 1992 and the regulations set 
forth at 24 CFR part 266 in effect on the date of endorsement. The note 
must also specify the date of endorsement, i.e., the date of HUD 
endorsement of the project mortgage, and the risk of loss assumed by the 
HFA and by HUD.
    (b) Closing docket. The HFA's submission must include a 
certification that it has obtained written HUD approval of compliance 
with the requirements referred to in Sec.  266.210, and certifications 
and information as follows:
    (1) Information concerning the mortgage amount and term, location, 
number and type of units, income and expenses, rents, projects and 
market occupancy percentages, value/replacement cost, interest rate, and 
similar statistical information in accordance with the Commissioner's 
administrative procedures.
    (2) Copies of the amortization schedule, Note and Risk-Sharing 
Agreement.
    (3) Certification that the loan has been processed, prudently 
underwritten (including a determination that a market exists for the 
project), cost certified (if the project is being submitted for final 
endorsement) and closed in full compliance with the HFA's standards and 
requirements (or where the mortgage is insured under Level II, in full 
compliance with the underwriting standards and loan terms and conditions 
as approved by HUD).
    (4) At the time of final endorsement, a certification for periodic 
advances cases, if submitted for final endorsement, that advances were 
made proportionate to construction progress.
    (5) A copy of the HFA-approved cost certification if the project is 
submitted for final endorsement.
    (6) A certification that equal employment requirements are followed.
    (7) A certification that the HFA has reviewed and approved the 
Affirmative Fair Housing Marketing Plan and found it acceptable.
    (8) A certification that a dedicated account, if required, has been 
increased in accordance with Sec.  266.110(b).
    (9) Certifications required under Sec.  266.415 concerning liens and 
contractual obligations.

[[Page 544]]

    (10) Copies of the Hazard Insurance Policy with a clause making the 
loss payable to the HFA.
    (11) For projects subject to Davis-Bacon prevailing requirements 
under Sec.  266.225, the certification and information concerning 
payment of prevailing wage rates required by Sec.  266.225(d).
    (12) Certified copies of mortgage (deed of trust) with attached 
regulatory agreement, and note for HUD files.



               Subpart F_Project Management and Servicing



Sec.  266.500  General.

    The HFA will have full responsibility for the administration of the 
provisions of this subpart and for managing and servicing projects 
insured under this part. The HFA is responsible for monitoring and 
determining the compliance of the project owner in accordance with the 
provisions of this subpart. HUD will monitor the performance of the HFA, 
not the project owner, to determine its compliance with the provisions 
covered under this subpart.



Sec.  266.505  Regulatory agreement requirements.

    (a) General. (1) The HFA must execute a Regulatory Agreement, in 
recordable form, between the mortgagor and the HFA to be in force for 
the duration of the insured mortgage and note or bond. The Regulatory 
Agreement must include a description of the property. The Regulatory 
Agreement must be incorporated by reference into the mortgage and 
recorded with the mortgage.
    (2) The Regulatory Agreement executed between the HFA and the 
mortgagor must be binding upon the mortgagor and any of its successors 
and assigns and upon the HFA and any of its successors for so long as 
the mortgage is insured by HUD or HUD holds an HFA debenture issued in 
connection with a claim arising from the insured mortgage. The HFA may 
not assign the Regulatory Agreement.
    (3) The HFA will enforce the Regulatory Agreement and take actions 
against any mortgagors who violate its provisions. Such actions may 
involve a declaration of default and application to any court for 
specific performance of the agreement.
    (b) Requirements. The Regulatory Agreement must require the 
mortgagor to comply with the provisions of this part and obligate the 
mortgagor, among other things, to:
    (1) Make all payments due under the mortgage and note/bond.
    (2) Where necessary, establish a sinking fund for future capital 
needs.
    (3) Maintain the project as affordable housing, as defined in Sec.  
266.5.
    (4) Continue to use dwelling units for their original purposes.
    (5) Comply with such other requirements as may be established by the 
HFA and set forth in the Regulatory Agreement.
    (6) [Reserved]
    (7) Maintain complete books and records established solely for the 
project.
    (8) Comply with the Affirmative Fair Housing Marketing Plan and all 
other fair housing and equal opportunity requirements.
    (9) Operate as a single asset mortgagor.
    (10) Make books and records available for HUD or General Accounting 
Office (GAO) review with appropriate notification.
    (11) Permit HUD officials or employees to inspect the project upon 
request by the Commissioner.
    (c) Enforcement. The Regulatory Agreement shall be enforced by the 
HFA.

[59 FR 62524, Dec. 5, 1994, as amended at 63 FR 46578, 46593, Sept. 1, 
1998; 65 FR 16296, Mar. 27, 2000]



Sec.  266.507  Maintenance requirements.

    The mortgagor must maintain the project in accordance with the 
physical condition standards in 24 CFR part 5, subpart G.

[63 FR 46578, Sept. 1, 1998]



Sec.  266.510  HFA responsibilities.

    (a) Inspections. The HFA must perform inspections in accordance with 
the physical inspection procedures in 24 CFR part 5, subpart G.
    (b) Annual audits of projects. The HFA must analyze projects' annual 
audits

[[Page 545]]

and provide a copy to HUD along with a summary of unresolved findings 
and actions planned, with target dates, to correct unresolved findings.
    (c) HFA's annual financial statement. The HFA must provide HUD with 
annual audited financial statement in accordance with the requirements 
of 2 CFR part 200, subpart F.

[59 FR 62524, Dec. 5, 1994, as amended at 63 FR 46578, Sept. 1, 1998; 65 
FR 16296, Mar. 27, 2000; 80 FR 75936, Dec. 7, 2015]



Sec.  266.515  Record retention.

    (a) Loan origination and servicing. Records pertaining to the 
mortgage loan origination and servicing of the loan must be maintained 
for as long as the insurance remains in force.
    (b) Defaults and claims. Records pertaining to a mortgage default 
and claim must be retained from the date of default through final 
settlement of the claim for a period of no less than three years after 
final settlement.



Sec.  266.520  Program monitoring and compliance.

    HUD will monitor the performance of the HFA in accordance with the 
provisions covered under this subpart.



                Subpart G_Contract Rights and Obligations

                       Mortgage Insurance Premiums



Sec.  266.600  Mortgage insurance premium: Insurance upon completion.

    (a) Initial premium. For projects insured upon completion, on the 
date of the final closing, the HFA shall pay to the Commissioner an 
initial premium equal to the prescribed percentage, in the sliding scale 
chart that is shown in Sec.  266.604(b), of the face amount of the 
mortgage.
    (b) Premium payable with first payment of principal. On the date of 
the first payment of principal the HFA shall pay a second premium 
(calculated on a per annum basis) equal to the prescribed percentage of 
the average outstanding principal obligation of the mortgage from the 
final closing date to the year following the date of the first principal 
payment, less the amount paid on the date of the final closing.
    (c) Subsequent premiums. Until one of the conditions is met under 
Sec.  266.606(a), the HFA on each anniversary of the date of the first 
principal payment shall pay to the Commissioner an annual mortgage 
insurance premium equal to the prescribed percentage of the average 
outstanding principal obligation of the mortgage, without taking into 
account delinquent payments, or partial claim payment under Sec.  
266.630, or prepayments, for the year following the date on which the 
premium becomes payable.



Sec.  266.602  Mortgage insurance premium: Insured advances.

    (a) Initial premium. For projects involving insured advances, on the 
date of the initial closing, the HFA shall pay to the Commissioner an 
initial premium equal to the prescribed percentage, in the sliding scale 
chart that is shown in Sec.  266.604(b), of the face amount of the 
mortgage.
    (b) Interim premium. On each anniversary of the initial closing, the 
HFA shall pay an interim mortgage insurance premium equal to the 
prescribed percentage of the face amount of the mortgage. The HFA shall 
continue to pay the interim mortgage insurance premiums until the date 
of the first principal payment.
    (c) Premium payable with first payment of principal. On the date of 
the first principal payment, the HFA shall pay a mortgage insurance 
premium equal to the prescribed percentage of the average outstanding 
principal obligation of the mortgage for the year following the date of 
the first principal payment. The HFA shall adjust this payment by 
deducting an amount equal to the portion of the last premium paid that 
is attributable to the months after the date of the first payment to 
principal. Any partial month is to be counted as a whole month. The HFA 
shall remit the net adjusted mortgage premium to the Commissioner and 
refund the amount of the adjustment (overpayment) to the mortgagor.
    (d) Subsequent premiums. Until one of the conditions is met under 
Sec.  266.606(a), the HFA on each anniversary of the date of the first 
principal payment shall pay to the Commissioner an annual mortgage 
insurance premium

[[Page 546]]

equal to the prescribed percentage of the average outstanding principal 
obligation of the mortgage, without taking into account delinquent 
payments, prepayments, or a partial claim payment under Sec.  266.630, 
for the year following the date on which the premium becomes payable.



Sec.  266.604  Mortgage insurance premium: Other requirements.

    (a) Premium calculations on or after first principal payment. The 
premiums payable to the Commissioner on and after the first principal 
payment shall be calculated in accordance with the amortization schedule 
prepared by the HFA for final closing and the prescribed percentage as 
set forth in the sliding scale chart in paragraph (b) of this section 
without taking into account delinquent payments or prepayments.
    (b) Prescribed percentages. The following sliding scale chart 
provides the prescribed percentage, based upon the respective share of 
risk, that is to be used in calculating mortgage insurance premiums 
under this section:

------------------------------------------------------------------------
            Percentage share of risk              Prescribed percentage
------------------------------------------------  for calculating HFA's
          HUD                      HFA                  annual MIP
------------------------------------------------------------------------
               90                       10                     .45
               75                       25                     .375
               50                       50                     .25
               40                       60                     .2
               30                       70                     .15
               20                       80                     .1
               10                       90                     .05
------------------------------------------------------------------------

    (c) Closing information. The HFA shall provide final closing 
information to the Commissioner within 15 days of the final closing in a 
format prescribed by the Commissioner. In addition, the HFA shall submit 
a copy of the amortization schedule. This amortization shall be used to 
compute and collect all future mortgage insurance premiums subject to 
Sec.  266.600(c) or Sec.  266.602(d). If the mortgage is modified, the 
HFA shall submit to the Commissioner a copy of the revised amortization 
schedule, which shall be used to compute and collect all future mortgage 
insurance premiums subject to Sec.  266.600(c) or Sec.  266.602(d).
    (d) Due date for premium payments. Mortgage insurance premiums are 
due on the first day of the month of the anniversary of the first 
payment to principal. Any premium received by the Commissioner more than 
15 days after the due date shall be assessed a late charge of 4 percent 
of the amount of the premium payment due. Mortgage insurance premiums 
that are paid to the Commissioner more than 30 days after the due date 
shall begin to accrue interest at the rate prescribed by the Treasury 
Fiscal Requirements Manual.



Sec.  266.606  Mortgage insurance premium: Duration and method of paying.

    (a) Duration of payments. Mortgage insurance premium payments must 
continue annually until one of the following occurs:
    (1) The mortgage is paid in full;
    (2) A deed to the HFA is filed for record;
    (3) An application for initial claim payment is received by the 
Commissioner; or
    (4) The Contract of Insurance is otherwise terminated.
    (b) Method of payment. The HFA shall pay any mortgage insurance 
premium required by this part in cash.



Sec.  266.608  Mortgage insurance premium: Pro rata refund.

    If the Contract of Insurance is terminated by payment in full or is 
terminated by the HFA on a form prescribed by the Commissioner, after 
the date of the first payment to principal, the Commissioner shall 
refund any mortgage insurance premium for the period after the effective 
date of the termination of insurance. The refund shall be mailed to the 
HFA for credit to the mortgagor's account. In computing the pro rata 
portion of the annual mortgage insurance premium, the date of 
termination of insurance shall be the last day of the month in which the 
mortgage is prepaid or the Commissioner receives a notification of 
termination, whichever is later. No refund shall be made if the 
insurance was terminated because of the submission of an application for 
initial claim payment or if the termination occurs before the date of 
the first payment to principal.

[[Page 547]]



Sec.  266.610  Method of payment of mortgage insurance premiums.

    In the cases that the Commissioner deems appropriate, the 
Commissioner may require, by means of instructions communicated to all 
affected mortgagees, that mortgage insurance premiums be remitted 
electronically.

[63 FR 1303, Jan. 8, 1998]

                          Insurance Endorsement



Sec.  266.612  Insurance endorsement.

    (a) Initial endorsement. The Commissioner shall indicate his or her 
insurance of the mortgage by endorsing the original credit instrument.
    (b) Final endorsement. When all advances of mortgage proceeds have 
been made and all other applicable terms and conditions have been 
complied with to the satisfaction of the Commissioner, the Commissioner 
shall indicate on the original credit instrument the total of all 
advances that have been approved for insurance and again endorse such 
instrument.
    (c) Effect of endorsement. From the date of initial endorsement, the 
Commissioner and the HFA shall be bound by the provisions of this 
subpart to the same extent as if they had executed a contract including 
the provisions of this subpart and the applicable sections of the Act.

                               Assignments



Sec.  266.616  Transfer of partial interest under participation agreement.

    The HFA may not assign the mortgage. However, a partial interest in 
an insured mortgage or pool of insured mortgages may be transferred 
under a participation agreement or arrangement (such as a declaration of 
trust or the issuance of pass-through certificates), without obtaining 
the approval of the Commissioner, if the following conditions are met:
    (a) Legal title to the insured mortgage or mortgages shall be held 
by the HFA; and
    (b) The participation agreement, declaration of trust or other 
instrument under which the partial interest is transferred shall provide 
that:
    (1) The HFA shall remain mortgagee of record under the contract of 
mortgage insurance;
    (2) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the HFA with respect to the rights, benefits, and 
obligations of the mortgagee under the contract of insurance; and
    (3) The mortgagor shall have no obligation to recognize or do 
business with any one other than the HFA or, if applicable, its 
servicing agent with respect to rights, benefits, and obligations of the 
mortgagor or the mortgagee under the mortgage.

                               Termination



Sec.  266.620  Termination of Contract of Insurance.

    The Contract of Insurance shall terminate if any of the following 
occurs:
    (a) The mortgage is paid in full;
    (b) The HFA acquires the mortgaged property and notifies the 
Commissioner that it will not file an insurance claim;
    (c) A party other than HFA acquires the property at a foreclosure 
sale;
    (d) The HFA notifies the Commissioner of Termination of Insurance 
(voluntary termination);
    (e) The HFA or its successors commit fraud or make a material 
misrepresentation to the Commissioner with respect to information 
culminating in the Contract of Insurance on the mortgage or while the 
Contract of Insurance is in existence;
    (f) The receipt by the Commissioner of an Application for Final 
Claims Settlement;
    (g) If the HFA acquires the mortgaged property and fails to make an 
initial claim.



Sec.  266.622  Notice and date of termination by the Commissioner.

    The Commissioner shall notify the HFA that the Contract of Insurance 
has been terminated and shall establish the effective date of 
termination. The termination shall be the last day of the month in which 
one of the events specified in Sec.  266.620 occurs.

[[Page 548]]

                            Claim Procedures



Sec.  266.626  Notice of default and filing an insurance claim.

    (a) Definition of default. (1) A monetary default exists when the 
mortgagor fails to make any payment due under the mortgage.
    (2) A covenant default exists when the mortgagor fails to perform 
any other covenant under the provision of the mortgage or the regulatory 
agreement, which is incorporated by reference in the mortgage. An HFA 
becomes eligible for insurance benefits on the basis of a covenant 
default only after the HFA has accelerated the debt and the owner has 
failed to pay the full amount due, thus converting a covenant default 
into a monetary default.
    (b) Date of default. For purposes of this subpart, the date of 
default is:
    (1) The date of the first uncorrected failure to perform a mortgage 
covenant or obligation; or
    (2) The date of the first failure to make a monthly payment that is 
not covered by subsequent payments, when such subsequent payments are 
applied to the overdue monthly payments in the order in which they were 
due.
    (c) Notice of default. If a default (as defined in paragraph (a) of 
this section) continues for a period of 30 days, the HFA must notify the 
Commissioner within 10 days thereafter, unless the default is cured 
within the 30-day period. Unless waived by the Commissioner, the HFA 
must submit this notice monthly, on a form prescribed by the 
Commissioner, until the default has been cured or the HFA has filed an 
application for an initial claim payment. In cases of mortgage 
acceleration, the mortgagee must first give notice of the default.
    (d) Timing of claim filing. Unless a written extension is granted by 
HUD, the HFA must file an application for initial claim payment (or, if 
appropriate, for partial claim payment) within 75 days from the date of 
default and may do so as early as the first day of the month following 
the month for which a payment was missed. Upon request of the HFA, HUD 
may extend, up to 180 days from the date of default, the deadline for 
filing a claim. In those cases where the HFA certifies that the project 
owner is in the process of transacting a bond refunder, refinancing the 
mortgage, or changing the ownership for the purpose of curing the 
default and bringing the mortgage current, HUD may extend the deadline 
for filing a claim beyond 180 days, not to exceed 360 days from the date 
of default.



Sec.  266.628  Initial claim payments.

    (a) Determination of initial claim amount. (1) The initial claim 
amount is based on the unpaid principal balance of the mortgage note as 
of the date of default, plus interest at the mortgage note rate from 
date of default to date of initial claim payment. The mortgage note 
interest component of the initial claim amount is subject to curtailment 
as provided in paragraph (b) of this section.
    (2) HUD shall make an initial claim payment to the HFA that is equal 
to the initial claim amount, less any delinquent mortgage insurance 
premiums, late charges and interest, assessed under Sec.  266.604(d).
    (3) The HFA must use the proceeds of the initial claim payment to 
retire any bonds or any other financing mechanisms securing the mortgage 
within 30 days of the initial claim payment. Any excess funds resulting 
from such retirement or repayment shall be returned to HUD within 30 
days of the retirement.
    (b) Curtailment of interest for late filings. In determining the 
mortgage note interest component of the initial claim amount, if the HFA 
fails to meet any of the requirements of this section within the 
specified time (including any granted extension of time), HUD shall 
curtail the accrual of mortgage note interest by the number of days by 
which the required action was late.
    (c) Method of payment. HUD shall pay the claim in cash.



Sec.  266.630  Partial payment of claims.

    (a) General. When the Commissioner receives a claim for a partial 
payment under Sec.  266.626(d), the Commissioner may make a partial 
payment of claim in accordance with the requirements of this section. If 
the HFA has not previously received a partial claim payment, the HFA may 
file a claim for a partial claim payment under Sec.  266.630.

[[Page 549]]

Otherwise, the HFA must file for an initial claim payment under Sec.  
266.628.
    (b) HFA submission. In addition to any other requirements set forth 
in administration instructions, the HFA must provide the following 
information with its application for a partial claim payment:
    (1) The amount by which the HFA will reduce the principal on the 
insured mortgage and the amount of delinquent interest on the insured 
mortgage that the HFA will defer based on the anticipated closing date; 
and
    (2) A certification that:
    (i) The amount of the principal reduction of the insured first 
mortgage does not exceed 50 percent of the unpaid principal balance;
    (ii) The relief resulting from the partial claim payment when 
considered with other resources available to the project are sufficient 
to restore the financial viability of the project;
    (iii) The project is or can (at reasonable cost) be made 
structurally sound;
    (iv) The management of the project is satisfactory;
    (v) The default under the insured mortgage was beyond the control of 
the mortgagor.
    (c) Claim processing--(1) Acceptable application. If the HFA's 
application is acceptable, the Commissioner shall notify the HFA to 
process the partial payment, which will include the modification of the 
existing mortgage and the execution by the mortgagor of a second 
mortgage payable to the HFA. When the second mortgage is closed, the HFA 
shall notify the Commissioner, in a form and manner prescribed in 
administrative instructions. Upon receipt of notice from the HFA, the 
Commissioner shall make the partial claim payment.
    (2) Unacceptable application. If the application is unacceptable, 
the Commissioner shall either advise the HFA of the information needed 
to make the application acceptable or return the application for further 
action. The HFA is granted an extension of 30 days from the date of any 
notification for further action.
    (d) Requirements--(1) One partial claim payment. Only one partial 
claim payment may be made under a contract of insurance.
    (2) Partial claim payment amount. The amount of the partial claim 
payment is equal to the amount of relief provided by the HFA in the form 
of a reduction in principal and a reduction of delinquent interest due 
on the insured mortgage times the lesser of HUD's percentage of the risk 
of loss or 50 percent.
    (3) HFA second mortgage. Repayment of the relief provided by the HFA 
must be secured by a second mortgage to the HFA. This second mortgage 
may provide for postponed amortization and may not be assigned by the 
HFA. This second mortgage is not insured under this part and may not be 
insured under any other HUD-related insurance program.
    (4) Partial claim repayment by HFA. The HFA must remit to HUD a 
percentage of all amounts collected on the HFA's second mortgage within 
15 days of receipt by the HFA. The applicable percentage is equal to the 
percentage used in paragraph (d)(2) of this section to determine the 
partial claim payment amount. Payments made after the 15th day must 
include a 5 percent late charge plus accrued interest at the debenture 
rate.
    (5) Certified statements of amounts collected. As long as the second 
mortgage remains of record, the HFA must submit to the Commissioner an 
annual certified statement of the amounts collected by the HFA. The HFA 
must submit a final certified statement within 30 days after the second 
mortgage is paid in full, foreclosed, or otherwise terminated.



Sec.  266.632  Withdrawal of claim.

    In case of a default and subsequent filing of claim, the HFA shall 
determine the form of workout or modification and will inform HUD of the 
type of mortgage relief determined to be appropriate. If the default is 
cured after the claim is made but before the initial claim payment is 
paid by HUD, the HFA may, in writing, withdraw the claim, and insurance 
will continue as if the default had not occurred.



Sec.  266.634  Reinstatement of the contract of insurance.

    (a) Conditions for reinstatement. After the initial claim payment, 
HUD may

[[Page 550]]

reinstate the contract of insurance on the following conditions:
    (1) The HFA has not acquired the project;
    (2) The mortgagor has cured the default; and
    (3) The HFA requests that HUD reinstate the contract of insurance.
    (b) Notification of reinstatement. If reinstatement is acceptable to 
HUD, HUD shall notify the HFA of the date the contract of insurance will 
be reinstated and shall advise the HFA of the payment needed to 
reinstate the contract of insurance.
    (c) Payment. Within 30 days of the date of the notice under 
paragraph (b) of this section, the HFA shall pay HUD an amount equal to 
the initial claim amount, as determined under Sec.  266.628(a)(1), plus 
an amount equal to the accrued and unpaid interest on the HFA Debenture 
through the reinstatement date, plus an amount equal to the mortgage 
insurance premium for the period from the date of reinstatement of the 
contract of insurance to the next anniversary date for payment of the 
mortgage insurance premium.
    (d) Cancellation of debenture. Upon receipt from the HFA of the 
amount specified in paragraph (c) of this section, HUD shall return the 
HFA debenture for cancellation.
    (e) Continuation of contract of insurance. Upon reinstatement, the 
contract of insurance shall continue as if the default had not occurred.



Sec.  266.636  Insuring new loans for defaulted projects.

    The HFA may not make another loan that is insured under this part to 
the same owner in the same project if HUD has paid a claim under this 
part.



Sec.  266.638  Issuance of HFA Debenture.

    (a) Condition to initial claim payment. The HFA must issue an 
instrument in the form of a debenture to HUD within 30 days of receiving 
the initial claim payment. The HFA Debenture shall meet the following 
requirements and shall be in a form that has been approved by HUD as 
part of the application approval process.
    (b) Term of HFA Debenture. The HFA Debenture shall be dated the same 
date that the initial claim payment is issued. The HFA Debenture shall 
have a term of five years in order to afford the mortgagor ample time to 
cure the default or the HFA time to foreclose and/or resell the project. 
HUD may provide a written extension of the five year term if the HFA 
certifies and provides documentation that the project owner has filed 
bankruptcy and the HFA is taking action to have the project discharged 
from the bankruptcy. The HFA Debenture shall, during this extended 
period, continue to bear interest as described below at HUD's published 
debenture rate at the earlier of initial endorsement or final 
endorsement. Interest shall be due and payable annually on the 
anniversary date of the initial claim payment. Interest is due on the 
full face amount of the HFA Debenture through the term of the HFA 
Debenture or through the date an application for final claim payment is 
received by the Commissioner.
    (c) HFA Debenture amount. (1) The HFA Debenture shall be for the 
full initial claim amount as determined under Sec.  266.628(a)(1) (minus 
any excess funds returned to HUD under Sec.  266.628(a)(3)).
    (2) The full amount of the HFA Debenture shall be payable to HUD 
upon maturity, unless the HFA Debenture is canceled because of:
    (i) A reinstatement of the contract of insurance under Sec.  
266.634; or
    (ii) Final claim settlement under Sec.  266.654.
    (d) HFA Debenture interest rate. The HFA Debenture shall bear 
interest at HUD's published debenture rate at the earlier of initial 
endorsement or final endorsement. Interest shall be due and payable 
annually on the anniversary date of the initial claim payment and on the 
date of redemption when redeemed or canceled before an anniversary date. 
Interest shall be computed on the full face amount of the HFA Debenture 
through the term of the HFA Debenture.
    (e) Form of HFA Debenture. The HFA Debenture should follow the 
standard form of a State/Municipal Debenture issued under the Uniform 
Commercial Code, where applicable, and shall be supported by the full 
faith and credit of the HFA. For HFAs that operate as departments or 
divisions of States or units of local government and where

[[Page 551]]

such HFAs cannot pledge the full faith and credit of the HFA, such HFAs 
may collateralize their obligation through a letter of credit, 
reinsurance, or other forms of credit acceptable to the Commissioner.
    (f) Debenture registration. Unless otherwise required by law, 
including State or local laws, or other governing bodies, HUD will not 
require the HFA Debenture to be ``Registered'' (with the Securities and 
Exchange Commission) as it is a direct, or private, placement, and not a 
public offering, that is supported by the full faith and credit of the 
HFA.



Sec.  266.640  Foreclosure and acquisition.

    The HFA is not required to foreclose the insured mortgage. It may 
accept a deed-in-lieu of foreclosure.



Sec.  266.642  Appraisals.

    Where actions taken or caused to be taken by the HFA have the effect 
of the recovery of less than the face amount of the HFA Debenture held 
by HUD, an appraisal should be made to determine the value of the 
project. The appraisal should assume a willing buyer and a willing 
seller. The appraisal must be done within the 45-day period immediately 
preceding the date when the HFA files an application for final claim 
settlement. If at the time of final claim settlement the HFA has not 
sold the project, an appraisal should be made to determine the value of 
the project at its highest and best use.



Sec.  266.644  Application for final claim settlement.

    The HFA shall file an application for final settlement in accordance 
with the Commissioner's administrative procedures not later than 30 days 
after any of the following:
    (a) Sale of the property after foreclosure or after acquisition by 
deed-in-lieu of foreclosure; or
    (b) Expiration of the term of the HFA debenture.



Sec.  266.646  Determining the amount of loss.

    The amount of the total loss to be shared by HUD and the HFA is 
equal to:
    (a) The amount of the initial claim payment;
    (b) Plus all items set forth in Sec.  266.648; and
    (c) Less all items set forth in Sec.  266.650.



Sec.  266.648  Items included in total loss.

    In computing the total loss, the following items are added to the 
amount described in Sec.  266.646(a):
    (a) The amount of all payments that the HFA made from its own funds 
and not from project income for:
    (1) Taxes, special assessments, and water bills that are liens 
before the Mortgage; and
    (2) Fire and hazard insurance on the property.
    (b) A reasonable amount of acquisition costs actually paid by the 
HFA. These costs may not include loss or damage resulting from the 
invalidity or unenforceability of the Mortgage lien or the 
unmarketability of the Mortgagor's title.
    (c) Reasonable payments that the HFA made from its own funds and not 
from project income for:
    (1) Preservation, operation and maintenance of the property;
    (2) Repairs necessary to meet the requirements of local laws;
    (3) Expenses in connection with the sale of property; and
    (4) Bankruptcy expenses approved by the Office of General Counsel.
    (d) The amount of HFA Debenture interest paid by the HFA to HUD.



Sec.  266.650  Items deducted from total loss.

    In computing insurance benefits, the following items are deducted 
from the amounts described in Sec.  266.646(a) and (b):
    (a) All amounts received by the HFA on account of the mortgage after 
the date of default;
    (b) All cash, and/or funds related to the mortgaged property, 
including deposits and escrows made for the account of the mortgagor 
that the HFA holds (or to which it is entitled);
    (c) The amount of any undrawn balance under a letter of credit that 
the HFA accepted in lieu of a cash deposit for an escrow agreement;

[[Page 552]]

    (d) Any net income from the mortgaged property/project that the HFA 
received after the date of default.
    (e) The proceeds from the sale of the project or the appraised value 
of the project as provided in Sec.  266.642 as follows:
    (1) If the HFA disposes of the project through a negotiated sale, 
the amount deducted shall be the higher of the sales price or the 
appraised value.
    (2) If the HFA disposes of the project through a competitive bid 
procedure approved by the Commissioner, the amount deducted shall be the 
sales price, even if it is lower than the appraised value.
    (3) If the HFA has not disposed of the project within 5 years from 
the date of issuance of the HFA Debentures (unless an extension has been 
granted pursuant to Sec.  266.638), the amount deducted shall be the 
appraised value.
    (f) Any and all claims that the HFA has acquired in connection with 
the acquisition and sale of the property. Claims include but are not 
limited to returned premiums from canceled insurance policies, interest 
on investments of reserve for replacement funds, tax refunds, refunds of 
deposits left with utility companies, and amounts received as proceeds 
of a receivership.
    (g) The amount of daily HFA Debenture interest accrued but not paid 
from the anniversary date of the last HFA Debenture interest payment to 
the date an application for final claim payment is received by the 
Commissioner.



Sec.  266.652  Determining share of loss.

    The total loss computed in Sec.  266.646 shall be shared by HUD and 
the HFA in accordance with their respective percentage of risk as 
specified in the note and the addendum to the Risk-Sharing Agreement 
between HUD and the HFA.



Sec.  266.654  Final claim settlement and HFA Debenture redemption.

    (a) Final claim payment. If the initial claim amount, as determined 
under Sec.  266.628(a)(1), is less than HUD's share of the loss, HUD 
shall make a final claim payment to the HFA that is equal to the 
difference between HUD's share of the loss and the initial claim amount 
and shall return the HFA Debenture to the HFA for cancellation.
    (b) HFA reimbursement payment. If the initial claim amount, as 
determined under Sec.  266.628(a)(1), is more than HUD's share of the 
loss, the HFA shall, within 30 days of notification by HUD of the amount 
due, remit to HUD an amount that is equal to the difference between the 
initial claim amount and HUD's share of the loss. The funds must be 
remitted in a manner prescribed in the Commissioner's administrative 
procedures. The HFA Debenture will be considered redeemed upon receipt 
of the cash payment. A 5 percent penalty will be charged and interest at 
the debenture rate will begin to accrue if the cash payment is not 
received within the prescribed period. If an HFA is in default under an 
existing debenture and files a claim on another project under this part, 
HUD will charge the HFA's Dedicated Account for the amount owed the 
Department. In cases of top-tier or A-rated HFA's which are not required 
to maintain a Dedicated Account, HUD will inform the rating agencies of 
the HFA's failure to pay on their debt obligation and of its violation 
of the Risk-Sharing Agreement.
    (c) Losses. Losses sustained as a consequence of the (sole) 
negligence of an HFA (e.g., failure to acquire adequate hazard insurance 
where such insurance is available) shall be the sole obligation of the 
HFA, notwithstanding the risk apportionment otherwise agreed to by HUD 
and the HFA.
    (d) Supplemental claim. Any supplemental claim must be filed within 
one year from date of final claim settlement.



Sec.  266.656  Recovery of costs after final claim settlement.

    If, after final claim settlement, the HFA recovers additional sums 
as the result of the sale of the project or otherwise, the total amount 
of such recovery shall be shared by HUD and the HFA in accordance with 
the prescribed percentage of shared risk.



Sec.  266.658  Program monitoring and compliance.

    HUD will monitor the performance of the HFA for compliance with the 
provisions of this subpart.

[[Page 553]]



PART 267_CREDIT RISK RETENTION--Table of Contents



           Subpart A_Authority, Purpose, Scope and Definitions

Sec.
267.1 Credit risk retention exceptions and exemptions for HUD programs.
267.2 Definitions.

                     Subpart B_Credit Risk Retention

267.3 Base risk retention requirement.
267.4 Standard risk retention.
267.5 Revolving pool securitizations.
267.6 Eligible ABCP conduits.
267.7 Commercial mortgage-backed securities.
267.8 Federal National Mortgage Association and Federal Home Loan 
          Mortgage Corporation ABS.
267.9 Open market CLOs.
267.10 Qualified tender option bonds.

                  Subpart C_Transfer of Risk Retention

267.11 Allocation of risk retention to an originator.
267.12 Hedging, transfer and financing prohibitions.

                   Subpart D_Exceptions and Exemptions

267.13 Exemption for qualified residential mortgages.
267.14 Definitions applicable to qualifying commercial loans, commercial 
          real estate loans, and automobile loans.
267.15 Qualifying commercial loans, commercial real estate loans, and 
          automobile loans.
267.16 Underwriting standards for qualifying commercial loans.
267.17 Underwriting standards for qualifying CRE loans.
267.18 Underwriting standards for qualifying automobile loans.
267.19 General exemptions.
267.20 Safe harbor for certain foreign-related transactions.
267.21 Additional exemptions.
267.22 Periodic review of the QRM definition, exempted three-to-four 
          unit residential mortgage loans, and community-focused 
          residential mortgage exemption.

    Authority: 15 U.S.C. 78-o-11; 42 U.S.C. 3535(d).

    Source: 79 FR 77740, Dec. 24, 2014, unless otherwise noted.



           Subpart A_Authority, Purpose, Scope and Definitions



Sec.  267.1  Credit risk retention exceptions and exemptions for HUD programs.

    The credit risk retention regulations codified at 12 CFR part 43 
(Office of the Comptroller of the Currency); 12 CFR part 244 (Federal 
Reserve System); 12 CFR part 373 (Federal Deposit Insurance 
Corporation); 17 CFR part 246 (Securities and Exchange Commission); and 
12 CFR part 1234 (Federal Housing Finance Agency) include exceptions and 
exemptions in subpart D of each of these codified regulations for 
certain transactions involving programs and entities under the 
jurisdiction of the Department of Housing and Urban Development.

[79 FR 77766, Dec. 24, 2014]



Sec.  267.2  Definitions.

    For purposes of this part, the following definitions apply:
    ABS interest means:
    (1) Any type of interest or obligation issued by an issuing entity, 
whether or not in certificated form, including a security, obligation, 
beneficial interest or residual interest (other than an uncertificated 
regular interest in a REMIC that is held by another REMIC, where both 
REMICs are part of the same structure and a single REMIC in that 
structure issues ABS interests to investors, or a non-economic residual 
interest issued by a REMIC), payments on which are primarily dependent 
on the cash flows of the collateral owned or held by the issuing entity; 
and
    (2) Does not include common or preferred stock, limited liability 
interests, partnership interests, trust certificates, or similar 
interests that:
    (i) Are issued primarily to evidence ownership of the issuing 
entity; and
    (ii) The payments, if any, on which are not primarily dependent on 
the cash flows of the collateral held by the issuing entity; and
    (3) Does not include the right to receive payments for services 
provided by the holder of such right, including servicing, trustee 
services and custodial services.

[[Page 554]]

    Affiliate of, or a person affiliated with, a specified person means 
a person that directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the person specified.
    Appropriate Federal banking agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Asset means a self-liquidating financial asset (including but not 
limited to a loan, lease, mortgage, or receivable).
    Asset-backed security has the same meaning as in section 3(a)(79) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(79)).
    Collateral means, with respect to any issuance of ABS interests, the 
assets that provide the cash flow and the servicing assets that support 
such cash flow for the ABS interests irrespective of the legal structure 
of issuance, including security interests in assets or other property of 
the issuing entity, fractional undivided property interests in the 
assets or other property of the issuing entity, or any other property 
interest in or rights to cash flow from such assets and related 
servicing assets. Assets or other property collateralize an issuance of 
ABS interests if the assets or property serve as collateral for such 
issuance.
    Commercial real estate loan has the same meaning as in Sec.  267.14.
    Commission means the Securities and Exchange Commission.
    Control including the terms ``controlling,'' ``controlled by'' and 
``under common control with'':
    (1) Means the possession, direct or indirect, of the power to direct 
or cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.
    (2) Without limiting the foregoing, a person shall be considered to 
control another person if the first person:
    (i) Owns, controls or holds with power to vote 25 percent or more of 
any class of voting securities of the other person; or
    (ii) Controls in any manner the election of a majority of the 
directors, trustees or persons performing similar functions of the other 
person.
    Credit risk means:
    (1) The risk of loss that could result from the failure of the 
borrower in the case of a securitized asset, or the issuing entity in 
the case of an ABS interest in the issuing entity, to make required 
payments of principal or interest on the asset or ABS interest on a 
timely basis;
    (2) The risk of loss that could result from bankruptcy, insolvency, 
or a similar proceeding with respect to the borrower or issuing entity, 
as appropriate; or
    (3) The effect that significant changes in the underlying credit 
quality of the asset or ABS interest may have on the market value of the 
asset or ABS interest.
    Creditor has the same meaning as in 15 U.S.C. 1602(g).
    Depositor means:
    (1) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity;
    (2) The sponsor, in the case of a securitization transaction where 
there is not an intermediate transfer of the assets from the sponsor to 
the issuing entity; or
    (3) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity in the case of a securitization 
transaction where the person transferring or selling the securitized 
assets directly to the issuing entity is itself a trust.
    Eligible horizontal residual interest means, with respect to any 
securitization transaction, an ABS interest in the issuing entity:
    (1) That is an interest in a single class or multiple classes in the 
issuing entity, provided that each interest meets, individually or in 
the aggregate, all of the requirements of this definition;
    (2) With respect to which, on any payment date or allocation date on 
which the issuing entity has insufficient funds to satisfy its 
obligation to pay all contractual interest or principal due, any 
resulting shortfall will reduce amounts payable to the eligible 
horizontal residual interest prior to any reduction in the amounts 
payable to any other ABS interest, whether through loss allocation, 
operation of the priority of payments, or any other governing 
contractual provision (until

[[Page 555]]

the amount of such ABS interest is reduced to zero); and
    (3) That, with the exception of any non-economic REMIC residual 
interest, has the most subordinated claim to payments of both principal 
and interest by the issuing entity.
    Eligible horizontal cash reserve account means an account meeting 
the requirements of Sec.  267.4(b).
    Eligible vertical interest means, with respect to any securitization 
transaction, a single vertical security or an interest in each class of 
ABS interests in the issuing entity issued as part of the securitization 
transaction that constitutes the same proportion of each such class.
    Federal banking agencies means the Office of the Comptroller of the 
Currency, the Board of Governors of the Federal Reserve System, and the 
Federal Deposit Insurance Corporation.
    GAAP means generally accepted accounting principles as used in the 
United States.
    Issuing entity means, with respect to a securitization transaction, 
the trust or other entity:
    (1) That owns or holds the pool of assets to be securitized; and
    (2) In whose name the asset-backed securities are issued.
    Majority-owned affiliate of a person means an entity (other than the 
issuing entity) that, directly or indirectly, majority controls, is 
majority controlled by or is under common majority control with, such 
person. For purposes of this definition, majority control means 
ownership of more than 50 percent of the equity of an entity, or 
ownership of any other controlling financial interest in the entity, as 
determined under GAAP.
    Originator means a person who:
    (1) Through an extension of credit or otherwise, creates an asset 
that collateralizes an asset-backed security; and
    (2) Sells the asset directly or indirectly to a securitizer or 
issuing entity.
    REMIC has the same meaning as in 26 U.S.C. 860D.
    Residential mortgage means:
    (1) A transaction that is a covered transaction as defined in Sec.  
1026.43(b) of Regulation Z (12 CFR 1026.43(b)(1));
    (2) Any transaction that is exempt from the definition of ``covered 
transaction'' under Sec.  1026.43(a) of Regulation Z (12 CFR 
1026.43(a)); and
    (3) Any other loan secured by a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property, including an individual condominium or cooperative unit and, 
if used as a residence, a mobile home or trailer.
    Retaining sponsor means, with respect to a securitization 
transaction, the sponsor that has retained or caused to be retained an 
economic interest in the credit risk of the securitized assets pursuant 
to subpart B of this part.
    Securitization transaction means a transaction involving the offer 
and sale of asset-backed securities by an issuing entity.
    Securitized asset means an asset that:
    (1) Is transferred, sold, or conveyed to an issuing entity; and
    (2) Collateralizes the ABS interests issued by the issuing entity.
    Securitizer means, with respect to a securitization transaction, 
either:
    (1) The depositor of the asset-backed securities (if the depositor 
is not the sponsor); or
    (2) The sponsor of the asset-backed securities.
    Servicer means any person responsible for the management or 
collection of the securitized assets or making allocations or 
distributions to holders of the ABS interests, but does not include a 
trustee for the issuing entity or the asset-backed securities that makes 
allocations or distributions to holders of the ABS interests if the 
trustee receives such allocations or distributions from a servicer and 
the trustee does not otherwise perform the functions of a servicer.
    Servicing assets means rights or other assets designed to assure the 
servicing or timely distribution of proceeds to ABS interest holders and 
rights or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the issuing entity's securitized assets. 
Servicing assets include amounts received by the issuing entity as 
proceeds of securitized assets, including proceeds of rights or other 
assets, whether as remittances by obligors or as other recoveries.

[[Page 556]]

    Single vertical security means, with respect to any securitization 
transaction, an ABS interest entitling the sponsor to a specified 
percentage of the amounts paid on each class of ABS interests in the 
issuing entity (other than such single vertical security).
    Sponsor means a person who organizes and initiates a securitization 
transaction by selling or transferring assets, either directly or 
indirectly, including through an affiliate, to the issuing entity.
    State has the same meaning as in Section 3(a)(16) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(16)).
    United States or U.S. means the United States of America, including 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    Wholly-owned affiliate means a person (other than an issuing entity) 
that, directly or indirectly, wholly controls, is wholly controlled by, 
or is wholly under common control with, another person. For purposes of 
this definition, ``wholly controls'' means ownership of 100 percent of 
the equity of an entity.



                     Subpart B_Credit Risk Retention



Sec.  267.3  Base risk retention requirement.

    (a) Base risk retention requirement. Except as otherwise provided in 
this part, the sponsor of a securitization transaction (or majority-
owned affiliate of the sponsor) shall retain an economic interest in the 
credit risk of the securitized assets in accordance with any one of 
Sec. Sec.  267.4 through 267.10. Credit risk in securitized assets 
required to be retained and held by any person for purposes of 
compliance with this part, whether a sponsor, an originator, an 
originator-seller, or a third-party purchaser, except as otherwise 
provided in this part, may be acquired and held by any of such person's 
majority-owned affiliates (other than an issuing entity).
    (b) Multiple sponsors. If there is more than one sponsor of a 
securitization transaction, it shall be the responsibility of each 
sponsor to ensure that at least one of the sponsors of the 
securitization transaction (or at least one of their majority-owned or 
wholly-owned affiliates, as applicable) retains an economic interest in 
the credit risk of the securitized assets in accordance with any one of 
Sec. Sec.  267.4, 267.5, 267.8, 267.9, or 267.10.



Sec.  267.4  Standard risk retention.

    (a) General requirement. Except as provided in Sec. Sec.  267.5 
through 267.10, the sponsor of a securitization transaction must retain 
an eligible vertical interest or eligible horizontal residual interest, 
or any combination thereof, in accordance with the requirements of this 
section.
    (1) If the sponsor retains only an eligible vertical interest as its 
required risk retention, the sponsor must retain an eligible vertical 
interest in a percentage of not less than 5 percent.
    (2) If the sponsor retains only an eligible horizontal residual 
interest as its required risk retention, the amount of the interest must 
equal at least 5 percent of the fair value of all ABS interests in the 
issuing entity issued as a part of the securitization transaction, 
determined using a fair value measurement framework under GAAP.
    (3) If the sponsor retains both an eligible vertical interest and an 
eligible horizontal residual interest as its required risk retention, 
the percentage of the fair value of the eligible horizontal residual 
interest and the percentage of the eligible vertical interest must equal 
at least five.
    (4) The percentage of the eligible vertical interest, eligible 
horizontal residual interest, or combination thereof retained by the 
sponsor must be determined as of the closing date of the securitization 
transaction.
    (b) Option to hold base amount in eligible horizontal cash reserve 
account. In lieu of retaining all or any part of an eligible horizontal 
residual interest under paragraph (a) of this section, the sponsor may, 
at closing of the securitization transaction, cause to be established 
and funded, in cash, an eligible horizontal cash reserve account in the 
amount equal to the fair value of such eligible horizontal residual 
interest or part thereof, provided that the account meets all of the 
following conditions:

[[Page 557]]

    (1) The account is held by the trustee (or person performing similar 
functions) in the name and for the benefit of the issuing entity;
    (2) Amounts in the account are invested only in cash and cash 
equivalents; and
    (3) Until all ABS interests in the issuing entity are paid in full, 
or the issuing entity is dissolved:
    (i) Amounts in the account shall be released only to:
    (A) Satisfy payments on ABS interests in the issuing entity on any 
payment date on which the issuing entity has insufficient funds from any 
source to satisfy an amount due on any ABS interest; or
    (B) Pay critical expenses of the trust unrelated to credit risk on 
any payment date on which the issuing entity has insufficient funds from 
any source to pay such expenses and:
    (1) Such expenses, in the absence of available funds in the eligible 
horizontal cash reserve account, would be paid prior to any payments to 
holders of ABS interests; and
    (2) Such payments are made to parties that are not affiliated with 
the sponsor; and
    (ii) Interest (or other earnings) on investments made in accordance 
with paragraph (b)(2) of this section may be released once received by 
the account.
    (c) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors, under the caption ``Credit 
Risk Retention'', a reasonable period of time prior to the sale of the 
asset-backed securities in the securitization transaction the following 
disclosures in written form and within the time frames set forth in this 
paragraph (c):
    (1) Horizontal interest. With respect to any eligible horizontal 
residual interest held under paragraph (a) of this section, a sponsor 
must disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that the sponsor expects to retain at the closing of 
the securitization transaction. If the specific prices, sizes, or rates 
of interest of each tranche of the securitization are not available, the 
sponsor must disclose a range of fair values (expressed as a percentage 
of the fair value of all of the ABS interests issued in the 
securitization transaction and dollar amount (or corresponding amount in 
the foreign currency in which the ABS interests are issued, as 
applicable)) of the eligible horizontal residual interest that the 
sponsor expects to retain at the close of the securitization transaction 
based on a range of bona fide estimates or specified prices, sizes, or 
rates of interest of each tranche of the securitization. A sponsor 
disclosing a range of fair values based on a range of bona fide 
estimates or specified prices, sizes or rates of interest of each 
tranche of the securitization must also disclose the method by which it 
determined any range of prices, tranche sizes, or rates of interest.
    (B) A description of the material terms of the eligible horizontal 
residual interest to be retained by the sponsor;
    (C) A description of the valuation methodology used to calculate the 
fair values or range of fair values of all classes of ABS interests, 
including any portion of the eligible horizontal residual interest 
retained by the sponsor;
    (D) All key inputs and assumptions or a comprehensive description of 
such key inputs and assumptions that were used in measuring the 
estimated total fair value or range of fair values of all classes of ABS 
interests, including the eligible horizontal residual interest to be 
retained by the sponsor.
    (E) To the extent applicable to the valuation methodology used, the 
disclosure required in paragraph (c)(1)(i)(D) of this section shall 
include, but should not be limited to, quantitative information about 
each of the following:
    (1) Discount rates;
    (2) Loss given default (recovery);
    (3) Prepayment rates;
    (4) Default rates;

[[Page 558]]

    (5) Lag time between default and recovery; and
    (6) The basis of forward interest rates used.
    (F) The disclosure required in paragraphs (c)(1)(i)(C) and (D) of 
this section shall include, at a minimum, descriptions of all inputs and 
assumptions that either could have a material impact on the fair value 
calculation or would be material to a prospective investor's ability to 
evaluate the sponsor's fair value calculations. To the extent the 
disclosure required in this paragraph (c)(1) includes a description of a 
curve or curves, the description shall include a description of the 
methodology that was used to derive each curve and a description of any 
aspects or features of each curve that could materially impact the fair 
value calculation or the ability of a prospective investor to evaluate 
the sponsor's fair value calculation. To the extent a sponsor uses 
information about the securitized assets in its calculation of fair 
value, such information shall not be as of a date more than 60 days 
prior to the date of first use with investors; provided that for a 
subsequent issuance of ABS interests by the same issuing entity with the 
same sponsor for which the securitization transaction distributes 
amounts to investors on a quarterly or less frequent basis, such 
information shall not be as of a date more than 135 days prior to the 
date of first use with investors; provided further, that the balance or 
value (in accordance with the transaction documents) of the securitized 
assets may be increased or decreased to reflect anticipated additions or 
removals of assets the sponsor makes or expects to make between the cut-
off date or similar date for establishing the composition of the asset 
pool collateralizing such asset-backed security and the closing date of 
the securitization.
    (G) A summary description of the reference data set or other 
historical information used to develop the key inputs and assumptions 
referenced in paragraph (c)(1)(i)(D) of this section, including loss 
given default and default rates;
    (ii) A reasonable time after the closing of the securitization 
transaction:
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest the sponsor retained at the closing of the securitization 
transaction, based on actual sale prices and finalized tranche sizes;
    (B) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest that the sponsor is required to retain under this section; and
    (C) To the extent the valuation methodology or any of the key inputs 
and assumptions that were used in calculating the fair value or range of 
fair values disclosed prior to sale and required under paragraph 
(c)(1)(i) of this section materially differs from the methodology or key 
inputs and assumptions used to calculate the fair value at the time of 
closing, descriptions of those material differences.
    (iii) If the sponsor retains risk through the funding of an eligible 
horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in 
the eligible horizontal cash reserve account at closing, and the fair 
value (expressed as a percentage of the fair value of all of the ABS 
interests issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor is required to fund through the eligible horizontal 
cash reserve account in order for such account, together with other 
retained interests, to satisfy the sponsor's risk retention requirement;
    (B) A description of the material terms of the eligible horizontal 
cash reserve account; and
    (C) The disclosures required in paragraphs (c)(1)(i) and (ii) of 
this section.

[[Page 559]]

    (2) Vertical interest. With respect to any eligible vertical 
interest retained under paragraph (a) of this section, the sponsor must 
disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The form of the eligible vertical interest;
    (B) The percentage that the sponsor is required to retain as a 
vertical interest under this section; and
    (C) A description of the material terms of the vertical interest and 
the amount that the sponsor expects to retain at the closing of the 
securitization transaction.
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of the vertical interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (c)(2)(i) of this section.
    (d) Record maintenance. A sponsor must retain the certifications and 
disclosures required in paragraphs (a) and (c) of this section in its 
records and must provide the disclosure upon request to the Commission 
and its appropriate Federal banking agency, if any, until three years 
after all ABS interests are no longer outstanding.



Sec.  267.5  Revolving pool securitizations.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Revolving pool securitization means an issuing entity that is 
established to issue on multiple issuance dates more than one series, 
class, subclass, or tranche of asset-backed securities that are 
collateralized by a common pool of securitized assets that will change 
in composition over time, and that does not monetize excess interest and 
fees from its securitized assets.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by the securitized assets and servicing assets 
owned or held by the issuing entity, other than the following that are 
not considered a component of seller's interest:
    (i) Servicing assets that have been allocated as collateral only for 
a specific series in connection with administering the revolving pool 
securitization, such as a principal accumulation or interest reserve 
account; and
    (ii) Assets that are not eligible under the terms of the 
securitization transaction to be included when determining whether the 
revolving pool securitization holds aggregate securitized assets in 
specified proportions to aggregate outstanding investor ABS interests 
issued; and
    (2) That is pari passu with each series of investor ABS interests 
issued, or partially or fully subordinated to one or more series in 
identical or varying amounts, with respect to the allocation of all 
distributions and losses with respect to the securitized assets prior to 
early amortization of the revolving securitization (as specified in the 
securitization transaction documents); and
    (3) That adjusts for fluctuations in the outstanding principal 
balance of the securitized assets in the pool.
    (b) General requirement. A sponsor satisfies the risk retention 
requirements of Sec.  267.3 with respect to a securitization transaction 
for which the issuing entity is a revolving pool securitization if the 
sponsor maintains a seller's interest of not less than 5 percent of the 
aggregate unpaid principal balance of all outstanding investor ABS 
interests in the issuing entity.
    (c) Measuring the seller's interest. In measuring the seller's 
interest for purposes of meeting the requirements of paragraph (b) of 
this section:
    (1) The unpaid principal balance of the securitized assets for the 
numerator of the 5 percent ratio shall not include assets of the types 
excluded from the definition of seller's interest in paragraph (a) of 
this section;
    (2) The aggregate unpaid principal balance of outstanding investor 
ABS interests in the denominator of the 5 percent ratio may be reduced 
by the amount of funds held in a segregated principal accumulation 
account for the repayment of outstanding investor ABS interests, if:
    (i) The terms of the securitization transaction documents prevent 
funds in the principal accumulation account from being applied for any 
purpose

[[Page 560]]

other than the repayment of the unpaid principal of outstanding investor 
ABS interests; and
    (ii) Funds in that account are invested only in the types of assets 
in which funds held in an eligible horizontal cash reserve account 
pursuant to Sec.  267.4 are permitted to be invested;
    (3) If the terms of the securitization transaction documents set 
minimum required seller's interest as a proportion of the unpaid 
principal balance of outstanding investor ABS interests for one or more 
series issued, rather than as a proportion of the aggregate outstanding 
investor ABS interests in all outstanding series combined, the 
percentage of the seller's interest for each such series must, when 
combined with the percentage of any minimum seller's interest set by 
reference to the aggregate outstanding investor ABS interests, equal at 
least 5 percent;
    (4) The 5 percent test must be determined and satisfied at the 
closing of each issuance of ABS interests to investors by the issuing 
entity, and
    (i) At least monthly at a seller's interest measurement date 
specified under the securitization transaction documents, until no ABS 
interest in the issuing entity is held by any person not a wholly-owned 
affiliate of the sponsor; or
    (ii) If the revolving pool securitization fails to meet the 5 
percent test as of any date described in paragraph (c)(4)(i) of this 
section, and the securitization transaction documents specify a cure 
period, the 5 percent test must be determined and satisfied within the 
earlier of the cure period, or one month after the date described in 
paragraph (c)(4)(i).
    (d) Measuring outstanding investor ABS interests. In measuring the 
amount of outstanding investor ABS interests for purposes of this 
section, ABS interests held for the life of such ABS interests by the 
sponsor or its wholly-owned affiliates may be excluded.
    (e) Holding and retention of the seller's interest; legacy trusts. 
(1) Notwithstanding Sec.  267.12(a), the seller's interest, and any 
offsetting horizontal retention interest retained pursuant to paragraph 
(g) of this section, must be retained by the sponsor or by one or more 
wholly-owned affiliates of the sponsor, including one or more depositors 
of the revolving pool securitization.
    (2) If one revolving pool securitization issues collateral 
certificates representing a beneficial interest in all or a portion of 
the securitized assets held by that securitization to another revolving 
pool securitization, which in turn issues ABS interests for which the 
collateral certificates are all or a portion of the securitized assets, 
a sponsor may satisfy the requirements of paragraphs (b) and (c) of this 
section by retaining the seller's interest for the assets represented by 
the collateral certificates through either of the revolving pool 
securitizations, so long as both revolving pool securitizations are 
retained at the direction of the same sponsor or its wholly-owned 
affiliates.
    (3) If the sponsor retains the seller's interest associated with the 
collateral certificates at the level of the revolving pool 
securitization that issues those collateral certificates, the proportion 
of the seller's interest required by paragraph (b) of this section 
retained at that level must equal the proportion that the principal 
balance of the securitized assets represented by the collateral 
certificates bears to the principal balance of the securitized assets in 
the revolving pool securitization that issues the ABS interests, as of 
each measurement date required by paragraph (c) of this section.
    (f) Offset for pool-level excess funding account. The 5 percent 
seller's interest required on each measurement date by paragraph (c) of 
this section may be reduced on a dollar-for-dollar basis by the balance, 
as of such date, of an excess funding account in the form of a 
segregated account that:
    (1) Is funded in the event of a failure to meet the minimum seller's 
interest requirements or other requirement to maintain a minimum balance 
of securitized assets under the securitization transaction documents by 
distributions otherwise payable to the holder of the seller's interest;
    (2) Is invested only in the types of assets in which funds held in a 
horizontal cash reserve account pursuant to Sec.  267.4 are permitted to 
be invested; and

[[Page 561]]

    (3) In the event of an early amortization, makes payments of amounts 
held in the account to holders of investor ABS interests in the same 
manner as payments to holders of investor ABS interests of amounts 
received on securitized assets.
    (g) Combined seller's interests and horizontal interest retention. 
The 5 percent seller's interest required on each measurement date by 
paragraph (c) of this section may be reduced to a percentage lower than 
5 percent to the extent that, for all series of investor ABS interests 
issued after the applicable effective date of this Sec.  267.5, the 
sponsor, or notwithstanding Sec.  267.12(a) a wholly-owned affiliate of 
the sponsor, retains, at a minimum, a corresponding percentage of the 
fair value of ABS interests issued in each series, in the form of one or 
more of the horizontal residual interests meeting the requirements of 
paragraphs (h) or (i).
    (h) Residual ABS interests in excess interest and fees. The sponsor 
may take the offset described in paragraph (g) of this section for a 
residual ABS interest in excess interest and fees, whether certificated 
or uncertificated, in a single or multiple classes, subclasses, or 
tranches, that meets, individually or in the aggregate, the requirements 
of this paragraph (h);
    (1) Each series of the revolving pool securitization distinguishes 
between the series' share of the interest and fee cash flows and the 
series' share of the principal repayment cash flows from the securitized 
assets collateralizing the revolving pool securitization, which may 
according to the terms of the securitization transaction documents, 
include not only the series' ratable share of such cash flows but also 
excess cash flows available from other series;
    (2) The residual ABS interest's claim to any part of the series' 
share of the interest and fee cash flows for any interest payment period 
is subordinated to all accrued and payable interest due on the payment 
date to more senior ABS interests in the series for that period, and 
further reduced by the series' share of losses, including defaults on 
principal of the securitized assets collateralizing the revolving pool 
securitization (whether incurred in that period or carried over from 
prior periods) to the extent that such payments would have been included 
in amounts payable to more senior interests in the series;
    (3) The revolving pool securitization continues to revolve, with one 
or more series, classes, subclasses, or tranches of asset-backed 
securities that are collateralized by a common pool of assets that 
change in composition over time; and
    (4) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the residual ABS 
interest in excess interest and fees, and the fair value of the series 
of outstanding investor ABS interests to which it is subordinated and 
supports using the fair value measurement framework under GAAP, as of:
    (i) The closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) The seller's interest measurement dates described in paragraph 
(c)(4) of this section, except that for these periodic determinations 
the sponsor must update the fair value of the residual ABS interest in 
excess interest and fees for the numerator of the percentage ratio, but 
may at the sponsor's option continue to use the fair values determined 
in (h)(4)(i) for the outstanding investor ABS interests in the 
denominator.
    (i) Offsetting eligible horizontal residual interest. The sponsor 
may take the offset described in paragraph (g) of this section for ABS 
interests that would meet the definition of eligible horizontal residual 
interests in Sec.  267.2 but for the sponsor's simultaneous holding of 
subordinated seller's interests, residual ABS interests in excess 
interests and fees, or a combination of the two, if:
    (1) The sponsor complies with all requirements of paragraphs (b) 
through (e) of this section for its holdings of subordinated seller's 
interest, and paragraph (h) for its holdings of residual ABS interests 
in excess interests and fees, as applicable;
    (2) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the eligible 
horizontal residual

[[Page 562]]

interest as a percentage of the fair value of the outstanding investor 
ABS interests in the series supported by the eligible horizontal 
residual interest, determined using the fair value measurement framework 
under GAAP:
    (i) As of the closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) Without including in the numerator of the percentage ratio any 
fair value based on:
    (A) The subordinated seller's interest or residual ABS interest in 
excess interest and fees;
    (B) the interest payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of residual ABS 
interest in excess interest and fees pursuant to paragraph (h) of this 
section in taking the offset in paragraph (g) of this section; and,
    (C) the principal payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of the seller's 
interest pursuant to paragraphs (b) through (f) of this section and 
distributions on that seller's interest are available to reduce charge-
offs that would otherwise be allocated to reduce principal payable to 
the offset eligible horizontal residual interest.
    (j) Specified dates. A sponsor using data about the revolving pool 
securitization's collateral, or ABS interests previously issued, to 
determine the closing-date percentage of a seller's interest, residual 
ABS interest in excess interest and fees, or eligible horizontal 
residual interest pursuant to this Sec.  267.5 may use such data 
prepared as of specified dates if:
    (1) The sponsor describes the specified dates in the disclosures 
required by paragraph (k) of this section; and
    (2) The dates are no more than 60 days prior to the date of first 
use with investors of disclosures required for the interest by paragraph 
(k) of this section, or for revolving pool securitizations that make 
distributions to investors on a quarterly or less frequent basis, no 
more than 135 days prior to the date of first use with investors of such 
disclosures.
    (k) Disclosure and record maintenance. (1) Disclosure. A sponsor 
relying on this section shall provide, or cause to be provided, to 
potential investors, under the caption ``Credit Risk Retention'' the 
following disclosure in written form and within the time frames set 
forth in this paragraph (k):
    (i) A reasonable period of time prior to the sale of an asset-backed 
security, a description of the material terms of the seller's interest, 
and the percentage of the seller's interest that the sponsor expects to 
retain at the closing of the securitization transaction, measured in 
accordance with the requirements of this Sec.  267.5, as a percentage of 
the aggregate unpaid principal balance of all outstanding investor ABS 
interests issued, or as a percentage of the aggregate unpaid principal 
balance of outstanding investor ABS interests for one or more series 
issued, as required by the terms of the securitization transaction;
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of seller's interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (k)(1)(i) of this section; and
    (iii) A description of the material terms of any horizontal residual 
interests offsetting the seller's interest in accordance with paragraphs 
(g), (h), and (i) of this section; and
    (iv) Disclosure of the fair value of those horizontal residual 
interests retained by the sponsor for the series being offered to 
investors and described in the disclosures, as a percentage of the fair 
value of the outstanding investor ABS interests issued, described in the 
same manner and within the same timeframes required for disclosure of 
the fair values of eligible horizontal residual interests specified in 
Sec.  267.4(c).
    (2) Adjusted data. Disclosures required by this paragraph (k) to be 
made a reasonable period of time prior to the sale of an asset-backed 
security of the amount of seller's interest, residual ABS interest in 
excess interest and fees, or eligible horizontal residual interest may 
include adjustments to the amount of securitized assets for additions or 
removals the sponsor expects to make before the closing date and 
adjustments to the amount of outstanding investor ABS interests for 
expected increases and decreases of those

[[Page 563]]

interests under the control of the sponsor.
    (3) Record maintenance. A sponsor must retain the disclosures 
required in paragraph (k)(1) of this section in its records and must 
provide the disclosure upon request to the Commission and its 
appropriate Federal banking agency, if any, until three years after all 
ABS interests are no longer outstanding.
    (l) Early amortization of all outstanding series. A sponsor that 
organizes a revolving pool securitization that relies on this Sec.  
267.5 to satisfy the risk retention requirements of Sec.  267.3, does 
not violate the requirements of this part if its seller's interest falls 
below the level required by Sec.  267. 5 after the revolving pool 
securitization commences early amortization, pursuant to the terms of 
the securitization transaction documents, of all series of outstanding 
investor ABS interests, if:
    (1) The sponsor was in full compliance with the requirements of this 
section on all measurement dates specified in paragraph (c) of this 
section prior to the commencement of early amortization;
    (2) The terms of the seller's interest continue to make it pari 
passu with or subordinate in identical or varying amounts to each series 
of outstanding investor ABS interests issued with respect to the 
allocation of all distributions and losses with respect to the 
securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor 
pursuant to paragraph (g) to offset the minimum seller's interest amount 
continue to require the interests to absorb losses in accordance with 
the terms of paragraph (h) or (i) of this section, as applicable; and
    (4) The revolving pool securitization issues no additional ABS 
interests after early amortization is initiated to any person not a 
wholly-owned affiliate of the sponsor, either at the time of issuance or 
during the amortization period.



Sec.  267.6  Eligible ABCP conduits.

    (a) Definitions. For purposes of this section, the following 
additional definitions apply:
    100 percent liquidity coverage means an amount equal to the 
outstanding balance of all ABCP issued by the conduit plus any accrued 
and unpaid interest without regard to the performance of the ABS 
interests held by the ABCP conduit and without regard to any credit 
enhancement.
    ABCP means asset-backed commercial paper that has a maturity at the 
time of issuance not exceeding 397 days, exclusive of days of grace, or 
any renewal thereof the maturity of which is likewise limited.
    ABCP conduit means an issuing entity with respect to ABCP.
    Eligible ABCP conduit means an ABCP conduit, provided that:
    (1) The ABCP conduit is bankruptcy remote or otherwise isolated for 
insolvency purposes from the sponsor of the ABCP conduit and from any 
intermediate SPV;
    (2) The ABS interests acquired by the ABCP conduit are:
    (i) ABS interests collateralized solely by assets originated by an 
originator-seller and by servicing assets;
    (ii) Special units of beneficial interest (or similar ABS interests) 
in a trust or special purpose vehicle that retains legal title to leased 
property underlying leases originated by an originator-seller that were 
transferred to an intermediate SPV in connection with a securitization 
collateralized solely by such leases and by servicing assets;
    (iii) ABS interests in a revolving pool securitization 
collateralized solely by assets originated by an originator-seller and 
by servicing assets; or
    (iv) ABS interests described in paragraph (2)(i), (ii), or (iii) of 
this definition that are collateralized, in whole or in part, by assets 
acquired by an originator-seller in a business combination that 
qualifies for business combination accounting under GAAP, and, if 
collateralized in part, the remainder of such assets are assets 
described in paragraph (2)(i), (ii), or (iii) of this definition; and
    (v) Acquired by the ABCP conduit in an initial issuance by or on 
behalf of an intermediate SPV:
    (A) Directly from the intermediate SPV,

[[Page 564]]

    (B) From an underwriter of the ABS interests issued by the 
intermediate SPV, or
    (C) From another person who acquired the ABS interests directly from 
the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by ABS interests 
acquired from intermediate SPVs as described in paragraph (2) of this 
definition and servicing assets; and
    (4) A regulated liquidity provider has entered into a legally 
binding commitment to provide 100 percent liquidity coverage (in the 
form of a lending facility, an asset purchase agreement, a repurchase 
agreement, or other similar arrangement) to all the ABCP issued by the 
ABCP conduit by lending to, purchasing ABCP issued by, or purchasing 
assets from, the ABCP conduit in the event that funds are required to 
repay maturing ABCP issued by the ABCP conduit. With respect to the 100 
percent liquidity coverage, in the event that the ABCP conduit is unable 
for any reason to repay maturing ABCP issued by the issuing entity, the 
liquidity provider shall be obligated to pay an amount equal to any 
shortfall, and the total amount that may be due pursuant to the 100 
percent liquidity coverage shall be equal to 100 percent of the amount 
of the ABCP outstanding at any time plus accrued and unpaid interest 
(amounts due pursuant to the required liquidity coverage may not be 
subject to credit performance of the ABS interests held by the ABCP 
conduit or reduced by the amount of credit support provided to the ABCP 
conduit and liquidity support that only funds performing loans or 
receivables or performing ABS interests does not meet the requirements 
of this section).
    Intermediate SPV means a special purpose vehicle that:
    (1) (i) Is a direct or indirect wholly-owned affiliate of the 
originator-seller; or
    (ii) Has nominal equity owned by a trust or corporate service 
provider that specializes in providing independent ownership of special 
purpose vehicles, and such trust or corporate service provider is not 
affiliated with any other transaction parties;
    (2) Is bankruptcy remote or otherwise isolated for insolvency 
purposes from the eligible ABCP conduit and from each originator-seller 
and each majority-owned affiliate in each case that, directly or 
indirectly, sells or transfers assets to such intermediate SPV;
    (3) Acquires assets from the originator-seller that are originated 
by the originator-seller or acquired by the originator-seller in the 
acquisition of a business that qualifies for business combination 
accounting under GAAP or acquires ABS interests issued by another 
intermediate SPV of the originator-seller that are collateralized solely 
by such assets; and
    (4) Issues ABS interests collateralized solely by such assets, as 
applicable.
    Originator-seller means an entity that originates assets and sells 
or transfers those assets, directly or through a majority-owned 
affiliate, to an intermediate SPV, and includes (except for the purposes 
of identifying the sponsorship and affiliation of an intermediate SPV 
pursuant to this Sec.  267.6) any affiliate of the originator-seller 
that, directly or indirectly, majority controls, is majority controlled 
by or is under common majority control with, the originator-seller. For 
purposes of this definition, majority control means ownership of more 
than 50 percent of the equity of an entity, or ownership of any other 
controlling financial interest in the entity, as determined under GAAP.
    Regulated liquidity provider means:
    (1) A depository institution (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813));
    (2) A bank holding company (as defined in 12 U.S.C. 1841), or a 
subsidiary thereof;
    (3) A savings and loan holding company (as defined in 12 U.S.C. 
1467a), provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), or a subsidiary thereof; or
    (4) A foreign bank whose home country supervisor (as defined in 
Sec.  211.21 of the Federal Reserve Board's Regulation K (12 CFR 
211.21)) has adopted capital standards consistent with the Capital 
Accord of the Basel Committee on Banking Supervision, as amended, and

[[Page 565]]

that is subject to such standards, or a subsidiary thereof.
    (b) In general. An ABCP conduit sponsor satisfies the risk retention 
requirement of Sec.  267.3 with respect to the issuance of ABCP by an 
eligible ABCP conduit in a securitization transaction if, for each ABS 
interest the ABCP conduit acquires from an intermediate SPV:
    (1) An originator-seller of the intermediate SPV retains an economic 
interest in the credit risk of the assets collateralizing the ABS 
interest acquired by the eligible ABCP conduit in the amount and manner 
required under Sec.  267.4 or Sec.  267.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller permitted to sell or transfer 
assets, directly or indirectly, to an intermediate SPV from which an 
eligible ABCP conduit acquires ABS interests;
    (ii) Approves each intermediate SPV from which an eligible ABCP 
conduit is permitted to acquire ABS interests;
    (iii) Establishes criteria governing the ABS interests, and the 
securitized assets underlying the ABS interests, acquired by the ABCP 
conduit;
    (iv) Administers the ABCP conduit by monitoring the ABS interests 
acquired by the ABCP conduit and the assets supporting those ABS 
interests, arranging for debt placement, compiling monthly reports, and 
ensuring compliance with the ABCP conduit documents and with the ABCP 
conduit's credit and investment policy; and
    (v) Maintains and adheres to policies and procedures for ensuring 
that the requirements in this paragraph (b) of this section have been 
met.
    (c) Originator-seller compliance with risk retention. The use of the 
risk retention option provided in this section by an ABCP conduit 
sponsor does not relieve the originator-seller that sponsors ABS 
interests acquired by an eligible ABCP conduit from such originator-
seller's obligation to comply with its own risk retention obligations 
under this part.
    (d) Disclosures--(1) Periodic disclosures to investors. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, to each purchaser of ABCP, before or contemporaneously with 
the first sale of ABCP to such purchaser and at least monthly 
thereafter, to each holder of commercial paper issued by the ABCP 
conduit, in writing, each of the following items of information, which 
shall be as of a date not more than 60 days prior to date of first use 
with investors:
    (i) The name and form of organization of the regulated liquidity 
provider that provides liquidity coverage to the eligible ABCP conduit, 
including a description of the material terms of such liquidity 
coverage, and notice of any failure to fund.
    (ii) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying 
securitized assets;
    (B) The standard industrial category code (SIC Code) for the 
originator-seller that will retain (or has retained) pursuant to this 
section an interest in the securitization transaction; and
    (C) A description of the percentage amount of risk retention 
pursuant to the rule by the originator-seller, and whether it is in the 
form of an eligible horizontal residual interest, vertical interest, or 
revolving pool securitization seller's interest, as applicable.
    (2) Disclosures to regulators regarding originator-sellers. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, upon request, to the Commission and its appropriate Federal 
banking agency, if any, in writing, all of the information required to 
be provided to investors in paragraph (d)(1) of this section, and the 
name and form of organization of each originator-seller that will retain 
(or has retained) pursuant to this section an interest in the 
securitization transaction.
    (e) Sale or transfer of ABS interests between eligible ABCP 
conduits. At any time, an eligible ABCP conduit that acquired an ABS 
interest in accordance with the requirements set forth in this section 
may transfer, and another eligible ABCP conduit may acquire, such ABS 
interest, if the following conditions are satisfied:
    (1) The sponsors of both eligible ABCP conduits are in compliance 
with this section; and

[[Page 566]]

    (2) The same regulated liquidity provider has entered into one or 
more legally binding commitments to provide 100 percent liquidity 
coverage to all the ABCP issued by both eligible ABCP conduits.
    (f) Duty to comply. (1) The ABCP conduit sponsor shall be 
responsible for compliance with this section.
    (2) An ABCP conduit sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor compliance by each originator-seller 
which is satisfying a risk retention obligation in respect of ABS 
interests acquired by an eligible ABCP conduit with the requirements of 
paragraph (b)(1) of this section; and
    (ii) In the event that the ABCP conduit sponsor determines that an 
originator-seller no longer complies with the requirements of paragraph 
(b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, and upon request, the 
Commission and its appropriate Federal banking agency, if any, in 
writing of:
    (1) The name and form of organization of any originator-seller that 
fails to retain risk in accordance with paragraph (b)(1) of this section 
and the amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit;
    (2) The name and form of organization of any originator-seller that 
hedges, directly or indirectly through an intermediate SPV, its risk 
retention in violation of paragraph (b)(1) of this section and the 
amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other 
party with respect to such ABS interests; and
    (B) Take other appropriate steps pursuant to the requirements of 
paragraphs (b)(2)(iv) and (v) of this section which may include, as 
appropriate, curing any breach of the requirements in this section, or 
removing from the eligible ABCP conduit any ABS interest that does not 
comply with the requirements in this section.



Sec.  267.7  Commercial mortgage-backed securities.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    Special servicer means, with respect to any securitization of 
commercial real estate loans, any servicer that, upon the occurrence of 
one or more specified conditions in the servicing agreement, has the 
right to service one or more assets in the transaction.
    (b) Third-party purchaser. A sponsor may satisfy some or all of its 
risk retention requirements under Sec.  267.3 with respect to a 
securitization transaction if a third party (or any majority-owned 
affiliate thereof) purchases and holds for its own account an eligible 
horizontal residual interest in the issuing entity in the same form, 
amount, and manner as would be held by the sponsor under Sec.  267.4 and 
all of the following conditions are met:
    (1) Number of third-party purchasers. At any time, there are no more 
than two third-party purchasers of an eligible horizontal residual 
interest. If there are two third-party purchasers, each third-party 
purchaser's interest must be pari passu with the other third-party 
purchaser's interest.
    (2) Composition of collateral. The securitization transaction is 
collateralized solely by commercial real estate loans and servicing 
assets.
    (3) Source of funds. (i) Each third-party purchaser pays for the 
eligible horizontal residual interest in cash at the closing of the 
securitization transaction.
    (ii) No third-party purchaser obtains financing, directly or 
indirectly, for the purchase of such interest from any other person that 
is a party to, or an affiliate of a party to, the securitization 
transaction (including, but not limited to, the sponsor, depositor, or 
servicer other than a special servicer affiliated with the third-party 
purchaser), other than a person that is a party to the transaction 
solely by reason of being an investor.
    (4) Third-party review. Each third-party purchaser conducts an 
independent review of the credit risk of each securitized asset prior to 
the sale of the asset-backed securities in the

[[Page 567]]

securitization transaction that includes, at a minimum, a review of the 
underwriting standards, collateral, and expected cash flows of each 
commercial real estate loan that is collateral for the asset-backed 
securities.
    (5) Affiliation and control rights. (i) Except as provided in 
paragraph (b)(5)(ii) of this section, no third-party purchaser is 
affiliated with any party to the securitization transaction (including, 
but not limited to, the sponsor, depositor, or servicer) other than 
investors in the securitization transaction.
    (ii) Notwithstanding paragraph (b)(5)(i) of this section, a third-
party purchaser may be affiliated with:
    (A) The special servicer for the securitization transaction; or
    (B) One or more originators of the securitized assets, as long as 
the assets originated by the affiliated originator or originators 
collectively comprise less than 10 percent of the unpaid principal 
balance of the securitized assets included in the securitization 
transaction at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (6) Operating Advisor. The underlying securitization transaction 
documents shall provide for the following:
    (i) The appointment of an operating advisor (the Operating Advisor) 
that:
    (A) Is not affiliated with other parties to the securitization 
transaction;
    (B) Does not directly or indirectly have any financial interest in 
the securitization transaction other than in fees from its role as 
Operating Advisor; and
    (C) Is required to act in the best interest of, and for the benefit 
of, investors as a collective whole;
    (ii) Standards with respect to the Operating Advisor's experience, 
expertise and financial strength to fulfill its duties and 
responsibilities under the applicable transaction documents over the 
life of the securitization transaction;
    (iii) The terms of the Operating Advisor's compensation with respect 
to the securitization transaction;
    (iv) When the eligible horizontal residual interest has been reduced 
by principal payments, realized losses, and appraisal reduction amounts 
(which reduction amounts are determined in accordance with the 
applicable transaction documents) to a principal balance of 25 percent 
or less of its initial principal balance, the special servicer for the 
securitized assets must consult with the Operating Advisor in connection 
with, and prior to, any material decision in connection with its 
servicing of the securitized assets, including, without limitation:
    (A) Any material modification of, or waiver with respect to, any 
provision of a loan agreement (including a mortgage, deed of trust, or 
other security agreement);
    (B) Foreclosure upon or comparable conversion of the ownership of a 
property; or
    (C) Any acquisition of a property.
    (v) The Operating Advisor shall have adequate and timely access to 
information and reports necessary to fulfill its duties under the 
transaction documents, including all reports made available to holders 
of ABS interests and third-party purchasers, and shall be responsible 
for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports provided by the special servicer to the 
issuing entity or any holder of ABS interests;
    (C) Reviewing for accuracy and consistency with the transaction 
documents calculations made by the special servicer; and
    (D) Issuing a report to investors (including any third-party 
purchasers) and the issuing entity on a periodic basis concerning:
    (1) Whether the Operating Advisor believes, in its sole discretion 
exercised in good faith, that the special servicer is operating in 
compliance with any standard required of the special servicer in the 
applicable transaction documents; and
    (2) Which, if any, standards the Operating Advisor believes, in its 
sole discretion exercised in good faith, the special servicer has failed 
to comply.
    (vi)(A) The Operating Advisor shall have the authority to recommend 
that the special servicer be replaced by a successor special servicer if 
the Operating Advisor determines, in its sole discretion exercised in 
good faith, that:

[[Page 568]]

    (1) The special servicer has failed to comply with a standard 
required of the special servicer in the applicable transaction 
documents; and
    (2) Such replacement would be in the best interest of the investors 
as a collective whole; and
    (B) If a recommendation described in paragraph (b)(6)(vi)(A) of this 
section is made, the special servicer shall be replaced upon the 
affirmative vote of a majority of the outstanding principal balance of 
all ABS interests voting on the matter, with a minimum of a quorum of 
ABS interests voting on the matter. For purposes of such vote, the 
applicable transaction documents shall specify the quorum and may not 
specify a quorum of more than the holders of 20 percent of the 
outstanding principal balance of all ABS interests in the issuing 
entity, with such quorum including at least three ABS interest holders 
that are not affiliated with each other.
    (7) Disclosures. The sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (i) The name and form of organization of each initial third-party 
purchaser that acquired an eligible horizontal residual interest at the 
closing of a securitization transaction;
    (ii) A description of each initial third-party purchaser's 
experience in investing in commercial mortgage-backed securities;
    (iii) Any other information regarding each initial third-party 
purchaser or each initial third-party purchaser's retention of the 
eligible horizontal residual interest that is material to investors in 
light of the circumstances of the particular securitization transaction;
    (iv) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that will be retained (or was retained) by each 
initial third-party purchaser, as well as the amount of the purchase 
price paid by each initial third-party purchaser for such interest;
    (v) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest in the securitization transaction that the sponsor 
would have retained pursuant to Sec.  267.4 if the sponsor had relied on 
retaining an eligible horizontal residual interest in that section to 
meet the requirements of Sec.  267.3 with respect to the transaction;
    (vi) A description of the material terms of the eligible horizontal 
residual interest retained by each initial third-party purchaser, 
including the same information as is required to be disclosed by 
sponsors retaining horizontal interests pursuant to Sec.  267.4;
    (vii) The material terms of the applicable transaction documents 
with respect to the Operating Advisor, including without limitation:
    (A) The name and form of organization of the Operating Advisor;
    (B) A description of any material conflict of interest or material 
potential conflict of interest between the Operating Advisor and any 
other party to the transaction;
    (C) The standards required by paragraph (b)(6)(ii) of this section 
and a description of how the Operating Advisor satisfies each of the 
standards; and
    (D) The terms of the Operating Advisor's compensation under 
paragraph (b)(6)(iii) of this section; and
    (viii) The representations and warranties concerning the securitized 
assets, a schedule of any securitized assets that are determined not to 
comply with such representations and warranties, and what factors were 
used to make the determination that such securitized assets should be 
included in the pool notwithstanding that the securitized assets did not 
comply with such representations and warranties,

[[Page 569]]

such as compensating factors or a determination that the exceptions were 
not material.
    (8) Hedging, transfer and pledging--(i) General rule. Except as set 
forth in paragraph (b)(8)(ii) of this section, each third-party 
purchaser and its affiliates must comply with the hedging and other 
restrictions in Sec.  267.12 as if it were the retaining sponsor with 
respect to the securitization transaction and had acquired the eligible 
horizontal residual interest pursuant to Sec.  267.4; provided that, the 
hedging and other restrictions in Sec.  267.12 shall not apply on or 
after the date that each CRE loan (as defined in Sec.  267.14) that 
serves as collateral for outstanding ABS interests has been defeased. 
For purposes of this section, a loan is deemed to be defeased if:
    (A) cash or cash equivalents of the types permitted for an eligible 
horizontal cash reserve account pursuant to Sec.  267.4 whose maturity 
corresponds to the remaining debt service obligations, have been pledged 
to the issuing entity as collateral for the loan and are in such amounts 
and payable at such times as necessary to timely generate cash 
sufficient to make all remaining debt service payments due on such loan; 
and
    (B) the issuing entity has an obligation to release its lien on the 
loan.
    (ii) Exceptions--(A) Transfer by initial third-party purchaser or 
sponsor. An initial third-party purchaser that acquired an eligible 
horizontal residual interest at the closing of a securitization 
transaction in accordance with this section, or a sponsor that acquired 
an eligible horizontal residual interest at the closing of a 
securitization transaction in accordance with this section, may, on or 
after the date that is five years after the date of the closing of the 
securitization transaction, transfer that interest to a subsequent 
third-party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The initial third-party purchaser shall provide the sponsor 
with complete identifying information for the subsequent third-party 
purchaser.
    (B) Transfer by subsequent third-party purchaser. At any time, a 
subsequent third-party purchaser that acquired an eligible horizontal 
residual interest pursuant to this section may transfer its interest to 
a different third-party purchaser that complies with paragraph 
(b)(8)(ii)(C) of this section. The transferring third-party purchaser 
shall provide the sponsor with complete identifying information for the 
acquiring third-party purchaser.
    (C) Requirements applicable to subsequent third-party purchasers. A 
subsequent third-party purchaser is subject to all of the requirements 
of paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section 
applicable to third-party purchasers, provided that obligations under 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section that 
apply to initial third-party purchasers at or before the time of closing 
of the securitization transaction shall apply to successor third-party 
purchasers at or before the time of the transfer of the eligible 
horizontal residual interest to the successor third-party purchaser.
    (c) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section by itself and for compliance by each 
initial or subsequent third-party purchaser that acquired an eligible 
horizontal residual interest in the securitization transaction.
    (2) A sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures to monitor 
each third-party purchaser's compliance with the requirements of 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section; and
    (ii) In the event that the sponsor determines that a third-party 
purchaser no longer complies with one or more of the requirements of 
paragraphs (b)(1), (b)(3) through (5), or (b)(8) of this section, shall 
promptly notify, or cause to be notified, the holders of the ABS 
interests issued in the securitization transaction of such noncompliance 
by such third-party purchaser.



Sec.  267.8  Federal National Mortgage Association and Federal Home 
Loan Mortgage Corporation ABS.

    (a) In general. A sponsor satisfies its risk retention requirement 
under this part if the sponsor fully guarantees the

[[Page 570]]

timely payment of principal and interest on all ABS interests issued by 
the issuing entity in the securitization transaction and is:
    (1) The Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation operating under the conservatorship or 
receivership of the Federal Housing Finance Agency pursuant to section 
1367 of the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992 (12 U.S.C. 4617) with capital support from the United 
States; or
    (2) Any limited-life regulated entity succeeding to the charter of 
either the Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation pursuant to section 1367(i) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4617(i)), provided that the entity is operating with capital 
support from the United States.
    (b) Certain provisions not applicable. The provisions of Sec.  
267.12(b), (c), and (d) shall not apply to a sponsor described in 
paragraph (a)(1) or (2) of this section, its affiliates, or the issuing 
entity with respect to a securitization transaction for which the 
sponsor has retained credit risk in accordance with the requirements of 
this section.
    (c) Disclosure. A sponsor relying on this section shall provide to 
investors, in written form under the caption ``Credit Risk Retention'' 
and, upon request, to the Federal Housing Finance Agency and the 
Commission, a description of the manner in which it has met the credit 
risk retention requirements of this part.



Sec.  267.9  Open market CLOs.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    CLO means a special purpose entity that:
    (i) Issues debt and equity interests, and
    (ii) Whose assets consist primarily of loans that are securitized 
assets and servicing assets.
    CLO-eligible loan tranche means a term loan of a syndicated facility 
that meets the criteria set forth in paragraph (c) of this section.
    CLO manager means an entity that manages a CLO, which entity is 
registered as an investment adviser under the Investment Advisers Act of 
1940, as amended (15 U.S.C. 80b-1 et seq.), or is an affiliate of such a 
registered investment adviser and itself is managed by such registered 
investment adviser.
    Commercial borrower means an obligor under a corporate credit 
obligation (including a loan).
    Initial loan syndication transaction means a transaction in which a 
loan is syndicated to a group of lenders.
    Lead arranger means, with respect to a CLO-eligible loan tranche, an 
institution that:
    (i) Is active in the origination, structuring and syndication of 
commercial loan transactions (as defined in Sec.  267.14) and has played 
a primary role in the structuring, underwriting and distribution on the 
primary market of the CLO-eligible loan tranche.
    (ii) Has taken an allocation of the funded portion of the syndicated 
credit facility under the terms of the transaction that includes the 
CLO-eligible loan tranche of at least 20 percent of the aggregate 
principal balance at origination, and no other member (or members 
affiliated with each other) of the syndication group that funded at 
origination has taken a greater allocation; and
    (iii) Is identified in the applicable agreement governing the CLO-
eligible loan tranche; represents therein to the holders of the CLO-
eligible loan tranche and to any holders of participation interests in 
such CLO-eligible loan tranche that such lead arranger satisfies the 
requirements of paragraph (i) of this definition and, at the time of 
initial funding of the CLO-eligible tranche, will satisfy the 
requirements of paragraph (ii) of this definition; further represents 
therein (solely for the purpose of assisting such holders to determine 
the eligibility of such CLO-eligible loan tranche to be held by an open 
market CLO) that in the reasonable judgment of such lead arranger, the 
terms of such CLO-eligible loan tranche are consistent with the 
requirements of paragraphs (c)(2) and (3) of this section; and covenants 
therein to such holders that such lead arranger

[[Page 571]]

will fulfill the requirements of paragraph (c)(1) of this section.
    Open market CLO means a CLO:
    (i) Whose assets consist of senior, secured syndicated loans 
acquired by such CLO directly from the sellers thereof in open market 
transactions and of servicing assets,
    (ii) That is managed by a CLO manager, and
    (iii) That holds less than 50 percent of its assets, by aggregate 
outstanding principal amount, in loans syndicated by lead arrangers that 
are affiliates of the CLO or the CLO manager or originated by 
originators that are affiliates of the CLO or the CLO manager.
    Open market transaction means:
    (i) Either an initial loan syndication transaction or a secondary 
market transaction in which a seller offers senior, secured syndicated 
loans to prospective purchasers in the loan market on market terms on an 
arm's length basis, which prospective purchasers include, but are not 
limited to, entities that are not affiliated with the seller, or
    (ii) A reverse inquiry from a prospective purchaser of a senior, 
secured syndicated loan through a dealer in the loan market to purchase 
a senior, secured syndicated loan to be sourced by the dealer in the 
loan market.
    Secondary market transaction means a purchase of a senior, secured 
syndicated loan not in connection with an initial loan syndication 
transaction but in the secondary market.
    Senior, secured syndicated loan means a loan made to a commercial 
borrower that:
    (i) Is not subordinate in right of payment to any other obligation 
for borrowed money of the commercial borrower,
    (ii) Is secured by a valid first priority security interest or lien 
in or on specified collateral securing the commercial borrower's 
obligations under the loan, and
    (iii) The value of the collateral subject to such first priority 
security interest or lien, together with other attributes of the obligor 
(including, without limitation, its general financial condition, ability 
to generate cash flow available for debt service and other demands for 
that cash flow), is adequate (in the commercially reasonable judgment of 
the CLO manager exercised at the time of investment) to repay the loan 
and to repay all other indebtedness of equal seniority secured by such 
first priority security interest or lien in or on the same collateral, 
and the CLO manager certifies, on or prior to each date that it acquires 
a loan constituting part of a new CLO-eligible tranche, that it has 
policies and procedures to evaluate the likelihood of repayment of loans 
acquired by the CLO and it has followed such policies and procedures in 
evaluating each CLO-eligible loan tranche.
    (b) In general. A sponsor satisfies the risk retention requirements 
of Sec.  267.3 with respect to an open market CLO transaction if:
    (1) The open market CLO does not acquire or hold any assets other 
than CLO-eligible loan tranches that meet the requirements of paragraph 
(c) of this section and servicing assets;
    (2) The governing documents of such open market CLO require that, at 
all times, the assets of the open market CLO consist of senior, secured 
syndicated loans that are CLO-eligible loan tranches and servicing 
assets;
    (3) The open market CLO does not invest in ABS interests or in 
credit derivatives other than hedging transactions that are servicing 
assets to hedge risks of the open market CLO;
    (4) All purchases of CLO-eligible loan tranches and other assets by 
the open market CLO issuing entity or through a warehouse facility used 
to accumulate the loans prior to the issuance of the CLO's ABS interests 
are made in open market transactions on an arms-length basis;
    (5) The CLO manager of the open market CLO is not entitled to 
receive any management fee or gain on sale at the time the open market 
CLO issues its ABS interests.
    (c) CLO-eligible loan tranche. To qualify as a CLO-eligible loan 
tranche, a term loan of a syndicated credit facility to a commercial 
borrower must have the following features:
    (1) A minimum of 5 percent of the face amount of the CLO-eligible 
loan tranche is retained by the lead arranger thereof until the earliest 
of the repayment, maturity, involuntary and

[[Page 572]]

unscheduled acceleration, payment default, or bankruptcy default of such 
CLO-eligible loan tranche, provided that such lead arranger complies 
with limitations on hedging, transferring and pledging in Sec.  267.12 
with respect to the interest retained by the lead arranger.
    (2) Lender voting rights within the credit agreement and any 
intercreditor or other applicable agreements governing such CLO-eligible 
loan tranche are defined so as to give holders of the CLO-eligible loan 
tranche consent rights with respect to, at minimum, any material waivers 
and amendments of such applicable documents, including but not limited 
to, adverse changes to the calculation or payments of amounts due to the 
holders of the CLO-eligible tranche, alterations to pro rata provisions, 
changes to voting provisions, and waivers of conditions precedent; and
    (3) The pro rata provisions, voting provisions, and similar 
provisions applicable to the security associated with such CLO-eligible 
loan tranches under the CLO credit agreement and any intercreditor or 
other applicable agreements governing such CLO-eligible loan tranches 
are not materially less advantageous to the holder(s) of such CLO-
eligible tranche than the terms of other tranches of comparable 
seniority in the broader syndicated credit facility.
    (d) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors a reasonable period of time 
prior to the sale of the asset-backed securities in the securitization 
transaction and at least annually with respect to the information 
required by paragraph (d)(1) of this section and, upon request, to the 
Commission and its appropriate Federal banking agency, if any, the 
following disclosure in written form under the caption ``Credit Risk 
Retention'':
    (1) Open market CLOs. A complete list of every asset held by an open 
market CLO (or before the CLO's closing, in a warehouse facility in 
anticipation of transfer into the CLO at closing), including the 
following information:
    (i) The full legal name, Standard Industrial Classification (SIC) 
category code, and legal entity identifier (LEI) issued by a utility 
endorsed or otherwise governed by the Global LEI Regulatory Oversight 
Committee or the Global LEI Foundation (if an LEI has been obtained by 
the obligor) of the obligor of the loan or asset;
    (ii) The full name of the specific loan tranche held by the CLO;
    (iii) The face amount of the entire loan tranche held by the CLO, 
and the face amount of the portion thereof held by the CLO;
    (iv) The price at which the loan tranche was acquired by the CLO; 
and
    (v) For each loan tranche, the full legal name of the lead arranger 
subject to the sales and hedging restrictions of Sec.  267.12; and
    (2) CLO manager. The full legal name and form of organization of the 
CLO manager.



Sec.  267.10  Qualified tender option bonds.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Municipal security or municipal securities shall have the same 
meaning as the term ``municipal securities'' in Section 3(a)(29) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)) and any rules 
promulgated pursuant to such section.
    Qualified tender option bond entity means an issuing entity with 
respect to tender option bonds for which each of the following applies:
    (i) Such entity is collateralized solely by servicing assets and by 
municipal securities that have the same municipal issuer and the same 
underlying obligor or source of payment (determined without regard to 
any third-party credit enhancement), and such municipal securities are 
not subject to substitution.
    (ii) Such entity issues no securities other than:
    (A) A single class of tender option bonds with a preferred variable 
return payable out of capital that meets the requirements of paragraph 
(b) of this section, and
    (B) One or more residual equity interests that, in the aggregate, 
are entitled to all remaining income of the issuing entity.

[[Page 573]]

    (C) The types of securities referred to in paragraphs (ii)(A) and 
(B) of this definition must constitute asset-backed securities.
    (iii) The municipal securities held as assets by such entity are 
issued in compliance with Section 103 of the Internal Revenue Code of 
1986, as amended (the ``IRS Code'', 26 U.S.C. 103), such that the 
interest payments made on those securities are excludable from the gross 
income of the owners under Section 103 of the IRS Code.
    (iv) The terms of all of the securities issued by the entity are 
structured so that all holders of such securities who are eligible to 
exclude interest received on such securities will be able to exclude 
that interest from gross income pursuant to Section 103 of the IRS Code 
or as ``exempt-interest dividends'' pursuant to Section 852(b)(5) of the 
IRS Code (26 U.S.C. 852(b)(5)) in the case of regulated investment 
companies under the Investment Company Act of 1940, as amended.
    (v) Such entity has a legally binding commitment from a regulated 
liquidity provider as defined in Sec.  267.6(a), to provide a 100 
percent guarantee or liquidity coverage with respect to all of the 
issuing entity's outstanding tender option bonds.
    (vi) Such entity qualifies for monthly closing elections pursuant to 
IRS Revenue Procedure 2003-84, as amended or supplemented from time to 
time.
    Tender option bond means a security which has features which entitle 
the holders to tender such bonds to the issuing entity for purchase at 
any time upon no more than 397 days' notice, for a purchase price equal 
to the approximate amortized cost of the security, plus accrued 
interest, if any, at the time of tender.
    (b) Risk retention options. Notwithstanding anything in this 
section, the sponsor with respect to an issuance of tender option bonds 
may retain an eligible vertical interest or eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec.  267.4. In order to satisfy its risk retention 
requirements under this section, the sponsor with respect to an issuance 
of tender option bonds by a qualified tender option bond entity may 
retain:
    (1) An eligible vertical interest or an eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec.  267.4; or
    (2) An interest that meets the requirements set forth in paragraph 
(c) of this section; or
    (3) A municipal security that meets the requirements set forth in 
paragraph (d) of this section; or
    (4) Any combination of interests and securities described in 
paragraphs (b)(1) through (b)(3) of this section such that the sum of 
the percentages held in each form equals at least five.
    (c) Tender option termination event. The sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
may retain an interest that upon issuance meets the requirements of an 
eligible horizontal residual interest but that upon the occurrence of a 
``tender option termination event'' as defined in Section 4.01(5) of IRS 
Revenue Procedure 2003-84, as amended or supplemented from time to time 
will meet the requirements of an eligible vertical interest.
    (d) Retention of a municipal security outside of the qualified 
tender option bond entity. The sponsor with respect to an issuance of 
tender option bonds by a qualified tender option bond entity may satisfy 
its risk retention requirements under this Section by holding municipal 
securities from the same issuance of municipal securities deposited in 
the qualified tender option bond entity, the face value of which 
retained municipal securities is equal to 5 percent of the face value of 
the municipal securities deposited in the qualified tender option bond 
entity.
    (e) Disclosures. The sponsor shall provide, or cause to be provided, 
to potential investors a reasonable period of time prior to the sale of 
the asset-backed securities as part of the securitization transaction 
and, upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (1) The name and form of organization of the qualified tender option 
bond entity;

[[Page 574]]

    (2) A description of the form and subordination features of such 
retained interest in accordance with the disclosure obligations in Sec.  
267.4(c);
    (3) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible horizontal residual interest (including any 
interest held in compliance with Sec.  267.10(c)), the fair value of 
that interest (expressed as a percentage of the fair value of all of the 
ABS interests issued in the securitization transaction and as a dollar 
amount);
    (4) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible vertical interest (including any interest 
held in compliance with Sec.  267.10(c)), the percentage of ABS 
interests issued represented by the eligible vertical interest; and
    (5) To the extent any portion of the retained interest claimed by 
the sponsor is a municipal security held outside of the qualified tender 
option bond entity, the name and form of organization of the qualified 
tender option bond entity, the identity of the issuer of the municipal 
securities, the face value of the municipal securities deposited into 
the qualified tender option bond entity, and the face value of the 
municipal securities retained by the sponsor or its majority-owned 
affiliates and subject to the transfer and hedging prohibition.
    (f) Prohibitions on Hedging and Transfer. The prohibitions on 
transfer and hedging set forth in Sec.  267.12, apply to any interests 
or municipal securities retained by the sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
pursuant to of this section.



                  Subpart C_Transfer of Risk Retention



Sec.  267.11  Allocation of risk retention to an originator.

    (a) In general. A sponsor choosing to retain an eligible vertical 
interest or an eligible horizontal residual interest (including an 
eligible horizontal cash reserve account), or combination thereof under 
Sec.  267.4, with respect to a securitization transaction may offset the 
amount of its risk retention requirements under Sec.  267.4 by the 
amount of the eligible interests, respectively, acquired by an 
originator of one or more of the securitized assets if:
    (1) At the closing of the securitization transaction:
    (i) The originator acquires the eligible interest from the sponsor 
and retains such interest in the same manner and proportion (as between 
horizontal and vertical interests) as the sponsor under Sec.  267.4, as 
such interest was held prior to the acquisition by the originator;
    (ii) The ratio of the percentage of eligible interests acquired and 
retained by the originator to the percentage of eligible interests 
otherwise required to be retained by the sponsor pursuant to Sec.  
267.4, does not exceed the ratio of:
    (A) The unpaid principal balance of all the securitized assets 
originated by the originator; to
    (B) The unpaid principal balance of all the securitized assets in 
the securitization transaction;
    (iii) The originator acquires and retains at least 20 percent of the 
aggregate risk retention amount otherwise required to be retained by the 
sponsor pursuant to Sec.  267.4; and
    (iv) The originator purchases the eligible interests from the 
sponsor at a price that is equal, on a dollar-for-dollar basis, to the 
amount by which the sponsor's required risk retention is reduced in 
accordance with this section, by payment to the sponsor in the form of:
    (A) Cash; or
    (B) A reduction in the price received by the originator from the 
sponsor or depositor for the assets sold by the originator to the 
sponsor or depositor for inclusion in the pool of securitized assets.
    (2) Disclosures. In addition to the disclosures required pursuant to 
Sec.  267.4(c), the sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, in written form under the caption ``Credit Risk 
Retention'', the name and form of organization of any originator that 
will acquire and retain

[[Page 575]]

(or has acquired and retained) an interest in the transaction pursuant 
to this section, including a description of the form and amount 
(expressed as a percentage and dollar amount (or corresponding amount in 
the foreign currency in which the ABS interests are issued, as 
applicable)) and nature (e.g., senior or subordinated) of the interest, 
as well as the method of payment for such interest under paragraph 
(a)(1)(iv) of this section.
    (3) Hedging, transferring and pledging. The originator and each of 
its affiliates complies with the hedging and other restrictions in Sec.  
267.12 with respect to the interests retained by the originator pursuant 
to this section as if it were the retaining sponsor and was required to 
retain the interest under subpart B of this part.
    (b) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section.
    (2) A retaining sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor the compliance by each originator that is 
allocated a portion of the sponsor's risk retention obligations with the 
requirements in paragraphs (a)(1) and (3) of this section; and
    (ii) In the event the sponsor determines that any such originator no 
longer complies with any of the requirements in paragraphs (a)(1) and 
(3) of this section, shall promptly notify, or cause to be notified, the 
holders of the ABS interests issued in the securitization transaction of 
such noncompliance by such originator.



Sec.  267.12  Hedging, transfer and financing prohibitions.

    (a) Transfer. Except as permitted by Sec.  267.7(b)(8), and subject 
to Sec.  267.5, a retaining sponsor may not sell or otherwise transfer 
any interest or assets that the sponsor is required to retain pursuant 
to subpart B of this part to any person other than an entity that is and 
remains a majority-owned affiliate of the sponsor and each such 
majority-owned affiliate shall be subject to the same restrictions.
    (b) Prohibited hedging by sponsor and affiliates. A retaining 
sponsor and its affiliates may not purchase or sell a security, or other 
financial instrument, or enter into an agreement, derivative or other 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative, or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor (or any of its majority-owned affiliates) is required to retain 
with respect to a securitization transaction pursuant to subpart B of 
this part or one or more of the particular securitized assets that 
collateralize the asset-backed securities issued in the securitization 
transaction; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the sponsor (or any 
of its majority-owned affiliates) to the credit risk of one or more of 
the particular ABS interests that the retaining sponsor (or any of its 
majority-owned affiliates) is required to retain with respect to a 
securitization transaction pursuant to subpart B of this part or one or 
more of the particular securitized assets that collateralize the asset-
backed securities issued in the securitization transaction.
    (c) Prohibited hedging by issuing entity. The issuing entity in a 
securitization transaction may not purchase or sell a security or other 
financial instrument, or enter into an agreement, derivative or 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor for the transaction (or any of its majority-owned affiliates) is 
required to retain with respect to the securitization transaction 
pursuant to subpart B of this part; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the retaining 
sponsor (or any of its majority-owned affiliates) to the credit risk of 
one or more of the particular ABS interests that the sponsor

[[Page 576]]

(or any of its majority-owned affiliates) is required to retain pursuant 
to subpart B of this part.
    (d) Permitted hedging activities. The following activities shall not 
be considered prohibited hedging activities under paragraph (b) or (c) 
of this section:
    (1) Hedging the interest rate risk (which does not include the 
specific interest rate risk, known as spread risk, associated with the 
ABS interest that is otherwise considered part of the credit risk) or 
foreign exchange risk arising from one or more of the particular ABS 
interests required to be retained by the sponsor (or any of its 
majority-owned affiliates) under subpart B of this part or one or more 
of the particular securitized assets that underlie the asset-backed 
securities issued in the securitization transaction; or
    (2) Purchasing or selling a security or other financial instrument 
or entering into an agreement, derivative, or other position with any 
third party where payments on the security or other financial instrument 
or under the agreement, derivative, or position are based, directly or 
indirectly, on an index of instruments that includes asset-backed 
securities if:
    (i) Any class of ABS interests in the issuing entity that were 
issued in connection with the securitization transaction and that are 
included in the index represents no more than 10 percent of the dollar-
weighted average (or corresponding weighted average in the currency in 
which the ABS interests are issued, as applicable) of all instruments 
included in the index; and
    (ii) All classes of ABS interests in all issuing entities that were 
issued in connection with any securitization transaction in which the 
sponsor (or any of its majority-owned affiliates) is required to retain 
an interest pursuant to subpart B of this part and that are included in 
the index represent, in the aggregate, no more than 20 percent of the 
dollar-weighted average (or corresponding weighted average in the 
currency in which the ABS interests are issued, as applicable) of all 
instruments included in the index.
    (e) Prohibited non-recourse financing. Neither a retaining sponsor 
nor any of its affiliates may pledge as collateral for any obligation 
(including a loan, repurchase agreement, or other financing transaction) 
any ABS interest that the sponsor is required to retain with respect to 
a securitization transaction pursuant to subpart B of this part unless 
such obligation is with full recourse to the sponsor or affiliate, 
respectively.
    (f) Duration of the hedging and transfer restrictions--(1) General 
rule. Except as provided in paragraph (f)(2) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire on or after the date that is the latest of:
    (i) The date on which the total unpaid principal balance (if 
applicable) of the securitized assets that collateralize the 
securitization transaction has been reduced to 33 percent of the total 
unpaid principal balance of the securitized assets as of the cut-off 
date or similar date for establishing the composition of the securitized 
assets collateralizing the asset-backed securities issued pursuant to 
the securitization transaction;
    (ii) The date on which the total unpaid principal obligations under 
the ABS interests issued in the securitization transaction has been 
reduced to 33 percent of the total unpaid principal obligations of the 
ABS interests at closing of the securitization transaction; or
    (iii) Two years after the date of the closing of the securitization 
transaction.
    (2) Securitizations of residential mortgages. (i) If all of the 
assets that collateralize a securitization transaction subject to risk 
retention under this part are residential mortgages, the prohibitions on 
sale and hedging pursuant to paragraphs (a) and (b) of this section 
shall expire on or after the date that is the later of:
    (A) Five years after the date of the closing of the securitization 
transaction; or
    (B) The date on which the total unpaid principal balance of the 
residential mortgages that collateralize the securitization transaction 
has been reduced to 25 percent of the total unpaid principal balance of 
such residential

[[Page 577]]

mortgages at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire with respect to the sponsor of a 
securitization transaction described in paragraph (f)(2)(i) of this 
section on or after the date that is seven years after the date of the 
closing of the securitization transaction.
    (3) Conservatorship or receivership of sponsor. A conservator or 
receiver of the sponsor (or any other person holding risk retention 
pursuant to this part) of a securitization transaction is permitted to 
sell or hedge any economic interest in the securitization transaction if 
the conservator or receiver has been appointed pursuant to any provision 
of federal or State law (or regulation promulgated thereunder) that 
provides for the appointment of the Federal Deposit Insurance 
Corporation, or an agency or instrumentality of the United States or of 
a State as conservator or receiver, including without limitation any of 
the following authorities:
    (i) 12 U.S.C. 1811;
    (ii) 12 U.S.C. 1787;
    (iii) 12 U.S.C. 4617; or
    (iv) 12 U.S.C. 5382.
    (4) Revolving pool securitizations. The provisions of paragraphs 
(f)(1) and (2) are not available to sponsors of revolving pool 
securitizations with respect to the forms of risk retention specified in 
Sec.  267.5.



                   Subpart D_Exceptions and Exemptions



Sec.  267.13  Exemption for qualified residential mortgages.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Currently performing means the borrower in the mortgage transaction 
is not currently thirty (30) days or more past due, in whole or in part, 
on the mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as 
defined in section 129C of the Truth in Lending Act (15 U.S.C.1639c) and 
regulations issued thereunder, as amended from time to time.
    (b) Exemption. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction, if:
    (1) All of the assets that collateralize the asset-backed securities 
are qualified residential mortgages or servicing assets;
    (2) None of the assets that collateralize the asset-backed 
securities are asset-backed securities;
    (3) As of the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, each 
qualified residential mortgage collateralizing the asset-backed 
securities is currently performing; and
    (4)(i) The depositor with respect to the securitization transaction 
certifies that it has evaluated the effectiveness of its internal 
supervisory controls with respect to the process for ensuring that all 
assets that collateralize the asset-backed security are qualified 
residential mortgages or servicing assets and has concluded that its 
internal supervisory controls are effective; and
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls must be performed, for each issuance of an asset-
backed security in reliance on this section, as of a date within 60 days 
of the cut-off date or similar date for establishing the composition of 
the asset pool collateralizing such asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (b)(4)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to the 
Commission and its appropriate Federal banking agency, if any.
    (c) Repurchase of loans subsequently determined to be non-qualified 
after closing. A sponsor that has relied on the exemption provided in 
paragraph (b) of

[[Page 578]]

this section with respect to a securitization transaction shall not lose 
such exemption with respect to such transaction if, after closing of the 
securitization transaction, it is determined that one or more of the 
residential mortgage loans collateralizing the asset-backed securities 
does not meet all of the criteria to be a qualified residential mortgage 
provided that:
    (1) The depositor complied with the certification requirement set 
forth in paragraph (b)(4) of this section;
    (2) The sponsor repurchases the loan(s) from the issuing entity at a 
price at least equal to the remaining aggregate unpaid principal balance 
and accrued interest on the loan(s) no later than 90 days after the 
determination that the loans do not satisfy the requirements to be a 
qualified residential mortgage; and
    (3) The sponsor promptly notifies, or causes to be notified, the 
holders of the asset-backed securities issued in the securitization 
transaction of any loan(s) included in such securitization transaction 
that is (or are) required to be repurchased by the sponsor pursuant to 
paragraph (c)(2) of this section, including the amount of such 
repurchased loan(s) and the cause for such repurchase.



Sec.  267.14  Definitions applicable to qualifying commercial loans,
qualifying commercial real estate loans, and qualifying automobile
loans.

    The following definitions apply for purposes of Sec. Sec.  267.15 
through 267.18:
    Appraisal Standards Board means the board of the Appraisal 
Foundation that develops, interprets, and amends the Uniform Standards 
of Professional Appraisal Practice (USPAP), establishing generally 
accepted standards for the appraisal profession.
    Automobile loan:
    (1) Means any loan to an individual to finance the purchase of, and 
that is secured by a first lien on, a passenger car or other passenger 
vehicle, such as a minivan, van, sport-utility vehicle, pickup truck, or 
similar light truck for personal, family, or household use; and
    (2) Does not include any:
    (i) Loan to finance fleet sales;
    (ii) Personal cash loan secured by a previously purchased 
automobile;
    (iii) Loan to finance the purchase of a commercial vehicle or farm 
equipment that is not used for personal, family, or household purposes;
    (iv) Lease financing;
    (v) Loan to finance the purchase of a vehicle with a salvage title; 
or
    (vi) Loan to finance the purchase of a vehicle intended to be used 
for scrap or parts.
    Combined loan-to-value (CLTV) ratio means, at the time of 
origination, the sum of the principal balance of a first-lien mortgage 
loan on the property, plus the principal balance of any junior-lien 
mortgage loan that, to the creditor's knowledge, would exist at the 
closing of the transaction and that is secured by the same property, 
divided by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.  267.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.  
267.17(a)(2)(ii).
    Commercial loan means a secured or unsecured loan to a company or an 
individual for business purposes, other than any:
    (1) Loan to purchase or refinance a one-to-four family residential 
property;
    (2) Commercial real estate loan.
    Commercial real estate (CRE) loan means:
    (1) A loan secured by a property with five or more single family 
units, or by nonfarm nonresidential real property, the primary source 
(50 percent or more) of repayment for which is expected to be:
    (i) The proceeds of the sale, refinancing, or permanent financing of 
the property; or
    (ii) Rental income associated with the property;
    (2) Loans secured by improved land if the obligor owns the fee 
interest in the land and the land is leased to a third party who owns 
all improvements on the land, and the improvements are nonresidential or 
residential with five or more single family units; and

[[Page 579]]

    (3) Does not include:
    (i) A land development and construction loan (including 1- to 4-
family residential or commercial construction loans);
    (ii) Any other land loan; or
    (iii) An unsecured loan to a developer.
    Debt service coverage (DSC) ratio means:
    (1) For qualifying leased CRE loans, qualifying multi-family loans, 
and other CRE loans:
    (i) The annual NOI less the annual replacement reserve of the CRE 
property at the time of origination of the CRE loan(s) divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest (calculated at the fully-indexed rate) on any debt obligation.
    (2) For commercial loans:
    (i) The borrower's EBITDA as of the most recently completed fiscal 
year divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest on all debt obligations.
    Debt to income (DTI) ratio means the borrower's total debt, 
including the monthly amount due on the automobile loan, divided by the 
borrower's monthly income.
    Earnings before interest, taxes, depreciation, and amortization 
(EBITDA) means the annual income of a business before expenses for 
interest, taxes, depreciation and amortization are deducted, as 
determined in accordance with GAAP.
    Environmental risk assessment means a process for determining 
whether a property is contaminated or exposed to any condition or 
substance that could result in contamination that has an adverse effect 
on the market value of the property or the realization of the collateral 
value.
    First lien means a lien or encumbrance on property that has priority 
over all other liens or encumbrances on the property.
    Junior lien means a lien or encumbrance on property that is lower in 
priority relative to other liens or encumbrances on the property.
    Leverage ratio means the borrower's total debt divided by the 
borrower's EBITDA.
    Loan-to-value (LTV) ratio means, at the time of origination, the 
principal balance of a first-lien mortgage loan on the property divided 
by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.  267.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.  
267.17(a)(2)(ii).
    Model year means the year determined by the manufacturer and 
reflected on the vehicle's Motor Vehicle Title as part of the vehicle 
description.
    Net operating income (NOI) refers to the income a CRE property 
generates for the owner after all expenses have been deducted for 
federal income tax purposes, except for depreciation, debt service 
expenses, and federal and state income taxes, and excluding any unusual 
and nonrecurring items of income.
    Operating affiliate means an affiliate of a borrower that is a 
lessor or similar party with respect to the commercial real estate 
securing the loan.
    Payments-in-kind means payments of accrued interest that are not 
paid in cash when due, and instead are paid by increasing the principal 
balance of the loan or by providing equity in the borrowing company.
    Purchase money security interest means a security interest in 
property that secures the obligation of the obligor incurred as all or 
part of the price of the property.
    Purchase price means the amount paid by the borrower for the vehicle 
net of any incentive payments or manufacturer cash rebates.
    Qualified tenant means:
    (1) A tenant with a lease who has satisfied all obligations with 
respect to the property in a timely manner; or
    (2) A tenant who originally had a lease that subsequently expired 
and currently is leasing the property on a month-to-month basis, has 
occupied the property for at least three years prior to the date of 
origination, and

[[Page 580]]

has satisfied all obligations with respect to the property in a timely 
manner.
    Qualifying leased CRE loan means a CRE loan secured by commercial 
nonfarm real property, other than a multi-family property or a hotel, 
inn, or similar property:
    (1) That is occupied by one or more qualified tenants pursuant to a 
lease agreement with a term of no less than one (1) month; and
    (2) Where no more than 20 percent of the aggregate gross revenue of 
the property is payable from one or more tenants who:
    (i) Are subject to a lease that will terminate within six months 
following the date of origination; or
    (ii) Are not qualified tenants.
    Qualifying multi-family loan means a CRE loan secured by any 
residential property (excluding a hotel, motel, inn, hospital, nursing 
home, or other similar facility where dwellings are not leased to 
residents):
    (1) That consists of five or more dwelling units (including 
apartment buildings, condominiums, cooperatives and other similar 
structures) primarily for residential use; and
    (2) Where at least 75 percent of the NOI is derived from residential 
rents and tenant amenities (including income from parking garages, 
health or swim clubs, and dry cleaning), and not from other commercial 
uses.
    Rental income means:
    (1) Income derived from a lease or other occupancy agreement between 
the borrower or an operating affiliate of the borrower and a party which 
is not an affiliate of the borrower for the use of real property or 
improvements serving as collateral for the applicable loan; and
    (2) Other income derived from hotel, motel, dormitory, nursing home, 
assisted living, mini-storage warehouse or similar properties that are 
used primarily by parties that are not affiliates or employees of the 
borrower or its affiliates.
    Replacement reserve means the monthly capital replacement or 
maintenance amount based on the property type, age, construction and 
condition of the property that is adequate to maintain the physical 
condition and NOI of the property.
    Salvage title means a form of vehicle title branding, which notes 
that the vehicle has been severely damaged and/or deemed a total loss 
and uneconomical to repair by an insurance company that paid a claim on 
the vehicle.
    Total debt, with respect to a borrower, means:
    (1) In the case of an automobile loan, the sum of:
    (i) All monthly housing payments (rent- or mortgage-related, 
including property taxes, insurance and home owners association fees); 
and
    (ii) Any of the following that is dependent upon the borrower's 
income for payment:
    (A) Monthly payments on other debt and lease obligations, such as 
credit card loans or installment loans, including the monthly amount due 
on the automobile loan;
    (B) Estimated monthly amortizing payments for any term debt, debts 
with other than monthly payments and debts not in repayment (such as 
deferred student loans, interest-only loans); and
    (C) Any required monthly alimony, child support or court-ordered 
payments; and
    (2) In the case of a commercial loan, the outstanding balance of all 
long-term debt (obligations that have a remaining maturity of more than 
one year) and the current portion of all debt that matures in one year 
or less.
    Total liabilities ratio means the borrower's total liabilities 
divided by the sum of the borrower's total liabilities and equity, less 
the borrower's intangible assets, with each component determined in 
accordance with GAAP.
    Trade-in allowance means the amount a vehicle purchaser is given as 
a credit at the purchase of a vehicle for the fair exchange of the 
borrower's existing vehicle to compensate the dealer for some portion of 
the vehicle purchase price, not to exceed the highest trade-in value of 
the existing vehicle, as determined by a nationally recognized 
automobile pricing agency and based on the manufacturer, year, model, 
features, mileage, and condition of the vehicle, less the payoff balance 
of any

[[Page 581]]

outstanding debt collateralized by the existing vehicle.
    Uniform Standards of Professional Appraisal Practice (USPAP) means 
generally accepted standards for professional appraisal practice issued 
by the Appraisal Standards Board of the Appraisal Foundation.



Sec.  267.15  Qualifying commercial loans, commercial real estate loans,
and automobile loans.

    (a) General exception for qualifying assets. Commercial loans, 
commercial real estate loans, and automobile loans that are securitized 
through a securitization transaction shall be subject to a 0 percent 
risk retention requirement under subpart B, provided that the following 
conditions are met:
    (1) The assets meet the underwriting standards set forth in 
Sec. Sec.  267.16 (qualifying commercial loans), 267.17 (qualifying CRE 
loans), or 267.18 (qualifying automobile loans) of this part, as 
applicable;
    (2) The securitization transaction is collateralized solely by loans 
of the same asset class and by servicing assets;
    (3) The securitization transaction does not permit reinvestment 
periods; and
    (4) The sponsor provides, or causes to be provided, to potential 
investors a reasonable period of time prior to the sale of asset-backed 
securities of the issuing entity, and, upon request, to the Commission, 
and to its appropriate Federal banking agency, if any, in written form 
under the caption ``Credit Risk Retention'', a description of the manner 
in which the sponsor determined the aggregate risk retention requirement 
for the securitization transaction after including qualifying commercial 
loans, qualifying CRE loans, or qualifying automobile loans with 0 
percent risk retention.
    (b) Risk retention requirement. For any securitization transaction 
described in paragraph (a) of this section, the percentage of risk 
retention required under Sec.  267.3(a) is reduced by the percentage 
evidenced by the ratio of the unpaid principal balance of the qualifying 
commercial loans, qualifying CRE loans, or qualifying automobile loans 
(as applicable) to the total unpaid principal balance of commercial 
loans, CRE loans, or automobile loans (as applicable) that are included 
in the pool of assets collateralizing the asset-backed securities issued 
pursuant to the securitization transaction (the qualifying asset ratio); 
provided that:
    (1) The qualifying asset ratio is measured as of the cut-off date or 
similar date for establishing the composition of the securitized assets 
collateralizing the asset-backed securities issued pursuant to the 
securitization transaction;
    (2) If the qualifying asset ratio would exceed 50 percent, the 
qualifying asset ratio shall be deemed to be 50 percent; and
    (3) The disclosure required by paragraph (a)(4) of this section also 
includes descriptions of the qualifying commercial loans, qualifying CRE 
loans, and qualifying automobile loans (qualifying assets) and 
descriptions of the assets that are not qualifying assets, and the 
material differences between the group of qualifying assets and the 
group of assets that are not qualifying assets with respect to the 
composition of each group's loan balances, loan terms, interest rates, 
borrower credit information, and characteristics of any loan collateral.
    (c) Exception for securitizations of qualifying assets only. 
Notwithstanding other provisions of this section, the risk retention 
requirements of subpart B of this part shall not apply to securitization 
transactions where the transaction is collateralized solely by servicing 
assets and either qualifying commercial loans, qualifying CRE loans, or 
qualifying automobile loans.
    (d) Record maintenance. A sponsor must retain the disclosures 
required in paragraphs (a) and (b) of this section and the 
certifications required in Sec. Sec.  267.16(a)(8), 267.17(a)(10), and 
267.18(a)(8), as applicable, in its records until three years after all 
ABS interests issued in the securitization are no longer outstanding. 
The sponsor must provide the disclosures and certifications upon request 
to the Commission and the sponsor's appropriate Federal banking agency, 
if any.

[[Page 582]]



Sec.  267.16  Underwriting standards for qualifying commercial loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the commercial loan, the originator:
    (i) Verified and documented the financial condition of the borrower:
    (A) As of the end of the borrower's two most recently completed 
fiscal years; and
    (B) During the period, if any, since the end of its most recently 
completed fiscal year;
    (ii) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections;
    (iii) Determined that, based on the previous two years' actual 
performance, the borrower had:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater;
    (iv) Determined that, based on the two years of projections, which 
include the new debt obligation, following the closing date of the loan, 
the borrower will have:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater.
    (2) Prior to, upon or promptly following the inception of the loan, 
the originator:
    (i) If the loan is originated on a secured basis, obtains a 
perfected security interest (by filing, title notation or otherwise) or, 
in the case of real property, a recorded lien, on all of the property 
pledged to collateralize the loan; and
    (ii) If the loan documents indicate the purpose of the loan is to 
finance the purchase of tangible or intangible property, or to refinance 
such a loan, obtains a first lien on the property.
    (3) The loan documentation for the commercial loan includes 
covenants that:
    (i) Require the borrower to provide to the servicer of the 
commercial loan the borrower's financial statements and supporting 
schedules on an ongoing basis, but not less frequently than quarterly;
    (ii) Prohibit the borrower from retaining or entering into a debt 
arrangement that permits payments-in-kind;
    (iii) Impose limits on:
    (A) The creation or existence of any other security interest or lien 
with respect to any of the borrower's property that serves as collateral 
for the loan;
    (B) The transfer of any of the borrower's assets that serve as 
collateral for the loan; and
    (C) Any change to the name, location or organizational structure of 
the borrower, or any other party that pledges collateral for the loan;
    (iv) Require the borrower and any other party that pledges 
collateral for the loan to:
    (A) Maintain insurance that protects against loss on the collateral 
for the commercial loan at least up to the amount of the loan, and that 
names the originator or any subsequent holder of the loan as an 
additional insured or loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on any collateral;
    (C) Take any action required to perfect or protect the security 
interest and first lien (as applicable) of the originator or any 
subsequent holder of the loan in any collateral for the commercial loan 
or the priority thereof, and to defend any collateral against claims 
adverse to the lender's interest;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer of the loan, to inspect any collateral for the commercial 
loan and the books and records of the borrower; and
    (E) Maintain the physical condition of any collateral for the 
commercial loan.
    (4) Loan payments required under the loan agreement are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) that fully amortize the debt over a term that 
does not exceed five years from the date of origination; and
    (ii) To be made no less frequently than quarterly over a term that 
does not exceed five years.
    (5) The primary source of repayment for the loan is revenue from the 
business operations of the borrower.

[[Page 583]]

    (6) The loan was funded within the six (6) months prior to the cut-
off date or similar date for establishing the composition of the 
securitized assets collateralizing the asset-backed securities issued 
pursuant to the securitization transaction.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying commercial 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.  267.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.  267.15 with respect to a qualifying 
commercial loan and it is subsequently determined that the loan did not 
meet all of the requirements set forth in paragraphs (a)(1) through (7) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the commercial loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(8) of this section 
and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec.  267.17  Underwriting standards for qualifying CRE loans.

    (a) Underwriting, product and other standards. (1) The CRE loan must 
be secured by the following:
    (i) An enforceable first lien, documented and recorded appropriately 
pursuant to applicable law, on the commercial real estate and 
improvements;
    (ii)(A) An assignment of:
    (1) Leases and rents and other occupancy agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor or similar 
party and all payments under such leases and occupancy agreements; and
    (2) All franchise, license and concession agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor, licensor, 
concession granter or similar party and all payments under

[[Page 584]]

such other agreements, whether the assignments described in this 
paragraph (a)(1)(ii)(A)(2) are absolute or are stated to be made to the 
extent permitted by the agreements governing the applicable franchise, 
license or concession agreements;
    (B) An assignment of all other payments due to the borrower or due 
to any operating affiliate in connection with the operation of the 
property described in paragraph (a)(1)(i) of this section; and
    (C) The right to enforce the agreements described in paragraph 
(a)(1)(ii)(A) of this section and the agreements under which payments 
under paragraph (a)(1)(ii)(B) of this section are due against, and 
collect amounts due from, each lessee, occupant or other obligor whose 
payments were assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of 
this section upon a breach by the borrower of any of the terms of, or 
the occurrence of any other event of default (however denominated) 
under, the loan documents relating to such CRE loan; and
    (iii) A security interest:
    (A) In all interests of the borrower and any applicable operating 
affiliate in all tangible and intangible personal property of any kind, 
in or used in the operation of or in connection with, pertaining to, 
arising from, or constituting, any of the collateral described in 
paragraphs (a)(1)(i) or (ii) of this section; and
    (B) In the form of a perfected security interest if the security 
interest in such property can be perfected by the filing of a financing 
statement, fixture filing, or similar document pursuant to the law 
governing the perfection of such security interest;
    (2) Prior to origination of the CRE loan, the originator:
    (i) Verified and documented the current financial condition of the 
borrower and each operating affiliate;
    (ii) Obtained a written appraisal of the real property securing the 
loan that:
    (A) Had an effective date not more than six months prior to the 
origination date of the loan by a competent and appropriately State-
certified or State-licensed appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced 
by the USPAP and the appraisal requirements \1\ of the Federal banking 
agencies; and
---------------------------------------------------------------------------

    \1\ 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E, and 
12 CFR part 225, subpart G (Board); and 12 CFR part 323 (FDIC).
---------------------------------------------------------------------------

    (C) Provides an ``as is'' opinion of the market value of the real 
property, which includes an income approach; \2\
---------------------------------------------------------------------------

    \2\ See USPAP, Standard 1.
---------------------------------------------------------------------------

    (iii) Qualified the borrower for the CRE loan based on a monthly 
payment amount derived from level monthly payments consisting of both 
principal and interest (at the fully-indexed rate) over the term of the 
loan, not exceeding 25 years, or 30 years for a qualifying multi-family 
property;
    (iv) Conducted an environmental risk assessment to gain 
environmental information about the property securing the loan and took 
appropriate steps to mitigate any environmental liability determined to 
exist based on this assessment;
    (v) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections (including operating income projections for the property);
    (vi)(A) Determined that based on the two years' actual performance 
immediately preceding the origination of the loan, the borrower would 
have had:
    (1) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (2) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (3) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan;
    (B) If the borrower did not own the property for any part of the 
last two years prior to origination, the calculation of the DSC ratio, 
for purposes of paragraph (a)(2)(vi)(A) of this section, shall include 
the property's operating income for any portion of the two-year period 
during which the borrower did not own the property;
    (vii) Determined that, based on two years of projections, which 
include the new debt obligation, following the

[[Page 585]]

origination date of the loan, the borrower will have:
    (A) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (B) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (C) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan.
    (3) The loan documentation for the CRE loan includes covenants that:
    (i) Require the borrower to provide the borrower's financial 
statements and supporting schedules to the servicer on an ongoing basis, 
but not less frequently than quarterly, including information on 
existing, maturing and new leasing or rent-roll activity for the 
property securing the loan, as appropriate; and
    (ii) Impose prohibitions on:
    (A) The creation or existence of any other security interest with 
respect to the collateral for the CRE loan described in paragraphs 
(a)(1)(i) and (a)(1)(ii)(A) of this section, except as provided in 
paragraph (a)(4) of this section;
    (B) The transfer of any collateral for the CRE loan described in 
paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section or of any other 
collateral consisting of fixtures, furniture, furnishings, machinery or 
equipment other than any such fixture, furniture, furnishings, machinery 
or equipment that is obsolete or surplus; and
    (C) Any change to the name, location or organizational structure of 
any borrower, operating affiliate or other pledgor unless such borrower, 
operating affiliate or other pledgor shall have given the holder of the 
loan at least 30 days advance notice and, pursuant to applicable law 
governing perfection and priority, the holder of the loan is able to 
take all steps necessary to continue its perfection and priority during 
such 30-day period.
    (iii) Require each borrower and each operating affiliate to:
    (A) Maintain insurance that protects against loss on collateral for 
the CRE loan described in paragraph (a)(1)(i) of this section for an 
amount no less than the replacement cost of the property improvements, 
and names the originator or any subsequent holder of the loan as an 
additional insured or lender loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on collateral for the CRE loan described in 
paragraphs (a)(1)(i) and (ii) of this section;
    (C) Take any action required to:
    (1) Protect the security interest and the enforceability and 
priority thereof in the collateral described in paragraphs (a)(1)(i) and 
(a)(1)(ii)(A) of this section and defend such collateral against claims 
adverse to the originator's or any subsequent holder's interest; and
    (2) Perfect the security interest of the originator or any 
subsequent holder of the loan in any other collateral for the CRE loan 
to the extent that such security interest is required by this section to 
be perfected;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer, to inspect any collateral for the CRE loan and the books 
and records of the borrower or other party relating to any collateral 
for the CRE loan;
    (E) Maintain the physical condition of collateral for the CRE loan 
described in paragraph (a)(1)(i) of this section;
    (F) Comply with all environmental, zoning, building code, licensing 
and other laws, regulations, agreements, covenants, use restrictions, 
and proffers applicable to collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section;
    (G) Comply with leases, franchise agreements, condominium 
declarations, and other documents and agreements relating to the 
operation of collateral for the CRE loan described in paragraph 
(a)(1)(i) of this section, and to not modify any material terms and 
conditions of such agreements over the term of the loan without the 
consent of the originator or any subsequent holder of the loan, or the 
servicer; and
    (H) Not materially alter collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section without the consent of the 
originator or any subsequent holder of the loan, or the servicer.

[[Page 586]]

    (4) The loan documentation for the CRE loan prohibits the borrower 
and each operating affiliate from obtaining a loan secured by a junior 
lien on collateral for the CRE loan described in paragraph (a)(1)(i) or 
(a)(1)(ii)(A) of this section, unless:
    (i) The sum of the principal amount of such junior lien loan, plus 
the principal amount of all other loans secured by collateral described 
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not exceed 
the applicable CLTV ratio in paragraph (a)(5) of this section, based on 
the appraisal at origination of such junior lien loan; or
    (ii) Such loan is a purchase money obligation that financed the 
acquisition of machinery or equipment and the borrower or operating 
affiliate (as applicable) pledges such machinery and equipment as 
additional collateral for the CRE loan.
    (5) At origination, the applicable loan-to-value ratios for the loan 
are:
    (i) LTV less than or equal to 65 percent and CLTV less than or equal 
to 70 percent; or
    (ii) LTV less than or equal to 60 percent and CLTV less than or 
equal to 65 percent, if an appraisal used to meet the requirements set 
forth in paragraph (a)(2)(ii) of this section used a direct 
capitalization rate, and that rate is less than or equal to the sum of:
    (A) The 10-year swap rate, as reported in the Federal Reserve's H.15 
Report (or any successor report) as of the date concurrent with the 
effective date of such appraisal; and
    (B) 300 basis points.
    (iii) If the appraisal required under paragraph (a)(2)(ii) of this 
section included a direct capitalization method using an overall 
capitalization rate, that rate must be disclosed to potential investors 
in the securitization.
    (6) All loan payments required to be made under the loan agreement 
are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) to fully amortize the debt over a term that does 
not exceed 25 years, or 30 years for a qualifying multifamily loan; and
    (ii) To be made no less frequently than monthly over a term of at 
least ten years.
    (7) Under the terms of the loan agreement:
    (i) Any maturity of the note occurs no earlier than ten years 
following the date of origination;
    (ii) The borrower is not permitted to defer repayment of principal 
or payment of interest; and
    (iii) The interest rate on the loan is:
    (A) A fixed interest rate;
    (B) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that effectively results in a fixed interest rate; or
    (C) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that established a cap on the interest rate for the term of the loan, 
and the loan meets the underwriting criteria in paragraphs (a)(2)(vi) 
and (vii) of this section using the maximum interest rate allowable 
under the interest rate cap.
    (8) The originator does not establish an interest reserve at 
origination to fund all or part of a payment on the loan.
    (9) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (10)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying CRE loans 
that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.  267.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (9) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(10)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security;

[[Page 587]]

    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(10)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any; and
    (11) Within two weeks of the closing of the CRE loan by its 
originator or, if sooner, prior to the transfer of such CRE loan to the 
issuing entity, the originator shall have obtained a UCC lien search 
from the jurisdiction of organization of the borrower and each operating 
affiliate, that does not report, as of the time that the security 
interest of the originator in the property described in paragraph 
(a)(1)(iii) of this section was perfected, other higher priority liens 
of record on any property described in paragraph (a)(1)(iii) of this 
section, other than purchase money security interests.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.  267.15 with respect to a qualifying CRE loan 
and it is subsequently determined that the CRE loan did not meet all of 
the requirements set forth in paragraphs (a)(1) through (9) and (a)(11) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the CRE loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(10) of this 
section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (9) and (a)(11) of this section is 
not material; or;
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(9) or (a)(11) of this section, the sponsor:
    (i) Effectuates cure, restoring conformity of the loan to the unmet 
requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such repurchased loan(s) and the cause for such 
cure or repurchase.



Sec.  267.18  Underwriting standards for qualifying automobile loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the automobile loan, the originator:
    (i) Verified and documented that within 30 days of the date of 
origination:
    (A) The borrower was not currently 30 days or more past due, in 
whole or in part, on any debt obligation;
    (B) Within the previous 24 months, the borrower has not been 60 days 
or more past due, in whole or in part, on any debt obligation;
    (C) Within the previous 36 months, the borrower has not:
    (1) Been a debtor in a proceeding commenced under Chapter 7 
(Liquidation), Chapter 11 (Reorganization), Chapter 12 (Family Farmer or 
Family Fisherman plan), or Chapter 13 (Individual Debt Adjustment) of 
the U.S. Bankruptcy Code; or
    (2) Been the subject of any federal or State judicial judgment for 
the collection of any unpaid debt;
    (D) Within the previous 36 months, no one-to-four family property 
owned by the borrower has been the subject of any foreclosure, deed in 
lieu of foreclosure, or short sale; or
    (E) Within the previous 36 months, the borrower has not had any 
personal property repossessed;
    (ii) Determined and documented that the borrower has at least 24 
months of credit history; and
    (iii) Determined and documented that, upon the origination of the 
loan, the borrower's DTI ratio is less than or equal to 36 percent.
    (A) For the purpose of making the determination under paragraph 
(a)(1)(iii) of this section, the originator must:
    (1) Verify and document all income of the borrower that the 
originator includes in the borrower's effective

[[Page 588]]

monthly income (using payroll stubs, tax returns, profit and loss 
statements, or other similar documentation); and
    (2) On or after the date of the borrower's written application and 
prior to origination, obtain a credit report regarding the borrower from 
a consumer reporting agency that compiles and maintain files on 
consumers on a nationwide basis (within the meaning of 15 U.S.C. 
1681a(p)) and verify that all outstanding debts reported in the 
borrower's credit report are incorporated into the calculation of the 
borrower's DTI ratio under paragraph (a)(1)(iii) of this section;
    (2) An originator will be deemed to have met the requirements of 
paragraph (a)(1)(i) of this section if:
    (i) The originator, no more than 30 days before the closing of the 
loan, obtains a credit report regarding the borrower from a consumer 
reporting agency that compiles and maintains files on consumers on a 
nationwide basis (within the meaning of 15 U.S.C. 1681a(p));
    (ii) Based on the information in such credit report, the borrower 
meets all of the requirements of paragraph (a)(1)(i) of this section, 
and no information in a credit report subsequently obtained by the 
originator before the closing of the loan contains contrary information; 
and
    (iii) The originator obtains electronic or hard copies of the credit 
report.
    (3) At closing of the automobile loan, the borrower makes a down 
payment from the borrower's personal funds and trade-in allowance, if 
any, that is at least equal to the sum of:
    (i) The full cost of the vehicle title, tax, and registration fees;
    (ii) Any dealer-imposed fees;
    (iii) The full cost of any additional warranties, insurance or other 
products purchased in connection with the purchase of the vehicle; and
    (iv) 10 percent of the vehicle purchase price.
    (4) The originator records a first lien securing the loan on the 
purchased vehicle in accordance with State law.
    (5) The terms of the loan agreement provide a maturity date for the 
loan that does not exceed the lesser of:
    (i) Six years from the date of origination; or
    (ii) 10 years minus the difference between the current model year 
and the vehicle's model year.
    (6) The terms of the loan agreement:
    (i) Specify a fixed rate of interest for the life of the loan;
    (ii) Provide for a level monthly payment amount that fully amortizes 
the amount financed over the loan term;
    (iii) Do not permit the borrower to defer repayment of principal or 
payment of interest; and
    (iv) Require the borrower to make the first payment on the 
automobile loan within 45 days of the loan's contract date.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current; and
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying automobile 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.  267.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.  267.15 with respect to a

[[Page 589]]

qualifying automobile loan and it is subsequently determined that the 
loan did not meet all of the requirements set forth in paragraphs (a)(1) 
through (7) of this section, the sponsor shall not lose the benefit of 
the exception with respect to the automobile loan if the depositor 
complied with the certification requirement set forth in paragraph 
(a)(8) of this section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than ninety (90) days after the determination that the 
loan does not meet one or more of the requirements of paragraphs (a)(1) 
through (7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec.  267.19  General exemptions.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Community-focused residential mortgage means a residential mortgage 
exempt from the definition of ``covered transaction'' under Sec.  
1026.43(a)(3)(iv) and (v) of the CFPB's Regulation Z (12 CFR 
1026.43(a)).
    First pay class means a class of ABS interests for which all 
interests in the class are entitled to the same priority of payment and 
that, at the time of closing of the transaction, is entitled to 
repayments of principal and payments of interest prior to or pro-rata 
with all other classes of securities collateralized by the same pool of 
first-lien residential mortgages, until such class has no principal or 
notional balance remaining.
    Inverse floater means an ABS interest issued as part of a 
securitization transaction for which interest or other income is payable 
to the holder based on a rate or formula that varies inversely to a 
reference rate of interest.
    Qualifying three-to-four unit residential mortgage loan means a 
mortgage loan that is:
    (i) Secured by a dwelling (as defined in 12 CFR 1026.2(a)(19)) that 
is owner occupied and contains three-to-four housing units;
    (ii) Is deemed to be for business purposes for purposes of 
Regulation Z under 12 CFR part 1026, Supplement I, paragraph 3(a)(5)(i); 
and
    (iii) Otherwise meets all of the requirements to qualify as a 
qualified mortgage under Sec.  1026.43(e) and (f) of Regulation Z (12 
CFR 1026.43(e) and (f)) as if the loan were a covered transaction under 
that section.
    (b) This part shall not apply to:
    (1) U.S. Government-backed securitizations. Any securitization 
transaction that:
    (i) Is collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets that are insured or guaranteed (in 
whole or in part) as to the payment of principal and interest by the 
United States or an agency of the United States, and servicing assets; 
or
    (ii) Involves the issuance of asset-backed securities that:
    (A) Are insured or guaranteed as to the payment of principal and 
interest by the United States or an agency of the United States; and
    (B) Are collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets or interests in such assets, and 
servicing assets.
    (2) Certain agricultural loan securitizations. Any securitization 
transaction that is collateralized solely by loans or other assets made, 
insured, guaranteed, or purchased by any institution that is subject to 
the supervision of the Farm Credit Administration, including the Federal 
Agricultural Mortgage Corporation, and servicing assets;

[[Page 590]]

    (3) State and municipal securitizations. Any asset-backed security 
that is a security issued or guaranteed by any State, or by any 
political subdivision of a State, or by any public instrumentality of a 
State that is exempt from the registration requirements of the 
Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 
U.S.C. 77c(a)(2)); and
    (4) Qualified scholarship funding bonds. Any asset-backed security 
that meets the definition of a qualified scholarship funding bond, as 
set forth in section 150(d)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 150(d)(2)).
    (5) Pass-through resecuritizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by asset-
backed securities:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Is structured so that it involves the issuance of only a single 
class of ABS interests; and
    (iii) Provides for the pass-through of all principal and interest 
payments received on the underlying asset-backed securities (net of 
expenses of the issuing entity) to the holders of such class.
    (6) First-pay-class securitizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by first-pay 
classes of asset-backed securities collateralized by first-lien 
residential mortgages on properties located in any state:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Does not provide for any ABS interest issued in the 
securitization transaction to share in realized principal losses other 
than pro rata with all other ABS interests issued in the securitization 
transaction based on the current unpaid principal balance of such ABS 
interests at the time the loss is realized;
    (iii) Is structured to reallocate prepayment risk;
    (iv) Does not reallocate credit risk (other than as a consequence of 
reallocation of prepayment risk); and
    (v) Does not include any inverse floater or similarly structured ABS 
interest.
    (7) Seasoned loans. (i) Any securitization transaction that is 
collateralized solely by servicing assets, and by seasoned loans that 
meet the following requirements:
    (A) The loans have not been modified since origination; and
    (B) None of the loans have been delinquent for 30 days or more.
    (ii) For purposes of this paragraph, a seasoned loan means:
    (A) With respect to asset-backed securities collateralized by 
residential mortgages, a loan that has been outstanding and performing 
for the longer of:
    (1) A period of five years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 25 percent of the original principal balance.
    (3) Notwithstanding paragraphs (b)(7)(ii)(A)(1) and (2) of this 
section, any residential mortgage loan that has been outstanding and 
performing for a period of at least seven years shall be deemed a 
seasoned loan.
    (B) With respect to all other classes of asset-backed securities, a 
loan that has been outstanding and performing for the longer of:
    (1) A period of at least two years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 33 percent of the original principal balance.
    (8) Certain public utility securitizations. (i) Any securitization 
transaction where the asset-back securities issued in the transaction 
are secured by the intangible property right to collect charges for the 
recovery of specified costs and such other assets, if any, of an issuing 
entity that is wholly owned, directly or indirectly, by an investor 
owned utility company that is subject to the regulatory authority of a 
State public utility commission or other appropriate State agency.

[[Page 591]]

    (ii) For purposes of this paragraph:
    (A) Specified cost means any cost identified by a State legislature 
as appropriate for recovery through securitization pursuant to specified 
cost recovery legislation; and
    (B) Specified cost recovery legislation means legislation enacted by 
a State that:
    (1) Authorizes the investor owned utility company to apply for, and 
authorizes the public utility commission or other appropriate State 
agency to issue, a financing order determining the amount of specified 
costs the utility will be allowed to recover;
    (2) Provides that pursuant to a financing order, the utility 
acquires an intangible property right to charge, collect, and receive 
amounts necessary to provide for the full recovery of the specified 
costs determined to be recoverable, and assures that the charges are 
non-bypassable and will be paid by customers within the utility's 
historic service territory who receive utility goods or services through 
the utility's transmission and distribution system, even if those 
customers elect to purchase these goods or services from a third party; 
and
    (3) Guarantees that neither the State nor any of its agencies has 
the authority to rescind or amend the financing order, to revise the 
amount of specified costs, or in any way to reduce or impair the value 
of the intangible property right, except as may be contemplated by 
periodic adjustments authorized by the specified cost recovery 
legislation.
    (c) Exemption for securitizations of assets issued, insured or 
guaranteed by the United States. This part shall not apply to any 
securitization transaction if the asset-backed securities issued in the 
transaction are:
    (1) Collateralized solely by obligations issued by the United States 
or an agency of the United States and servicing assets;
    (2) Collateralized solely by assets that are fully insured or 
guaranteed as to the payment of principal and interest by the United 
States or an agency of the United States (other than those referred to 
in paragraph (b)(1)(i) of this section) and servicing assets; or
    (3) Fully guaranteed as to the timely payment of principal and 
interest by the United States or any agency of the United States;
    (d) Federal Deposit Insurance Corporation securitizations. This part 
shall not apply to any securitization transaction that is sponsored by 
the Federal Deposit Insurance Corporation acting as conservator or 
receiver under any provision of the Federal Deposit Insurance Act or of 
Title II of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act.
    (e) Reduced requirement for certain student loan securitizations. 
The 5 percent risk retention requirement set forth in Sec.  267.4 shall 
be modified as follows:
    (1) With respect to a securitization transaction that is 
collateralized solely by student loans made under the Federal Family 
Education Loan Program (``FFELP loans'') that are guaranteed as to 100 
percent of defaulted principal and accrued interest, and servicing 
assets, the risk retention requirement shall be 0 percent;
    (2) With respect to a securitization transaction that is 
collateralized solely by FFELP loans that are guaranteed as to at least 
98 percent but less than 100 percent of defaulted principal and accrued 
interest, and servicing assets, the risk retention requirement shall be 
2 percent; and
    (3) With respect to any other securitization transaction that is 
collateralized solely by FFELP loans, and servicing assets, the risk 
retention requirement shall be 3 percent.
    (f) Community-focused lending securitizations. (1) This part shall 
not apply to any securitization transaction if the asset-backed 
securities issued in the transaction are collateralized solely by 
community-focused residential mortgages and servicing assets.
    (2) For any securitization transaction that includes both community-
focused residential mortgages and residential mortgages that are not 
exempt from risk retention under this part, the percent of risk 
retention required under Sec.  267.4(a) is reduced by the ratio of the 
unpaid principal balance of the community-focused residential mortgages 
to the total unpaid principal balance of residential mortgages that are 
included in the pool of assets collateralizing the

[[Page 592]]

asset-backed securities issued pursuant to the securitization 
transaction (the community-focused residential mortgage asset ratio); 
provided that:
    (i) The community-focused residential mortgage asset ratio is 
measured as of the cut-off date or similar date for establishing the 
composition of the pool assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction; and
    (ii) If the community-focused residential mortgage asset ratio would 
exceed 50 percent, the community-focused residential mortgage asset 
ratio shall be deemed to be 50 percent.
    (g) Exemptions for securitizations of certain three-to-four unit 
mortgage loans. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction if:
    (1)(i) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans and servicing assets; or
    (ii) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans, qualified residential mortgages as defined in Sec.  
267.13, and servicing assets.
    (2) The depositor with respect to the securitization provides the 
certifications set forth in Sec.  267.13(b)(4) with respect to the 
process for ensuring that all assets that collateralize the asset-backed 
securities issued in the transaction are qualifying three-to-four unit 
residential mortgage loans, qualified residential mortgages, or 
servicing assets; and
    (3) The sponsor of the securitization complies with the repurchase 
requirements in Sec.  267.13(c) with respect to a loan if, after 
closing, it is determined that the loan does not meet all of the 
criteria to be either a qualified residential mortgage or a qualifying 
three-to-four unit residential mortgage loan, as appropriate.
    (h) Rule of construction. Securitization transactions involving the 
issuance of asset-backed securities that are either issued, insured, or 
guaranteed by, or are collateralized by obligations issued by, or loans 
that are issued, insured, or guaranteed by, the Federal National 
Mortgage Association, the Federal Home Loan Mortgage Corporation, or a 
Federal home loan bank shall not on that basis qualify for exemption 
under this part.



Sec.  267.20  Safe harbor for certain foreign-related transactions.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    U.S. person means:
    (i) Any of the following:
    (A) Any natural person resident in the United States;
    (B) Any partnership, corporation, limited liability company, or 
other organization or entity organized or incorporated under the laws of 
any State or of the United States;
    (C) Any estate of which any executor or administrator is a U.S. 
person (as defined under any other clause of this definition);
    (D) Any trust of which any trustee is a U.S. person (as defined 
under any other clause of this definition);
    (E) Any agency or branch of a foreign entity located in the United 
States;
    (F) Any non-discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary for the benefit or 
account of a U.S. person (as defined under any other clause of this 
definition);
    (G) Any discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary organized, 
incorporated, or (if an individual) resident in the United States; and
    (H) Any partnership, corporation, limited liability company, or 
other organization or entity if:
    (1) Organized or incorporated under the laws of any foreign 
jurisdiction; and
    (2) Formed by a U.S. person (as defined under any other clause of 
this definition) principally for the purpose of investing in securities 
not registered under the Act; and
    (ii) ``U.S. person(s)'' does not include:
    (A) Any discretionary account or similar account (other than an 
estate or trust) held for the benefit or account of a person not 
constituting a U.S. person (as defined in paragraph (i) of this

[[Page 593]]

section) by a dealer or other professional fiduciary organized, 
incorporated, or (if an individual) resident in the United States;
    (B) Any estate of which any professional fiduciary acting as 
executor or administrator is a U.S. person (as defined in paragraph (i) 
of this section) if:
    (1) An executor or administrator of the estate who is not a U.S. 
person (as defined in paragraph (i) of this section) has sole or shared 
investment discretion with respect to the assets of the estate; and
    (2) The estate is governed by foreign law;
    (C) Any trust of which any professional fiduciary acting as trustee 
is a U.S. person (as defined in paragraph (i) of this section), if a 
trustee who is not a U.S. person (as defined in paragraph (i) of this 
section) has sole or shared investment discretion with respect to the 
trust assets, and no beneficiary of the trust (and no settlor if the 
trust is revocable) is a U.S. person (as defined in paragraph (i) of 
this section);
    (D) An employee benefit plan established and administered in 
accordance with the law of a country other than the United States and 
customary practices and documentation of such country;
    (E) Any agency or branch of a U.S. person (as defined in paragraph 
(i) of this section) located outside the United States if:
    (1) The agency or branch operates for valid business reasons; and
    (2) The agency or branch is engaged in the business of insurance or 
banking and is subject to substantive insurance or banking regulation, 
respectively, in the jurisdiction where located;
    (F) The International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, the 
Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates and pension plans, and any other 
similar international organizations, their agencies, affiliates and 
pension plans.
    (b) In general. This part shall not apply to a securitization 
transaction if all the following conditions are met:
    (1) The securitization transaction is not required to be and is not 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.);
    (2) No more than 10 percent of the dollar value (or equivalent 
amount in the currency in which the ABS interests are issued, as 
applicable) of all classes of ABS interests in the securitization 
transaction are sold or transferred to U.S. persons or for the account 
or benefit of U.S. persons;
    (3) Neither the sponsor of the securitization transaction nor the 
issuing entity is:
    (i) Chartered, incorporated, or organized under the laws of the 
United States or any State;
    (ii) An unincorporated branch or office (wherever located) of an 
entity chartered, incorporated, or organized under the laws of the 
United States or any State; or
    (iii) An unincorporated branch or office located in the United 
States or any State of an entity that is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State; and
    (4) If the sponsor or issuing entity is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State, no more than 25 percent (as determined based on unpaid 
principal balance) of the assets that collateralize the ABS interests 
sold in the securitization transaction were acquired by the sponsor or 
issuing entity, directly or indirectly, from:
    (i) A majority-owned affiliate of the sponsor or issuing entity that 
is chartered, incorporated, or organized under the laws of the United 
States or any State; or
    (ii) An unincorporated branch or office of the sponsor or issuing 
entity that is located in the United States or any State.
    (c) Evasions prohibited. In view of the objective of these rules and 
the policies underlying Section 15G of the Exchange Act, the safe harbor 
described in paragraph (b) of this section is not available with respect 
to any transaction or series of transactions that, although in technical 
compliance with paragraphs (a) and (b) of this section, is part of a 
plan or scheme to evade the requirements of section 15G and this

[[Page 594]]

part. In such cases, compliance with section 15G and this part is 
required.



Sec.  267.21  Additional exemptions.

    (a) Securitization transactions. The federal agencies with 
rulewriting authority under section 15G(b) of the Exchange Act (15 
U.S.C. 78o-11(b)) with respect to the type of assets involved may 
jointly provide a total or partial exemption of any securitization 
transaction as such agencies determine may be appropriate in the public 
interest and for the protection of investors.
    (b) Exceptions, exemptions, and adjustments. The Federal banking 
agencies and the Commission, in consultation with the Federal Housing 
Finance Agency and the Department of Housing and Urban Development, may 
jointly adopt or issue exemptions, exceptions or adjustments to the 
requirements of this part, including exemptions, exceptions or 
adjustments for classes of institutions or assets in accordance with 
section 15G(e) of the Exchange Act (15 U.S.C. 78o-11(e)).



Sec.  267.22  Periodic review of the QRM definition, exempted 
three-to-four unit residential mortgage loans, and community-focused 
residential mortgage exemption

    (a) The Federal banking agencies and the Commission, in consultation 
with the Federal Housing Finance Agency and the Department of Housing 
and Urban Development, shall commence a review of the definition of 
qualified residential mortgage in Sec.  267.13, a review of the 
community-focused residential mortgage exemption in Sec.  267.19(f), and 
a review of the exemption for qualifying three-to-four unit residential 
mortgage loans in Sec.  267.19(g):
    (1) No later than four years after the effective date of the rule 
(as it relates to securitizers and originators of asset-backed 
securities collateralized by residential mortgages), five years 
following the completion of such initial review, and every five years 
thereafter; and
    (2) At any time, upon the request of any Federal banking agency, the 
Commission, the Federal Housing Finance Agency or the Department of 
Housing and Urban Development, specifying the reason for such request, 
including as a result of any amendment to the definition of qualified 
mortgage or changes in the residential housing market.
    (b) The Federal banking agencies, the Commission, the Federal 
Housing Finance Agency and the Department of Housing and Urban 
Development shall publish in the Federal Register notice of the 
commencement of a review and, in the case of a review commenced under 
paragraph (a)(2) of this section, the reason an agency is requesting 
such review. After completion of any review, but no later than six 
months after the publication of the notice announcing the review, unless 
extended by the agencies, the agencies shall jointly publish a notice 
disclosing the determination of their review. If the agencies determine 
to amend the definition of qualified residential mortgage, the agencies 
shall complete any required rulemaking within 12 months of publication 
in the Federal Register of such notice disclosing the determination of 
their review, unless extended by the agencies.



     SUBCHAPTER C_PLANNING ASSISTANCE TO HOUSING SPONSORS [RESERVED]





       SUBCHAPTER D_PUBLICLY FINANCED HOUSING PROGRAMS [RESERVED]





                       SUBCHAPTERS E	H [RESERVED]



[[Page 595]]



                    SUBCHAPTER I_HUD-OWNED PROPERTIES





PART 290_DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF HUD-HELD 
MULTIFAMILY MORTGAGES--Table of Contents



              Subpart A_Disposition of Multifamily Projects

Sec.
290.1 Applicability.
290.3 Definitions.
290.7 Occupancy requirements.
290.9 Setting rental rates.
290.11 Notification requirements.
290.13 Negotiated sales.
290.15 Disposition plan.
290.17 Displacement of tenants and relocation assistance.
290.18 Restrictions on sale to former mortgagors.
290.19 Restrictions concerning nondiscrimination against Section 8 
          certificate holders and voucher holders.
290.21 Computing annual number of units eligible for substitution of 
          tenant-based assistance or alternative uses.
290.23 Rebuilding.
290.25 Determination not to preserve a project or a part of a project.
290.27 Up-front grants and loans.

            Subpart B_Sale of HUD-Held Multifamily Mortgages

290.30 General.
290.31 Sale of current mortgages securing subsidized projects.
290.33 Sale of delinquent mortgages securing subsidized projects.
290.35 Sale of HUD-held mortgages securing unsubsidized projects.
290.37 Requirements for continuing Federal rental subsidy contracts.
290.39 Nondiscrimination in admitting certificate and voucher holders.

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b, 
1715z-11a; 42 U.S.C. 3535(d) and 3535(i).

    Source: 61 FR 11685, Mar. 21, 1996, unless otherwise noted.



              Subpart A_Disposition of Multifamily Projects



Sec.  290.1  Applicability.

    The requirements of this part supplement the requirements of 12 
U.S.C. 1701z-11 for the management and disposition of multifamily 
housing projects and the sale of HUD-held multifamily mortgages. The 
goals and objectives of this part are the same as the goals and 
objectives of 12 U.S.C. 1701z-11, which shall be referred to in this 
part as ``the Statute.'' With respect to the disposition of multifamily 
projects under subpart A, HUD may follow any other method of 
disposition, as determined by the Secretary.

[64 FR 72412, Dec. 27, 1999]



Sec.  290.3  Definitions.

    The terms Department and URA are defined in 24 CFR part 5. The 
following definitions apply to this part:
    Cooperative means a nonprofit, limited equity, or consumer 
cooperative as defined under 24 CFR part 213. It may include mutual 
housing associations.
    HUD-owned project means a multifamily project that has been acquired 
by HUD.
    Market area means the area from which a multifamily housing project 
may reasonably be expected to draw a substantial number of its tenants, 
as determined by HUD, taking into consideration the knowledge of the HUD 
office with jurisdiction over the project of the local real estate 
market and HUD's project underwriting experience. Submarkets may be used 
in large, complex metropolitan areas.
    Multifamily housing project means a multifamily project that is or 
was insured under sections 207, 213, 220, 221(d)(3), 221(d)(4), 223(f), 
231, 236, or 608 of the National Housing Act (12 U.S.C. 1713, 1715e, 
1715k, 1715l, 1715n, 1715v, 1715z-1, or 1742-1746); or is or was subject 
to a loan under section 202 of the Housing Act of 1959 (12 U.S.C. 
1701q); or was a Real Estate Owned (REO) multifamily project transferred 
by the Government National Mortgage Association to the Department. 
Multifamily housing project does not include projects consisting of one 
to eleven units insured under section 220(d)(3)(A) of the National 
Housing Act (12 U.S.C. 1715l); or mobile home parks under section 207(m) 
of that Act (12 U.S.C. 1713); or vacant land; or property covered by a 
homeownership program approved

[[Page 596]]

under the Homeownership and Opportunity for People Everywhere (``HOPE'') 
program.
    Multifamily project means a project consisting of five or more units 
that has or had a mortgage (even if subordinate to other mortgages) 
insured under the National Housing Act or is or was subject to a loan 
under section 202 of the Housing Act of 1959, or a hospital, 
intermediate care facility, nursing home, group practice facility, or 
board and care facility that has or had a mortgage insured, or is or was 
subject to a loan under, these authorities. Multifamily project does not 
include projects consisting of one to eleven units insured under section 
220(d)(3)(A) of the National Housing Act (12 U.S.C. 1715k), which are 
classified as single family homes.
    Nonprofit organization means a corporation or association organized 
for purposes other than making a profit or gain for itself. Stockholders 
or trustees do not share in profits or losses. Profits are used to 
accomplish the charitable, humanitarian, or educational purposes of the 
corporation.
    Preexisting tenant means a family that resides in a unit in a 
multifamily housing project immediately before the project is acquired 
under this part by a purchaser other than the Department.
    Subsidized project means a multifamily housing project that is 
receiving, or immediately before its mortgage was foreclosed by HUD or 
the project was acquired by HUD, pursuant to this regulation, was 
receiving any of the following types of assistance:
    (1) Below market interest rate mortgage insurance under the proviso 
of section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l) 
(hereinafter, a BMIR project);
    (2) Interest reduction payments made in connection with mortgages 
insured under section 236 of the National Housing Act (hereinafter, a 
236 project);
    (3) Direct loans made under section 202 of the Housing Act of 1959 
(hereinafter, a 202 project);
    (4) Assistance, to more than 50 percent of the units in the project, 
in the form of:
    (i) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (12 U.S.C. 1701s) (hereinafter, Rent 
Supp);
    (ii) Additional assistance payments under section 236(f)(2) of the 
National Housing Act (hereinafter, RAP);
    (iii) Housing assistance payments under section 23 of the United 
States Housing Act of 1937 (42 U.S.C. 1437 note) (as in effect before 
January 1, 1975) (hereinafter, Sec. 23); or
    (iv) Housing assistance payments under Section 8 of the United 
States Housing Act of 1937 (42 U.S.C. 1437f) (excluding payments of 
tenant-based Section 8 assistance) (hereinafter, project-based Section 8 
assistance).
    Sufficient habitable, affordable, rental housing is available means 
that the HUD office with jurisdiction determines that there is an 
adequate supply of habitable, affordable housing for low- and very low-
income families available in the market area. Submarkets, consisting of 
portions of units of general local government, may be used in large, 
complex metropolitan areas. Local housing markets having an adequate 
supply of standard-quality rental housing would include housing markets 
in which the supply of rental housing available and in production is 
adequate to meet the anticipated demand (e.g., the housing market is 
balanced), as well as those in which there is an excess supply of rental 
housing (e.g., the housing market is soft). Rental markets that do not 
have an adequate supply (e.g., tight markets) are characterized by low 
rental vacancy rates, low levels of production and turnover of rental 
housing, and, usually, by high levels of rent inflation. HUD will make 
the determination of whether sufficient habitable, affordable, rental 
housing is available using established market analysis techniques, and 
will consider information that demonstrates:
    (1) The rental housing vacancy rate is at a low level relative to 
the rate required for a balanced market, typically a four percent 
vacancy rate; except that a rate lower than four percent may be 
considered in unusual circumstances if it can be demonstrated that there 
is an adequate supply of affordable housing for low-income families;
    (2) The number of rental housing units being produced on an annual

[[Page 597]]

basis is not large enough to satisfy demand arising from the increase in 
households, or, in markets where there is little or no growth, evidence 
that the number of additional rental units being supplied is not 
sufficient to meet the demand arising from net losses to the available 
inventory and the inadequate supply of rental housing has inhibited 
growth;
    (3) The shortage of housing is resulting in rent increases that 
exceed normal increases commensurate with the costs of operating rental 
housing;
    (4) A significant number, or proportion, of the households holding 
Section 8 certificates or rental vouchers are unable to find adequate 
housing because of the shortage of rental housing, including PHA data 
showing a lower than average percentage of units under lease and a 
longer than average time required to find units.
    Unsubsidized project means a multifamily housing project that is not 
a subsidized project.
    Useful life means, generally, twenty years, but it may be more or 
less, as determined by the Department.



Sec.  290.7  Occupancy requirements.

    (a) Multifamily housing project that is HUD-owned or for which HUD 
is mortgagee-in-possession. Occupancy in a multifamily housing project 
that is HUD-owned or for which HUD is mortgagee-in-possession shall be 
available on a basis that is comparable to the occupancy requirements 
that applied to the project immediately before HUD acquired the project 
or became mortgagee-in-possession, except that preference shall be given 
to tenants of other HUD-owned multifamily housing projects who are 
eligible for assistance in accordance with the displacement and 
relocation provisions at Sec.  290.17.
    (b) Evictions. Eviction from a HUD-owned multifamily housing project 
is governed by 24 CFR part 247, subpart B.
    (c) Threat to health and safety. Whenever HUD determines that there 
is an immediate threat to the health and safety of the tenants, HUD may 
require the tenants to vacate the premises and shall provide temporary 
relocation benefits as provided in Sec.  290.17 to tenants required to 
vacate the premises.



Sec.  290.9  Setting rental rates.

    Because of the subsidies involved in making multifamily housing 
projects affordable, the setting of rents involves two steps: first, 
establishing the rent on a unit that will be paid to the owner, and 
second, determining the rent that the tenant pays (with the difference 
made up by a subsidy), using a number of procedures to obtain income 
verification and notify tenants of changes in rent. These procedures for 
a property owned by HUD or where HUD is mortgagee-in-possession are 
explained below.
    (a) Setting unit rents. Except as modified by this section, for a 
property where HUD is mortgagee-in-possession (MIP), HUD will set unit 
rents in accordance with the rent setting requirements of the project's 
mortgage insurance or direct loan program; or for a property owned by 
HUD, rents will be set in accordance with the rent setting requirements 
of the project's mortgage insurance or direct loan program in effect 
immediately before HUD became the owner of the project.
    (b) Setting rents payable by tenants--(1) Tenant rent. The rent the 
tenant pays will be based on the income certification and the rent 
payment requirements of the project's mortgage insurance or direct loan 
program in effect while HUD is MIP or immediately before HUD became the 
owner of the project, as affected by any of the factors in paragraphs 
(b)(2) through (b)(4) of this section. However, if a tenant does not 
certify income as required by this section, the tenant must pay the unit 
rent as determined under the rent setting requirements in paragraph (a) 
of this section.
    (2) Utility allowance. For a tenant whose rent is based on a 
percentage of adjusted income (except for rental voucher or rental 
certificate holders), if the cost of utilities (except telephone) and 
other housing services for the unit is the responsibility of the tenant 
to pay directly to the provider of the utility or service, HUD will 
deduct from the rent to be paid by the tenant to HUD a utility 
allowance, which is an amount equal to HUD's estimate of the monthly 
costs of a reasonable consumption of the utilities and other services 
for the unit for an

[[Page 598]]

energy-conservative household of modest circumstances consistent with 
the requirement of a safe, sanitary, and healthful living environment. 
If the utility allowance exceeds the percentage of the tenant's adjusted 
income payable as rent, HUD will pay the difference between the amount 
payable as rent and the utility allowance to the tenant or, with the 
consent of the tenant and the utility company, either jointly to the 
tenant and the utility company or directly to the utility company.
    (3) Rent adjustments for project viability. For a HUD-owned project, 
HUD may adjust the rent provided for in paragraphs (b)(1) or (b)(2) of 
this section if necessary or desirable to maintain the existing economic 
mix in the project, prevent undesirable turnover, or increase occupancy.
    (4) Tenants who are rental voucher or rental certificate holders. 
Tenants assisted with rental vouchers or certificates certify their 
income to the public housing agency (PHA) administering the assistance, 
and pay rent pursuant to the policies and procedures governing such 
assistance.
    (c) Income verification and rent notification procedures--(1) Income 
certification by tenants--(i) In subsidized projects. (A) For families 
residing in subsidized projects, when HUD becomes MIP or owner, HUD will 
request an income certification from each family as soon as practicable 
after HUD initially assumes management, unless the family's income has 
been examined by the owner or by HUD not more than four months before 
HUD's assumption of management.
    (B) For each family applying for admission to subsidized projects, 
HUD will request an income certification to determine the family's 
eligibility for a subsidized rent, and (if the rent is based on a 
percentage of adjusted income) the family's subsidized rent, in 
accordance with part 813 of this title.
    (ii) In unsubsidized projects. (A) For tenants in occupancy when HUD 
becomes mortgagee-in-possession or owner of an unsubsidized project, HUD 
may request an income certification from families who are not paying a 
subsidized rent.
    (B) For families applying for admission to such projects, HUD will 
request sufficient information for income verification to determine the 
family's ability to pay the unit rent.
    (2) Notice of increases in the amount of rent payable. Whenever HUD 
proposes an increase in rents in a HUD-owned multifamily project or a 
project where HUD is mortgagee-in-possession, HUD will provide tenants 
30 days notice of the proposed changes and an opportunity to review and 
comment on the new rent and supporting documentation. After HUD 
considers the tenants' comments and has made a decision with respect to 
its proposed rent change, HUD shall notify the tenants of its decision, 
with the reasons for the decision. A tenant in occupancy before the 
effective date of any revised rental rate must be given 30 days notice 
of the revised rate, and any change in the tenant's rent is subject to 
the terms of an existing lease. Notices to each tenant must be 
personally delivered or sent by first class mail. General notices of 
rent increases to all tenants must be posted in the project office and 
in appropriate conspicuous and accessible locations around the project.
    (3) Disclosure and verification of Social Security numbers. Any 
certifications or reexaminations of the income of tenants or prospective 
tenants in connection with tenancy under this section are subject to the 
requirements for the disclosure and verification of Social Security 
Numbers, as provided by part 200, subpart T, of this title.
    (4) Signing of consent forms for income verification. Any 
certifications or reexaminations of the income of tenants or prospective 
tenants in connection with tenancy under this section are subject to the 
requirements for the signing and submitting of consent forms for the 
obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by part 200, subpart V, of this title.

(Approved by the Office of Management and Budget under control number 
2502-0204)



Sec.  290.11  Notification requirements.

    (a) In general. HUD may combine two or more of the required 
notifications, as appropriate, to simplify the disposition process.

[[Page 599]]

    (b) Timing of notifications. Disposition-related notifications 
(i.e., pre-foreclosure notification to tenants and units of general 
local government; pre-disposition community and tenant input 
notification; state and local government right of first refusal 
notification) will be made, as appropriate:
    (1) 60 or more days before HUD forecloses on a project; or
    (2) Before, or not more than 30 days after, HUD acquires a project.
    (c) Methods of notification--(1) To tenants. Pre-disposition 
notification will be delivered to each unit in the project, or sent to 
each unit by first class mail. Where HUD is mortgagee-in-possession or 
owner of a project, the notice will also be posted in the project office 
and in appropriate conspicuous and accessible locations around the 
project.
    (2) To units of general local government. Pre-disposition 
notification to a unit of general local government will be sent to the 
chief executive officer of the unit of general local government by first 
class mail. For purposes of receiving or sending any notices or 
information under this part, the unit of general local government is its 
chief executive officer, or the person designated by the chief executive 
officer to receive or send the notice or information.
    (3) To the community or any other party. HUD will consult with 
tenants and their organizations, officials of units of general local 
government, and other entities as HUD determines to be appropriate, to 
identify community recipients of any required notification. Any notice 
required to be made to any party other than a tenant or a unit of 
general local government will be sent by first class mail.
    (d) Content of notifications. Notifications will, as appropriate, 
identify the project acquired or to be foreclosed by HUD; provide the 
general terms and conditions concerning the sale, future use, and 
operation of the project as proposed by HUD; indicate the time by which 
any offers must be made or any comments must be submitted; and state 
that the full disposition recommendation and analysis and other 
supporting information will be available for inspection and copying at 
the HUD Field Office.



Sec.  290.13  Negotiated sales.

    When HUD conducts a negotiated sale involving the disposition of a 
project to a person or entity without a public offering, the following 
provisions apply:
    (a) HUD may negotiate the sale of any project to an agency of the 
federal, State, or local government.
    (b) When HUD determines that a purchaser can demonstrate the 
capacity to own and operate a project in accordance with standards set 
by HUD, and/or a competitive offering will not generate offers of equal 
merit from qualified purchasers, HUD may approve a negotiated sale of a 
subsidized project to:
    (1) A resident organization wishing to convert the project to a 
nonprofit or limited equity cooperative;
    (2) A cooperative (e.g., nonprofit limited equity, consumer 
cooperative, mutual housing organization) with demonstrated experience 
in the operation of nonprofit (and preferably low-income) housing;
    (3) A nonprofit entity that will continue to operate the project as 
low-income housing and whose governing board is composed of project 
residents;
    (4) A State or local governmental entity with the demonstrated 
capacity to acquire, manage, and maintain the project as housing 
available to and affordable by low-income residents;
    (5) A State or local governmental or nonprofit entity with the 
demonstrated capacity to acquire, manage, and maintain the project as a 
shelter for the homeless or other public purpose, generally when the 
project is vacant or has minimal occupancy and is not needed in the area 
for continued use as rental housing for the elderly or families; or
    (6) Other nonprofit organizations.



Sec.  290.15  Disposition plan.

    (a) In general. Before disposing of a HUD-owned multifamily housing 
project, HUD will develop an initial and a final disposition plan for 
the project that specifies the minimum terms and conditions for the 
disposition of the project, the sales price that is acceptable to HUD, 
and the assistance that HUD plans to make available to a prospective 
purchaser.

[[Page 600]]

    (b) Environmental requirements. HUD will perform, and include in the 
final disposition plan, the environmental reviews required by 24 CFR 
part 50.



Sec.  290.17  Displacement of tenants and relocation assistance.

    (a) Scope of section. This section applies to all HUD-owned 
multifamily housing projects and all multifamily housing projects 
subject to HUD-held mortgages. When HUD is not the mortgagee-in-
possession or owner, the owner of the project shall comply with this 
section, if HUD has authorized the demolition of, repairs to, or 
conversion of the use of the multifamily housing project.
    (b) Minimizing displacement. Consistent with the other goals and 
objectives of this part, all reasonable steps shall be taken to minimize 
the displacement of persons (families, individuals, businesses, and 
nonprofit organizations) from a project covered by this part. If 
displacement or temporary relocation will occur in connection with the 
disposition of a project, HUD may require the purchaser of the project 
to provide assistance in accordance with this section.
    (c) Relocation assistance at non-URA levels. Whenever the 
displacement of a residential tenant (family or individual) occurs in 
connection with the management or disposition of a multifamily housing 
project, but is not subject to paragraph (d) of this section (e.g., 
occurs as a direct result of HUD repair or demolition of all or a part 
of a HUD-owned multifamily housing project or as a direct result of the 
foreclosure of a HUD-held mortgage on a multifamily housing project or 
sale of a HUD-owned project without federal financial assistance), the 
displaced tenant shall be eligible for the following relocation 
assistance:
    (1) Advance written notice of the expected displacement shall be 
provided at least 60 days before displacement, describe the assistance 
and the procedures for obtaining the assistance, and contain the name, 
address and phone number of an official responsible for providing the 
assistance;
    (2) Other advisory services, as appropriate, including counseling, 
referrals to suitable (and where appropriate, accessible), decent, safe, 
and sanitary replacement housing, and fair housing-related advisory 
services;
    (3) Payment for actual reasonable moving expenses, as determined by 
HUD; and
    (4) Such other federal, State or local assistance as may be 
available.
    (d) Relocation assistance at URA levels--(1) General. The 
requirements of this paragraph apply to any displacement that results 
whenever assistance under 24 CFR part 886, subpart C, (or other federal 
financial assistance, as defined in 49 CFR 24.2(j)) is provided in 
connection with the purchase, demolition, or rehabilitation of a 
multifamily property by a third party. A displaced person (defined in 
paragraph (d)(3) of this section) must be provided relocation assistance 
at the levels described in, and in accordance with the requirements of, 
the URA, implementing regulations at 49 CFR part 24, and this section.
    (2) Definition of ``initiation of negotiations''. Under the URA, for 
purposes of determining the method for computing the replacement housing 
assistance to be provided to a residential tenant displaced as a direct 
result of privately undertaken rehabilitation, demolition, or 
acquisition of the real property, the term ``initiation of 
negotiations'' means the transfer of title to the purchaser.
    (3) Definition of displaced person. The term ``displaced person'' 
means any person (family, individual, business, or nonprofit 
organization) that moves from the real property, or moves personal 
property from the real property, permanently, as a direct result of 
acquisition, rehabilitation or demolition for a federally assisted 
project. However, a person does not qualify as a ``displaced person'' 
if:
    (i) The person is excluded under 49 CFR 24.2(g)(2);
    (ii) The person has been evicted for a serious or repeated violation 
of the terms and conditions of the lease or occupancy agreement, 
violation of applicable federal, State, or local law, or other good 
cause, and HUD determines that the eviction was not undertaken for the 
purpose of evading the obligation to provide relocation assistance;

[[Page 601]]

    (iii) The person moves into the property after transfer of title to 
the purchaser; or
    (iv) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for an assisted 
project.
    (e) Temporary relocation (URA and non-URA relocation assistance). 
Residential tenants, who will not be required to move permanently, but 
who must relocate temporarily (e.g., to permit property repairs), shall 
be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses incurred 
in connection with the temporary relocation, including the cost of 
moving to and from the temporary housing and any increase in monthly 
rent or utility costs. The party responsible for this requirement may, 
at its option, perform the services involved in temporarily relocating 
the tenants or pay for such services directly; and
    (2) Appropriate advisory services, including reasonable advance 
written notice of the date and approximate duration of the temporary 
relocation; the suitable (and where appropriate, accessible), decent, 
safe, and sanitary housing to be made available for the temporary 
period; the terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex following completion of the repairs; and the right to financial 
assistance provided under paragraph (e)(1) of this section.
    (f) Appeals. If a person disagrees with the purchaser's 
determination concerning the person's eligibility for relocation 
assistance or the amount of the assistance for which the person is 
eligible, the person may file a written appeal of that determination 
with the owner or purchaser. A person who is dissatisfied with the 
purchaser's determination on his or her appeal may submit a written 
request for review of that decision to the HUD Field Office responsible 
for administering the URA in the area.



Sec.  290.18  Restrictions on sale to former mortgagors.

    The defaulting mortgagor, or any principal, successor, affiliate, or 
assignee thereof, on the mortgage on the property at the time of the 
default resulting in acquisition of the property by HUD shall not be 
eligible to purchase the property. A ``principal'' and an ``affiliate'' 
are defined as provided at 24 CFR 24.105.

[66 FR 35847, July 9, 2001]



Sec.  290.19  Restrictions concerning nondiscrimination against
Section 8 certificate holders and voucher holders.

    The purchaser of any multifamily housing project shall not refuse 
unreasonably to lease a dwelling unit offered for rent, offer to sell 
cooperative stock, or otherwise discriminate in the terms of tenancy or 
cooperative purchase and sale because any tenant or purchaser is the 
holder of a Certificate of Family Participation or a Voucher under 
Section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), or 
any successor legislation. This provision is limited in its application, 
for tenants or applicants with Section 8 Certificates or their 
equivalent (other than Vouchers), to those units which rent for an 
amount not greater than the Section 8 Fair Market Rent, as determined by 
HUD. The purchaser's agreement to this condition must be contained in 
any contract of sale and also may be contained in any regulatory 
agreement, use agreement, or deed entered into in connection with the 
disposition.



Sec.  290.21  Computing annual number of units eligible for substitution
of tenant-based assistance or alternative uses.

    (a) Substitution of tenant-based Section 8 assistance to low-income 
families instead of project-based assistance to units. The number of 
units eligible, as permitted by the Statute, for this form of 
substitution within the 10 percent limit will be estimated at the 
beginning of each fiscal year, taking into consideration the aggregate 
number of subsidized project units disposed of by HUD in the immediately 
preceding fiscal year and the disposition activity planned for the 
current fiscal year.
    (b) Alternate uses. The number of units eligible for alternate uses 
in any

[[Page 602]]

fiscal year, as permitted by the Statute, will be determined at the 
beginning of the fiscal year as the applicable percentages (i.e., either 
10 percent or 5 percent) of the estimated total number of units to be 
disposed of in the fiscal year, taking into consideration the total 
number of units in multifamily housing projects disposed of by the 
Department in the immediately preceding fiscal year, and the extent of 
the disposition activity planned in the current fiscal year.



Sec.  290.23  Rebuilding.

    HUD may provide project-based assistance to support the rebuilding 
of a HUD-owned multifamily housing project only. The required 
determination that rebuilding the project would be less expensive than 
substantial rehabilitation means that the costs to HUD for rebuilding 
are such that the monthly debt service needed to amortize the cost of 
relocating tenants, demolition, site preparation, rebuilding, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are within 120 percent of the most recently published 
Section 8 Fair Market Rents for Existing Housing (24 CFR part 888, 
subpart A), and would be less expensive than rehabilitation.



Sec.  290.25  Determination not to preserve a project or a part
of a project.

    HUD may determine to demolish, or otherwise dispose of, a HUD-owned 
multifamily housing project, or any portion of such a project, or to 
foreclose a HUD-held mortgage on a multifamily housing project, without 
ensuring its continued availability as affordable rental or cooperative 
housing for low- and very low-income families under appropriate 
circumstances which may include one or more those listed in paragraphs 
(a) through (g) of this section. If HUD decides not to preserve an 
occupied multifamily housing project at a foreclosure sale or sale of a 
HUD-owned project, tenants must be provided relocation assistance as 
described in Sec.  290.17.
    (a) The costs to HUD of rehabilitation are such that the monthly 
debt service needed to amortize the cost of rehabilitation, operating 
expenses, and a reasonable return to the purchaser cannot be provided 
with rents that are, for subsidized and formerly subsidized projects, 
within 120 percent of the most recently published Section 8 Fair Market 
Rents for Existing Housing (24 CFR part 888, subpart A) or, for 
unsubsidized and formerly unsubsidized projects, within rents obtainable 
in the market.
    (b) Construction is substantially incomplete.
    (c) Preservation is not feasible because of environmental factors 
that cannot be mitigated by HUD or the purchaser. For example, when the 
project is located on a site that cannot be made to comply with the 
Section 8 Site and Neighborhood standards in 24 CFR 886.307(k) because 
of factors that adversely affect the health, safety and general welfare 
of residents such as air pollution; smoke; mud slides; fire or explosion 
hazards. Preservation may also be infeasible because of significantly 
deteriorated surrounding neighborhood conditions with inadequate police 
or fire protection; high crime rates; drug infestation; or lack of 
public community services needed to support a safe and healthy living 
environment for residents.
    (d) HUD determines the project is unfit for rehabilitation.
    (e) Rehabilitation would cost more than constructing comparable new 
housing.
    (f) A reduction in the number of units in the project will enhance 
long-term project viability, for example, demolition of a building to 
provide space for a playground, open space, or combining one-bedroom 
units to create larger units for families.
    (g) Continued preservation of the project as rental or cooperative 
housing is not compatible with State or local land use plans for the 
area in which the project is located.



Sec.  290.27  Up-front grants and loans.

    (a) General. HUD may provide up-front grants and loans for 
rehabilitation, demolition, rebuilding and other related development 
costs as part of the disposition of a multifamily housing project that 
is HUD-owned, upon making a determination that such a grant or loan, 
plus any additional

[[Page 603]]

project-based assistance made available, would be more cost-effective 
than the use of the maximum permissible project-based rental assistance 
alone.
    (b) Eligible projects. An up-front grant or loan can be made 
available in the sale of a HUD-owned multifamily housing project that 
meets all of the following requirements:
    (1) Has more than 50% of the units in the project occupied by very 
low-income residents at the time a disposition plan is approved by HUD, 
or that HUD determines is essential, as affordable housing, to the 
revitalization of its community;
    (2) Is located in a housing market or submarket in which there is 
not sufficient habitable, affordable, rental housing, as defined in 
Sec.  290.3;
    (3) Will generate, after rehabilitation or rebuilding, sufficient 
rental income in a competitive market to cover all operating expenses, 
meet after sale debt service requirements, fund required reserves and 
throw off positive cash flow;
    (4) Will provide affordable housing for at least 20 years or the 
term of the loan, whichever is shorter, after the rehabilitation and/or 
rebuilding is completed; and
    (5) Meets such other requirements, including deed restrictions, loan 
provisions, and monetary penalties for non-performance, as HUD may 
determine are appropriate on a case-by-case basis.
    (c) Eligible sales and purchasers--(1) Negotiated sales to 
governmental entities. A negotiated sale of a project with an up-front 
grant or loan can only be made to the unit of general local government, 
which includes public housing agencies, in the area in which the project 
is located; or a State agency designated by the chief executive officer 
of the State in which the project is located; or an agency of the 
Federal government. The governmental entity in such a sale must take 
title to the project.
    (2) Other sales and purchasers. All sales which provide up-front 
grants or loans to entities other than those described in paragraph 
(c)(1) of this section must be conducted through a competitive selection 
process. All general and limited partnerships or their nominees, joint 
ventures or other entities assembled for purposes of purchasing the 
project and which have a governmental entity as a partner or other 
participant are considered profit motivated purchasers and not 
governmental entities, whether or not there is a non-profit, public, 
corporate or individual general partner.
    (d) Up-front grant or loan amount. The maximum that HUD will fund 
per project in an up-front grant or loan is 50 percent of total 
development cost (TDC), or $40,000 per affordable, finished unit, 
whichever amount is less. TDC covers demolition, environmental hazard 
remediation, construction materials, artisan services, professional 
services, developers services, and overhead, relocation and operating 
losses that are incurred to plan, perform and complete repairs or 
rebuilding.

[64 FR 72412, Dec. 27, 1999]



            Subpart B_Sale of HUD-Held Multifamily Mortgages



Sec.  290.30  General.

    (a) Except as otherwise provided in Sec.  290.31(a)(2), HUD will 
sell HUD-held multifamily mortgages on a competitive basis. HUD retains 
full discretion to offer any qualifying mortgage for sale and to 
withhold or withdraw any offered mortgage from sale. However, when a 
qualifying mortgage is offered for sale, the procedures set out in this 
subpart will govern the sale.
    (b) References in subpart B of this part to mortgages securing 
subsidized projects include HUD-held purchase money mortgages on 
subsidized projects.

[61 FR 11685, Mar. 21, 1996, as amended at 61 FR 32265, June 21, 1996]



Sec.  290.31  Sale of current mortgages securing subsidized projects.

    HUD will sell current mortgages securing subsidized projects, as 
follows:
    (a) Current mortgages with FHA mortgage insurance will be sold 
either:
    (1) On a competitive basis to FHA-approved mortgagees; or
    (2) On a negotiated basis, to State or local governments, or to a 
group of investors that includes an agency of a State or local 
government if, in addition to meeting the requirements of

[[Page 604]]

the Statute, the sales price is the best price that HUD can obtain from 
an agency of a State or local government while maintaining occupancy for 
the tenant group originally intended to be served by the subsidized 
housing program.
    (b) Current mortgages without FHA mortgage insurance will be sold if 
HUD can offer protections equivalent to those listed for an insured sale 
in paragraph (a) of this section.



Sec.  290.33  Sale of delinquent mortgages securing subsidized projects.

    Delinquent mortgages securing subsidized projects will be sold only 
if, as part of the sales transaction:
    (a) The mortgages are restructured; and
    (b) Either FHA mortgage insurance or equivalent protections are 
provided.



Sec.  290.35  Sale of HUD-held mortgages securing unsubsidized projects.

    HUD's policy for selling HUD-held mortgages securing unsubsidized 
projects is as follows:
    (a) Current mortgages may be sold with or without FHA mortgage 
insurance.
    (b) Delinquent mortgages may be sold without FHA mortgage insurance. 
However, delinquent mortgages will not be sold if:
    (1) HUD believes that foreclosure is unavoidable; and
    (2) The project securing the mortgage is occupied by very low-income 
tenants who are not receiving housing assistance and would be likely to 
pay rent in excess of 30 percent of their adjusted monthly income if HUD 
sold the mortgage.



Sec.  290.37  Requirements for continuing Federal rental subsidy contracts.

    For any mortgage that, at the time HUD offers the mortgage for sale 
without FHA mortgage insurance, is delinquent and secures a subsidized 
project or unsubsidized project that receives any of the forms of 
assistance enumerated in paragraphs (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec.  290.3:
    (a) The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as part 
of any loan restructuring or of a final compromise of the mortgage debt 
and shall include a covenant in any foreclosure deed executed in 
connection with the mortgage. The covenant shall continue in effect 
until the last federal project-based rental assistance contract expires 
by its own terms. The covenant shall provide that, except where 
otherwise approved by HUD, a project purchaser shall agree to assume the 
obligations of any outstanding:
    (1) Project-based federal rental subsidy contract; and
    (2) Tenant-based Section 8 housing assistance payments contract with 
a public housing agency and the related lease.
    (b) In the event of foreclosure of the mortgage sold by HUD, the 
mortgage purchaser and its successors and assigns:
    (1) Shall foreclose in a manner that does not interfere with any 
lease related to federal project-based assistance or any lease related 
to tenant-based, Section 8 housing assistance payments; and
    (2) Shall foreclose in manner that ensures that the right of 
possession of the purchaser at a foreclosure sale shall be subject to 
the terms of any residential lease not subject to paragraph (b)(1) of 
this section for the remaining term of the lease or for one year, 
whichever period is shorter.

[61 FR 11685, Mar. 21, 1996, as amended at 61 FR 32265, June 21, 1996]



Sec.  290.39  Nondiscrimination in admitting certificate and
voucher holders.

    (a) Nondiscrimination requirement. For any mortgage described in 
paragraphs (c) or (d) of this section that HUD sells without FHA 
mortgage insurance, the project owner shall not unreasonably refuse to 
lease a dwelling unit offered for rent, offer to sell cooperative stock, 
or otherwise discriminate in the terms of tenancy or cooperative 
purchase and sale because any tenant or purchaser is a certificate or 
voucher holder under 24 CFR part 982.
    (b) Inapplicability to current mortgages securing unsubsidized 
projects that receive no project based-assistance. The nondiscrimination 
requirements of this

[[Page 605]]

section do not apply to any mortgage that is current under the terms of 
the mortgage at the time HUD offers it for sale, if the mortgage secures 
an unsubsidized project that does not receive any of the forms of 
project-based assistance enumerated in paragraphs (4)(i) to (4)(iv) of 
the ``subsidized project'' definition in Sec.  290.3.
    (c) Applicability to mortgages securing unsubsidized projects 
receiving project-based assistance (partially-assisted projects) or 
securing subsidized projects. (1) The nondiscrimination requirement in 
paragraph (a) of this section applies to the project owner upon the sale 
of a mortgage without FHA mortgage insurance if, at the time HUD offers 
it for sale, the mortgage secures:
    (i) An unsubsidized project that receives any of the forms of 
assistance enumerated in paragraphs (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec.  290.5; or
    (ii) A subsidized project, as defined in Sec.  290.3.
    (2) This requirement shall continue in effect until the mortgage 
debt is satisfied.
    (d) Covenant requirement for all delinquent mortgages sold without 
FHA mortgage insurance. This paragraph (d) applies to the sale of any 
mortgage that is delinquent at the time HUD offers it for sale without 
FHA mortgage insurance, without regard to the subsidy status of the 
project. The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as part 
of any loan restructuring or final compromise of the mortgage debt and 
shall include a covenant in any foreclosure deed executed in connection 
with the mortgage. The covenant shall set forth the nondiscrimination 
requirement in paragraph (a) of this section. The covenant shall 
continue in effect until a date that is the same as the maturity date of 
the mortgage sold by HUD.

[61 FR 11685, Mar. 21, 1996; 61 FR 19188, May 1, 1996, as amended at 61 
FR 32265, June 21, 1996]



PART 291_DISPOSITION OF HUD-ACQUIRED AND -OWNED SINGLE FAMILY PROPERTY
--Table of Contents



                      Subpart A_General Provisions

Sec.
291.1 Purpose and general requirements.
291.5 Definitions.
291.10 General policy regarding rental of acquired property.

                      Subpart B_Disposition by Sale

291.90 Sales methods.
291.100 General policy on HUD acquisition, ownership, and disposition of 
          real estate assets.

                       Subpart C_Sales Procedures

291.200 Future REO acquisition method.
291.205 Competitive sales of individual properties.
291.210 Direct sales procedures.

         Subpart D_Sale of HUD-Held Single Family Mortgage Loans

291.301 Definitions.
291.302 Purpose and general policy.
291.303 Eligible bidders.
291.304 Bidding process.
291.305 Selection of bids and execution of Loan Sale Agreement.
291.306 Closing requirements.
291.307 Servicing requirements.

 Subpart E_Lease and Sale of HUD-Acquired Single Family Properties for 
                              the Homeless

291.400 Purpose and scope.
291.405 Definitions.
291.415 Lease with option to purchase properties for use by the 
          homeless.
291.430 Elimination of lead-based paint hazards.
291.435 Applicability of other Federal requirements.
291.440 Recordkeeping requirements.

             Subpart F_Good Neighbor Next Door Sales Program

291.500 Purpose.
291.505 Definition of ``unit of general local government.''
291.510 Overview of the GNND Sales Program.
291.515 Purchaser qualifications.
291.520 Eligible law enforcement officers.
291.525 Eligible teachers.
291.530 Eligible firefighter/emergency medical technicians.
291.535 Earnest money deposit.
291.540 Owner-occupancy term.

[[Page 606]]

291.545 Financing purchase of the home.
291.550 Second mortgage.
291.555 Refinancing.
291.560 Ineligibility of multiple-unit properties.
291.565 Continuing obligations after purchase.

    Authority: 12 U.S.C. 1701 et seq.; 42 U.S.C. 1441, 1441a, 1551a, and 
3535(d).

    Source: 56 FR 46956, Sept. 16, 1991, unless otherwise noted.



                      Subpart A_General Provisions

    Source: 64 FR 6479, Feb. 9, 1999, unless otherwise noted.



Sec.  291.1  Purpose and general requirements.

    (a) Purpose. (1) This part governs the acquisition, possession, and 
disposition of one-to-four family properties acquired by the Federal 
Housing Administration (FHA) through foreclosure of an insured or 
Secretary-held mortgage or loan under the National Housing Act, or 
acquired by HUD under section 204(g) of the National Housing Act (12 
U.S.C. 1710(g)). HUD will issue detailed policies and procedures that 
must be followed in specific areas.
    (2) The purpose of the property disposition program is to dispose of 
properties in a manner that expands homeownership opportunities, 
strengthens neighborhoods and communities, and ensures a maximum return 
to the mortgage insurance funds.
    (b) Nondiscrimination policy. The requirements set forth in 24 CFR 
parts 5 and 110 apply to the administration of any activity under this 
part. In addition, in accordance with 24 CFR 9.155(a), HUD must ensure 
that its policies and practices in conducting the single family property 
disposition program do not discriminate on the basis of disability.

[64 FR 6479, Feb. 9, 1999, as amended at 81 FR 53002, Aug. 11, 2016]



Sec.  291.5  Definitions.

    Terms used in this part are defined as follows:
    Competitive sale of individual property means a sale of an 
individual property to an individual bidder through a sealed bid process 
(or other bid process specifically authorized by the Secretary) in 
competition with other bidders in which properties have been publicly 
advertised to all prospective purchasers for bids.
    Direct sale means a sale to a selected purchaser to the exclusion of 
all others without resorting to advertising for bids. Such a sale is 
available only to approved applicants.
    Eligible properties means HUD-acquired properties designated by HUD 
for property disposition or other housing programs.
    HUD means the Department of Housing and Urban Development or its 
contractor, as appropriate.
    Insured mortgage means a mortgage insured under the National Housing 
Act (12 U.S.C. 1701 et seq.).
    Investor purchaser means a purchaser who does not intend to use the 
property as his or her principal residence.
    Owner-occupant purchaser means a purchaser who intends to use the 
property as his or her principal residence; a State, governmental 
entity, tribe, or agency thereof; or a private nonprofit organization as 
defined in this section. Governmental entities include those with 
general governmental powers (e.g., a city or county), as well as those 
with limited or special powers (e.g., public housing agencies).
    Private nonprofit organization means a secular or religious 
organization, no part of the net earnings of which may inure to the 
benefit of any member, founder, contributor, or individual. The 
organization must:
    (1) Have a voluntary board;
    (2)(i) Have a functioning accounting system that is operated in 
accordance with generally accepted accounting principles; or
    (ii) Designate an entity that will maintain a functioning accounting 
system for the organization in accordance with generally accepted 
accounting principles;
    (3) Practice nondiscrimination in the provision of assistance in 
accordance with the authorities described in Sec.  291.435(a); and
    (4) Have nonprofit status as demonstrated by approval under section 
501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)), or 
demonstrate that an application for such status is currently pending 
approval.

[[Page 607]]

    Secretary is defined in 24 CFR 5.100.
    State means any of the several States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Northern Mariana Islands, the Trust Territory of the Pacific 
Islands, and any other territory or possession of the United States.
    Tribe has the meaning provided for the term ``Indian tribe'' in 
section 102 of the Housing and Community Development Act of 1974 (42 
U.S.C. 5302).

[64 FR 6479, Feb. 9, 1999, as amended at 81 FR 53002, Aug. 11, 2016]



Sec.  291.10  General policy regarding rental of acquired property.

    HUD will lease acquired property to comply with other designated HUD 
programs, or when the Secretary determines that it is in the interest of 
HUD. Leases may include an option to purchase in appropriate 
circumstances.



                      Subpart B_Disposition by Sale

    Source: 64 FR 6480, Feb. 9, 1999, unless otherwise noted.



Sec.  291.90  Sales methods.

    In accordance with section 204(g) of the National Housing Act (12 
U.S.C. 1710(g)), HUD will prescribe the terms and conditions for all 
methods of sale. HUD may dispose of assets using any method that the 
Secretary deems appropriate, including, but not limited to the 
following:
    (a) Future REO acquisition method. The Future Real Estate-Owned 
(REO) acquisition method consists of a property acquisition agreement 
(or agreements) between HUD and a transferor (or transferors), which 
shall provide for the right and obligation of the transferor(s) to 
acquire a future quantity of properties designated by HUD as they become 
available. HUD will select such transferor(s) through a competitive 
process, in accordance with all applicable laws and regulations, 
including the requirements in Sec.  291.200. The transferor(s) shall 
have the right and obligation to manage and dispose of the properties 
upon such terms and conditions as are approved by the Secretary;
    (b) Competitive sales of individual properties. This method consists 
of competitive sales of individual properties to individual buyers, the 
procedures for which are described in Sec.  291.205;
    (c) Direct sales methods. There are three types of direct sales 
methods:
    (1) Direct sales of properties without insured mortgages to 
governmental entities and private nonprofit organizations, the 
procedures for which are described in Sec.  291.210(a);
    (2) Direct sales to displaced persons, sales of razed lots, or 
auctions, the procedures for which are described in Sec.  291.210(b);
    (3) Direct sales to other individuals or entities that do not meet 
any of the categories specified in paragraphs (a) through (d) of this 
section, under the circumstances and procedures described in Sec.  
291.210(c);
    (d) Bulk sales, the procedures for which are described in Sec.  
291.210(d); or
    (e) Other sales methods. HUD may select any other methods of sale, 
as determined by the Secretary.

[64 FR 6480, Feb. 9, 1999, as amended at 81 FR 53002, Aug. 11, 2016]



Sec.  291.100  General policy on HUD acquisition, ownership, and 
disposition of real estate assets.

    For all sales, except as otherwise specifically indicated, those 
sales conducted in accordance with Sec. Sec.  291.90(a) and 291.200 or 
with subpart D of this part, the following general policies apply:
    (a) Qualified purchaser. (1) Anyone, including a purchaser from a 
transferor of a property pursuant to Sec. Sec.  291.90(a) and 291.200, 
regardless of race, color, religion, sex, national origin, familial 
status, age, or disability may offer to buy a HUD-owned property, except 
that:
    (i) No member of or delegate to Congress is eligible to buy or 
benefit from a purchase of a HUD-owned property; and
    (ii) No nonoccupant mortgagor (whether an original mortgagor, 
assumptor, or a person who purchased ``subject to'') of an insured 
mortgage who has defaulted, thereby causing HUD to pay an insurance 
claim on the mortgage, is eligible to repurchase the same property.

[[Page 608]]

    (2) Neither HUD nor any transferor pursuant to Sec. Sec.  291.90(a) 
or 291.200 will offer former mortgagors in occupancy who have defaulted 
on the mortgage the right of first refusal to repurchase the same 
property.
    (3) HUD will offer tenants accepted under the occupied conveyance 
procedures outlined in 24 CFR 203.670 through 203.685 the right of first 
refusal to purchase the property only if:
    (i) The tenant has a recognized ability to acquire financing and a 
good rent-paying history, and has made a request to HUD to be offered 
the right of first refusal; or
    (ii) State or local law requires that tenants be offered the right 
of first refusal.
    (b) List price. The list price, or ``asking price,'' assigned to the 
property is based upon one or more evaluation tools (e.g., appraisal, 
Broker Price Opinion, Automated Valuation Model). An appraisal, when 
used, must be conducted by an independent real estate appraiser who 
meets all of the requirements of 24 CFR part 200, subpart G, and is in 
good standing on the appraiser roster established under that section. 
The appraiser must provide an opinion of the ``as-is'' market value 
using a valuation method that is commonly employed in the industry and 
that is consistent with FHA appraisal requirements.
    (c) Insurance. When listing properties, HUD may elect to include 
information to indicate whether the property is eligible for FHA-insured 
financing under section 203(B) of the National Housing Act (12 U.S.C. 
1709(b)).
    (d) Financing. (1) Subject to underwriting requirements, REO 
properties that have not been identified as uninsurable in accordance 
with paragraph (c) of this section can be purchased and financed with a 
mortgage insured under section 203(b) or 203(k) of the National Housing 
Act (12 U.S.C. 1709(b), 1709(k)), if supported by an FHA appraisal, in 
one of the following ways:
    (i) Insured. A property that meets the Minimum Property Standards 
(MPS), as defined in HUD Handbook 4905.1 or any successor handbook, as 
determined by the Secretary, for existing dwellings will be offered for 
sale in ``as-is'' condition with FHA mortgage insurance available as 
provided in part 203 of this chapter.
    (ii) Insured with repair escrow. (A) A property that requires no 
more than $10,000 for repairs to meet the MPS, as defined in HUD 
Handbook 4905.1 or any successor handbook, as determined by the 
Secretary, will be offered for sale in ``as-is'' condition with FHA 
mortgage insurance available, as provided in part 203 of this chapter, 
provided the mortgagor establishes a cash escrow to ensure the 
completion of the required repairs.
    (B) Changes in repair escrow. HUD may adjust the escrow balance 
required under this paragraph based on changes to the Consumer Price 
Index by publishing a Federal Register notice that provides for a public 
comment period of 30 calendar days for the purpose of accepting comments 
on the amount of the change. After comments have been considered, HUD 
will publish a final notice announcing the revised escrow amounts.
    (iii) Insured with rehabilitation loan in accordance with section 
203(k) of the National Housing Act and pursuant to Sec.  203.50 of this 
chapter.
    (2) REO properties that have been identified as uninsurable in 
accordance with paragraph (c) of this section can be purchased and 
financed with a mortgage insured under section 203(k) of the National 
Housing Act (12 U.S.C. 1709(k)), subject to underwriting requirements 
supported by an FHA-specified appraisal and in accordance with 24 CFR 
203.50.
    (3) HUD, in its sole discretion and subject to appropriations, may 
take back Purchase Money Mortgages (PMMs) on property purchased by 
governmental entities or private nonprofit organizations who buy 
property for ultimate resale to owner-occupant purchasers with incomes 
at or below 115 percent of the area median income. When offered by HUD, 
a PMM will be available in an amount determined by the Secretary to be 
appropriate, at market rate interest, for a period not to exceed 5 
years. Mortgagors must meet FHA mortgage credit standards.
    (i) For purposes of this section, the term ``purchase money 
mortgage,'' or PMM means a note secured by a mortgage or trust deed 
given by a buyer, as

[[Page 609]]

mortgagor, to the seller, as mortgagee, as part of the purchase price of 
the real estate.
    (ii) Except as provided in paragraph (d)(3) of this section, the 
purchaser is entirely responsible for obtaining financing for purchasing 
a property.
    (e) Environmental requirements and standards. Sales under this part 
are subject to the environmental requirements and standards described in 
24 CFR part 50, as applicable.
    (f) [Reserved]
    (g) Lead-based paint poisoning prevention. Properties constructed 
before 1978 are subject to the requirements of the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-
Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and 
implementing regulations at part 35, subparts A, B, F, and R, of this 
title.
    (h) Any real estate broker who has agreed to comply with HUD 
requirements may be eligible to participate in the sales program. 
Purchasers participating in the competitive sales program, except 
government entities and nonprofit organizations, must submit bids 
through a participating broker. In accordance with section 204(g) of the 
National Housing Act (12 U.S.C. 1710(g)), HUD will prescribe the terms 
and conditions for all methods of listing properties. HUD may dispose of 
properties using any method that the Secretary deems appropriate, 
including, but not limited to the following:
    (1) Open listings. Properties may be sold on an open listing basis 
with participating real estate brokers.
    (2) Asset management and listing contracts. (i) HUD may invite firms 
experienced in property management to compete for contracts that provide 
for an exclusive right to manage and list specified properties in a 
given area.
    (ii) In areas where a broker has an exclusive right to list 
properties, a purchaser may use a broker of his or her choice. The 
purchaser's broker must submit the bid through HUD's designated 
electronic bid system.
    (i) Disciplinary actions against HUD-qualified real estate brokers. 
(1) In general. Real estate brokers that are involved in Real Estate 
Owned (REO) sales will be removed from HUD's qualified selling broker 
list and will be prohibited from using HUD systems to participate in the 
sale of HUD-owned single family properties for good cause in accordance 
with the procedures of this paragraph. Nothing in this section prohibits 
HUD from taking such other action against a broker as provided in 24 CFR 
part 24 or from seeking any other available remedy.
    (2) Good cause. Good cause includes, but is not limited to:
    (i) Conviction under 18 U.S.C. 371 or 1010 of a broker or an agent 
supervised by that broker and acting within the scope of the agent's 
duties;
    (ii) Any of the following actions by a broker or an agent supervised 
by that broker and acting within the scope of the agent's duties:
    (A) Falsifying loan documents or aiding or abetting persons in the 
use of false or misleading information including, but not limited to, 
forged or fraudulent gift letters and owner occupant certifications;
    (B) Acting in concert with an appraiser to arrive at an artificial 
appraised value;
    (C) Engaging in fraudulent activities (with or without the 
assistance of an appraiser) that have led to default and payment of an 
insurance claim;
    (D) Failing to comply with earnest money collection, management, and 
disbursement procedures as set forth in this part;
    (E) Failing to maintain a current state license;
    (F) Violating the Real Estate Settlement Procedures Act (RESPA) (12 
U.S.C. 2601 et seq.);
    (G) Non-compliance with civil rights requirements regarding the sale 
of HUD-owned single family properties;
    (H) Involvement in, or knowledge of, any fraudulent activity by any 
person involved in the REO sales transaction; and
    (I) Any other actions or omissions that evidence a lack of business 
integrity or non-compliance with the laws, regulations, and rules 
applicable to housing, lending, or real estate sales.
    (3) Written notice. Once HUD makes an initial finding that there is 
good cause to remove a broker, HUD will provide the broker with written 
notice

[[Page 610]]

of proposed removal from HUD's qualified selling broker list and 
deactivation of the broker's access to HUD systems to participate in the 
sale of HUD-owned properties. The notice will:
    (i) State the reasons that HUD is taking the action;
    (ii) Identify the violations or deficiencies involved;
    (iii) Provide a citation to the relevant regulation, statute, or 
policy; and
    (iv) State the effective date and duration of the removal and 
deactivation.
    (4) Effective date and duration of removal. (i) The effective date 
of the broker's removal will be the 30th day after the date of the 
notice, unless the broker submits a written response or requests a 
conference in accordance with paragraph (i)(5) of this section;
    (ii) HUD's determination of the duration of removal and deactivation 
will be based upon HUD's consideration of the number and seriousness of 
the broker's violations and deficiencies.
    (5) Response and conference. Real estate brokers will be given 20 
days after the date of the notice (or longer, if provided in the notice) 
to submit a written response to HUD opposing the proposed removal and to 
request a conference. A request for a conference must be in writing and 
must be submitted along with the written response. If a conference is 
requested, it will occur within 15 days after the date of receipt of the 
request. HUD may extend the 15-day period by providing written notice to 
the broker. HUD may request additional information at or following a 
conference and provide additional time to submit such information. If 
the information is not submitted by the time set by HUD, the conference 
is completed. If the information is timely submitted, the conference is 
not completed until HUD has considered the additional information.
    (6) Disposition. (i) No response from real estate broker. If the 
real estate broker does not submit a written response within the time 
provided, the removal and deactivation take effect in accordance with 
the notice.
    (ii) Response from real estate broker. If the real estate broker 
submits a written response within the time provided, the removal and 
deactivation are delayed until HUD considers the response and makes a 
final determination. HUD will consider the sufficiency of any corrective 
actions taken by a broker with respect to its procedures and, if 
relevant, its agents, in reaching its decision. Within 20 days after the 
date of receipt of the written response, or if a conference is 
requested, within 20 days after the date of completion of the 
conference, HUD will advise the real estate broker in writing of the 
decision to rescind, modify, or affirm the removal from HUD's qualified 
selling broker list and the deactivation of the broker's access to HUD 
systems to participate in the sale of HUD-owned properties. The written 
decision by HUD shall constitute final agency action.
    (7) Effect of removal proceeding on bids. All bids submitted and 
commissions earned by the real estate broker prior to removal will be 
honored, unless HUD determines they were made under fraudulent 
circumstances.

[64 FR 6480, Feb. 9, 1999, as amended at 64 FR 50225, Sept. 15, 1999; 71 
FR 65325, Nov. 7, 2006; 81 FR 53002, Aug. 11, 2016]



                       Subpart C_Sales Procedures

    Source: 64 FR 6481, Feb. 9, 1999, unless otherwise noted.



Sec.  291.200  Future REO acquisition method.

    (a) Under this method of property disposition, HUD will enter into a 
property acquisition agreement (or agreements) with a transferor (or 
transferors), which shall provide for the right and obligation of the 
transferor(s) to acquire a future quantity of properties designated by 
HUD as they become available. The transferor(s) will be selected through 
a competitive process, conducted in accordance with applicable laws. HUD 
will negotiate the specific terms of the property acquisition 
agreement(s) with the selected transferor(s). The properties will be 
available on an ``as-is'' basis only, without repairs or warranties.
    (b) Eligible entities. An individual, partnership, corporation, or 
other legal entity will not be eligible to participate in this process 
if at the time of the sale, that individual or entity is

[[Page 611]]

debarred, suspended, or otherwise precluded from doing business with HUD 
under 2 CFR part 2424.

[64 FR 6481, Feb. 9, 1999, as amended at 72 FR 73495, Dec. 27, 2007]



Sec.  291.205  Competitive sales of individual properties.

    When HUD conducts competitive sales of individual properties to 
individual buyers, it will generally sell the properties on an ``as-is'' 
basis, without repairs or warranties, and it will follow the sales 
procedures provided in this section.
    (a) General. (1) Properties that are sold on an individual 
competitive bid basis are sold through local real estate brokers, except 
as provided in Sec.  291.100(h).
    (2) For properties being offered with insured mortgages, priority 
will be given to owner-occupant purchasers, as defined in Sec.  291.5, 
for a period of up to 30 days, as determined by HUD. For properties 
offered without insured mortgages, priority will be given to 
governmental entities and nonprofit organizations prior to other owner-
occupant purchasers.
    (b) Net offer. (1) The net offer is calculated by subtracting from 
the bid price the dollar amounts for the financing and loan closing 
costs and the broker's sales commission, as described in paragraph 
(b)(2) of this section.
    (2) If an owner-occupant purchaser of the property requests in the 
bid, HUD may pay all or a portion of the financing and loan closing 
costs, not to exceed the percentage of the purchase price determined 
appropriate by the Secretary for the area. In no event will the total 
amount for broker's sales commission exceed 6 percent of the purchase 
price, except for cash bonuses offered to brokers by HUD for the sale of 
hard-to-sell properties. No assistance for financing and loan closing 
costs or for the broker's sales commission will be provided to investor 
purchasers.
    (c) Acceptable bid. HUD will accept the bid producing the greatest 
net return to HUD and otherwise meeting the terms of HUD's offering of 
the property, with priority given to owner-occupant purchasers as 
described in paragraph (a)(2) of this section. The greatest net return 
is calculated based on the net offer, as described in paragraph (b) of 
this section.
    (d) Bid period. (1) HUD will establish a bid period for properties 
available for sale. Generally, the bid period will be 10 days, but may 
be lengthened or shortened by HUD. After properties are initially 
advertised, bids may be submitted by all potential purchasers. However, 
in the case of properties offered with insured mortgages, HUD may give 
priority to owner-occupant purchasers for a period of up to 30-days, as 
described in paragraph (a)(2) of this section.
    (2) HUD may treat all bids received during a specified period of 
time during the bid period to have been received simultaneously. HUD may 
also choose to review bids on a daily basis, with all bids submitted 
during each day considered to have been received simultaneously. HUD may 
use either (or both) of these methods during the bid period, as 
described in the bid materials accompanying a particular sale.
    (3) Offers received on a property before the bid period begins will 
be returned. Offers received after the bid period will not be considered 
at the bid opening, but will be considered during the extended listing 
period if no acceptable bid was received during the bid period (see 
paragraph (f) of this section).
    (e) Full price offers. HUD local offices that operate under a ``full 
price offer'' program open offers at specified times during the bid 
period. If an offer for the full list price and otherwise meeting the 
terms of the offering is received, it will be accepted at the time of 
the opening and the bid period cancelled.
    (f) Extended listing period. Properties not sold during the bid 
period will remain available for an extended listing period. All bids 
received on each day of the extended listing period will be considered 
as being received simultaneously, and will be opened together at the 
next scheduled daily bid opening. Properties that fail to sell within 45 
days after being offered for competitive bidding will be reanalyzed and 
made available for sale. If a property's price or terms are changed, it 
may be subject to another competitive bid period as

[[Page 612]]

described in paragraph (d) of this section.
    (g) Bid requirements. (1) All successful bids submitted, whether 
during the bid period or the extended listing period, must be in a form 
prescribed by HUD, and must be submitted in accordance with procedures 
established by HUD. If the purchase is to be an insured sale, a local 
HUD office may also require that supporting exhibits for mortgage credit 
analysis accompany the initial submission of the bid. All bids not 
indicating that the purchaser will occupy the property will be 
considered as offers from investor purchasers.
    (2) Noncomplying bids will be returned to the broker with an 
explanation for the noncompliance decision and information about whether 
the property is still available.
    (h) Earnest money deposits. (1) The amount of earnest money deposit 
required for a property with a sales price of $50,000 or less is $500, 
except that for vacant lots the amount is 50 percent of the list price. 
For a property with a sales price greater than $50,000, the amount of 
earnest money deposit required in the area is set by the local HUD 
office, in an amount not less than $500 or more than $2,000. Information 
on the amount of the required earnest money deposit is available from 
the local HUD office or participating real estate brokers.
    (2) All bids must be accompanied by earnest money deposits in the 
form of a cash equivalent as prescribed by the Secretary, or a 
certification from the real estate broker that the earnest money has 
been deposited in the broker's escrow account. If a bid is accepted by 
HUD, the earnest money deposit will be credited to the purchaser at 
closing; if the bid is rejected, the earnest money deposit will be 
returned. Earnest money deposits are subject to total or partial 
forfeiture for failure to close a sale.
    (i) Multiple bids. Real estate brokers may submit unlimited numbers 
of bids on an individual property provided each bid is from a different 
prospective purchaser. If a purchaser submits multiple bids on the same 
property, only the bid producing the highest net return to HUD will be 
considered. If a prospective owner-occupant purchaser submits a bid on 
more than one property, the bid that produces the greatest net return to 
HUD will be accepted and all other bids from that purchaser will be 
eliminated from consideration. However, if the prospective owner-
occupant purchaser has submitted the only acceptable bid on another 
property, then that bid must be accepted and all other bids from that 
purchaser on any other properties will be eliminated from consideration.
    (j) Identical bids. In the case of identical bids submitted by an 
owner-occupant purchaser and an investor purchaser, HUD will select the 
bid submitted by the owner-occupant purchaser. If identical bids are 
submitted by two or more owner-occupant purchasers, or by two or more 
investor purchasers, award will be determined by drawing lots.
    (k) Opening the bids. Unless the Secretary specifically authorizes 
another bid process:
    (1) The Secretary will make all winning bids available publicly.
    (2) Successful bidders will be notified through their real estate 
brokers by electronic mail, mail, telephone, or other means. Acceptance 
of a bid is final and effective only upon HUD's execution of the sales 
contract, signed by both the submitting real estate broker and the 
prospective purchaser, and sending a copy of the executed contract by 
electronic mail to the successful bidder or the bidder's agent.
    (l) Counteroffers. HUD may present counteroffers during competitive 
bid periods, as it deems appropriate to minimize losses to its insurance 
fund. ``Best and Final'' offers requested by HUD are considered 
counteroffers.

[64 FR 6481, Feb. 9, 1999, as amended at 81 FR 53003, Aug. 11, 2016]



Sec.  291.210  Direct sales procedures.

    When HUD conducts the sales listed in Sec.  291.90(c), it will sell 
the properties on an ``as-is'' basis, without repairs or warranties, and 
it will follow the applicable sales procedures provided in this section.
    (a) Direct sales of properties without insured mortgages to 
governmental entities and private nonprofit organizations. (1) State and 
local governments, public

[[Page 613]]

agencies, and qualified private nonprofit organizations that have been 
preapproved to participate by HUD, according to standards determined by 
the Secretary, may purchase properties directly from HUD at a discount 
off the list price determined by the Secretary to be appropriate, but 
not less than 10 percent, for use in HUD and local housing or homeless 
programs.
    (2)(i) Purchasers under paragraph (a)(1) of this section must 
designate geographical areas of interest by ZIP code. Upon request, 
before those properties without insured mortgages are publicly listed, 
HUD will assure that governmental entities and nonprofit organizations 
are notified in writing when eligible properties become available in the 
areas designated by them. HUD will coordinate the dissemination of the 
information to ensure that if more than one purchaser designates a 
specific area, those purchasers receive the list of properties at the 
same time, based on intervals agreed upon between HUD and the 
purchasers. A property in this section will be sold to the first 
eligible purchaser submitting an acceptable contract. All bids received 
on the same business day will be considered to have been received 
simultaneously. In the case of identical bids submitted on the same 
business day, award will be determined by drawing lots.
    (ii) Purchasers under paragraph (a)(1) of this section must notify 
HUD of preliminary interest in specific properties within 5 days of the 
notification of available properties (if notification is by mail, the 5 
days will begin to run 5 days after mailing). HUD will provide a 
consideration and inspection period for these purchasers. The 
consideration and inspection period will usually be for ten days from 
the date of notification of interest, but may be lengthened or shortened 
by HUD, as appropriate. Those properties in which purchasers express an 
interest will be held off the market for the duration of the 
consideration and inspection period. Other properties on the list will 
continue to be processed for public sale. HUD may limit the number of 
properties held off the market for a purchaser at any one time, based 
upon the purchaser's financial capacity as determined by HUD and upon 
past performance in HUD programs. At the end of the consideration and 
inspection period, properties in which no governmental entity or 
nonprofit organization has expressed a specific intent to purchase will 
be offered for sale under the competitive bid process. Properties in 
which a governmental entity or nonprofit organization expressed an 
intent to purchase, during the consideration and inspection period, will 
continue to be held off the market pending receipt of the sales 
contract. If a sales contract is not received within a time period of up 
to 10 days, as determined by HUD, following expiration of the 
consideration and inspection period, and no other governmental entity or 
nonprofit organization has expressed an interest, then the property will 
be offered for sale under the competitive bid process.
    (3) In order to ensure that properties purchased at a discount are 
being utilized for expanding affordable housing opportunities, HUD may 
require, as appropriate, periodic, limited information regarding the 
purchase and resale of such properties, and certain restrictions on the 
resale of such properties.
    (b) Direct sales to displaced persons; razed lots; auctions. HUD may 
seek to dispose of individual properties to individual buyers through 
methods such as direct sales to displaced persons, sales of razed lots, 
or auctions. These sales will be upon such terms and conditions as the 
Secretary may prescribe.
    (c) Direct sales to individuals or entities. HUD may also seek to 
dispose of properties through direct sales to other individuals or 
entities that do not meet any of the categories specified in this 
section, if the Assistant Secretary for Housing-Federal Housing 
Commissioner (or his or her designee) finds in writing that such sales 
would further the goals of the National Housing Act (12 U.S.C. 1701 et 
seq.) and would be in the best interests of the Secretary. These sales 
will be upon such terms and conditions as the Secretary may prescribe.
    (d) Bulk sales. HUD may seek to dispose of properties through bulk 
sales. Such sales will be upon such terms and conditions as the 
Secretary may prescribe.

[[Page 614]]



         Subpart D_Sale of HUD-Held Single Family Mortgage Loans

    Source: 62 FR 3769, Jan. 24, 1997, unless otherwise noted.



Sec.  291.301  Definitions.

    For purposes of this subpart, the following definitions apply:
    Bid package means the documents prepared for bidders in a mortgage 
loan sale, and includes the following: An Executive Summary containing 
information on FHA single family mortgage loan sales and background on 
HUD programs; a description of post-sale servicing requirements; due 
diligence information and reports; mortgage loan information; a copy of 
the Loan Sale Agreement and its exhibits; bidding and closing 
information; and such other information and requirements as the 
Secretary may determine necessary.
    Payment plan agreement, for purposes of Sec.  291.307(c)(2), means 
an agreement between the purchaser and the mortgagor for payments after 
the 36-month period of statutorily authorized forbearance relief has 
expired.
    Single family mortgage loan means a mortgage loan on a single family 
property assigned to HUD under section 230(b) of the National Housing 
Act (as that subsection existed prior to January 26, 1996) (12 U.S.C. 
1715u), a mortgage loan on a single family property insured by HUD under 
section 221 of the National Housing Act (12 U.S.C. 1715l), a mortgage 
loan on a single family property issued in connection with the 
settlement of the Ferrell litigation, a purchase money mortgage loan 
issued by HUD on a single family property sold from HUD's inventory that 
was not connected with the settlement of the Ferrell litigation, or any 
other single family mortgage loan owned by HUD and representing an asset 
to HUD's Title II mortgage insurance funds.
    Single family property means a residence with one to four dwelling 
units.



Sec.  291.302  Purpose and general policy.

    This subpart sets forth HUD's policy and procedures for the sale of 
HUD-held single family mortgage loans. In general, HUD will sell both 
performing and nonperforming HUD-held single family mortgage loans. HUD 
will sell all mortgage loans without recourse and without FHA insurance. 
HUD will package pools of single family mortgage loans for sale to the 
general public on a competitive basis; however, HUD may sell mortgage 
loans to government-sponsored enterprises (GSEs) on a negotiated basis. 
Nothing in this subpart shall be construed to prevent HUD from packaging 
single family mortgage loans with other types of HUD assets for sale. 
The Secretary retains full discretion to offer any qualifying pool of 
mortgage loans for sale and to withhold or withdraw any offered pool of 
mortgage loans from sale. However, when HUD offers a qualifying mortgage 
loan for sale, the procedures set out in this subpart and in the bid 
package will govern the sale of HUD-held single family mortgage loans.



Sec.  291.303  Eligible bidders.

    HUD will provide information on the eligibility of bidders in the 
bid package, a notice in the Federal Register, or other means, at the 
Secretary's full discretion. However, an individual, partnership, 
corporation, or other legal entity will not be eligible to bid for any 
loan pool, either as an individual or a participant, if, at the time of 
the sale, that individual or entity is debarred or suspended from doing 
business with HUD under 2 CFR part 2424.

[72 FR 73495, Dec. 27, 2007]



Sec.  291.304  Bidding process.

    (a) Submission of bids. All bids must be submitted to HUD in 
accordance with instructions in the bid package for a particular sale.
    (b) Effect of bid. By submitting a bid, the bidder is making an 
offer to purchase single family mortgage loans as presented in the bid 
package. Submission of a bid constitutes acceptance of the terms and 
conditions set forth in the bid package. Along with the bid, the bidder 
must submit an executed copy of the Loan Sale Agreement, which is 
included in the bid package.
    (c) Earnest money deposits. The bidder must submit to HUD, along 
with its bid, an earnest money deposit in an amount to be determined by 
HUD. The earnest money deposit is nonrefundable

[[Page 615]]

to the winning bidder and will be credited toward the purchase price.
    (d) Termination of offering. HUD reserves the right to terminate an 
offering in whole or in part at any time before the bid date.
    (e) Withdrawal of loans. HUD reserves the right, in its sole 
discretion and for any reason whatsoever, to withdraw loan assets from a 
pool prior to the bid date. Any earnest money deposits relating to 
withdrawn loan assets will be retained by HUD and credited toward the 
total purchase price of the remaining loan assets in the pool, in 
accordance with the Loan Sale Agreement. After the bid date, HUD can 
withdraw mortgage loans in accordance with the Loan Sale Agreement.
    (f) Rejection of bids. (1) HUD may, in its sole discretion, reject 
any bid under the following circumstances:
    (i) If the bid does not conform with the instructions in the bid 
package; or
    (ii) If, in HUD's sole discretion, it determines that such action 
would be in the best interests of the U.S. Government.
    (2) HUD can also issue a conditional rejection that will become an 
acceptance upon fulfillment of HUD's requests.
    (g) Withdrawal of bids. A bidder may withdraw a previously submitted 
bid in accordance with the instructions in the bid package for a 
particular sale.
    (h) Bids by brokers or agents. Any bid by a broker or agent for a 
principal must be in the name of the principal and signed by the broker/
agent as the attorney-in-fact for the principal. All such bid documents 
must be executed so as to bind the principal by the broker/agent as the 
attorney-in-fact. A power of attorney satisfactory to HUD as to form and 
content must be submitted with each bid.



Sec.  291.305  Selection of bids and execution of Loan Sale Agreement.

    HUD will evaluate bids, select successful bids, and notify the 
successful bidder in a manner set forth in the bid package. HUD will 
complete the execution of the Loan Sale Agreement when it accepts the 
successful bid.



Sec.  291.306  Closing requirements.

    (a) Closing date payment. On the closing date, the purchaser must 
pay to HUD the closing date payment, consisting of the balance of the 
amount due on the bid price, as adjusted in accordance with the Loan 
Sale Agreement.
    (b) Closing documents. HUD will execute and deliver to the purchaser 
a bill of sale transferring title to the mortgage loans sold in the 
sale. The purchaser must deliver to HUD the documents required at 
closing, in addition to the closing date payment.



Sec.  291.307  Servicing requirements.

    (a) Use of HUD-approved servicing mortgagees. All mortgage loans 
must be serviced by HUD-approved servicing mortgagees for the remaining 
life of the mortgage loans. A purchaser that is not a HUD-approved 
servicing mortgagee must retain a HUD-approved servicing mortgagee to 
service the mortgage loans.
    (b) Continuation of mortgagor rights. The purchaser may take all 
lawful steps to collect the amounts due under the mortgage loans. These 
steps may include foreclosure, but only after the servicer has provided 
all required forms of relief for the mortgagor in accordance with 
paragraph (c) of this section. The purchaser and its servicer, and any 
subsequent transferee of or servicer for the mortgage loan, will be 
fully bound by the terms of the Loan Sale Agreement, including those 
terms that provide the mortgagor with any rights regarding forbearance, 
assistance, or reinstatement of the mortgage loan.
    (c) Purchaser's protection of mortgagor's rights--(1) Assigned 
mortgage loans during forbearance period. This paragraph (c)(1) explains 
how a purchaser (or a servicer of a purchased mortgage loan) must 
service a mortgage loan that was assigned to HUD under section 230(b) of 
the National Housing Act (as that subsection existed prior to January 
26, 1996), for which not more than 36 months has expired since the 
mortgage loan assignment was accepted by the Secretary. Such a purchaser 
must service these mortgage loans in essentially the same manner as HUD 
was required to service the loans while

[[Page 616]]

HUD held them. Specific servicing requirements will be set forth in the 
Loan Sale Agreement for each sale.
    (2) Assigned mortgage loans after the initial 36-month forbearance 
period. This paragraph (c)(2) explains how a purchaser (or a servicer of 
a purchased mortgage loan) must service a mortgage loan that was 
assigned to HUD under section 230(b) of the National Housing Act (as 
that subsection existed prior to January 26, 1996), for which more than 
36 months has expired since the mortgage loan assignment was accepted by 
the Secretary.
    (i) Such purchaser may require the mortgagor to pay at least the 
full monthly payment due under the mortgage loan. A purchaser may also 
require a mortgagor to pay increased monthly mortgage loan payments 
under a renewed payment plan agreement to reduce the amount in arrears 
if the mortgagor's available income (as calculated according to the Loan 
Sale Agreement) can support the increased payments. A purchaser must 
renew payment plan agreements at least through and including the 
expiration of the original term of the mortgage loan, so long as the 
mortgagor complies with the prior payment plan agreement.
    (ii) If the mortgagor defaults under a payment plan agreement 
established by the purchaser, the mortgagor shall have the right to 
reinstate the most recent payment plan agreement if the mortgagor makes 
a lump sum payment in an amount necessary to cure the default. If the 
mortgagor defaults under the most recent payment plan agreement and does 
not reinstate, the purchaser may terminate the payment plan agreement 
and take such action as may be permitted under the terms of the 
mortgage.
    (iii) The purchaser's right to demand payment of a reinstatement 
amount from the mortgagor may be limited by the terms of the Loan Sale 
Agreement.
    (3) Section 221 Mortgages. This paragraph (c)(3) explains how a 
purchaser (or a servicer of a purchased mortgage) must service a 
mortgage assigned to HUD under section 221(g)(4) of the National Housing 
Act.
    (i) Current section 221(g)(4) mortgage loans. Section 221(g)(4) 
mortgage loans that are current as of the closing date are not subject 
to the servicing requirements set forth in paragraphs (c)(1) and (c)(2) 
of this section.
    (ii) Defaulted section 221(g)(4) mortgage loans. With respect to any 
section 221(g)(4) mortgage loan as to which a payment default has 
occurred, and as to which HUD, as of the closing date, was providing or 
had agreed to provide forbearance relief, the purchaser must continue to 
provide forbearance relief and must service such mortgage loans as set 
forth in paragraphs (c)(1) and (c)(2) of this section.
    (d) Section 235 mortgage loans--(1) Assistance payments contract. 
If, prior to the mortgage loan sale, the assistance payments contract 
has not been previously terminated under 24 CFR 235.375(a), the contract 
will terminate as to each mortgage loan upon the sale of the mortgage 
loan. The purchasing mortgagee will therefore not receive any assistance 
payments on behalf of the mortgagor for any Section 235 mortgage loan 
sold.
    (2) Reduction in interest rates. For a Section 235 mortgage loan 
that was accompanied by an assistance payments contract that was still 
in effect on the date of the sale, the Secretary will reduce the 
interest rate on the mortgage loan to a rate to be determined by the 
Secretary.



 Subpart E_Lease and Sale of HUD-Acquired Single Family Properties for 
                              the Homeless



Sec.  291.400  Purpose and scope.

    (a) Purpose. HUD seeks to assist individuals and families who are 
homeless by providing them with transitional housing and appropriate 
supportive services with the goal of helping them move to independent 
living. Therefore, HUD will make available, to applicants approved by 
HUD, certain HUD-acquired single family properties for use by the 
homeless.
    (b) Applicant preapproval. Before a field office may notify an 
applicant of eligible properties, the applicant must be preapproved by 
HUD, according to procedures available from the field office.

[[Page 617]]

    (c) Property available for lease with option to purchase. HUD will 
make available up to 10 percent of its total inventory of properties, 
before or after they are listed for sale to the public.
    (d) Property available under a McKinney Act Supportive Housing 
program lease-option agreement. Eligible properties will be available 
under a lease-option to purchase agreement to Supportive Housing program 
applicants for acquisition grants under 24 CFR part 583.
    (e) Properties available for sale. Eligible properties will be 
available for competitive sale or direct sale for fair market value, 
less a discount determined appropriate by the Secretary but not less 
than 10 percent.
    (f) Concentration of properties. To the extent practicable and 
possible, HUD will avoid excessive concentration in a single 
neighborhood of properties leased or sold under this subpart.
    (g) Failure to comply with requirements. Failure to comply with this 
subpart, or a lease issued under this subpart, may result in termination 
from the program.

(Approved by the Office of Management and Budget under OMB control 
number 2502-0412)

[61 FR 55714, Oct. 28, 1996]



Sec.  291.405  Definitions.

    For purposes of this subpart E:
    Applicant means a State, metropolitan city, urban county, 
governmental entity, tribe, or private nonprofit organization that 
submits a written expression of interest in eligible properties under 
this subpart E. Governmental entities include those that have general 
governmental powers (e.g., a city or county), as well as those with 
limited or special powers (e.g., public housing agencies or State 
housing finance agencies). In the case of applicants leasing properties 
while their applications for Supportive Housing assistance are pending, 
``applicant'' is defined in 24 CFR part 583.
    Homeless means:
    (1) Individuals or families who lack the resources to obtain 
housing, whose annual income is not in excess of 50 percent of the 
median income for the area, as determined by HUD, and who:
    (i) Have a primary nighttime residence that is a public or private 
place not designed for, or ordinarily used as, a regular sleeping 
accommodation for human beings;
    (ii) Have a primary nighttime residence that is a supervised 
publicly or privately operated shelter designed to provide temporary 
living accommodations (including welfare hotels, congregate shelters, 
and transitional housing, but excluding prisons or other detention 
facilities); or
    (iii) Are at imminent risk of homelessness because they face 
immediate eviction and have been unable to identify a subsequent 
residence, which would result in emergency shelter placement (except 
that persons facing eviction on the basis of criminal conduct such as 
drug trafficking and violations of handgun prohibitions shall not be 
considered homeless for purposes of this definition); or
    (2) Persons with disabilities who are about to be released from an 
institution and are at risk of imminent homelessness because no 
subsequent residences have been identified and because they lack the 
resources and support networks necessary to obtain access to housing.
    Lessee means the applicant, approved by HUD as financially 
responsible, that executes a lease agreement with HUD for an eligible 
property.

[64 FR 6482, Feb. 9, 1999]



Sec.  291.415  Lease with option to purchase properties for use by
the homeless.

    (a) Certification. Eligible properties are available for lease to 
applicants, approved by HUD, that certify that the property will be 
utilized only for the purpose of providing transitional housing for the 
homeless during the lease term, and that the intended use of the 
property will be consistent with all local laws and regulations. The 
lease agreement will be in a form prescribed by the Secretary. Lessees 
must execute a sublease with occupants in a form prescribed by the 
Secretary limiting an occupant's tenancy to no longer than two years.
    (b) Term of lease. (1) A lease of an eligible property may be 
negotiated for such time as the lessee requires, not to

[[Page 618]]

exceed one year. Leases are renewable, at the option of the lessee and 
with the approval of HUD, at the end of the first lease term for up to 
four additional one-year terms, on a year-to-year basis, provided the 
lessee has met the requirements under this program.
    (2) Approvals for lease renewals will be denied if HUD determines 
that the lessee has not complied with the requirements of this part of 
the lease.
    (3) A property will not be leased to a lessee for a period longer 
than five years. At the end of the five-year period, if the lessee has 
not exercised the option to purchase, HUD will notify the lessee to 
vacate the property and, if necessary, will take appropriate action 
under the eviction laws of the jurisdiction in which the property is 
located. All property returned to HUD must be vacant, and will be placed 
on the market for sale to the general public.
    (4) Within 30 days of leasing a property from HUD or within 30 days 
after a property is vacated, a lessee must sublease the property to the 
homeless, unless a longer period is approved by HUD.
    (c) Rent. (1) The lessee must pay HUD a nominal rent of $1 for each 
one-year lease period.
    (2) A lessee may charge rent, including utilities, to an occupant at 
a rate appropriate to the financial means of the occupant. Unless HUD 
approves after consideration of such factors as the cost of operating 
housing in the area and the amount of the lessee's contributions to the 
program, such rent may not exceed the highest of:
    (i) Thirty percent of the family's monthly adjusted income 
(adjustment factors include the number of people in the family, age of 
family members, medical expenses, and child care expenses);
    (ii) Ten percent of the family's monthly income; or
    (iii) If the family is receiving payments for welfare assistance 
from a public agency and a part of the payments, adjusted in accordance 
with the family's actual housing costs, is specifically designated by 
the agency to meet the family's housing costs, the portion of the 
payments that is designated.
    (3) In no event may the rent charged an occupant exceed the 
occupant's pro rata share of the lessee's costs of operating the 
property.
    (d) Damage to leased properties. Any damage to leased property 
caused by the intentional or negligent acts of the lessee or occupants 
must be repaired by the lessee at its own expense. If the lessee does 
not make the necessary repairs within a reasonable time after the damage 
occurs, HUD may, at its option, make the repairs and charge the cost to 
the lessee. Failure by the lessee to make the necessary repairs or to 
reimburse HUD for the cost of repairs will constitute grounds for 
termination of the lease and may result in termination from the program.
    (e) Purchase of leased properties. (1) Lessees that desire to 
purchase leased properties during the lease term will be offered the 
properties at the lower of the fair market value established at the time 
of the initiation of the lease or at the time of the sale, less a 
discount determined appropriate by the Secretary but not less than 10 
percent, provided lessees agree to use the properties either to house 
low-income tenants for a period of not less than 10 years or to resell 
the properties to low-income buyers. If the lessee does not agree to 
such conditions, the lessee must purchase the properties at the higher 
of the fair market value at the time of the initiation of the lease or 
at the time of the sale, less 10 percent. Any repairs to or 
rehabilitation of a property done by a lessee during the lease term will 
not be reflected in the purchase price.
    (2) Sales of leased properties will be on as-is, all-cash basis. HUD 
will not pay a fee for a selling broker. HUD will pay the closing 
agent's fee. The purchaser must pay all other closing costs.

[61 FR 55715, Oct. 28, 1996]



Sec.  291.430  Elimination of lead-based paint hazards.

    The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), 
the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856), and implementing regulations at part 35, subparts A, B, F, 
and R of this

[[Page 619]]

title, apply to activities covered by this subpart.

[64 FR 50225, Sept. 15, 1999, as amended at 69 FR 34275, June 21, 2004]



Sec.  291.435  Applicability of other Federal requirements.

    In addition to the requirements set forth in 24 CFR part 5, the 
following Federal requirements apply to lessees and purchasers under 
this subpart:
    (a) Nondiscrimination and equal opportunity. (1) The 
nondiscrimination and equal opportunity requirements set forth in 24 CFR 
part 5 are modified as follows:
    (i) As applicable, lessees and purchasers must also comply with the 
Americans With Disabilities Act (42 U.S.C. 12131) and implementing 
regulations in 28 CFR parts 35 and 36.
    (ii) The requirements of section 3 of the Housing and Urban 
Development Act of 1968 (12 U.S.C. 1701u), and Executive Order 11246 (30 
FR 12319, 12935, 3 CFR, 1946-1965 Comp., p. 339; Executive Order 11625 
(36 FR 19967, 3 CFR, 1971-1975 Comp., p. 616); Executive Order 12432 (48 
FR 32551, 3 CFR, 1983 Comp., p. 198; and Executive Order 12138 (44 FR 
29637, 3 CFR, 1979 Comp., p. 393) do not apply to this subpart.
    (2) Lessees or purchasers that intend to serve designated 
populations of the homeless must comply, within the designated 
population, with the requirements for nondiscrimination on the basis of 
race, color, religion, sex, national origin, age, familial status, and 
disability.
    (3) If the procedures that the lessee or purchaser intends to use to 
make known the availability of housing are unlikely to reach persons of 
any particular race, color, religion, sex, age, national origin, 
familial status, or disability who may qualify for admission to the 
housing, the recipient must establish additional procedures that will 
ensure that interested persons can obtain information concerning the 
availability of the housing.
    (4) The lessee or purchaser must adopt procedures to make available 
information on the existence and locations of facilities and services 
that are accessible to persons with a handicap and maintain evidence of 
implementation of the procedures.
    (b) Conflicts of interest. No person who is an employee, agent, 
consultant, officer, or elected or appointed official of the lessee or 
purchaser of property under this subpart, or who is in a position to 
participate in a decisionmaking process or gain inside information with 
regard to the lease or purchase of the property, may obtain a personal 
or financial interest or benefit from the lease or purchase of the 
property, or have an interest in any contract, subcontract, or agreement 
with respect thereto, or the proceeds thereunder, either for himself or 
herself or for those with whom he or she has family or business ties, 
during his or her tenure or for one year thereafter.

[61 FR 55715, Oct. 28, 1996]



Sec.  291.440  Recordkeeping requirements.

    Each lessee must establish and maintain sufficient records to enable 
the Secretary to determine whether the requirements of this subpart have 
been met. This includes, where available, racial, ethnic, gender, and 
disability status data on the applicants for, and beneficiaries of, this 
homeless initiative.

(Approved by the Office of Management and Budget under OMB control 
number 2502-0412)

[61 FR 55716, Oct. 28, 1996]



             Subpart F_Good Neighbor Next Door Sales Program

    Source: 71 FR 64426, Nov. 1, 2006, unless otherwise noted.



Sec.  291.500  Purpose.

    This subpart describes the policies and procedures governing the 
Good Neighbor Next Door (GNND) Sales Program. The purpose of the GNND 
Sales Program is to improve the quality of life in distressed urban 
communities. This is to be accomplished by encouraging law enforcement 
officers, teachers, and firefighters/emergency medical technicians to 
purchase and live in homes that are located in the same communities 
where they perform their daily responsibilities and duties.

[81 FR 53003, Aug. 11, 2016]

[[Page 620]]



Sec.  291.505  Definitions.

    For purposes of this subpart:
    Locality means the community, neighborhood, or jurisdiction of the 
unit of general local government, or Indian tribal government;
    Unit of general local government means a county or parish, city, 
town, township, or other political subdivision of a State.

[81 FR 53003, Aug. 11, 2016]



Sec.  291.510  Overview of the GNND Sales Program.

    (a) General. The GNND Sales Program enables a full-time law 
enforcement officer, teacher, or firefighter/emergency medical 
technician to purchase a specifically designated HUD-acquired home 
located in a HUD-designated revitalization area:
    (1) At a 50 percent discount from the list price; and
    (2) With a downpayment of $100, but only if the law enforcement 
officer, teacher, or firefighter/emergency medical technician finances 
the home through a Federal Housing Administration (FHA) insured 
mortgage.
    (b) Eligible properties. Under the GNND Sales Program, single-unit 
properties acquired by HUD located in HUD-designated revitalization 
areas (except occupied properties, those located in Asset Control Areas, 
or those that HUD has determined will be sold through an alternative 
sales method) will be made available to interested law enforcement 
officers, teachers, and firefighters/emergency medical technicians prior 
to listing the properties for sale to other purchasers.
    (c) Multiple bids. In the event that several bids are received on a 
single property, HUD will randomly select a winning offer by lottery and 
will also randomly select two backup bids, to be utilized in the order 
selected, in the event the winning purchaser is unable to close on the 
property. If both of the backup purchasers are also unable to close on 
the property, the property will then be made available for sale to 
purchasers through other sales methods.
    (d) Real estate brokers. Law enforcement officers, teachers, and 
firefighters/emergency medical technicians must submit bids through a 
participating real estate broker. Any real estate broker who has agreed 
to comply with HUD requirements may participate in the GNND Sales 
Program. Real estate brokers may submit unlimited numbers of bids on an 
individual property provided each bid is from a different prospective 
purchaser.
    (e) Cap on sales. The number of HUD-acquired homes sold under the 
GNND Sales Program in a fiscal year shall not exceed 5 percent of the 
number of ``Part A'' mortgage insurance conveyance claims paid by HUD in 
the prior fiscal year. The cap shall apply on a national basis, but HUD 
reserves the right to geographically apportion the cap to address 
regional or local differences in the number of homes sold through the 
GNND Sales Program. Additionally, HUD may adjust the percentage of the 
cap for any fiscal year. Any HUD determination to geographically 
distribute the cap, change a current geographic distribution, or adjust 
the percentage of the cap will be announced by HUD through publication 
of a notice in the Federal Register at least 30 days before the revision 
takes effect.

[71 FR 64426, Nov. 1, 2006, as amended at 73 FR 1974, Jan. 11, 2008]



Sec.  291.515  Purchaser qualifications.

    To qualify to purchase a home through the GNND Sales Program:
    (a) The person must be employed as a law enforcement officer (as 
described in Sec.  291.520), teacher (as described in Sec.  291.525), or 
firefighter/emergency medical technician (as described in Sec.  291.530) 
at the time he/she submits a bid to purchase a home through the program 
and at the time of closing on the purchase of the home;
    (b) The person must certify to his/her good faith intention to 
continue employment as a law enforcement officer (as described in Sec.  
291.520), teacher (as described in Sec.  291.525), or firefighter/
emergency medical technician (as described in Sec.  291.530) for at 
least one year following the date of closing;
    (c) The person must make an earnest money deposit at the time of 
signing the contract for purchase of the home, as described in Sec.  
291.535;
    (d) The person must agree to own, and live in as his/her sole 
residence, the

[[Page 621]]

home for the entire duration of the owner-occupancy term, as described 
in Sec.  291.540, and to certify to that occupancy, as described in 
Sec.  291.565;
    (e) The person must agree to execute a second mortgage and note on 
the home, as described in Sec.  291.550, for the difference between the 
list price and the discounted selling price;
    (f) Neither the person (nor his/her spouse) may have owned any 
residential real property during the year prior to the date of 
submitting a bid on the home being acquired through the GNND Sales 
Program;
    (g) Neither the person (nor his/her spouse) must ever have purchased 
another home under the GNND Sales Program or under the predecessor 
Officer Next Door Sales and Teacher Next Door Sales Programs; and
    (h) Although both spouses, if otherwise eligible, may submit a bid 
on a single home made available for sale under the GNND Sales Program, 
HUD will approve a bid from only one spouse.



Sec.  291.520  Eligible law enforcement officers.

    A person qualifies as a law enforcement officer for the purposes of 
the GNND Sales Program if the person is:
    (a) Employed full-time by a law enforcement agency of the federal 
government, a state, a unit of general local government, or an Indian 
tribal government;
    (b) In carrying out such full-time employment, the person is sworn 
to uphold, and make arrests for violations of, federal, state, tribal, 
county, township, or municipal laws and
    (c) The full-time employment in paragraph (a) of this section must, 
in the normal course of business, directly serve the locality in which 
the home is located.

[71 FR 64426, Nov. 1, 2006, as amended at 81 FR 53003, Aug. 11, 2016]



Sec.  291.525  Eligible teachers.

    A person qualifies as a teacher for the purposes of the GNND Sales 
Program if the person is:
    (a) Employed as a full-time teacher by a state-accredited public 
school or private school that provides direct services to students in 
grades pre-kindergarten through 12; and
    (b) The full-time employment in paragraph (a) of this section must, 
in the normal course of business, serve students from the locality where 
the home is located.

[71 FR 64426, Nov. 1, 2006, as amended at 81 FR 53003, Aug. 11, 2016]



Sec.  291.530  Eligible firefighter/emergency medical technicians.

    A person qualifies as a firefighter/emergency medical technician for 
the purposes of the GNND Sales Program if the person is:
    (a) Employed full-time as a firefighter or emergency medical 
technician by a fire department or emergency medical services responder 
unit of the Federal Government, a State, unit of general local 
government, or an Indian tribal government; and
    (b) The full-time employment in paragraph (a) of this section must, 
in the normal course of business, directly serve the locality where the 
home is located.

[81 FR 53003, Aug. 11, 2016]



Sec.  291.535  Earnest money deposit.

    (a) General. The earnest money deposit is the sum of money that must 
be paid by the law enforcement officer, teacher, or firefighter/
emergency medical technician at the time of submitting a bid to purchase 
a property under the GNND Sales Program. Each bid must be accompanied by 
a certification from the real estate broker that the earnest money 
deposit has been deposited in the broker's escrow account.
    (b) Amount of earnest money deposit. The amount of the earnest money 
deposit required is an amount equal to one percent of the list price, 
but no less than $500 and no more than $2,000.
    (c) Acceptance or rejection of offer. If an offer is accepted, the 
earnest money deposit will be credited to the purchaser at closing. If 
the offer is rejected, the earnest money deposit will be returned. 
Earnest money deposits are subject to total forfeiture for failure of 
the participant to close a sale.

[[Page 622]]



Sec.  291.540  Owner-occupancy term.

    (a) General. The owner-occupancy term is the number of months a 
participant in the GNND Sales Program must agree to own, and live in as 
his/her sole residence, a home purchased through the GNND Sales Program.
    (b) Start of owner-occupancy term. The owner-occupancy term is 36 
months, commencing either:
    (1) Thirty days following closing if HUD determines that the home 
requires no more than $10,000 in repairs prior to occupancy;
    (2) Ninety days following closing if HUD determines that the home 
requires more than $10,000, but not more than $20,000 in repairs prior 
to occupancy; or
    (3) One hundred and eighty days following closing if HUD determines 
that the home requires more than $20,000 in repairs prior to occupancy.
    (c) Interruptions to owner-occupancy term--(1) General. HUD may, at 
its sole discretion, allow interruptions to the 36-month owner-occupancy 
term if it determines that the interruption is necessary to prevent 
hardship, but only if the law enforcement officer, teacher, or 
firefighter/emergency medical technician submits a written and signed 
request to HUD containing the following information:
    (i) The reason(s) why the interruption is necessary;
    (ii) The dates of the intended interruption; and
    (iii) A certification from the law enforcement officer, teacher, or 
firefighter/emergency medical technician that:
    (A) The law enforcement officer, teacher, or firefighter/emergency 
medical technician is not abandoning the home as his/her permanent 
residence; and
    (B) The law enforcement officer, teacher, or firefighter/emergency 
medical technician will resume occupancy of the home upon the conclusion 
of the interruption and complete the remainder of the 36-month owner-
occupancy term.
    (2) Timing of written request to HUD. The written request for 
approval of an interruption to the owner-occupancy term must be 
submitted to HUD at least 30 calendar days before the anticipated 
interruption. Military service members protected by the Servicemembers 
Civil Relief Act need not submit their written request to HUD 30 days in 
advance of an anticipated interruption, but should submit their written 
request as soon as practicable upon learning of a potential 
interruption, in order to ensure timely processing and approval of the 
request.



Sec.  291.545  Financing purchase of the home.

    (a) Purchase using conventional financing. If the law enforcement 
officer, teacher, or firefighter/emergency medical technician uses 
conventional financing to purchase a home under the GNND Sales Program, 
the amount of the mortgage may not exceed the discounted sales price of 
the home.
    (b) Purchase with FHA-insured mortgage. (1) A law enforcement 
officer, teacher, or firefighter/emergency medical technician using an 
FHA-insured mortgage to finance purchase of the home may finance 
reasonable and customary closing costs with the FHA-insured mortgage.
    (2) The amount of the FHA-insured mortgage may not exceed the 
discounted sales price of the home plus:
    (i) The closing costs; and
    (ii) The costs of rehabilitating and/or improving the home, where 
purchase of the home is being financed with an FHA-insured 203(k) 
rehabilitation loan (see 24 CFR part 203).
    (c) Closing costs and selling broker's commissions. In no event will 
HUD pay a buyer's closing costs on the purchase of a property or a 
selling broker's commission through the GNND Sales Program.



Sec.  291.550  Second mortgage.

    (a) General. The second mortgage is a mortgage and note, payable to 
HUD, on the home purchased through the GNND Sales Program in the amount 
of the difference between the list price of the home and the discounted 
selling price.
    (b) Second mortgage term. The term of the second mortgage is equal 
to the owner-occupancy term (36 months) plus 30, 90, or 180 days, as 
provided in Sec.  291.540(b). The amount of the second mortgage will be 
reduced by 1/36th on

[[Page 623]]

the last day of each month of occupancy following the occupancy start 
date. At the end of the 36th month of occupancy, the amount of the 
second mortgage will be zero.
    (c) Sale or vacancy of home. If the law enforcement officer, 
teacher, or firefighter/emergency medical technician sells his/her home 
or stops living in the home as his/her sole residence prior to the 
expiration of the owner-occupancy term, he/she will owe HUD the amount 
due on the second mortgage as of the date the property is either sold or 
vacated.



Sec.  291.555  Refinancing.

    (a) General. A law enforcement officer, teacher, or firefighter/
emergency medical technician may refinance the mortgage and note used to 
purchase the home. However, the total of the refinanced mortgage and the 
remaining principal balance of the second mortgage may not exceed 95 
percent of the value of the property, as appraised at the time of the 
refinancing. Unless HUD permits subordination pursuant to paragraph (b) 
of this section, the second mortgage described in Sec.  291.550 must 
hold a superior lien position to the refinanced mortgage.
    (b) Subordination of second mortgage. HUD may permit subordination 
of the second mortgage to the refinanced mortgage, but only if HUD, at 
its sole discretion, determines that the refinancing will satisfy one of 
the following:
    (1) Will result in a lower annual percentage rate (APR) on the first 
mortgage;
    (2) Will be undertaken pursuant to HUD's Section 203(k) 
Rehabilitation Loan Insurance Program in order to rehabilitate or repair 
the home; or
    (3) Is necessary to prevent the law enforcement officer, teacher, or 
firefighter/emergency medical technician from defaulting on the first 
mortgage.



Sec.  291.560  Ineligibility of multiple-unit properties.

    Only single-unit properties are eligible for the GNND Sales Program.



Sec.  291.565  Continuing obligations after purchase.

    To remain in compliance with the GNND Sales Program, the law 
enforcement officer, teacher, or firefighter/emergency medical 
technician must, for the entire duration of the owner-occupancy term:
    (a) Continue to own, and live in as his/her sole residence, the home 
purchased through the GNND Sales Program; and
    (b) Certify initially and once annually thereafter during and at the 
conclusion of the owner-occupancy term that he/she was at all times 
fully in compliance with paragraph (a) of this section.

                        PARTS 292	299 [RESERVED]

[[Page 625]]



  CHAPTER III--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, DEPARTMENT OF 
                      HOUSING AND URBAN DEVELOPMENT




  --------------------------------------------------------------------
Part                                                                Page
300             General.....................................         627
310             Bylaws of the Government National Mortgage 
                    Association.............................         628
320             Guaranty of mortgage-backed securities......         628
330             Guaranty of multiclass securities...........         633
340             Fiduciary activities........................         636
341-349

[Reserved]

350             Book-entry procedures.......................         637
351-399

[Reserved]

[[Page 627]]



PART 300_GENERAL--Table of Contents



Sec.
300.1 Scope of chapter.
300.3 Description.
300.5 Creation and status.
300.7 Area of operations.
300.9 Office.
300.11 Authority of officers.
300.13 Power of attorney.
300.15 Exceptions.
300.17 Audits and reports.

    Authority: 12 U.S.C. 1723a, unless otherwise noted, and 42 U.S.C. 
3535(d).

    Source: 60 FR 42015, Aug. 14, 1995, unless otherwise noted.



Sec.  300.1  Scope of chapter.

    This chapter consists of general information and does not purport to 
set forth all of the procedures and requirements that apply to the 
operations of the Association. Complete specific information as to any 
aspect of such operations may be obtained from the office listed in 
Sec.  300.9.



Sec.  300.3  Description.

    The Government National Mortgage Association (hereinafter in this 
chapter called the Association, GNMA or Ginnie Mae) furnishes fiduciary 
services to itself and other departments and agencies of the Government, 
and guarantees privately issued securities backed by trusts or pools of 
mortgages or loans which are insured or guaranteed by the Federal 
Housing Administration (FHA), the Department of Veterans Affairs (VA) or 
the Rural Housing Service (RHS) and certain other loans or mortgages 
guaranteed or insured by the Government. In the course of its business, 
the Association is referred to as GNMA or Ginnie Mae.

[66 FR 44265, Aug. 22, 2001]



Sec.  300.5  Creation and status.

    The Association is a Government corporation in the Department of 
Housing and Urban Development. It is derived from the Federal National 
Mortgage Association, which was partitioned by the Congress into two 
corporations effective September 1, 1968, one of which is the 
Association. The operations of the Association are conducted under its 
statutory charter contained in title III of the National Housing Act, 12 
U.S.C. 1716, et seq.



Sec.  300.7  Area of operations.

    The Association is authorized to conduct its business in any State 
of the United States, the District of Columbia, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the 
territories and possessions of the United States.



Sec.  300.9  Office.

    The Association directs its operations from its office located at 
451 Seventh Street, SW., Washington DC 20410.



Sec.  300.11  Authority of officers.

    The President, each Vice President, and each Assistant Vice 
President of the Association are severally expressly empowered in the 
name of the Association to sign all contracts and other documents, 
instruments, and writings which call for execution by the Association in 
the conduct of its business and affairs, and to encumber, mortgage, 
pledge, convey or otherwise alien any property which the Association may 
own or in which it may have an estate, right, title or interest. In 
addition, the President, each Vice President, each Assistant Vice 
President, the Secretary of the Association, each Assistant Secretary, 
the Treasurer and the Controller shall have the authority as may be 
provided in the Bylaws of the Association or as may be delegated to them 
in a manner not inconsistent with the Bylaws.



Sec.  300.13  Power of attorney.

    In order to efficiently carry out the purposes of the Association, 
the Association may appoint any person its true and lawful attorney-in-
fact by publication in the Federal Register or by appointment from the 
President of the Association in writing. Any such attorney-in-fact shall 
have the power outlined in the publication or appointment.



Sec.  300.15  Exceptions.

    In the conduct of its affairs, in individual cases or classes of 
cases, the Association reserves the right, consistent with law, without 
prior notice and at

[[Page 628]]

any time, to alter or waive any of the requirements contained in this 
chapter or elsewhere or to impose other and additional requirements; it 
further reserves the right, without prior notice and at any time, to 
amend or rescind any or all of the material set forth herein.



Sec.  300.17  Audits and reports.

    The Association and its designees may at any reasonable time audit 
the books and examine the records of any issuer, mortgage servicer, 
trustee, agent or other person bearing on compliance with the 
requirements of the Association's programs, and the Association may 
require reasonable and necessary reports from such persons.



PART 310_BYLAWS OF THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
--Table of Contents



    Authority: 12 U.S.C. 1723 and 42 U.S.C. 3535(d).

    Source: 60 FR 42015, Aug. 14, 1995, unless otherwise noted.



Sec.  310.1  Bylaws of the Association.

    The bylaws of the Association shall be duly adopted by the Secretary 
of Housing and Urban Development pursuant to section 308 of the National 
Housing Act (12 U.S.C. 1723) and shall govern the performance of the 
powers and duties granted to or imposed upon the Association by law.



PART 320_GUARANTY OF MORTGAGE-BACKED SECURITIES--Table of Contents



                 Subpart A_Pass-Through Type Securities

Sec.
320.1 General.
320.3 Eligible issuers of securities.
320.5 Securities.
320.7 Mortgages.
320.8 Excess Yield Securities.
320.9 Pool administration.
320.10 Financial reporting.
320.11 Insurance coverage.
320.12 Integrity.
320.13 Guaranty.
320.15 Default.
320.17 Fees.

                     Subpart B_Bond-Type Securities

320.21 General.
320.23 Eligible issuers.
320.25 Securities.
320.27 Mortgages.
320.29 Guaranty.
320.31 Default.
320.33 Fees.

    Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C. 3535(d).

    Source: 60 FR 42015, Aug. 14, 1995, unless otherwise noted.



                 Subpart A_Pass-Through Type Securities



Sec.  320.1  General.

    The Association is authorized by section 306(g) of the National 
Housing Act (12 U.S.C. 1721(g)) upon such terms and conditions as it may 
deem appropriate, to guarantee the timely payment of principal of and 
interest on securities that are based on and backed by a trust or pool 
composed of mortgages which are insured or guaranteed by FHA, FmHA or 
VA. The Association's guaranty of mortgage-backed securities is backed 
by the full faith and credit of the United States. This subpart is 
limited to ``modified pass-through'' securities, and does not purport to 
set forth all the procedures and requirements that apply to the issuance 
and guaranty of such securities. All such transactions are governed by 
the specific terms and provisions of the Association's Mortgage-Backed 
Securities Guides (MBS Guides) and contracts entered into by the 
parties.



Sec.  320.3  Eligible issuers of securities.

    (a) Eligibility requirements. A mortgage lender, including an 
instrumentality of a State or local government, to be eligible to issue 
or service mortgage-backed securities guaranteed by the Association must 
satisfy all of the following standards:
    (1) Be in good standing as a mortgagee approved by the FHA;
    (2) Be in good standing as a mortgage seller or servicer approved by 
the Federal National Mortgage Association (FNMA), the Federal Home Loan 
Mortgage Corporation (FHLMC), or the Association. Loss of either FNMA 
approval or FHLMC approval may cause

[[Page 629]]

the issuer to become ineligible to issue and service the Association's 
mortgage-backed securities and constitute a default under the applicable 
guaranty or contractual agreement whether or not the issuer qualified 
for new issuer approval on the basis of FNMA or FHLMC approval;
    (3) Have management with adequate experience, and access to adequate 
facilities to issue or service mortgage-backed securities, as determined 
by the Association;
    (4) Maintain the applicable minimum net worth discussed in paragraph 
(c) of this section; and
    (5) Meet the requirements, conditions, and limitations prescribed by 
the Association in this part or the applicable MBS Guides.
    (b) Time of eligibility. The Association shall not commit to 
guarantee, or guarantee any issue of mortgage-backed securities unless 
the mortgage lender requesting such commitment or guaranty qualifies as 
an eligible issuer both at the time of commitment approval and at the 
time of the issuance of the guaranty.
    (c) Net worth requirements. Issuers shall maintain at all times a 
net worth acceptable to the Association of not less than the applicable 
minimum amount. The applicable minimum amount shall be published in the 
MBS Guides.
    (d) Disqualification. A mortgage lender shall not qualify as an 
eligible issuer at any time in which:
    (1) The lending policies of the issuer permit any discrimination 
based on race, religion, color, national origin, age, or sex of a 
borrower; or
    (2) The issuer is not in compliance with any rules, regulations, or 
orders issued under title VI of the Civil Rights Act of 1964; Executive 
Order 11063, Equal Opportunity in Housing, November 20, 1962; Executive 
Order 11246, Equal Employment Opportunity, issued on September 24, 1965 
and amended on October 13, 1967; title VII of the Civil Rights Act of 
1968; title VIII of the Civil Rights Act of 1968 as amended by the Fair 
Housing Amendments Act of 1988; or by the FHA or VA.
    (e) Ethics and standards. A mortgage lender shall qualify as an 
eligible issuer only so long as it conducts its business operations in 
accordance with accepted mortgage banking practices, ethics, and 
standards, as determined by the Association, and maintains its books and 
records in accordance with generally accepted accounting principles.
    (f) Change in control. Issuers shall notify the Association of any 
change in issuer control. A change in control occurs whenever a new 
party obtains significant influence over an issuer, as defined by the 
Association. In a merger where the surviving party is not the approved 
issuer and in a consolidation, the surviving party must apply formally 
for approval as a new issuer prior to the merger or consolidation taking 
place. In other business combinations, such as a stock sale of an 
existing issuer, which result in a change in control of issuer, the 
issuer shall demonstrate that it continues to meet all issuer 
eligibility requirements prior to the business combination being 
finalized.
    (g) Cross-Default. Related issuers, as defined by the Association, 
shall execute a cross-default agreement, in a form prescribed by the 
Association, that authorizes the default of one or more related issuers 
in the event of a default by any one of the related issuers. Issuers may 
be granted an exemption from this section, provided that they submit a 
legal opinion, acceptable to the Association, which demonstrates that 
the execution of a cross-default agreement would be prohibited by the 
issuer's Federal regulator.
    (h) Failure to comply. In the event that an issuer subsequently 
fails to comply with any of the requirements prescribed in this part or 
the applicable MBS Guide, as determined by the Association, the 
Association may, among other things, withhold further commitments to 
guarantee securities until such time as the Association is satisfied 
that the issuer has resumed business operations in compliance with such 
requirements.

(Approved by the Office of Management and Budget under control numbers 
2503-0003, 2503-0004, 2503-0006, 2503-0007, and 2503-0026)

[[Page 630]]



Sec.  320.5  Securities.

    (a) Instruments. Securities issued pursuant to the provisions of 
this subpart must be modified pass-through securities, that provide for 
payment, whether or not collected, of both specified principal 
installments and interest on the unpaid principal balance, with all 
prepayments and other unscheduled recoveries of principal being passed 
through to the holder. In the case of delinquent mortgages in a pool 
backing modified pass-through securities, the issuer is required to make 
advances if necessary to maintain the specified schedule of interest and 
principal payments to the holders, or at its option, at any time 90 days 
or more after default of any such mortgage, the issuer may repurchase 
such mortgage for an amount equal to the unpaid principal balance of the 
mortgage. The securities, if issued in certificated form, must specify 
the dates by which payments are to be made to the holders thereof, and 
must indicate the accounting period for collections on the pool's 
mortgages relating to each such payment, and the securities, if issued 
in certificated form, must also specify a date on which the entire 
principal will have been paid or will be payable.
    (b) Issue amount. Each issue of guaranteed securities must be in a 
minimum face amount as specified in the applicable MBS Guide. The total 
face amount of any issue of securities cannot exceed the aggregate 
unpaid principal balances of the mortgages in the pool. The Association 
may provide for issuers to submit packages of mortgages that may be 
consolidated, with other packages of similar types of mortgages, into 
multiple issuer pools.
    (c) [Reserved]
    (d) Transferability. Securities are transferable, but the share of 
the proceeds collected on account of the pool of mortgages is payable 
only to the registered holder of a security according to the policies 
established by the Association.
    (e) Issue Date. Securities backed by single-family mortgages with 
issue dates of October 1, 1998, or before, serial notes with issue dates 
of July 1, 2002, or before, and securities backed by multifamily 
mortgages with issue dates of February 1, 2002, or before, have been 
issued in certificated form. Securities issued after these dates will be 
issued in book-entry form. The Association may approve the issuance of 
certificated securities for good cause.
    (f) Delivery. Delivery of uncertificated securities occurs when the 
book-entry depository's nominee is registered as the registered owner of 
the securities on Ginnie Mae's central registry.
    (g) Registered Ownership. Ownership of mortgage-backed securities 
issued pursuant to this subpart registered in the name of a Depository 
shall be conclusively established by registration in the name of the 
Depository as owner on the Association's central registry and it shall 
be unnecessary for a Depository to maintain custody of any physical 
certificates evidencing such ownership.
    (h) Payments on Mortgage-Backed Securities. Issuers must remit all 
payments due to holders of mortgage-backed securities such that holders 
will receive their installments as follows:
    (1) Payment to a Depository. (i) For all securities registered in 
the name of a Depository or the designated nominee for a Depository, 
issuers are required to make payments in immediately available funds by 
ACH transaction, Fedwire, or by such other method as directed and/or 
authorized by the Association pursuant to the MBS Guide, including 
requiring that issuers maintain funds accounts in institutions that are 
accessible by debit ACH transactions originated by such Depository or 
its designee.
    (ii) Payment must be made by the hour specified in the MBS Guide on 
the calendar day of the month specified in the MBS Guide for payment on 
such mortgage-backed securities (the ``applicable Payment Date''), with 
adjustments to such time as may be specified in the MBS Guide for 
Payments Dates that do not fall on business days.
    (2) Payments to other holders. An issuer of mortgage-backed 
securities that are not registered in the name of a Depository or its 
nominee may make payments to a security holder by ACH transaction or 
Fedwire, provided that it obtains the prior written approval of

[[Page 631]]

the holder of such mortgage-backed securities. If an issuer begins to 
make such payments by electronic transfer, it must continue to do so 
while the securities are registered in the name of that security holder. 
If an issuer makes payments on mortgage-backed securities by check, the 
check must be received by the security holder not later than the 
applicable Payment Date each month.
    (i) Guaranty. The Association's guaranty described in Sec.  320.13 
is a guaranty that payment will be made to the registered owner of 
securities as reflected in the Association's central registry. The 
Association makes no other guaranty, including any guaranty that a 
Depository will appropriately credit payments to beneficial owners of 
such mortgage-backed securities. The Association's guarantee of 
securities payable to a Depository or its nominee becomes effective when 
the Depository or its nominee is registered as the registered owner of 
the securities on the Association's central registry.
    (j) Definition of Depository. As used in this section, Depository 
means a clearing corporation within the meaning of Article 8 of the 
Uniform Commercial Code, including any Federal Reserve Bank, that 
maintains systems by which ownership and transfer of interests in 
mortgage-backed securities are made through the books of such clearing 
corporation.

(Approved by the Office of Management and Budget under control number 
2503-0009)

[60 FR 42015, Aug. 14, 1995, as amended at 63 FR 51251, Sept. 24, 1998; 
64 FR 34106, June 24, 1999; 66 FR 44265, Aug. 22, 2001; 70 FR 33652, 
June 8, 2005; 72 FR 49125, Aug. 27, 2007]



Sec.  320.7  Mortgages.

    Each issue of guaranteed securities must be backed by a separate 
pool of mortgages which meet the requirements of the applicable MBS 
Guide.



Sec.  320.8  Excess Yield Securities.

    (a) Definition. Excess Yield Securities are securities backed by the 
excess servicing income relating to mortgages underlying previously 
issued Ginnie Mae mortgage-backed securities.
    (b) GNMA guaranty. The Association guarantees the timely payment of 
interest as provided by the terms of the security.

[71 FR 32389, June 5, 2006]



Sec.  320.9  Pool administration.

    The Association will only guarantee securities if the issuer 
executes a guaranty agreement or contractual agreement in the form 
prescribed by the Association. Pool administration requirements are set 
forth in such agreements or the applicable MBS Guide.

(Approved by the Office of Management and Budget under control numbers 
2503-0003, 2503-0004, 2503-0006, 2503-0007, and 2503-0026)



Sec.  320.10  Financial reporting.

    Issuers shall submit to the Association audited annual financial 
statements within 90 days of their fiscal year end. All financial 
statements shall include a balance sheet and a statement of operations 
and cash flows. The audit shall be conducted in accordance with the 
standards for financial audits of the U.S. Government Accountability 
Office's Government Auditing Standards, issued by the Comptroller 
General of the United States.

[72 FR 49125, Aug. 27, 2007]



Sec.  320.11  Insurance coverage.

    The issuer shall maintain, for the benefit of the Association, 
insurance, errors and omissions, fidelity bond and other coverage as 
required by the Association and set forth in the appropriate MBS Guide.



Sec.  320.12  Integrity.

    (a) Background. Issuers shall disclose the background of all 
individuals serving on their Board of Directors and all individuals 
acting as authorized signatories. The disclosures shall include any 
prior convictions, fines or other adverse actions against these 
individuals by a Federal, state or local agency, or a government-related 
entity where the action is related to the responsibilities that are 
commensurate with those of the financial services industry. The term 
government-related entity includes, but is not limited to, FHA, VA, 
FmHA, FNMA, FHLMC, Office of Thrift Supervision, Federal Deposit 
Insurance Corporation, Office of the Comptroller of the Currency, Board

[[Page 632]]

of Governors of the Federal Reserve System, and National Credit Union 
Administration.
    (b) Change in status. Issuers shall disclose material changes in 
their status with other government-related entities and regulatory 
agencies, or state or local agencies with similar authority, within 5 
business days of their occurrence. The disclosures shall include, but 
not be limited to, voluntary and non-voluntary terminations, defaults, 
fines, and material non-compliance with agency rules and policies. 
Disclosures that are specifically prohibited by an agency are exempted 
from this section.



Sec.  320.13  Guaranty.

    The Association guarantees the timely payment, whether or not 
collected, of the interest on the outstanding balance and the specified 
principal installments on securities that are registered on Ginnie Mae's 
central registry. The Association's guaranty is backed by the full faith 
and credit of the United States.

[64 FR 34107, June 24, 1999]



Sec.  320.15  Default.

    (a) Issuer default. Any failure or inability of the issuer to make 
payments as due as well as such other events as may be identified by the 
Association and included in the applicable guaranty agreement, 
contractual agreement or MBS Guide, shall constitute a default of the 
issuer.
    (b) Action upon default. Upon any default by the issuer, the 
Association may:
    (1) Institute a claim against the issuer's insurance, bond or other 
coverage, as specified in Sec.  320.11;
    (2) Pursuant to section 306(g) of the National Housing Act (12 
U.S.C. 1721(g)), extinguish all the right, title, or other interest of 
the issuer in the pooled mortgages; and
    (3) Exercise such other rights and remedies as it may have.



Sec.  320.17  Fees.

    The Association may impose application fees, guaranty fees, 
securities transfer fees and other fees.



                     Subpart B_Bond-Type Securities



Sec.  320.21  General.

    In addition to the ``pass-through'' securities dealt with in subpart 
A of this part, the Association is authorized by section 306(g) of the 
National Housing Act, 12 U.S.C. 1721(g), upon such terms and conditions 
as it may deem appropriate, to guarantee the timely payment of principal 
of and interest on ``bond-type'' securities which are based on and 
backed by a trust or pool composed of mortgages which are insured or 
guaranteed by FHA, FmHA or the VA. The Association's guaranty of 
mortgage-backed securities is backed by the full faith and credit of the 
United States. This subpart deals with such ``bond-type'' securities and 
does not purport to set forth all the procedures and requirements that 
apply to the issuance and guaranty of such securities. All such 
transactions are governed by the specific terms and provisions of the 
contracts entered into by the parties and the Bond-Type Securities Guide 
(the ``Bond Guide'').



Sec.  320.23  Eligible issuers.

    Any corporation, trust, partnership, or other entity with a net 
worth acceptable to the Association as set forth in the Bond Guide, 
which has the capability to assemble acceptable and eligible mortgages 
in sufficient quantity to support required minimum issuances of 
securities and which meets such other requirements as are set forth in 
the Bond Guide, may be approved to issue and service bond-type 
securities guaranteed by the Association. Further, the Association 
reserves the right to limit the number of issuers in the interest of 
conducting an orderly market of securities of this type.



Sec.  320.25  Securities.

    (a) Instruments. Securities to be issued pursuant to the provisions 
of this subpart B may be in registered or bearer form. Each security 
shall have terms acceptable to the Association as provided in the Bond 
Guide.
    (b) Issue amount. Each issue of guaranteed securities must be in a 
minimum face amount as specified in the Bond Guide. The total face 
amount of any issue of securities cannot exceed

[[Page 633]]

the aggregate unpaid principal balances of the mortgages in the pool.
    (c) Face amount of securities. The face amount of any security 
cannot be less than $25,000.
    (d) Transferability. Bearer securities are freely transferrable. 
Registered securities are transferable only on the books of an agent, as 
shall be agreed upon by the Association and the issuer.
    (e) Treasury approval. Issues of $100 million or larger will be 
subject to approval of the Secretary of the Treasury.



Sec.  320.27  Mortgages.

    Guaranteed securities issued under these provisions must be based on 
and backed by mortgages pooled under trust arrangements satisfactory to 
the Association. Such mortgages must meet the requirements of the Bond 
Guide.



Sec.  320.29  Guaranty.

    With respect to bond-type securities, the Association will guarantee 
the timely payment of principal of and interest on such securities, 
subject to the terms and conditions of the securities. The Association's 
guaranty is backed by the full faith and credit of the United States.



Sec.  320.31  Default.

    Upon default of the issuer, the Association has the right, pursuant 
to section 306(g) of the National Housing Act (12 U.S.C. 1721(g)), to 
take title to the mortgages and other assets that are subject to the 
trust arrangements, and to proceed against other assets of the issuer to 
the extent necessary to satisfy its own claims and the rights of the 
holders of securities then outstanding. Such action by the Association 
shall be taken subject to an accounting to the issuer.



Sec.  320.33  Fees.

    The Association may impose application and guaranty fees, which may 
vary with relation to the size or risk of the guaranty transaction 
undertaken.



PART 330_GUARANTY OF MULTICLASS SECURITIES--Table of Contents



Sec.
330.1 Scope of part.
330.5 Definitions.
330.10 Eligible collateral.
330.15 Participation requirements.
330.20 Eligible participants.
330.25 Fees.
330.30 GNMA guaranty.
330.35 Investors.
330.40 Consultation.
330.45 Limitation on GNMA liability.
330.50 Administration of multiclass securities.
330.55 Basis for removal from participation.
330.60 Removal procedure.

    Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C. 3535(d).

    Source: 60 FR 42018, Aug. 14, 1995, unless otherwise noted.



Sec.  330.1  Scope of part.

    This part is limited to multiclass securities. It does not purport 
to set forth all the procedures and requirements that apply to the 
issuance and guaranty of such securities. All such transactions are 
governed by the specific terms and provisions of the contracts entered 
into by the parties and by the GNMA Multiclass Securities Guide 
(Multiclass Guide).



Sec.  330.5  Definitions.

    As used in this part, the following terms shall have the meanings 
indicated:
    Consolidated securities. A series of multiclass securities, each 
class of which provides for payments proportionate with payments on the 
underlying eligible collateral.
    Depositor. The entity that deposits, or executes an agreement to 
deposit, as contained in the Multiclass Guide, eligible collateral into 
a trust in exchange for consolidated securities.
    Depository. A clearing corporation within the meaning of Article 8 
of the Uniform Commercial Code, including any Federal Reserve Bank, that 
maintains systems by which ownership and transfer of interests in Ginnie 
Mae multiclass securities are made through entries on the books of such 
clearing corporation.

[[Page 634]]

    GNMA electronic bulletin board. An information distribution system 
established by the Association for the Multiclass Securities program.
    GNMA MBS certificates. The guaranteed mortgage-backed securities 
issued under part 320 of this chapter.
    Government mortgages. Mortgages that are eligible under section 
306(g) of the National Housing Act (12 U.S.C. 1721(g)) for inclusion in 
GNMA mortgage-backed securities pools.
    Multiclass Registrar. The institution that is specified by the 
Association as the registrar of the related class and series of 
multiclass securities.
    Participant. For structured securities, the sponsor, co-sponsor, 
trustee, trust counsel, and accounting firm. For consolidated 
securities, the depositor. Other entities may be designated as 
participants in the Multiclass Guide.
    Sponsor. With respect to structured securities, the entity that 
establishes the required trust executing the trust agreement and 
depositing the eligible collateral in the trust in exchange for the 
structured securities.
    Structured securities. Securities of a series at least one class of 
which provides for payments of principal or interest disproportionately 
from payments on the underlying eligible collateral.

[66 FR 44265, Aug. 22, 2001]



Sec.  330.10  Eligible collateral.

    The Association, in its discretion, shall determine what collateral 
is eligible for inclusion in the Multiclass Securities program. Eligible 
collateral may include GNMA MBS certificates, government mortgages, 
consolidated securities, and other securities approved by the 
Association. Categories of these GNMA MBS certificates, government 
mortgages, consolidated securities, and other securities as approved by 
the Association become eligible collateral when they are published as 
eligible collateral in the Multiclass Guide or on the GNMA electronic 
bulletin board. Eligible collateral may differ for various Association 
guaranteed multiclass securities.



Sec.  330.15  Participation requirements.

    To participate in the Multiclass Securities program, a participant 
must meet the following criteria:
    (a) Certification. A participant must submit such certifications and 
other documents as are required by the Multiclass Guide.
    (b) Compliance with Multiclass Guide. By completing a multiclass 
securities transaction, a participant is deemed to have represented and 
warranted to the Association that it has complied with, and that it 
agrees to comply with, the Multiclass Guide in effect as of the date 
that the Association's guaranty is placed on the securities.
    (c) Material changes in status. A participant must report, as 
required in the Multiclass Guide, material adverse changes in status 
including voluntary and non-voluntary termination, defaults, fines and 
findings of material non-conformance with rules and policies of state 
and federal agencies and federal government sponsored enterprises.
    (d) Integrity. The participant must conduct its business operations 
in accordance with industry practices, ethics and standards, and 
maintain its books and records in an appropriate manner, as determined 
by the Association.

(Approved by the Office of Management and Budget under control number 
2503-0030)



Sec.  330.20  Eligible participants.

    In addition to requirements set forth in this part, a participant 
must meet the following requirements.
    (a) Structured securities--(1) Description. The Association 
guarantees the payment of principal and interest on structured 
securities issued by trusts organized by sponsors in accordance with 
procedures established and approved by the Association. The structured 
securities are backed by eligible collateral, as described in this part, 
held by the trustee.
    (2) Eligibility requirements for participants--(i) Sponsors. A 
sponsor must:
    (A) Apply and be approved by the Association;

[[Page 635]]

    (B) Demonstrate to the satisfaction of the Association its capacity 
to accumulate the eligible collateral, as described in this part, needed 
for a proposed structured securities issuance;
    (C) Be in good standing with and either have been responsible for at 
least one structured securities transaction with FNMA or FHLMC, or have 
demonstrated to the Association's satisfaction its capability to act as 
sponsor of GNMA guaranteed structured securities;
    (D) Have the minimum required amount, as set forth in the Multiclass 
Guide, in shareholders' equity or partners' capital, evidenced by the 
sponsor's audited financial statements, which must have been issued 
within the preceding 12-month period;
    (E) Represent the structural integrity of the issuance under all 
cash flow scenarios and demonstrate to the Association's satisfaction 
its ability to indemnify the Association for a breach of this 
representation;
    (F) Comply with the Association's policies regarding participation 
by minority and/or women-owned businesses and take appropriate measures 
to assure compliance by the other participants as specified in the 
Multiclass Guide; and
    (G) Provide the Association with the opinions of trust counsel and 
accounting firms which are acceptable to the Association and on which 
the Association may rely.
    (ii) Co-sponsors. A Co-sponsor must submit to the Association an 
application and a certification, as set forth in the Multiclass Guide, 
as to its status as a minority and/or women-owned business.
    (iii) Trustees. A trustee is selected by the Sponsor from 
institutions approved by the Association using such procedures as the 
Association deems appropriate.
    (b) Consolidated securities--(1) Description. A Depositor delivers, 
or executes an agreement to deliver, eligible collateral to a trust in 
exchange for a single Association guaranteed multiclass security, as set 
forth in the Multiclass Guide.
    (2) Eligibility requirements for participant. A Depositor must 
certify that:
    (i) It is an ``accredited investor'' within the meaning of 17 CFR 
230.501(a)(1), (a)(3) or (a)(7);
    (ii) It has authority to deliver, and will deliver, the collateral 
to the trustee and that the collateral is free and clear of all liens 
and encumbrances; and
    (iii) The information set forth by the depositor regarding the 
eligible collateral is true and correct.
    (c) Other types of Association guaranteed multiclass securities. The 
Association will set forth the requirements for the guaranty by the 
Association of other types of multiclass securities, and the eligibility 
requirements for the appropriate participants, in the Multiclass Guide 
or on the GNMA electronic bulletin board.



Sec.  330.25  Fees.

    The Association, in its discretion, through publication in the 
Multiclass Guide or on the GNMA electronic bulletin board, may impose 
fees for application, guaranty, transfer, change from book entry to 
certificated form, or other related fees. Fees may vary, at the 
Association's discretion, depending upon, but not limited to, such 
factors as size, collateral characteristics, expense or risk of the 
guaranty transaction undertaken.



Sec.  330.30  GNMA Guaranty.

    (a) Securities held by Depositories. Ownership of multiclass 
securities registered in the name of a Depository shall be conclusively 
established by registration in the name of the Depository as owner on 
the books and records of the Multiclass Registrar, and it shall be 
unnecessary for a Depository to maintain custody of any physical 
certificates evidencing such ownership.
    (b) Guaranty. The Association's guaranty is a guaranty that payment 
will be made to the registered owner of securities as reflected on the 
books and records of the Multiclass Registrar.
    (1) The Association makes no other guaranty, including any guaranty 
that a Depository will appropriately credit payments to beneficial 
owners of GNMA multiclass securities. The Association's guarantee of 
securities payable to a Depository or its nominee becomes effective when 
the Depository or

[[Page 636]]

its nominee is registered as the registered owner of the securities on 
the books and records of the Multiclass Registrar.
    (2) The Association guarantees the timely payment of principal and 
interest as provided by the terms of the multiclass security. The 
Association's guaranty is backed by the full faith and credit of the 
United States.

[66 FR 44266, Aug. 22, 2001]



Sec.  330.35  Investors.

    Association guaranteed multiclass securities may not be suitable 
investments for all investors. No investor should purchase securities of 
any class unless the investor understands, and is able to bear, the 
prepayment, yield, liquidity and market risks associated with the class. 
The Association assumes no obligation or liability to any person with 
regard to determining the suitability of such securities for such 
investor.



Sec.  330.40  Consultation.

    The Association may consult with persons or entities in such manner 
as the Association deems appropriate to ensure the efficient 
commencement and operation of the Multiclass Securities program.



Sec.  330.45  Limitation on GNMA liability.

    Except for its guaranty, the Association undertakes no obligation 
and assumes no liability to any person with regard to or on account of 
the existence or operation of this part or the conduct of any 
participants in the Multiclass Securities program.



Sec.  330.50  Administration of multiclass securities.

    The GNMA guaranteed multiclass securities will be administered in 
accordance with the Association's requirements described in the 
Multiclass Guide.



Sec.  330.55  Basis for removal from participation.

    A participant may be removed from the Multiclass Securities program 
if the Association, in its discretion, determines that any of the 
following exists or has occurred:
    (a) The participant, at any time, fails to meet any condition for 
eligibility;
    (b) The participant fails to comply with any provision of the 
Multiclass Guide or this part;
    (c) The participant is unable or fails to truthfully, correctly or 
fully submit such certifications as are required; and
    (d) Such further reasons as the Association determines necessary to 
protect the safety and soundness of the Multiclass Securities program, 
as set out in the Multiclass Guide.



Sec.  330.60  Removal procedure.

    (a) A participant may be suspended from participation in the 
Multiclass Securities program upon written notice from the Association, 
which shall include the reasons for the suspension. The participant 
shall have the opportunity to submit a written presentation to the 
President of the Association, or designee, in support of its 
reinstatement, subject to such limitations as the Association in its 
discretion may impose as to length, time for submission, or otherwise. A 
determination by the President of the Association, or designee, shall 
exhaust the participant's administrative remedies.
    (b) If a participant is suspended from the Multiclass Securities 
program, the Association shall have no obligation to complete a pending 
transaction involving the participant.
    (c) After a participant has been removed from the Multiclass 
Securities program, the participant may request reinstatement. Approval 
of the reinstatement is at the sole discretion of the Association.



PART 340_FIDUCIARY ACTIVITIES--Table of Contents



Sec.
340.1 General.
340.3 Appropriations.

    Authority: 12 U.S.C. 1723a and 42 U.S.C. 3535(d).

    Source: 60 FR 42019, Aug. 14, 1995, unless otherwise noted.



Sec.  340.1  General.

    The Association is authorized by section 302(c) of the National 
Housing Act (12 U.S.C. 1717(c)) to create, accept, execute, and 
administer trusts and

[[Page 637]]

other fiduciary undertakings appropriate for financing purposes. Under 
this authority, the Association is authorized to acquire and otherwise 
deal in any mortgages or other types of obligations in which any 
department or agency of the United States listed in section 302(c)(2) of 
such Act may have a financial interest. Under its fiduciary powers, the 
Association may create, accept, and administer trusts consisting of 
interests in mortgages and obligations, sell to private investors 
certificates of beneficial interest, or participations, in the mortgages 
or obligations or in the interest and principal payments derived 
therefrom, and provide for payment of interest and principal and for 
retirement of the participations. The Association, in its ordinary 
corporate capacity as contrasted to its fiduciary capacity, is expressly 
authorized to guarantee the participations.



Sec.  340.3  Appropriations.

    There is authority for Congress to appropriate such sums as may be 
necessary to enable the trustor of any trust (as described in Sec.  
340.1) to pay to the Association, as trustee, any insufficiency in 
aggregate receipts from the obligations subject to the trust to provide 
for the timely payment by the trustee of all interest or principal on 
the beneficial interests or participations related to such trust.

                        PARTS 341	349 [RESERVED]



PART 350_BOOK-ENTRY PROCEDURES--Table of Contents



Sec.
350.1 Purpose.
350.2 Definitions.
350.3 Maintenance of Ginnie Mae Securities.
350.4 Law governing rights and obligations of United States, and Federal 
          Reserve Banks as Depositories; Rights of any Person against 
          United States, and Federal Reserve Banks as Depositories; Law 
          Governing Other Interests.
350.5 Creation of Participant's Security Entitlement; Security 
          Interests.
350.6 Obligations of the Reserve Banks as Depositories; No Adverse 
          Claims.
350.7 Authority of Federal Reserve Banks as Depositories.
350.8 Withdrawal of Eligible Book-entry Ginnie Mae Securities for 
          Conversion to Definitive Form.
350.9 Waiver of Regulations.
350.10 Liability of Federal Reserve Banks as Depositories.
350.11 Notice of Attachment for Ginnie Mae Securities in Book-entry 
          System.

    Authority: 12 U.S.C. 1721(g) and 1723a(a); 42 U.S.C. 3535(d).

    Source: 66 FR 44266, Aug. 22, 2001, unless otherwise noted.



Sec.  350.1  Purpose.

    The purpose of this part is to achieve the efficiencies and 
fungibility through use of a single system for transferring interests 
both in Ginnie Mae Securities and other United States Government 
securities and in mortgage-backed securities issued by the Federal 
National Mortgage Association and the Federal Home Loan Mortgage 
Corporation. The Association only guarantees that payments required to 
be made by issuers of Ginnie Mae Securities will be made to the 
registered owner of those Ginnie Mae Securities. The Association 
undertakes no other obligation. Under the Book-entry System, the Federal 
Reserve Banks will be the registered owner of Book-entry Ginnie Mae 
Securities, not the agent of the Association, and the Association makes 
no warranty or guaranty with respect to the maintenance of the Book-
entry System by the Federal Reserve Banks.



Sec.  350.2  Definitions.

    (a) Specified Terms. As used in this part, the following terms shall 
have the meanings indicated:
    Book-entry Ginnie Mae Security. A Ginnie Mae Security issued or 
maintained in the Book-entry System. Book-entry Ginnie Mae Security also 
means the separate interest and principal components of a Book-entry 
Ginnie Mae Security if such security has been designated by Ginnie Mae 
as eligible for division into such components and the components are 
maintained separately on the books of one or more Federal Reserve Banks.
    Book-entry System. The automated book-entry system operated by the 
Federal Reserve Banks acting as Depositories for Ginnie Mae, on which 
Book-entry Ginnie Mae Securities are

[[Page 638]]

recorded, transferred and maintained in book-entry form.
    Definitive Ginnie Mae Security. A Ginnie Mae Security in engraved or 
printed form, or that is otherwise represented by a certificate.
    Depository. A clearing corporation within the meaning of Article 8 
of the Uniform Commercial Code, including any Federal Reserve Bank, that 
maintains systems by which ownership and transfer of interests in Book-
entry Ginnie Mae Securities are made through entries on the books of 
such clearing corporation.
    Eligible Book-entry Ginnie Mae Security. A Book-entry Ginnie Mae 
Security issued or maintained in the Book-entry System which by the 
terms of its Security Documentation is eligible to be converted from 
book-entry form into definitive form.
    Entitlement Holder. A Person to whose account an interest in a Book-
entry Ginnie Mae Security is credited on the records of a Securities 
Intermediary.
    Federal Reserve Bank Operating Circular. The publication issued by 
each Federal Reserve Bank that sets forth the terms and conditions under 
which the Reserve Bank maintains book-entry securities accounts 
(including Book-entry Ginnie Mae Securities accounts) and transfers 
book-entry Securities (including Book-entry Ginnie Mae Securities).
    Ginnie Mae Security. Any security or obligation guaranteed as to 
payment of principal and/or interest by Ginnie Mae under its Charter Act 
and issued in the form of a Definitive Ginnie Mae Security or a Book-
entry Ginnie Mae Security.
    Participant. A Person that maintains a Participant's Securities 
Account with a Federal Reserve Bank.
    Person. An individual, corporation, company, governmental entity, 
association, firm, partnership, trust, estate, representative, and any 
other similar organization, but such term does not mean or include the 
United States or a Federal Reserve Bank.
    Revised Article 8. The same meaning as in 31 CFR 357.2.
    Secretary. The Secretary of Housing and Urban Development and, where 
appropriate, any person designated by the Secretary to perform a 
particular function for the Secretary, including any HUD officer, 
employee, or agent.
    Security. Any mortgage participation certificate, note, bond, 
debenture, evidence of indebtedness, collateral-trust certificate, 
transferable share, certificate of deposit for a security, or, in 
general, any interest or instrument commonly known as a security.
    Securities Documentation. The applicable statement of terms, trust 
agreement, trust indenture, securities agreement or other documents 
establishing the terms of a Book-entry Ginnie Mae Security.
    Transfer message. An instruction of a member of a Federal Reserve 
Bank to effect a transfer of a Book-entry Security (including a Book-
entry Ginnie Mae Security) maintained in the Book-entry System, as set 
forth in Federal Reserve Bank Operating Circulars.
    (b) Other Terms. Unless the context requires otherwise, terms used 
in this part that are not defined in this part, have the meanings as set 
forth in 31 CFR 357.2. Definitions and terms used in 31 CFR part 357 
should read as though modified to effectuate their application to Ginnie 
Mae Securities.



Sec.  350.3  Maintenance of Ginnie Mae Securities.

    A Ginnie Mae Security may be maintained in the form of a Definitive 
Ginnie Mae Security or a Book-entry Ginnie Mae Security. A Book-entry 
Ginnie Mae Security shall be maintained in the Book-entry System.



Sec.  350.4  Law governing rights and obligations of United States,
and Federal Reserve Banks as Depositories; Rights of any Person against
United States, and Federal Reserve Banks as Depositories; Law Governing
Other Interests.

    (a) Except as provided in paragraph (b) of this section, the 
following rights and obligations are governed solely by the book-entry 
regulations contained in this part, the Securities Documentation, and 
Federal Reserve Bank Operating Circulars (but not including any choice 
of law provisions in the Security Documentation to the extent such 
provisions conflict with the Book-entry regulations contained in this 
part):

[[Page 639]]

    (1) The rights and obligations of a Federal Reserve Bank as a 
Depository with respect to:
    (i) A Book-entry Ginnie Mae Security or Security Entitlement; and
    (ii) The operation of a book-entry system operated by a Depository 
as it applies to Ginnie Mae Securities; and
    (2) The rights of any Person, including a Participant, against the 
Federal Reserve Banks as Depositories with respect to:
    (i) A Book-entry Ginnie Mae Security or Security Entitlement; and
    (ii) The operation of the book-entry system operated by the Federal 
Reserve Banks as Depositories as it applies to Ginnie Mae Securities.
    (b) A security interest in a Security Entitlement that is in favor 
of a Federal Reserve Bank from a Participant and that is not recorded on 
the books of a Federal Reserve Bank pursuant to Sec.  350.5(c)(1), is 
governed by the law (not including the conflict-of-law rules) of the 
jurisdiction where the head office of the Federal Reserve Bank 
maintaining the Participant's Securities Account is located. A security 
interest in a Security Entitlement that is in favor of a Federal Reserve 
Bank from a Person that is not a Participant, and that is not recorded 
on the books of a Federal Reserve Bank pursuant to Sec.  350.5(c)(1), is 
governed by the law determined in the manner specified in paragraph (d) 
of this section.
    (c) If the jurisdiction specified in the first sentence of paragraph 
(b) of this section is a State that has not adopted Revised Article 8, 
then the law specified in paragraph (b) of this section shall be the law 
of that State as though Revised Article 8 had been adopted by that 
State.
    (d) To the extent not otherwise inconsistent with this part, and 
notwithstanding any provision in the Security Documentation setting 
forth a choice of law, the provision set forth in 31 CFR 357.11 
regarding law governing other interests apply and shall be read as 
though modified to effectuate the application of 31 CFR 357.11 to Book-
entry Ginnie Mae Securities.



Sec.  350.5  Creation of Participant's Security Entitlement;
Security Interests.

    (a) A Participant's Security Entitlement is created when a Federal 
Reserve Bank indicates by book-entry that a Book-entry Ginnie Mae 
Security has been credited to a Participant's Securities Account.
    (b) A security interest in a Security Entitlement of a Participant 
in favor of the United States to secure deposits of public money, 
including without limitation deposits to the Treasury tax and loan 
accounts, or other security interests in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the securities. 
Where a security interest in favor of the United States in a Security 
Entitlement of a Participant is marked on the books of a Federal Reserve 
Bank, such Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the security. For purposes of this 
paragraph, an ``authorized representative of the United States'' is the 
official designated in the applicable regulations or agreement to which 
a Federal Reserve Bank is a party, governing the security interest.
    (c)(1) The Federal Reserve Banks as Depositories have no obligation 
to agree to act on behalf of any Person or to recognize the interest of 
any transferee of a security interest or other limited interest in favor 
of any Person except to the extent of any specific requirement of 
Federal law or regulation or to the extent set forth in any specific 
agreement with the Federal Reserve Bank on whose books the interest of 
the Participant is recorded. To the extent required by such law or 
regulation or set forth in an agreement with a Federal Reserve Bank, or 
the Federal Reserve Bank Operating Circular, a security interest in a 
Security Entitlement that is in favor of a Federal Reserve Bank or a 
Person may be created and perfected by a Federal Reserve Bank as 
Depository marking its books to record the security interest. Except

[[Page 640]]

as provided in paragraph (b) of this section, a security interest in a 
Security Entitlement marked on the books of a Federal Reserve Bank shall 
have priority over any other interest in the securities.
    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest, including a security interest in favor of 
a Federal Reserve Bank, may be perfected by any method by which a 
security interest may be perfected under applicable law as described in 
Sec.  350.4(b) or (d). The perfection, effect of perfection or non-
perfection and priority of a security interest are governed by such 
applicable law. A security interest in favor of a Federal Reserve Bank 
shall be treated as a security interest in favor of a clearing 
corporation in all respects under such law, including with respect to 
the effect of perfection and priority of such security interest. A 
Federal Reserve Bank Operating Circular shall be treated as a rule 
adopted by a clearing corporation for such purposes.



Sec.  350.6  Obligations of the Reserve Banks as Depositories; 
No Adverse Claims.

    Except in the case of a security interest in favor of the United 
States or a Federal Reserve Bank or otherwise as provided in Sec.  
350.5(c)(1), for the purposes of this part, the Federal Reserve Banks as 
Depositories shall treat the Participant to whose Securities Account an 
interest in a Book-entry Ginnie Mae Security has been credited as the 
person exclusively entitled to issue a Transfer Message, to receive 
interest and other payments with respect thereof and otherwise to 
exercise all the rights and powers with respect to such Security, 
notwithstanding any information or notice to the contrary. The Federal 
Reserve Banks as Depositories are not liable to a Person asserting or 
having an adverse claim to a Security Entitlement or to a Book-entry 
Ginnie Mae Security in a Participant's Securities Account, including any 
such claim arising as a result of the transfer or disposition of a Book-
entry Ginnie Mae Security by a Federal Reserve Bank pursuant to a 
Transfer Message that the Federal Reserve Bank reasonably believes to be 
genuine.



Sec.  350.7  Authority of Federal Reserve Banks as Depositories.

    (a) Each Federal Reserve Bank is hereby authorized as Depository for 
Book-entry Ginnie Mae Securities to perform the following functions with 
respect to Book-entry Ginnie Mae Securities to which this part applies, 
in accordance with the Securities Documentation, Federal Reserve Bank 
Operating Circulars, this part, and procedures established by the 
Secretary consistent with these authorities:
    (1) To service and maintain Book-entry Ginnie Mae Securities in 
accounts established for such purposes;
    (2) To make payments with respect to such securities;
    (3) To effect transfer of Book-entry Ginnie Mae Securities between 
Participants' Securities Accounts as directed by the Participants;
    (4) To effect conversions between Book-entry Ginnie Mae Securities 
and Definitive Ginnie Mae Securities pursuant to the applicable 
Securities Documentation; and
    (5) To perform such other duties as the Federal Reserve Banks as 
Depositories may be requested by Ginnie Mae.
    (b) Each Federal Reserve Bank as Depository may issue Operating 
Circulars, not inconsistent with this part, governing the details of its 
handling of Book-entry Ginnie Mae Securities, Security Entitlements, and 
the operation of the book-entry system under this part.



Sec.  350.8  Withdrawal of Eligible Book-entry Ginnie Mae Securities
for Conversion to Definitive Form.

    (a) Eligible book-entry Ginnie Mae securities may be withdrawn from 
the book-entry system after Ginnie Mae has approved a request for the 
delivery of definitive Ginnie Mae securities in the same amount.
    (b) A Reserve Bank as Depository shall, upon receipt of appropriate 
instructions to withdraw Eligible Book-entry Ginnie Mae Securities from 
book-entry in the Book-entry System, facilitate the conversion of such 
securities into Definitive Ginnie Mae Securities and their delivery in 
accordance with such instructions. No such conversion shall affect 
existing interests in such Ginnie Mae Securities.

[[Page 641]]

    (c) All requests for withdrawal of Eligible Book-entry Ginnie Mae 
Securities must be made prior to the maturity or date of call of the 
securities.
    (d) Definitive Ginnie Mae Securities that are to be delivered upon 
withdrawal may be issued in either registered or bearer form, to the 
extent permitted by the applicable Securities Documentation.

[66 FR 44266, Aug. 22, 2001, as amended at 72 FR 49125, Aug. 27, 2007]



Sec.  350.9  Waiver of Regulations.

    Ginnie Mae reserves the right in its discretion, to waive any 
provision(s) of these regulations in any case or class of cases for the 
convenience of Ginnie Mae or the United States, or in order to relieve 
any Person(s) of unnecessary hardship, if such action is not 
inconsistent with law, does not adversely affect any substantial 
existing rights, and the Association is satisfied that such action will 
not subject the Association or the United States to any substantial 
expense or liability.



Sec.  350.10  Liability of Federal Reserve Banks as Depositories.

    The Federal Reserve Banks as Depositories may rely on the 
information provided in a Transfer Message, and are not required to 
verify the information. The Federal Reserve Banks as Depositories shall 
not be liable for any action taken in accordance with the information 
set out in a Transfer Message, or evidence submitted in support thereof.



Sec.  350.11  Notice of Attachment for Ginnie Mae Securities in
Book-entry System.

    The interest of a debtor in a Security Entitlement may be reached by 
a creditor only by legal process upon the Securities Intermediary with 
whom the debtor's securities account is maintained, except where a 
Security Entitlement is maintained in the name of a secured party, in 
which case the debtor's interest may be reached by legal process upon 
the secured party. These regulations do not purport to establish whether 
a Federal Reserve Bank as Depository is required to honor an order or 
other notice of attachment in any particular case or class of cases.

                        PARTS 351	399 [RESERVED]

[[Page 643]]



    CHAPTER IV--OFFICE OF HOUSING AND OFFICE OF MULTIFAMILY HOUSING 
  ASSISTANCE RESTRUCTURING, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




  --------------------------------------------------------------------
Part                                                                Page
400

[Reserved]

401             Multifamily Housing Mortgage and Housing 
                    Assistance Restructuring Program (Mark-
                    to-Market)..............................         645
402             Section 8 Project-based contract renewal 
                    under section 524 of MAHRA..............         670
403-499

[Reserved]

[[Page 645]]

                           PART 400 [RESERVED]



PART 401_MULTIFAMILY HOUSING MORTGAGE AND HOUSING ASSISTANCE RESTRUCTURING
PROGRAM (MARK-TO-MARKET)--Table of Contents



                Subpart A_General Provisions; Eligibility

Sec.
401.1 What is the purpose of part 401?
401.2 What special definitions apply to this part?
401.3 Who may waive provisions in this part?
401.99 How does an owner request a section 8 contract renewal?
401.100 Which projects are eligible for a Restructuring Plan under this 
          part?
401.101 Which owners are ineligible to request Restructuring Plans?

   Subpart B_Participating Administrative Entity (PAE) and Portfolio 
                      Restructuring Agreement (PRA)

401.200 Who may be a PAE?
401.201 How does HUD select PAEs?
401.300 What is a PRA?
401.301 Partnership arrangements.
401.302 PRA administrative requirements.
401.303 PRA indemnity provisions for SHFAs and HAs.
401.304 PRA provisions on PAE compensation.
401.309 PRA term and termination provisions; other provisions.
401.310 Conflicts of interest.
401.311 Standards of conduct.
401.312 Confidentiality of information.
401.313 Consequences of PAE violations; finality of HUD determination.
401.314 Environmental review responsibilities.

                      Subpart C_Restructuring Plan

401.400 Required elements of a Restructuring Plan.
401.401 Consolidated Restructuring Plans.
401.402 Cooperation with owner and qualified mortgagee in Restructuring 
          Plan development.
401.403 Rejection of a request for a Restructuring Plan because of 
          actions or omissions of owner or affiliate or project 
          condition.
401.404 Proposed Restructuring Commitment.
401.405 Restructuring Commitment review and approval by HUD.
401.406 Execution of Restructuring Commitment.
401.407 Closing conducted by PAE.
401.408 Affordability and use restrictions required.
401.410 Standards for determining comparable market rents.
401.411 Guidelines for determining exception rents.
401.412 Adjustment of rents based on operating cost adjustment factor 
          (OCAF) or budget.
401.420 When must the Restructuring Plan require project-based 
          assistance?
401.421 Rental Assistance Assessment Plan.
401.450 Owner evaluation of physical condition.
401.451 PAE Physical Condition Analysis (PCA).
401.452 Property standards for rehabilitation.
401.453 Reserves.
401.460 Modification or refinancing of first mortgage.
401.461 HUD-held second mortgage.
401.471 HUD payment of a section 541(b) claim.
401.472 Rehabilitation funding.
401.473 HUD grants for rehabilitation under section 236(s) of NHA.
401.474 Project accounts.
401.480 Sale or transfer of project.
401.481 Subsidy layering limitations on HUD funds.
401.500 Required notices to third parties and meeting with third 
          parties.
401.501 Delivery of notices and recipients of notices.
401.502 Notice requirement when debt restructuring will not occur.
401.503 Access to information.

    Subpart D_Implementation of the Restructuring Plan After Closing

401.550 Monitoring and compliance agreements.
401.552 Servicing of second mortgage.
401.554 Contract renewal and administration.
401.556 Leasing units to voucher holders.
401.558 Physical condition standards.
401.560 Property management standards.

       Subpart E_Section 8 Requirements for Restructured Projects

401.595 Contract and regulatory provisions.
401.600 Will a section 8 contract be extended if it would expire while 
          an owner's request for a Restructuring Plan is pending?
401.601 [Reserved]
401.602 Tenant protections if an expiring contract is not renewed.
401.605 Project-based assistance provisions.
401.606 Tenant-based assistance provisions.

[[Page 646]]

     Subpart F_Owner Dispute of Rejection and Administrative Appeal

401.645 Owner request to review HUD decision.
401.650 When may the owner request an administrative appeal?
401.651 Appeal procedures.
401.652 No judicial review.

    Authority: 12 U.S.C. 1715z-1 and 1735f-19(b); 42 U.S.C. 1437(c)(8), 
1437f(t), 1437f note, and 3535(d).

    Source: 65 FR 15485, Mar. 22, 2000, unless otherwise noted.



                Subpart A_General Provisions; Eligibility



Sec.  401.1  What is the purpose of part 401?

    This part contains the regulations implementing the authority in the 
Multifamily Assisted Housing Reform and Affordability Act of 1997 
(MAHRA) for the Mark-to-Market Program. Section 511(b) of MAHRA details 
the purposes, and section 512(2) details the scope, of the Program.



Sec.  401.2  What special definitions apply to this part?

    (a) MAHRA means the Multifamily Assisted Housing Reform and 
Affordability Act of 1997, title V of Pub. L. 105-65, 42 U.S.C. 1437f 
note.
    (b) Statutory terms. Terms defined in section 512 of MAHRA are used 
in this part in accordance with their statutory meaning. These terms 
are: comparable properties, expiring contract, expiration date, fair 
market rent, mortgage restructuring and rental assistance sufficiency 
plan, nonprofit organization, qualified mortgagee, portfolio 
restructuring agreement, participating administrative entity, project-
based assistance, renewal, State, tenant-based assistance, and unit of 
general local government.
    (c) Other terms. As used in this part, the term--
    Affiliate means an ``affiliate of the owner'' or an ``affiliate of 
the purchaser'', as such terms are defined in section 516(a) of MAHRA.
    Applicable Federal rate has the meaning given in section 1274(d) of 
the Internal Revenue Code of 1986, 26 U.S.C. 1274(d).
    Community-based nonprofit organization means a nonprofit 
organization that maintains at least one-third of its governing board's 
membership for low-income tenants from the local community, or for 
elected representatives of community organizations that represent low-
income tenants.
    Comparable market rents has the meaning given in Sec.  401.410(b).
    Disabled family has the meaning given in Sec.  5.403(b) of this 
title.
    Elderly family has the meaning given in Sec.  5.403(b) of this 
title.
    Eligible project means a project that meets the requirements for 
eligibility for a Restructuring Plan in Sec.  401.100.
    HUD means a HUD official authorized to act under the provisions of 
MAHRA, and otherwise has the meaning given in Sec.  5.100 of this title.
    NHA means the National Housing Act, 12 U.S.C. 1702 et seq.
    OAHP means the Office of Affordable Housing Preservation, and any 
successor office.
    Owner means the owner of a project and any purchaser of the project.
    PAE means a participating administrative entity as defined in 
section 512(10) of MAHRA, or HUD when appropriate in accordance with 
section 513(b)(4) of MAHRA.
    PCA means a physical condition assessment of a project prepared by a 
PAE under Sec.  401.451.
    PRA means a portfolio restructuring agreement as defined in section 
512(9) of MAHRA.
    Priority purchaser means a purchaser of a project, meeting 
qualifications established by HUD, that is:
    (1) A tenant organization;
    (2) A tenant-endorsed community-based nonprofit organization or 
public agency; or
    (3) A limited partnership with a sole general partner that itself is 
a priority purchaser under this definition.
    Rental Assistance Assessment Plan means the plan described in 
section 515(c)(2) of MAHRA.
    Restructured rent means the rent determined at the time of 
restructuring in accordance with section 514(g) of MAHRA.
    Restructuring Plan or Plan means the Mortgage Restructuring and 
Rental

[[Page 647]]

Assistance Sufficiency Plan described in section 514 of MAHRA.
    Section 8 means section 8 of the United States Housing Act of 1937, 
42 U.S.C. 1437f.
    Section 541(b) claim means a claim paid by HUD under an insurance 
contract under authority of section 541(b) of the National Housing Act, 
12 U.S.C. 1735f-19(b).
    Tenant organization of a project means an organization that meets 
regularly, whose officers are elected by a majority of heads of 
households of occupied units in the project, and whose membership is 
open to all tenants of the project.
    Unit of local government means the smallest unit of general local 
government in which the project is located.
    Voucher means any tenant-based assistance.
    (d) Conflicts of interest. Additional definitions applicable to 
Sec. Sec.  401.310 through 401.313 appear in Sec.  401.310.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000; 
71 FR 2120, Jan. 12, 2006; 72 FR 66038, Nov. 26, 2007]



Sec.  401.3  Who may waive provisions in this part?

    The Assistant Secretary for Housing-Federal Housing Commissioner may 
waive any provision of this part, subject to Sec.  5.110 of this title.

[68 FR 3363, Jan. 23, 2003]



Sec.  401.99  How does an owner request a section 8 contract renewal?

    (a) Requesting Restructuring Plan. An owner may request a section 8 
contract renewal as part of a Restructuring Plan by, at least 3 months 
before the expiration date of any project-based assistance, certifying 
to HUD that to the best of the owner's knowledge:
    (1) Project rents are above comparable market rents; and
    (2) The owner is not suspended or debarred or has been notified by 
HUD of any pending suspension or debarment or other enforcement action, 
or, if so, a voluntary sale or transfer of the property is proposed in 
accordance with Sec.  401.480.
    (b) Eligible but not requesting Restructuring Plan. If an owner is 
eligible for a Restructuring Plan but requests a renewal of project-
based assistance without a Plan, in accordance with the applicable 
requirements in Sec.  402.6 of this chapter, HUD will consider the 
request in accordance with Sec.  402.4(a)(2) of this chapter.
    (c) Not eligible for Restructuring Plan. Section 402.5 of this 
chapter addresses renewal of project-based assistance for a 
Restructuring Plan. An owner of such a project may also request renewal 
under Sec.  402.4 of this chapter.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.100  Which projects are eligible for a Restructuring Plan
under this part?

    (a) What are the requirements for eligibility? To be eligible for a 
Restructuring Plan under this part, a project must:
    (1) Have a mortgage insured or held by HUD;
    (2) Be covered in whole or in part by a contract for project-based 
assistance under--
    (i) The new construction or substantial rehabilitation program under 
section 8(b)(2) of the U.S. Housing Act of 1937 as in effect before 
October 1, 1983;
    (ii) The property disposition program under section 8(b) of the U.S. 
Housing Act of 1937;
    (iii) The moderate rehabilitation program under section 8(e)(2) of 
the United States Housing Act of 1937;
    (iv) The loan management assistance program under section 8 of the 
United States Housing Act of 1937;
    (v) Section 23 of the United States Housing Act of 1937 as in effect 
before January 1, 1975;
    (vi) The rent supplement program under section 101 of the Housing 
and Urban Development Act of 1965;
    (vii) Section 8 of the United States Housing Act of 1937, following 
conversion from assistance under Section 101 of the Housing and Urban 
Development Act of 1965; or
    (viii) Section 8 of the U.S. Housing Act of 1937 as renewed under 
section 524 of MAHRA;
    (3) Have current gross potential rent for the project-based assisted 
units that exceeds the gross potential rent for the project-based 
assisted units using comparable market rents;

[[Page 648]]

    (4) Have a first mortgage that has not previously been restructured 
under this part or under HUD's Portfolio Reengineering demonstration 
authority as defined in Sec.  402.2(c) of this chapter;
    (5) Not be a project that is described in section 514(h) of MAHRA; 
and
    (6) Otherwise meet the definition of ``eligible multifamily housing 
project'' in section 512(2) of MAHRA or meet the following three 
criteria:
    (i) The project is assisted pursuant to a contract for Section 8 
assistance renewed under section 524 of MAHRA;
    (ii) It has an owner that consents for the project to be treated as 
eligible; and
    (iii) At the time of its initial renewal under section 524, it met 
the requirements of section 512(2)(A), (B), and (C) of MAHRA.
    (b) When is eligibility determined? Eligibility for a Restructuring 
Plan under paragraph (a) of this section is determined by the status of 
a project on the earlier of the termination or expiration date of the 
project-based assistance contract, which includes a contract renewed 
under section 524 of MAHRA, or the date of the owner's request to HUD 
for a Restructuring Plan. Eligibility is not affected by a subsequent 
change in status, such as contract extension under Sec.  401.600 or part 
402 of this chapter.

[71 FR 2121, Jan. 12, 2006]



Sec.  401.101  Which owners are ineligible to request Restructuring Plans?

    (a) Mandatory rejection. The request of an owner of an eligible 
project will not be considered for a Restructuring Plan if the owner is 
debarred or suspended under 2 CFR part 2424.
    (b) Discretion to reject. HUD may also decide not to accept a 
request for a Restructuring Plan if:
    (1) An affiliate is debarred or suspended under 2 CFR part 2424; or
    (2) HUD notifies the owner that HUD is engaged in a pending 
suspension, debarment or other enforcement action against an owner or 
affiliate, and the grounds for the pending action are included in Sec.  
401.403(b)(2)(ii).
    (c) Exception for sale. This section does not apply if a sale or 
transfer of the property is proposed in accordance with Sec.  401.480.
    (d) Notice to tenants. The PAE or HUD will give notice to tenants of 
a rejection in accordance with Sec. Sec.  401.500(f)(2), 401.501, and 
401.502.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66038, Nov. 26, 2007; 
72 FR 73496, Dec. 27, 2007]



   Subpart B_Participating Administrative Entity (PAE) and Portfolio 
                      Restructuring Agreement (PRA)



Sec.  401.200  Who may be a PAE?

    A PAE must qualify under the definition in section 512(10) of MAHRA. 
It must not have any outstanding violations of civil rights laws, 
determined in accordance with criteria in use by HUD. If the PAE is a 
private entity, whether nonprofit or for-profit, it must enter into a 
partnership with a public purpose entity, which may include HUD. A PAE 
may delegate responsibilities only as agreed in the PRA.



Sec.  401.201  How does HUD select PAEs?

    (a) Selection of PAE. HUD will select qualified PAEs in accordance 
with the criteria established in 513(b) of MAHRA and criteria 
established by HUD. The selection method is within HUD's discretion, 
including but not limited to a request for qualifications.
    (b) Priority for public agencies. HUD will provide a one-time 
priority period for State housing finance agencies and local housing 
agencies to qualify as the PAEs for their jurisdictions. If more than 
one agency qualifies for the same jurisdiction, HUD will provide an 
opportunity for the agencies to allocate responsibility for projects in 
the jurisdiction. If the agencies are unable to agree, HUD will choose a 
PAE in accordance with section 513(b)(2) of MAHRA.
    (c) Qualification for PAE by nonprofit and for-profit entities. 
After the priority period expires, HUD will consider other eligible 
entities as PAEs for jurisdictions in which no public agency has 
qualified as the PAE, or for projects that have not been assigned to a 
qualified public agency.
    (d) No PAE for project. If HUD does not select a PAE for a project, 
HUD may perform the functions of the PAE,

[[Page 649]]

or contract with other qualified entities to perform those functions.



Sec.  401.300  What is a PRA?

    A PRA is an agreement between HUD and a PAE that delineates rights 
and responsibilities in connection with development and implementation 
of a Restructuring Plan. The PRA must contain or incorporate by 
reference the matters required by section 513(a)(2) of MAHRA and 
Sec. Sec.  401.301 through 401.314, as well as other terms and 
conditions required by HUD.



Sec.  401.301  Partnership arrangements.

    If the PAE is in a partnership, the PRA must specify the following:
    (a) The responsibilities of each partner regarding the Restructuring 
Plan;
    (b) The resources each partner will provide to accomplish its 
designated responsibilities; and
    (c) All compensation to each partner, whether direct or indirect.



Sec.  401.302  PRA administrative requirements.

    (a) Inapplicability of certain requirements. Part 200 of 2 CFR and 
contract procurement requirements do not apply to a PRA.
    (b) Recordkeeping. The PAE must keep complete and accurate records 
of all activities related to the PAE's performance under the PRA. The 
PAE must retain the records for at least 3 years after the PRA 
terminates.
    (c) Inspection of records and audit. Upon reasonable notice, the PAE 
must permit the Comptroller General of the United States and HUD 
(including representatives of the HUD Office of Inspector General) to 
inspect, audit, and copy any records required to be retained under this 
section.

[65 FR 15485, Mar. 22, 2000, as amended at 80 FR 75936, Dec. 7, 2015]



Sec.  401.303  PRA indemnity provisions for SHFAs and HAs.

    When a PRA requires HUD to indemnify a PAE in accordance with 
section 513(a)(2)(G) of MAHRA, any payment under this indemnity is 
contingent upon the availability of funds that are permitted by law to 
be used for this purpose.



Sec.  401.304  PRA provisions on PAE compensation.

    (a) Base fee. (1) The PRA will provide for base fees to be paid by 
HUD.
    (2) HUD will establish a substantially uniform baseline for base 
fees for public entities. The base fee for a PAE will be adjusted, if 
necessary, after the first term of the PRA.
    (3) Private PAEs will be compensated based on the results of a 
competitive bid process which evaluates bidders' capability, timeliness, 
ability to work with tenant and community groups, and cost.
    (b) Incentives. The PRA may provide for incentives to be paid by 
HUD. While individual components may vary between PAEs (both public and 
private), the total amount potentially payable under the incentive 
package will be uniform. Objectives may include maximizing savings to 
the Federal Government, timely performance, tenant satisfaction with the 
PAE's performance, the infusion of public funds from non-HUD sources, 
and other benchmarks that HUD considers appropriate.
    (c) Expenses. The PRA will identify expenses incurred by the PAE 
that will qualify for reimbursement by HUD. Limits on these expenses 
will be established annually by HUD, but HUD may waive the limits for 
high-cost areas.
    (d) Other matters. HUD will retain the right of final approval of 
any fee schedule. HUD will publish the standard form of PRA and the 
compensation package annually on its Internet Web site.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66038, Nov. 26, 2007]



Sec.  401.309  PRA term and termination provisions; other provisions.

    (a) 1-year term with renewals. The PRA will have a term of 1 year, 
to be renewed for successive terms of 1 year with the mutual agreement 
of both parties. The PRA will provide for HUD to pay final compensation 
to the PAE and to assign responsibility for continuing activities if the 
PRA is not renewed.
    (b) Termination for cause or convenience of Federal Government--(1) 
Termination for cause. HUD may terminate a PRA at any time for cause, 
with payment required by HUD as provided in

[[Page 650]]

the PRA only for matters authorized by the PRA and performed by the PAE 
to the date of termination. HUD will retain the right of set-off against 
any payments due as well as such other rights afforded at law and in 
equity.
    (2) Termination for convenience of Federal Government. HUD may 
terminate a PRA, and may remove an eligible property from a PRA, at any 
time in accordance with the PRA or applicable law, regardless of whether 
the PAE is in default of any of its obligations under the PRA, if such 
termination is in the best interests of the Federal Government. The PRA 
will provide for payment to the PAE of a specified percentage of the 
base fee authorized by Sec.  401.304(a) and amounts for reimbursement of 
third-party vendors to the PAE authorized by Sec.  401.304(c).
    (3) Transfer to another PAE; temporary waiver of rights. If a PRA is 
terminated:
    (i) HUD may order an immediate transfer of some or all of the PAE's 
duties to another PAE designated by HUD; and
    (ii) HUD may temporarily waive its right of immediate termination in 
order to allow an orderly transfer of duties and responsibilities under 
a PRA, without waiving the right of termination after the transfer has 
been completed to HUD's satisfaction.
    (c) Liability for damages. During the term of a PRA, and 
notwithstanding any termination of a PRA, HUD may seek its actual, 
direct, and consequential damages from any PAE for failure to comply 
with its obligations under PRA.
    (d) Cumulative remedies. The remedies under this section are 
cumulative and in addition to any other remedies or rights HUD may have 
under the terms of the PRA, at law, or otherwise.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66038, Nov. 26, 2007]



Sec.  401.310  Conflicts of interest.

    (a) Definitions--(1) Conflict of interest means a situation in which 
a PAE or other restricted person:
    (i) Has a financial interest, direct or indirect, that prevents or 
may prevent the PAE or other restricted person from acting at all times 
in the best interests of HUD;
    (ii) Has one or more personal, business, or financial interests or 
relationships that would cause a reasonable person with knowledge of the 
relevant facts to question the integrity or impartiality of those who 
are or will be acting under the PRA; or
    (iii) Is taking an adverse position to HUD or to an owner whose 
project is covered by a PRA in a lawsuit, administrative proceeding, or 
other contested matter.
    (2) Control means the power to vote, directly or indirectly, 25 
percent or more of any class of the voting stock of a company; the 
ability to direct in any manner the election of a majority of a company 
(or other entity's) directors or trustees; or the ability to exercise a 
controlling influence over the company or entity's management and 
policies. For purposes of this definition, a general partner of a 
limited partnership is presumed to be in control of that partnership.
    (3) Restricted person means a PAE; any management official of the 
PAE; any legal entity that is under the control of the PAE, is in 
control of the PAE, or is under common control with the PAE; or any 
employee, agent or contractor of the PAE, or employee of such agent or 
contractor, who will perform or has performed services under a PRA with 
HUD.
    (b) General prohibitions. (1) The PAE may not permit conflicts of 
interest to exist without obtaining a waiver in accordance with this 
section.
    (2) The PAE must establish procedures to identify conflicts of 
interest and to ensure that conflicts of interest do not arise or 
continue, subject to waiver under paragraph (c) of this section.
    (3) HUD will not enter into PRAs with potential PAEs who have 
conflicts of interest associated with a particular project, or permit 
PAEs to continue performance under existing PRAs when such PAEs have 
conflicts of interest, unless such conflicts have been eliminated to 
HUD's satisfaction by the PAE or potential PAE or are waived by HUD.
    (4) The PAE has a continuing obligation to take all action necessary 
to

[[Page 651]]

identify whether it or any other restricted person has a conflict of 
interest.
    (c) Waivers. HUD will waive conflicts of interest only when, in 
light of all relevant circumstances, the interests of HUD in the PAE's 
or another restricted persons's participation outweigh the concern that 
a reasonable person may question the integrity of HUD's operations.
    (d) Conflicts of interest arising prior to PAE selection--(1) 
Request for review of conflicts of interest. (i) A potential PAE, with 
its request to HUD for consideration for selection as a PAE, must 
identify existing conflicts of interest and may make a written request 
for a determination as to the existence of a conflict of interest, may 
request that the conflict of interest, if any, be waived, or may propose 
how it could eliminate the conflict.
    (ii) If, after submitting a request but prior to selection, a 
potential PAE discovers that it has a conflict, it must notify HUD in 
writing within 10 days of submitting the request or prior to selection, 
whichever is earlier. Such notification must contain a detailed 
description of the conflict. The potential PAE may, with its 
notification, request that the conflict be waived or may propose how it 
may eliminate the conflict. The potential PAE may also request a 
determination as to the existence of the conflict. The potential PAE may 
also request a determination as to the existence of the conflict.
    (2) Review by HUD. Subject to the restrictions set forth in this 
section, HUD in its sole discretion may determine whether a conflict of 
interest exists, may waive the conflict of interest, or may approve in 
writing a PAE's proposal to eliminate a conflict of interest.
    (e) Conflicts of interest that arise or are discovered after PAE 
selection. (1) A PAE must notify HUD in writing within 10 days after 
discovering that it or another restricted person has a conflict of 
interest. Such notification must contain a detailed description of the 
conflict of interest and state how the PAE intends to eliminate the 
conflict. The PAE may also request a determination as to the existence 
of a conflict.
    (2) HUD will, after receipt of such notification or other discovery 
of the PAE's conflict or potential conflict of interest, take such 
action as it determines is in its best interests, which may involve 
proceeding under Sec.  401.313 or as provided in the following 
sentences. HUD may notify the PAE in writing of its findings as to 
whether a conflict of interest exists and the basis for such 
determination, whether or not a waiver will be granted, or whether 
corrective actions may be taken in order to eliminate the conflict of 
interest. Corrective action must be completed by the PAE not later than 
30 days after notification is mailed by HUD unless HUD, at its sole 
discretion, determines that it is in its best interests to grant the PAE 
an extension in which to complete the corrective action.
    (f) Reconsideration of decisions. Decisions issued pursuant to this 
section may be reconsidered by HUD upon application by the PAE. Such 
requests must be in writing and must contain the basis for the request. 
HUD may, at its discretion and after determining that it is in its best 
interests, stay any corrective or other actions previously ordered 
pending reconsideration of a decision.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.311  Standards of conduct.

    (a) Minimum ethical standards for PAEs. In connection with the 
performance of any PRA and during the term of such PRA, a PAE or other 
restricted person (as defined in Sec.  401.310) may not:
    (1) Solicit for itself or others favors, gifts, or other items of 
monetary value from any person who is seeking official action from HUD 
or the PAE in connection with the PRA or has interests that may be 
substantially affected by the restricted person's performance or 
nonperformance of duties to HUD;
    (2) Use improperly (or allow the improper use of) HUD property or 
property over which the restricted person has supervision or charge by 
reason of the PRA;
    (3) Use its status as PAE for its own benefit, or the financial or 
business benefit of a third party, except as contemplated by the PRA; or

[[Page 652]]

    (4) Make any unauthorized promise or commitment on behalf of HUD.
    (b) 18 U.S.C. 201. Pursuant to 18 U.S.C. 201, whoever acts for or on 
behalf of HUD in connection with the matters covered by this part is 
deemed to be a public official. Public officials are prohibited from 
soliciting or accepting anything of value in return for being influenced 
in the performance of official actions. Violators are subject to 
criminal sanctions.
    (c) 18 U.S.C. 1001. Pursuant to 18 U.S.C. 1001, whoever knowingly 
and willingly falsifies a material fact, makes a false statement or 
utilizes a false writing in connection with a PRA is subject to criminal 
sanctions. Other Federal civil statutes also apply to making false 
statements to the United States.
    (d) 18 U.S.C. 207. Former Federal Government employees are subject 
to the prohibitions in 18 U.S.C. 207.



Sec.  401.312  Confidentiality of information.

    A PAE and every other restricted person (as defined in Sec.  
401.310) has a duty to protect confidential information, except as 
provided in Sec. Sec.  401.500 through 401.503, and to prevent its use 
to further a private interest other than as contemplated by the PRA. As 
used in this section, confidential information means information that a 
PAE or other restricted person obtains from or on behalf of HUD or a 
third party in connection with a PRA but does not include information 
generally available to the public unless the information becomes 
available to the public as a result of unauthorized disclosure by the 
PAE or another restricted person.



Sec.  401.313  Consequences of PAE violations; finality of HUD 
determination.

    (a) Effect on PRA. If a PAE, potential PAE or other restricted 
person (as defined in Sec.  401.310) violates Sec. Sec.  401.310, 
410.311, or 401.312, HUD may:
    (1) Find the potential PAE unqualified to enter into a PRA;
    (2) Find the PAE unqualified to receive additional projects for 
restructuring under an existing PRA;
    (3) Find the PAE in default under an existing PRA with the right of 
termination for cause under Sec.  401.309; or
    (4) Seek from a PAE or other restricted person HUD's actual, direct, 
and consequential damages resulting from the violation.
    (b) Cumulative remedies. The remedies under this section are 
cumulative and in addition to any other remedies or rights HUD may have 
under the terms of the PRA, at law, or otherwise.
    (c) Finality of determination. Any determination made by HUD 
pursuant to this section is at HUD's sole discretion and is not subject 
to further administrative review.



Sec.  401.314  Environmental review responsibilities.

    HUD will retain all responsibility for environmental review under 
part 50 of this title. Compliance with part 50 of this title will be 
completed before any HUD approval of the Restructuring Commitment under 
Sec.  401.405.



                      Subpart C_Restructuring Plan



Sec.  401.400  Required elements of a Restructuring Plan.

    (a) General. A PAE is responsible for the development of a 
Restructuring Plan for each project included in its PRA.
    (b) Required elements. The Restructuring Plan must contain a 
narrative that fully describes the restructuring transaction. The 
Restructuring Plan must include the elements required by section 514(e) 
of MAHRA. The Restructuring Plan must describe the use of any 
restructuring tools listed at sections 517(a) and (b) of MAHRA, and must 
contain other requirements as determined by HUD.



Sec.  401.401  Consolidated Restructuring Plans.

    A PAE may request HUD to approve a Consolidated Restructuring Plan 
that presents an overall strategy for more than one project included in 
the PRA. HUD will consider approval of a Consolidated Restructuring Plan 
for projects having common ownership, geographic proximity, common 
mortgagee or servicer, or other factors that contribute to more 
efficient use of the

[[Page 653]]

PAE's resources. Notwithstanding the more efficient use of a PAE's 
resources, HUD will not approve any Consolidated Restructuring Plans 
that have a detrimental effect on tenants or the community, or a higher 
cost to the Federal Government. HUD's decision to approve or disapprove 
a Consolidated Restructuring Plan will be made on a case-by-case basis.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66038, Nov. 26, 2007]



Sec.  401.402  Cooperation with owner and qualified mortgagee in
Restructuring Plan development.

    A PAE must comply with section 514(a)(2) of MAHRA by using its best 
efforts to seek the cooperation of the owner and qualified mortgagee or 
its designee in the development of the Restructuring Plan. If the owner 
fails to cooperate (as demonstrated by reasonable progress in 
development of a Restructuring Plan) to the satisfaction of the PAE and 
HUD agrees, the PAE must notify the owner that the PAE will not develop 
a Restructuring Plan. This notice will be subject to dispute and 
administrative appeal under subpart F of this part. If the qualified 
mortgagee does not cooperate in modifying the mortgage, the PAE and 
owner may continue to develop a Restructuring Plan to restructure the 
loan using alternative financing.



Sec.  401.403  Rejection of a request for a Restructuring Plan because
of actions or omissions of owner or affiliate or project condition.

    (a) Ongoing determination of owner and project eligibility. 
Notwithstanding an initial determination to accept the owner's request 
for a Restructuring Plan, the PAE is responsible for a further more 
complete and ongoing assessment of the eligibility of the owner and 
project while the Restructuring Plan is developed. The PAE must advise 
HUD if at any time any of the grounds for rejection listed in paragraph 
(b) of this section exist.
    (b) Grounds for rejection--(1) Suspension or debarment. Neither a 
PAE nor HUD will continue to develop or consider a Restructuring Plan 
if, at any time before a closing under Sec.  401.407, the owner is 
debarred or suspended under 2 CFR part 2424.
    (2) Other grounds. HUD may elect not to permit continued 
consideration of the Restructuring Plan at any time before closing under 
Sec.  401.407, if:
    (i) An affiliate is debarred or suspended under 2 CFR part 2424;
    (ii) HUD or the PAE determines that the owner or an affiliate has 
engaged in material adverse financial or managerial actions or omissions 
as described in section 516(a) of MAHRA, including any outstanding 
violations of civil rights laws in connection with any project of the 
owner or affiliate; or
    (iii) HUD or the PAE determines (under Sec.  401.451(c) or 
otherwise) that the project does not meet the housing quality standards 
in Sec.  401.558 and that the poor condition of the project is not 
likely to be remedied in a cost-effective manner through the 
Restructuring Plan.
    (3) Exception for sale. This paragraph does not apply (except 
(2)(iii)) if a sale or transfer is proposed under Sec.  401.480.
    (c) Dispute and appeal. An owner may dispute a rejection under this 
section and seek administrative review under the procedures in subpart F 
of this part.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 73496, Dec. 27, 2007]



Sec.  401.404  Proposed Restructuring Commitment.

    A PAE must submit a Restructuring Plan and a proposed Restructuring 
Commitment to HUD for approval, prior to submitting the Commitment to 
the owner for execution. The submission may not occur earlier than 10 
days after the public meeting required by Sec.  401.500(d). The proposed 
Restructuring Commitment must be in a form approved by HUD, incorporate 
the Restructuring Plan, and include the following:
    (a) The lender, loan amount, interest rate, and term of any 
mortgages or unsecured financing for the mortgage restructuring and 
rehabilitation, and any credit enhancement;
    (b) The amount of any payment of a section 541(b) claim;
    (c) The type of section 8 assistance and the section 8 restructured 
rents;

[[Page 654]]

    (d) The rehabilitation required, the source of the owner 
contribution, and escrow arrangements;
    (e) The uses for project accounts;
    (f) The terms of any sale or transfer of the project;
    (g) A schedule setting forth all sources and uses of funds to 
implement the Restructuring Plan, including setting forth the balances 
of project accounts before and after restructuring;
    (h) All consideration, direct or indirect, received or to be 
received by the PAE or a related party, if known, in connection with any 
matter addressed in the Restructuring Commitment, except amounts paid or 
to be paid by HUD; and
    (i) Other terms and conditions prescribed by HUD.



Sec.  401.405  Restructuring Commitment review and approval by HUD.

    HUD will either approve the Restructuring Commitment as submitted, 
require changes as a condition for approval, or reject the Plan. If the 
Plan is rejected, HUD will inform the PAE of the reasons for rejection, 
and the PAE will inform the owner. HUD's rejection of the Plan is 
subject to the dispute and administrative appeal provisions of subpart F 
of this part.



Sec.  401.406  Execution of Restructuring Commitment.

    When HUD approves the Restructuring Commitment, the PAE will deliver 
the Restructuring Commitment to the owner for execution. The 
Restructuring Commitment becomes binding upon execution by the owner. An 
owner who does not execute the Restructuring Commitment may appeal its 
terms and seek modification under subpart F of this part.



Sec.  401.407  Closing conducted by PAE.

    After the owner has executed the Restructuring Commitment, the PAE 
must arrange for a closing to execute all documents necessary for 
implementation of the Restructuring Plan. The PAE must use standard 
documents approved by HUD, with modifications only as necessary to 
comply with applicable State or local laws, or such other modifications 
as are approved in writing by HUD.



Sec.  401.408  Affordability and use restrictions required.

    (a) General. The Restructuring Plan must provide that the project 
will be subject to affordability and use restrictions in a Use Agreement 
acceptable to HUD. The Use Agreement must be recorded and in effect for 
at least 30 years. It must include at least the provisions required by 
paragraphs (b) through (j) of this section.
    (b) Use restriction. The project must continue to be used for 
residential use with no reduction in the number of residential units 
without prior HUD approval.
    (c) Affordability restrictions. Except during a period when at least 
20 percent of the units in a project receive project-based assistance:
    (1) At least 20 percent of the units in the project must be leased 
to families whose adjusted income does not exceed 50 percent of the area 
median income as determined by HUD, with adjustments for household size, 
at rents no greater than 30 percent of 50 percent of the area median 
income; or
    (2) At least 40 percent of the units in the project must be leased 
to families whose adjusted income does not exceed 60 percent of the area 
median income as determined by HUD, with adjustments for household size, 
at rents no greater than 30 percent of 60 percent of the area median 
income.
    (d) Comparable configuration. The type and size of the units that 
satisfy the affordability restrictions of paragraph (c) of this section 
must be comparable to the type and size of the units for the project as 
a whole.
    (e) Nondiscrimination against voucher holders. An owner must comply 
with the nondiscrimination provisions of Sec.  401.556.
    (f) Enforcement. The Use Agreement must contain remedies for breach 
of the Use Agreement, including monetary damages for non-compliance with 
paragraphs (c) and (g) of this section.
    (g) Compliance with physical condition standards. The Use Agreement 
must require that the property be maintained in compliance with the 
requirements of Sec.  401.558.
    (h) Reporting. The Use Agreement must contain appropriate financial 
and other reporting requirements for the

[[Page 655]]

owner. These reports must comply with the Real Estate Assessment Center 
protocol or subsequent standards required by HUD.
    (i) Enforcement and amendment. The Use Agreement will be enforceable 
by interested parties to be specified in the Agreement, which will 
include HUD, the PAE, project tenants, organizations representing 
project tenants, and the unit of local government. The Use Agreement 
must require the party bringing enforcement action to give the owner 
notice and a reasonable opportunity to cure any violations.
    (j) Modifications. HUD will retain the right to approve 
modifications of the Use Agreement agreed to by the owner without the 
consent of any other party, including those having the right of 
enforcement. The owner must post prominently on project property notice 
of any modifications approved by HUD.
    (k) Owner obligation to accept project-based assistance. Subject to 
the availability of appropriated funds, the owner of the project must 
accept any offer of renewal of project-based assistance if the offer is 
in accordance with the terms and conditions specified in the 
Restructuring Plan.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.410  Standards for determining comparable market rents.

    (a) When are comparable market rents required? The Restructuring 
Plan must establish restructured rents for project-based assistance at 
comparable market rents unless the PAE finds that exception rents are 
necessary under Sec.  401.411.
    (b) Comparable market rents defined. Comparable market rents are the 
rents charged for properties that the PAE determines to be comparable 
properties (as defined in section 512(1) of MAHRA, but also excluding 
section 202 or section 811 projects assisted under part 891 of this 
title). For purposes of section 512(1), other relevant characteristics 
include any applicable rent control and other characteristics determined 
by the PAE. The PAE may make appropriate adjustments when needed to 
ensure comparability of properties.
    (c) Methodology for determining comparable market rents. If the PAE 
is unable to identify at least three comparable properties within the 
local market, the PAE may:
    (1) Use non-comparable housing stock within that market from which 
adjustments can be made; or
    (2) If necessary to go outside the market, use comparable properties 
as far outside the local market as it finds reasonable, from which 
adjustments can be made.
    (d) Using FMR as last resort. If the PAE is unable to identify 
enough properties under paragraph (c) of this section, comparable market 
rents must be set at 90 percent of the Fair Market Rents for the 
relevant market area.



Sec.  401.411  Guidelines for determining exception rents.

    (a) When do exception rents apply? (1) The Restructuring Plan may 
provide for exception rents established under section 514(g)(2) of MAHRA 
for project-based assistance if the PAE determines that project income 
under the rent levels established under Sec.  401.410 would be 
inadequate to meet the costs of operating the project as described in 
paragraph (b) of this section and that the housing needs of the tenants 
and the community could not be adequately addressed.
    (2) In any fiscal year, the PAE may not request HUD to approve 
Restructuring Plans with exception rents for more than 20 percent of all 
units covered by the PRA, except that HUD may approve a waiver of this 
20 percent limitation based on the PAE's narrative explanation of 
special need.
    (b) How are exception rents calculated? (1) Exception rents must be 
set at a level sufficient to support the costs of operating the project. 
The PAE must take into account the following cost items:
    (i) Debt service on the second mortgage under Sec.  401.461(a) or a 
rehabilitation loan included in the Restructuring Plan;
    (ii) The operating expenses of the project, as determined by the 
PAE, including:
    (A) Contributions to adequate reserves for replacement;
    (B) The costs of maintenance and necessary rehabilitation;

[[Page 656]]

    (C) Other eligible costs permitted under the section 8 program;
    (iii) An adequate allowance for potential operating losses due to 
vacancies and failure to collect rents, as determined by the PAE;
    (iv) A return to the owner to the extent permitted by Sec.  
401.461(b)(3)(ii)(A); and
    (v) Other expenses determined by the PAE to be necessary for the 
operation of the project.
    (2) The exception rent must not exceed 120 percent of the Fair 
Market Rent for the market area, except that HUD may approve an 
exception rent greater than 120 percent of Fair Market Rent, based on a 
narrative explanation of special need submitted by the PAE, subject to 
the 5 percent limitation in section 514(g)(2)(A) of MAHRA.



Sec.  401.412  Adjustment of rents based on operating cost adjustment 
factor (OCAF) or budget.

    (a) OCAF. (1) The Restructuring Plan must provide for annual 
adjustment of the restructured rents for project-based assistance by an 
OCAF determined by HUD.
    (2) Application of OCAF. HUD will apply the OCAF to the previous 
year's contract rent less the portion of that rent paid for debt 
service. This paragraph applies to renewals of contracts in subsequent 
years which receive restructured rents under either section 514(g)(1) or 
(2) of MAHRA.
    (b) Budget-based. Rents will be adjusted on a budget basis instead 
of OCAF only upon owner request, subject to HUD approval.



Sec.  401.420  When must the Restructuring Plan require project-based
assistance?

    The Restructuring Plan must provide for the section 8 contract to be 
renewed as project-based assistance, subject to the availability of 
funds for this purpose, if:
    (a) The PAE determines there is a market-wide vacancy rate of 6 
percent or less;
    (b) At least 50 percent of the units in the project are occupied by 
elderly families, disabled families, or elderly and disabled families; 
or
    (c) The project is held by a nonprofit cooperative ownership housing 
corporation or nonprofit cooperative housing trust.



Sec.  401.421  Rental Assistance Assessment Plan.

    (a) Plan required. For any project not subject to mandatory project-
based assistance under Sec.  401.420, the PAE must develop a Rental 
Assistance Assessment Plan in accordance with section 515(c)(2) of MAHRA 
to determine whether assistance should be renewed as project-based 
assistance or whether some or all of the assisted units should be 
converted to tenant-based assistance.
    (b) Matters to be assessed. The PAE must include an assessment of 
the impact of converting to tenant-based assistance and the impact of 
renewing project-based assistance on:
    (1) The ability of the tenants to find adequate, available, decent, 
comparable, and affordable housing in the local market;
    (2) The types of tenants residing in the project (such as elderly 
families, disabled families, large families, and cooperative 
homeowners);
    (3) The local housing needs identified in the applicable 
Consolidated Plan developed under part 91 of this title;
    (4) The cost of providing assistance, comparing the applicable 
payment standard to the rent levels permitted by Sec. Sec.  401.410 and 
401.411;
    (5) The long-term financial stability of the project;
    (6) The ability of residents to make reasonable choices about their 
individual living situations;
    (7) The quality of the neighborhood in which the tenants would 
reside; and
    (8) The project's ability to compete in the marketplace.
    (c) Conversion may be phased in. Any conversion from project-based 
assistance to tenant-based assistance may occur over a period of not 
more than 5 years if the PAE decides the transition period is needed for 
the financial viability of the project.
    (d) Reports to HUD. The PAE must report to HUD on the matters 
specified in section 515(c)(2)(C) of MAHRA at least semi-annually.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]

[[Page 657]]



Sec.  401.450  Owner evaluation of physical condition.

    (a) Initial evaluation. The owner must evaluate the physical 
condition of the project and provide the following information to the 
PAE in a form acceptable to the PAE:
    (1) All work items required to bring the project to the standard in 
Sec.  401.452, including any work items needed to ensure compliance with 
applicable requirements of part 8 of this title concerning accessibility 
to persons with disabilities;
    (2) The capital repair or replacement items that will be necessary 
to maintain the long-term physical integrity of the property;
    (3) A plan for funding the rehabilitation work included in paragraph 
(a)(1) of this section, which work must be completed in a timely manner 
after closing the restructuring transaction, that identifies the source 
of the required owner contribution of non-project funds; and
    (4) An estimate of the initial deposit, if any, and the estimated 
monthly deposit to the reserve for replacement account for the next 20 
years.
    (b) Use of CNA. An owner may comply with paragraph (a) of this 
section by submitting a comprehensive needs assessment in accordance 
with title IV of the Housing and Community Development Act of 1992 (12 
U.S.C. 1715z-1a note) if the CNA:
    (1) Was completed or updated within 1 year; and
    (2) Contains all of the matters required by paragraph (a) of this 
section.
    (c) Reconsideration and modification of evaluation. If the PAE, 
after its independent review under Sec.  401.451, determines that the 
owner's evaluation either fails to address specific necessary work items 
or fails to propose a cost-effective approach to rehabilitation, the 
owner may modify its evaluation to satisfy the concerns of the PAE.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.451  PAE Physical Condition Analysis (PCA).

    (a) Review and certification of owner evaluation. (1) The PAE must 
independently evaluate the physical condition of the project by means of 
a PCA. If the PAE finds any immediate threats to health and safety, the 
owner must complete those work items immediately, or the PAE must 
evaluate the project's eligibility in accordance with Sec.  
401.403(b)(2)(iii).
    (2) After consultation with the owner and an opportunity for the 
owner to modify its evaluation performed under Sec.  401.450, the PAE 
must either certify to the accuracy and completeness of the owner's 
evaluation performed under Sec.  401.450 for each project covered by the 
PRA, or state that the evaluation fails to address certain items or does 
not propose a cost effective approach.
    (b) Rejection due to inaccurate or incomplete owner evaluation. If 
the PAE cannot certify to the accuracy and completeness of the owner's 
evaluation due to its failure to address specific work items or because 
it does not propose a cost effective approach, the PAE must notify HUD. 
If HUD agrees with the PAE's determination, the PAE must notify the 
owner that the request for a Restructuring Plan is rejected.
    (c) Rejection due to poor condition of the project. Based on the 
completed PCA, the PAE must determine whether proceeding with a 
Restructuring Plan with necessary rehabilitation is more cost-effective 
in terms of Federal resources than rejecting the Request for a 
Restructuring Plan under Sec.  401.403(b)(2)(iii) and providing tenant-
based assistance for displaced tenants under Sec.  401.602. HUD will 
provide guidance to PAEs for making the determination. If the PAE 
concludes that a request for a Restructuring Plan should be rejected 
because of lack of cost-effectiveness due to poor condition of the 
project, it must also consider the effect on tenants and the community 
and advise HUD of the effect. HUD will make the final decision after 
considering the PAE's recommendation.
    (d) Dispute and appeal of rejection. The dispute and appeal 
provisions of subpart F of this part apply to rejections under 
paragraphs (b) and (c) of this section.



Sec.  401.452  Property standards for rehabilitation.

    The restructuring plan must provide for the level of rehabilitation 
needed to

[[Page 658]]

restore the property to the non-luxury standard adequate for the rental 
market for which the project was originally approved. If the standard 
has changed over time, the rehabilitation may include improvements to 
meet the current standards. The rehabilitation also may include the 
addition of significant features, in accordance with Sec.  401.472. The 
result of the rehabilitation should be a project that can attract non-
subsidized tenants, but competes on rent rather than on amenities. When 
a range of options exists for satisfying the rehabilitation standard, 
the PAE must choose the least costly option considering both capital and 
operating costs and taking into account the marketability of the 
property and the remaining useful life of all building systems. Nothing 
in this part exempts rehabilitation from the requirements of part 8 of 
this title concerning accessibility to persons with disabilities.

[72 FR 66038, Nov. 26, 2007]



Sec.  401.453  Reserves.

    The Restructuring Plan must provide for reserves for capital 
replacement sufficient to ensure the property's long-term structural 
integrity so that the property can be maintained as affordable housing 
in decent, safe, and sanitary condition meeting the standards of Sec.  
401.558.



Sec.  401.460  Modification or refinancing of first mortgage.

    (a) Principal amount. As part of the Restructuring Plan, the PAE 
will determine the size of the restructured first mortgage that will 
result from the modification or refinancing of the existing FHA-insured 
or HUD-held first mortgage. The restructured first mortgage must be in 
the amount that can be supported by net operating income based on the 
lower of the restructured section 8 rents or the rents allowed by the 
Use Agreement under Sec.  401.408. Neither the outstanding principal 
balance of the existing first mortgage, nor the monthly principal and 
interest payments on that debt, may be increased through modification 
under the Restructuring Plan. The debt service coverage used by the PAE 
must be adequate for purposes of the Restructuring Plan and for the 
requirements of any refinancing.
    (b) Fully amortizing. The modified or refinanced first mortgage must 
be fully amortizing through level monthly payments.
    (c) Rates and other terms. Interest rates and other terms of the 
modified or refinanced first mortgage must be competitive in the market.
    (d) Fees. Any fees or costs associated with mortgage modification or 
refinancing determined by the PAE to be above normal processing fees 
must be paid by the owner from non-project funds and must not be 
included in the modified or refinanced first mortgage.
    (e) Refinancing. (1) The owner must contact the mortgagee to 
determine the mortgagee's willingness to consider a modification and re-
amortization of the existing first mortgage through a Restructuring Plan 
before considering any other source of first mortgage financing. If the 
mortgagee does not agree to modify and re-amortize in accordance with 
the Restructuring Plan, the loan must be refinanced.
    (2) The refinancing may be either without credit enhancement or with 
credit enhancement under one of the following:
    (i) FHA mortgage insurance. If the Restructuring Plan provides for 
FHA mortgage insurance for the refinanced first mortgage, the insurance 
will be provided in accordance with all usually applicable FHA legal 
requirements except that insurance will be documented as provided in 
section 517(b)(2) of MAHRA. HUD will issue the commitment for mortgage 
insurance but may adapt its procedures as necessary to facilitate 
development and implementation of a Restructuring Plan.
    (ii) Other FHA credit enhancement. If FHA credit enhancement, 
including risk-sharing, is provided under part 266 of this title, the 
credit enhancement will be provided in accordance with all usually-
applicable FHA legal requirements under part 266 of this title, except 
that special approval from HUD will be required before the PAE engages 
in risk-sharing with FHA under part 266 of this title. HUD will approve 
risk-sharing financing that complies with part 266 whenever required by 
section 517(b)(3) of MAHRA.

[[Page 659]]

    (iii) Credit enhancement from non-FHA sources. If credit enhancement 
is to be provided by a non-FHA source under section 517(b)(4) of MAHRA, 
HUD will consider waiver of any non-statutory provision in this part 
only if the waiver will not materially impair achievement of the 
purposes of MAHRA and if the waiver is essential to meet the legitimate 
business or legal requirements of the provider of credit enhancement.



Sec.  401.461  HUD-held second mortgage.

    (a) Amount. (1) The Restructuring Plan must provide for a second 
mortgage to HUD whenever the Plan provides for either payment of a claim 
under section 541(b) of the National Housing Act (541(b) claim) or the 
modification or refinancing of a HUD-held first mortgage that results in 
a first mortgage with a lower principal amount. The term ``second 
mortgage'' in this section also includes a new HUD-held first mortgage 
(not a refinancing mortgage), if a full payment of claim is made under 
Sec.  401.471 or if a full payment of claim is unnecessary because 
surplus project accounts are available to facilitate the Restructuring 
Plan, pursuant to section 517(b)(6) of MAHRA, or if Sec.  401.460(a) 
does not permit a restructured first mortgage in any amount.
    (2) The second mortgage must be in a principal amount that does not 
exceed the lesser of:
    (i) The amount the PAE reasonably expects to be repaid based on 
objective criteria such as the amount of anticipated net cash flow, 
trending assumptions, amortization provisions, and expected residual 
value of the property; and
    (ii) The greater of:
    (A) The section 541(b) claim (or the difference between the unpaid 
principal balance on HUD-held mortgage debt immediately before and after 
the restructuring), plus surplus project accounts from residual receipts 
accumulated pursuant to 24 CFR 880.205(e), 881.205(e), or 883.306(e) and 
derived from an expiring Section 8 Housing Assistance Payments contract 
and not otherwise distributed to the owner and made available to 
facilitate the Restructuring Plan pursuant to section 517(b)(6) of 
MAHRA, and
    (B) The difference between the unpaid balance on the first mortgage 
immediately before and after the restructuring.
    (b) Terms and conditions. (1) The second mortgage must have an 
interest rate of at least one percent, but not more than the applicable 
Federal rate.
    (2) The second mortgage must have a term concurrent with the 
modified or refinanced first mortgage, if any. HUD may provide that if 
there is no first mortgage, the second mortgage may continue for a term 
established by HUD.
    (3)(i) Principal and interest on the second mortgage is payable only 
out of net cash flow during its term. ``Net cash flow'' means that 
portion of project income that remains after the payment of all required 
debt service payments on the modified or refinanced first mortgage, if 
any, including payment of any past due principal or interest, and 
payment of all reasonable and necessary operating expenses (including 
deposits to the reserve for replacement account) and any other 
expenditure approved by HUD.
    (ii) The priority and distribution of net cash flow is as follows:
    (A) HUD or the PAE may approve the payment to the owner of up to 25 
percent of net cash flow based on consideration of relevant conditions 
and circumstances including, but not limited to, compliance with the 
management standards prescribed in Sec.  401.560 and the physical 
condition standards prescribed in Sec.  401.558; and
    (B) All remaining net cash flow will be applied to the principal and 
interest on the second mortgage, until paid in full, and then to any 
additional subordinate mortgage under Sec.  401.461(c).
    (4) HUD may cause the second mortgage to be immediately due and 
payable on the grounds provided in section 517(a)(4) of MAHRA, including 
an assumption of the mortgage in violation of HUD standards for approval 
of transfers of physical assets (if applicable), or if the owner 
materially fails to comply with other material HUD requirements after a 
reasonable opportunity for the owner to cure such failure. A decision by 
HUD in this regard is subject to the

[[Page 660]]

administrative appeals procedure in subpart F of this part, unless HUD 
acts on the basis of the grounds specified in sections 517(a)(4)(A) or 
(B) of MAHRA.
    (5) HUD will consider modification, assignment to the acquiring 
entity, or forgiveness of all or part of the second mortgage, if: The 
Secretary holds the second mortgage; and if the project has been sold or 
transferred to a tenant organization or tenant-endorsed community-based 
nonprofit or public agency that meets eligibility guidelines determined 
by HUD; accepts additional affordability requirements acceptable to HUD; 
and requests such modification, assignment, or forgiveness. A community-
based nonprofit group or public agency demonstrates that it is tenant-
endorsed in accordance with Sec.  401.480(e).
    (c) Additional mortgage to HUD. (1) A Restructuring Plan shall 
require the owner to give an additional mortgage on the project to HUD 
in an amount that:
    (i) For the restructuring of a mortgage insured by HUD, does not 
exceed the difference between:
    (A) The amount of a section 541(b) claim paid under Sec.  401.471 
increased by any residual receipts, pursuant to 24 CFR 880.205(e), 
881.205(e), or 883.306(e); and
    (B) The principal amount of the second mortgage; or
    (ii) For the restructuring of a mortgage held by HUD, does not 
exceed the difference between:
    (A) The principal amount of a restructured HUD-held mortgage and the 
sum of, as applicable, a restructured HUD-held first mortgage at reduced 
principal amount, new mortgage funds paid to HUD at closing, and surplus 
project accounts other than residual receipts, pursuant to 24 CFR 
880.205(e), 881.205(e), or 883.306(e); and
    (B) The principal amount of the second mortgage.
    (2) HUD may approve a Plan that does not require an additional 
mortgage, or provides for less than the full difference to be payable 
under the additional mortgage, or allows for subsequent modification, 
assignment, or forgiveness of the additional mortgage under any of the 
following circumstances:
    (i) The anticipated recovery on the additional mortgage is less than 
the servicing costs; or
    (ii) HUD has approved modification, assignment, or forgiveness of 
the second mortgage, pursuant to paragraph (b)(5) of this section.
    (3) With respect to the second mortgage required by paragraph (a) of 
this section, any additional mortgage must:
    (i) Be junior in priority;
    (ii) Bear interest at the same rate; and
    (iii) Require no payment until the second mortgage is satisfied, at 
which time it will be payable upon demand of HUD or as otherwise agreed 
by HUD.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66038, Nov. 26, 2007]



Sec.  401.471  HUD payment of a section 541(b) claim.

    HUD will pay a section 541(b) claim from the appropriate insurance 
fund to the insured mortgagee on behalf of the mortgagor. The mortgagee 
must use the claim payment to prepay the principal balance of the 
insured mortgage, in whole or in part, as provided in the Restructuring 
Plan. All section 541(b) claims will be paid in cash. Part 207 of this 
title and sections 207(g) and 541(a) of the NA do not apply to a section 
541(b) claim.



Sec.  401.472  Rehabilitation funding.

    (a) Sources of funds--(1) Project accounts. The Restructuring Plan 
for funding rehabilitation must include funds from the project's 
residual receipts account, surplus cash account, replacement reserve 
account, and other project accounts, to the extent the PAE determines 
that those accounts will not be needed for the initial deposit to the 
reserves.
    (2) Debt restructuring. The Restructuring Plan may provide for 
funding of rehabilitation through a new first mortgage in conjunction 
with a payment of a section 541(b) claim. The payment of claim may be in 
an amount necessary to facilitate the funding of the rehabilitation, by 
reducing the existing first mortgage debt to make refinancing proceeds 
available to fund rehabilitation.
    (3) Section 236(s) rehabilitation grant. The Restructuring Plan may 
include a

[[Page 661]]

direct grant from HUD under section 236(s) of the NA made in accordance 
with Sec.  401.473, to the extent that HUD has determined that funding 
is available for such a grant.
    (4) Section 8 budget authority increase. The Restructuring Plan may 
include funding of rehabilitation from budget authority provided to HUD 
for increases in section 8 contracts, to the extent that HUD has 
determined that funding from this source is available.
    (b) Statutory restrictions. Any rehabilitation funded from the 
sources described in paragraph (a) of this section is subject to the 
requirements in section 517(c) of MAHRA for an owner contribution.
    (1) Addition of significant features. With respect to significant 
added features, the required owner contribution will be as proposed by 
the PAE and approved by HUD, and not to exceed 20 percent of the total 
cost. Significant added features include the addition of air 
conditioning (including conversions from window air conditioning to 
central air conditioning), an elevator, or additional community space.
    (2) Cap on owner contribution. If a restructuring plan includes 
additions other than those specified, and the PAE considers the 
additions significant, the PAE may propose to make those additions 
subject to the cap on owner contribution. In general, the owner will 
contribute 3 percent toward the cost of each significant addition. The 
PAE may propose a lower or higher owner contribution, not to exceed 20 
percent, with respect to significant additions.
    (3) Other rehabilitation. With respect to other rehabilitation, the 
required owner contribution will be calculated as 20 percent of the 
total cost of rehabilitation, unless HUD or the PAE determines that a 
higher percentage is required. The owner contribution must include a 
reasonable proportion (as determined by HUD) of the total cost of 
rehabilitation from nongovernmental resources.
    (4) Cooperatives. The PAE may exempt housing cooperatives from the 
owner contribution requirement.
    (c) Escrow agent. The Restructuring Plan must provide for progress 
payments for rehabilitation, which must be disbursed by an acceptable 
escrow agent subject to PAE oversight or as otherwise provided by HUD.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66039, Nov. 26, 2007]



Sec.  401.473  HUD grants for rehabilitation under section 236(s) of NA.

    HUD will consider a direct grant for rehabilitation under section 
236(s) of the NA only if the owner provides an acceptable work schedule 
and cost-analysis that is consistent with the owner's evaluation of 
physical condition under Sec.  401.450, as certified by the PAE. The 
owner must execute a grant agreement with terms and conditions 
acceptable to HUD. If the PAE is a State or local government, or an 
agency or instrumentality of such a government, the PAE and HUD may 
agree that the PAE will be delegated the responsibility for the 
administration of any grant made under this section. HUD may make grant 
funding available for the cost of administration if HUD has determined 
that such funding is available.



Sec.  401.474  Project accounts.

    (a) Accounts from other projects. The accounts listed in Sec.  
401.472(a)(1) may be used for other eligible projects only if:
    (1) The projects are included in a Consolidated Restructuring Plan 
under Sec.  401.401; and
    (2) The funds are used for rehabilitation or to reduce a section 
541(b) claim paid by HUD under Sec.  401.471.
    (b) Distribution to owner. The Restructuring Plan may provide for a 
one-time distribution to the owner, not to exceed 10 percent of the 
excess funds in project accounts, to be released after completion of the 
rehabilitation required by the Restructuring Plan.



Sec.  401.480  Sale or transfer of project.

    (a) May the owner request a Restructuring Plan that includes a sale 
or transfer of the property? The owner may request a Restructuring Plan 
that includes a condition that the property be sold or transferred to a 
purchaser acceptable to HUD in a reasonable period needed to consummate 
the transaction. The failure to consummate a sale or transfer of the 
property requested under paragraph (a) of this section will

[[Page 662]]

neither adversely affect an owner's eligibility for a Restructuring Plan 
nor exempt the owner from the requirements of Sec.  401.600. There are 
no priority purchaser requirements for a voluntary sale or transfer by 
an owner that is eligible for a Restructuring Plan.
    (b) When must the restructuring plan include sale or transfer of the 
property? If the owner is determined to be ineligible pursuant to Sec.  
401.101 or Sec.  401.403, or if the property is subject to an approved 
plan of action under the Emergency Low Income Housing Preservation Act 
of 1987 or the Low Income Housing Preservation and Resident 
Homeownership Act of 1990, as described in section 524(e)(3) of MAHRA, 
the property must be sold or transferred as a condition of 
implementation of a restructuring plan, which must include a condition 
that the owner sell or transfer the property to a purchaser acceptable 
to HUD, in accordance with paragraph (c) of this section. Such sale or 
transfer shall be a condition to the implementation of the Restructuring 
Plan.
    (c) Owner's notice of intent to sell or transfer. (1) The owner must 
provide notice to the PAE affirming the owner's intent to sell or 
transfer the property. This notice must be received by the PAE no later 
than 30 days after a notice of rejection under Sec.  401.101 or Sec.  
401.403 has become a final determination under subpart F of this part.
    (2) The owner must cooperate in selling or transferring the 
property. Failure to do so will result in the PAE's determination to 
reject the owner's request for a Restructuring Plan. The owner must 
distribute and publish, in an appropriate publication, a notice to 
potential purchasers that describes the property, proposed terms of 
sale, and procedures for submitting a purchase offer. The notice in form 
and substance must be acceptable to HUD, and must inform potential 
offerors of a preference for priority purchasers.
    (3) During a period to be determined by HUD that begins when the 
owner gives notice of intent to sell or transfer, an owner may accept an 
offer only from a priority purchaser.
    (4) No sale or transfer to a non-priority purchaser will be approved 
without evidence of tenant support.
    (d) Informing PAE; approval required. The owner must inform the PAE 
of any offer to purchase the property and the owner must advise the PAE 
of the substance and on-going status of the owner's discussions with any 
prospective purchaser. The owner's acceptance of the offer must be 
subject to PAE approval, and HUD approval of the Restructuring Plan.
    (e) Tenant endorsement procedure for priority purchaser status. (1) 
Required meeting. (i) A community-based nonprofit or public agency 
purchaser requesting tenant endorsement to obtain priority purchaser 
status must conduct an informational meeting with the tenants of the 
project to disseminate information about both the endorsement request 
and the purchaser's plans for the project.
    (ii) If the purchaser is acting contemporaneously with the 
Restructuring Plan, the informational meeting must occur at the second 
meeting of tenants convened by the PAE to discuss the restructuring plan 
pursuant to Sec.  401.500(d).
    (iii) A representative of the purchasing entity must attend the 
informational meeting to present its plans for the acquisition and 
improvement of the project and to respond to questions about the 
purchaser's plans for the property.
    (iv) Tenants shall have the opportunity, but are not to be required, 
to vote for or against the acquisition at the informational meeting.
    (v) For the purpose of obtaining tenant endorsement, a purchaser may 
conduct additional meetings with tenants in accordance with the notice 
requirements of paragraphs (e)(2) and (e)(3) of this section.
    (2) Parties who must receive notice. The purchaser must deliver 
notice of the informational meeting, and any subsequent meeting, to each 
tenant household in the project and any tenant organization for the 
project, and post notices of the meeting in the project.
    (3) Notice contents. The notice must identify the place, date, and 
time of the informational meeting, and any subsequent meeting. Include a 
brief description of the purpose of the meeting and provide a narrative 
outlining the

[[Page 663]]

purchaser's plans for the project, including any request made to HUD for 
debt relief under Sec.  401.461(b)(5) of the second and any additional 
mortgage.
    (4) Tenant endorsement. (i) A purchaser may demonstrate that it is 
tenant endorsed by submitting documentation to HUD that a majority (51 
percent) of the tenant heads of household have given their endorsement 
in writing. Such documentation may include, but is not limited to, 
ballots, letters of support, or petitions. The endorsement of tenants 
who did not attend, or vote at, the informational meeting, or any 
subsequent meeting, may be sought directly from each of these tenants 
subsequent to the meeting.
    (ii)(A) If the purchaser has made a reasonable effort to obtain the 
endorsement of a majority (51 percent) of the tenants and the necessary 
percentage of votes was not obtained, the purchaser may seek HUD 
approval to obtain endorsement based on a lower percentage of endorsing 
tenants.
    (B) The purchaser must deliver notice to each tenant household that 
the purchaser is seeking HUD approval of a tenant endorsement based on 
less than 51 percent of tenant approval and provide tenants with at 
least 10 days from the date of the notice to submit comments to the 
purchaser on the approval of endorsement.
    (C) The purchaser and/or seller must submit, in writing, to HUD an 
account of the efforts taken to secure tenant endorsement, the number 
and percentage of tenants voting for and against endorsement, and any 
comments received from tenants regarding the approval of endorsement.
    (D) HUD will determine whether or not to approve endorsement on the 
basis of all the information available to HUD and will promptly notify 
the purchaser of HUD's determination.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66039, Nov. 26, 2007]



Sec.  401.481  Subsidy layering limitations on HUD funds.

    (a) PAE subsidy layering certification required for Restructuring 
Plan. The PAE must certify to HUD that any Restructuring Plan for which 
it submits a proposed Restructuring Commitment meets the requirements of 
either paragraph (d) or (e) of this section.
    (b) Purpose of subsidy layering certification. The purpose of the 
subsidy layering certification is to ensure that any HUD assistance 
provided to the owner of a project pursuant to a Restructuring Plan is 
no more than is necessary to permit the project to continue to house 
tenants with an income mix comparable to the income mix of the project 
before the Restructuring Plan is implemented, after taking into account 
other Government assistance described in section 102(b)(1) of the 
Department of Housing and Urban Development Reform Act of 1989 (42 
U.S.C. 3545(b)(1)). This section does not limit a PAE from presenting 
for approval a Restructuring Plan that includes project reconfiguration 
(e.g., conversion of efficiency units to one-bedroom units) where 
necessary to meet the needs of the community, provided the conditions of 
Sec.  401.452 are also met.
    (c) Relationship to section 102(d) of HUD Reform Act. HUD is not 
required to perform a separate subsidy layering analysis under section 
102(d) of the Department of Housing and Urban Development Reform Act of 
1989 (42 U.S.C. 3545(d)), section 911 of the Housing and Community 
Development Act of 1992 (42 U.S.C. 3545 note), or Sec.  4.13 of this 
title for any HUD assistance that is included in the Restructuring Plan. 
HUD will adopt the PAE certification under this section if a HUD 
certification otherwise would be required under section 102(d).
    (d) Certification under existing HUD guidelines. If the PAE has 
delegated authority from HUD to make section 102(d) subsidy layering 
certifications in accordance with section 911 of the Housing and 
Community Development Act of 1992, the PAE may comply with this section 
by using a procedure substantially similar to the procedure described in 
the Administrative Guidelines published on December 15, 1994 (59 FR 
64748), or any subsequent procedure adopted by HUD to implement section 
911.
    (e) Other procedures. If the PAE does not have the delegated 
authority described in paragraph (d) of this section, the PAE must 
submit to HUD for approval proposed procedures for making

[[Page 664]]

the subsidy layering certification under this section. Any procedures 
must conform to the procedures described in paragraph (d) of this 
section to the extent feasible and appropriate.



Sec.  401.500  Required notices to third parties and meeting with 
third parties.

    (a) General. The PAE must solicit, and document the consideration 
of, tenant and local community comments. As a minimum, the notices 
described in paragraphs (b), (c) and (f) of this section, in form and 
substance acceptable to HUD, must be provided. The PAE may require the 
owner to give the notices if permitted by HUD.
    (b) Notice of intent to restructure and consultation meeting. (1) 
This notice must include at a minimum:
    (i) The project, including its name and FHA Project Number;
    (ii) The responsible PAE and contact person, including the address 
and telephone number;
    (iii) The owner's notice of intent to restructure through the Mark-
to-Market Program; and
    (iv) The date of expiration of the project-based assistance.
    (2) This notice must state how comments may be provided to the PAE 
regarding any of the following: the physical condition of the property, 
whether the rental assistance should be tenant-based or project-based, 
any proposed sale or transfer of the property, and other matters 
regarding the property and its management. The notice must establish the 
date, time, and place for a public meeting to be held no sooner than 20 
days and no later than 40 days following the date of this notice. The 
public may provide written comments up to the date of the meeting.
    (c) Access to Restructuring Plan. (1) The PAE must make the 
Restructuring Plan available to the parties identified in Sec.  401.501 
at least 20 days before the PAE submits the Restructuring Plan to HUD 
(subject to any Federal, State, or local laws restricting access to any 
information in the Plan or related documents).
    (2) As soon as the PAE determines that the Restructuring Plan is 
substantively complete and ready for submission to HUD, notice of the 
following must be provided:
    (i) The location of the Plan for inspection and copying; and
    (ii) The date, time, and place of a public meeting to be held at 
least 10 days before the PAE submits the Plan to HUD.
    (3) When the PAE gives notice under this section, it must make the 
Plan available during normal business hours at the management office of 
the project, or if there is no such office, at another location 
specified by the PAE that is convenient to the tenants.
    (d) Meeting to discuss the Restructuring Plan. After the PAE has 
given notice under this section and at least 10 days before the PAE 
submits the Plan to HUD, the PAE must conduct a public meeting to obtain 
comments on the substantively completed Plan. The PAE must accept 
written comments through the date of the meeting.
    (e) Disposition of comments. The PAE must document and provide to 
HUD with the Restructuring Plan a summary of the disposition of all 
public comments.
    (f) Notice of completion of Restructuring Plan. (1) Within 10 days 
after the owner executes the Restructuring Commitment, notice must be 
provided that describes the completed Restructuring Plan and 
Restructuring Commitment. The PAE must make the completed Restructuring 
Plan and Restructuring Commitment available during normal business hours 
to the public at a place described in paragraph (c)(3) of this section, 
subject to Federal, State, or local laws restricting access to any 
information in any of these documents.
    (2) Within 10 days after a determination that the Restructuring Plan 
will not move forward for any reason, HUD or the PAE shall provide 
notice to affected tenants that describes the reasons for the failure of 
the Plan to move forward and the availability of tenant-based assistance 
under Sec.  401.602(c).

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66040, Nov. 26, 2007]



Sec.  401.501  Delivery of notices and recipients of notices.

    (a) Whom must the owner or PAE notify? The PAE must notify, or 
ensure that the owner notifies, each tenant

[[Page 665]]

and any tenant organization for the project, and post a notice in the 
project, for all notices required by Sec. Sec.  401.500 and 401.502.
    (b) Whom must the PAE notify? The PAE must notify:
    (1) The Chief Executive Officer of the unit of local government and 
the Executive Director of the Public Housing Authority with jurisdiction 
over the project location;
    (2) The recipient of any Outreach and Training Grant (OTAG) or 
Intermediary Technical Assistance Grant (ITAG) for the project location; 
and
    (3) Other appropriate neighborhood representatives and other 
affected parties.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.502  Notice requirement when debt restructuring will not occur.

    (a) PAE responsibility. If an owner of an eligible project requests 
a renewal of a section 8 contract without a Restructuring Plan under 
Sec.  402.4 of this chapter, HUD or the PAE must notify, or ensure that 
the owner notifies, all parties identified in Sec.  401.501 of the 
request and of:
    (1) The availability (as provided in Sec.  401.500(c)(3)) of the 
following information:
    (i) The owner evaluation of physical condition (OEPC), or a 
comprehensive needs assessment (CNA) if used instead of an OEPC, as 
required by Sec.  401.450 and Sec.  402.6(a)(3) of this chapter;
    (ii) The market analysis required by Sec.  402.6(a)(2) of this 
chapter, but without addresses (or other specific information indicating 
location) for comparable properties; and
    (iii) The items identified in Sec.  401.500(b)(1)(i), (ii), and 
(iv); and
    (2) A procedure for submitting public comments regarding this 
information.
    (b) Expense and profit/loss information. The PAE should remove 
project expense, property valuation, and profit and loss information 
before disclosing any information obtained by the PAE directly from an 
owner or project manager, unless the owner has given written consent to 
disclosure with that information included.
    (c) Consideration of comments. The PAE must consider written public 
comments on the information listed in paragraph (a) of this section, if 
the comments are submitted within 30 days after giving notice under 
paragraph (a), and document the consideration for HUD. No public meeting 
is required.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53900, Sept. 6, 2000]



Sec.  401.503  Access to information.

    (a) PAE responsibilities. The PAE must provide to parties entitled 
to notice under Sec.  401.501 access to information obtained by the PAE 
about the project and its management if the PAE determines that such 
information is reasonably likely to contribute to effective 
participation by those parties in the restructuring process, or if HUD 
requires the PAE to provide access to the information. The PAE is not 
required to make public any information received from the owner or 
manager that the PAE reasonably characterizes as confidential or 
proprietary information that would not ordinarily be made public, 
except:
    (1) Owner evaluation of physical condition (OEPC), or a 
comprehensive needs assessment (CA) if used instead of an OEPC, as 
required by Sec.  401.450;
    (2) Owner-prepared 1-year project rent analysis; and
    (3) As directed by HUD.
    (b) Information on expenses and profit/loss. Before disclosing any 
information, the PAE must remove any information obtained by the PAE 
directly from the owner or project manager that is related to project 
expenses, property valuation, or profit and loss, unless the owner gives 
written consent to disclosure with that information.



    Subpart D_Implementation of the Restructuring Plan After Closing



Sec.  401.550  Monitoring and compliance agreements.

    (a) Compliance agreements. The PAE must ensure long-term compliance 
by the owner with MAHRA, this part, and the Restructuring Plan. As part 
of this responsibility, the PAE must require each owner with an approved 
Restructuring Plan to execute and record a Use Agreement that satisfies 
the requirements of Sec.  401.408. All provisions of

[[Page 666]]

this subpart apply as long as the Use Agreement is in effect.
    (b) Periodic monitoring and inspection. At least once a year, a PAE 
must review the status of each project for which it developed an 
executed restructuring Plan. Monitoring must include on-site 
inspections. HUD will accept an inspection by a PAE that complies with 
subpart G of part 5 of this title in lieu of an inspection required by 
any other party under that subpart.
    (c) HUD acting instead of PAE. HUD will perform, or contract with 
other parties to perform, the PAE's functions under this section if:
    (1) The project is subject to a PRA with a PAE that is not qualified 
to be a section 8 contract administrator; or
    (2) The project is not currently subject to a PRA.
    (d) Regulatory agreement. As long as the Secretary is the holder of 
a second mortgage or an additional mortgage under Sec.  401.461, HUD 
will regulate the operations of the mortgagor through a regulatory 
agreement providing terms, conditions, and standards established by HUD, 
which may be in addition to any regulatory agreement otherwise required 
in connection with mortgage insurance programs. The regulatory agreement 
must contain remedies for breach, including monetary damages in the 
event of non-compliance.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53901, Sept. 6, 2000]



Sec.  401.552  Servicing of second mortgage.

    HUD or its designee will be responsible for servicing the second 
mortgage, including determining the amounts receivable by the owner 
under Sec.  401.461(b)(3)(ii)(A). HUD may designate the PAE, with the 
PAE's consent, as servicer for the second mortgage.



Sec.  401.554  Contract renewal and administration.

    HUD will offer to renew or extend section 8 contracts as provided in 
each Restructuring Plan, subject to the availability of appropriations 
and subject to the renewal authority available at the time of each 
contract expiration (Sec.  402.5 of this chapter or another appropriate 
renewal authority). The offer will be made by HUD directly or through a 
PAE that has contracted with HUD to be a contract administrator for such 
contracts. HUD will offer to any PAE that is qualified to be the section 
8 contract administrator the opportunity to serve as the section 8 
contract administrator for a project restructured under a Restructuring 
Plan developed by the PAE under the Mark-to-Market Program. 
Qualifications will be determined under both statutory requirements and 
requirements issued by the appropriate office within HUD, depending on 
the type of section 8 assistance that is provided.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53901, Sept. 6, 2000]



Sec.  401.556  Leasing units to voucher holders.

    A Restructuring Plan must prohibit any refusal of the owner to lease 
a unit solely because of the status of the prospective tenant as a 
section 8 voucher holder.



Sec.  401.558  Physical condition standards.

    The Restructuring Plan must require the owner to maintain the 
project in a decent and safe condition that meets the applicable 
standards under this section. As long as project-based assistance is 
provided, the applicable standards are the physical conditions standards 
for HUD housing in Sec.  5.703 of this title. At any other time, the 
applicable standards are the local housing codes or codes adopted by the 
public housing agency if such codes meet or exceed the standards in 
Sec.  5.703 of this title and do not severely restrict housing choice 
or, if there are no such local housing codes or codes adopted by the 
public housing agency, the standards in Sec.  5.703 of this title will 
apply. In addition, any unit in which the tenant receives tenant-based 
assistance must comply with the housing quality standards of the section 
8 tenant-based programs.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53901, Sept. 6, 2000]



Sec.  401.560  Property management standards.

    (a) General. Each PAE is required by section 518 of MAHRA to 
establish management standards consistent with

[[Page 667]]

industry standards and HUD guidelines. The management standards must be 
included or referenced in the Restructuring Plan.
    (b) HUD guidelines. At a minimum, the PAE's management standards 
must require the project management to:
    (1) Protect the physical integrity of the property over the long 
term through preventative maintenance, repair, or replacement;
    (2) Ensure that the building and grounds are routinely cleaned;
    (3) Maintain good relations with the tenants;
    (4) Protect the financial integrity of the project by operating the 
property with competitive and reasonable costs and maintaining 
appropriate property and liability insurance at all times;
    (5) Take all necessary measures to ensure the tenants' physical 
safety; and
    (6) Comply with other provisions that are required by HUD, including 
termination of the management agent for cause.
    (c) Conflicts of interest. The PAE management standards must also 
conform to any guidelines established by HUD, and industry standards, 
governing conflicts of interest between owners, managers, and 
contractors.



       Subpart E_Section 8 Requirements for Restructured Projects



Sec.  401.595  Contract and regulatory provisions.

    The provisions of chapter VIII of this title will apply to renewal 
of a section 8 project-based assistance contract under this part only to 
the extent, if any, provided in the contract. Part 983 of this title 
will not apply. The term of the contract renewals under this part will 
be determined by the appropriate HUD official.

[65 FR 53901, Sept. 6, 2000]



Sec.  401.600  Will a section 8 contract be extended if it would expire
while an owner's request for a Restructuring Plan is pending?

    (a) If a section 8 contract for an eligible project would expire 
before a Restructuring Plan is implemented, the contract may be extended 
at rents not exceeding current rents:
    (1) For up to the earlier of one year or closing on the 
Restructuring Plan under Sec.  401.407; or
    (2) For such period of time beyond one year as HUD may approve, up 
to the closing of the Restructuring Plan.
    (b) Any extension of the contract beyond one year for a pending 
Restructuring Plan, other than an extension approved under this section, 
must be at comparable market rents or exception rents. An extension at 
comparable market rents will not affect a project's eligibility for the 
Mark-to-Market program once it has been established under this part.
    (c) HUD may terminate the contract earlier if the PAE or HUD 
determines that an owner is not cooperative under Sec.  401.402 or if 
the owner's request is rejected under Sec.  401.403 or Sec.  401.405.

[71 FR 2121, Jan. 12, 2006]



Sec.  401.601  [Reserved]



Sec.  401.602  Tenant protections if an expiring contract is not renewed.

    (a) Required notices. (1)(i) The owner of an eligible project who 
has requested a Restructuring Plan and contract renewal must provide a 
12-month notice as provided in section 514(d) if MAHRA, if the owner 
later decides not to renew an expiring contract (except due to a 
rejection under Sec. Sec.  401.101, 401.403, 401.405, or 401.451.) If 
the owner gives such 12-month notice, the owner is not required to give 
a separate notice under section 8(c)(8) of the United States Housing Act 
of 1937.
    (ii) An owner who gives the 12-month notice required by paragraph 
(a)(1)(i) of this section and who determines not to renew a contract 
must give additional notice not less than 120 days before the contract 
expiration.
    (2) The owner of an eligible project who has requested a 
Restructuring Plan but who has been rejected under Sec. Sec.  401.101, 
401.403, 401.405, or 401.451 must provide 12 months advance notice under 
section 8(c)(8)(A) of the United States Housing Act of 1937, unless 
project-based assistance is renewed under Sec.  402.4 of this chapter.
    (3) Notices required by this paragraph must be provided to tenants 
and

[[Page 668]]

to HUD or the contract administrator. HUD will prescribe the form of 
notices under this paragraph, to the extent that the form is not 
prescribed by section 8(c)(8) of the United States Housing Act of 1937.
    (b) If owner does not give notice. If an owner described in 
paragraph (a)(1) or (a)(2) of this section does not give timely notice 
of non-renewal or termination, the owner must permit the tenants in 
assisted units to remain in their units for the required notice period 
with no increase in the tenant portion of their rent, and with no 
eviction due to inability to collect an increased tenant portion of 
rent.
    (c) Availability of tenant-based assistance. (1) Subject to the 
availability of amounts provided in advance in appropriations and the 
eligibility requirements of the tenant-based assistance program 
regulations, HUD will make tenant-based assistance available under the 
following circumstances:
    (i) If the owner of an eligible project does not renew the project-
based assistance, any eligible tenant residing in a unit assisted under 
the expiring contract on the date of expiration will be eligible to 
receive assistance on the later of the date of expiration or the date 
the owner's obligations under paragraph (b) of this section expire; and
    (ii) If a request for a Restructuring Plan is rejected under Sec.  
401.101, Sec.  401.403, Sec.  401.405, or 401.451, and project-based 
assistance is not otherwise renewed, any eligible tenant who is a low-
income family or who resides in a project-based assisted unit on the 
date of Plan rejection will be eligible to receive assistance on the 
later of the date the Restructuring Plan is rejected, or the date the 
owner's obligations under paragraph (b) of this section expire.
    (2) If the tenant was assisted under the expiring contract, 
assistance under this paragraph will be in the form of enhanced vouchers 
as provided in section 8(t) of the United States Housing Act of 1937.

[65 FR 15485, Mar. 22, 2000, as amended at 65 FR 53901, Sept. 6, 2000]



Sec.  401.605  Project-based assistance provisions.

    The project-based assistance rents for a restructured project must 
be the restructured rents determined under the Restructuring Plan in 
accordance with Sec. Sec.  401.410 or 401.411.



Sec.  401.606  Tenant-based assistance provisions.

    If the Restructuring Plan provides for tenant-based assistance, each 
assisted family residing in a unit assisted under the expiring project-
based assistance contract when the contract terminates will be offered 
tenant-based assistance if the family meets the eligibility requirements 
under part 982. Whenever permitted by section 515(c)(4) of MAHRA, the 
tenant-based assistance will be in the form of enhanced vouchers as 
provided in section 8(t) of the United States Housing Act of 1937.



     Subpart F_Owner Dispute of Rejection and Administrative Appeal



Sec.  401.645  Owner request to review HUD decision.

    (a) HUD notice of decision. (1) HUD will provide notice to the owner 
of:
    (i) A decision that the owner or project is not eligible for the 
Mark-to-Market program;
    (ii) A decision not to offer a proposed Restructuring Commitment to 
the owner; and
    (iii) A decision to offer a proposed Restructuring Commitment. The 
proposed Restructuring Commitment provided to the owner constitutes the 
notice of decision for purposes of requesting a review of a HUD 
decision.
    (2) The notice of decision will include the reasons for the 
decision.
    (3) The notice of decision will also notify the owner of the right 
to request a review of the decision or to cure any deficiencies on which 
the decision was based; the date by which the review request must be 
submitted or the deficiencies must be cured, which will be at least 30 
days after the date of the notice of decision; and the address to which 
the review request is to be submitted.

[[Page 669]]

    (b) Review request by owner. (1) Written statement. The review 
request must specify in writing:
    (i) Each item of the decision to which the owner objects;
    (ii) The reasons for the owner's objections; and
    (iii) All information in support of the objections that the owner 
wants HUD to consider.
    (2) Scope of information submitted. HUD will not consider 
information first submitted to HUD in conjunction with an owner's 
request for review except for:
    (i) Information that could not have been submitted previously; and
    (ii) New health and safety information.
    (c) HUD review and final decision. (1) HUD may expand the scope of 
review beyond the issues raised by the owner and may review and modify 
any term within the Restructuring Commitment without regard to whether 
the owner has raised an objection to that term, including adjustments to 
rents or expenses as underwritten by the PAE. If HUD does expand the 
scope of review, HUD will notify the owner of such action and provide an 
additional 30 days for the owner to raise any additional objections and 
provide additional information.
    (2) Within 30 days of HUD's receipt of the owner's review request 
and any additional objections and information, HUD will review the 
request and, using a standard of what is reasonable in light of all of 
the evidence presented, issue a final decision. The final decision will:
    (i) Affirm the notice of decision; or
    (ii) Modify the notice of decision and, if applicable, modify the 
Restructuring Commitment, in which event HUD will issue an amended or 
restated Restructuring Commitment that incorporates the final decision; 
or
    (iii) Revoke the notice of decision and, if applicable, terminate 
the Restructuring Commitment and notify the owner that the owner is not 
eligible for participation in the Mark-to-Market program or that a 
restructuring of the property is not feasible.

[72 FR 66040, Nov. 26, 2007]



Sec.  401.650  When may the owner request an administrative appeal?

    (a) No review request by owner. If the owner does not request a 
review of the notice of decision under Sec.  401.645 or does not execute 
the proposed Restructuring Commitment within the time provided in the 
notice of decision, HUD will send a written notice to the owner stating 
that the notice of decision is HUD's final decision and that the owner 
has 10 days after receipt of the letter to accept the decision, 
including a Restructuring Commitment, if applicable, or request an 
administrative appeal in accordance with Sec.  401.651.
    (b) Upon receipt of final decision. HUD will send the owner a 
written notice of the final decision under Sec.  401.645 that will also 
provide the owner with 10 days to request an administrative appeal of 
the final decision.
    (c) HUD decision to accelerate the second mortgage. Upon receipt of 
notice from HUD of a decision to accelerate the second mortgage under 
Sec.  401.461(b)(4), the owner may request an administrative appeal in 
accordance with Sec.  401.651.

[72 FR 66040, Nov. 26, 2007]



Sec.  401.651  Appeal procedures.

    (a) How to appeal. An owner may submit a written appeal to HUD, 
within 10 days of receipt of written notice of the decision described in 
Sec.  401.650, contesting the decision and requesting a conference with 
HUD. At the conference, the owner may submit (in person, in writing, or 
through a representative) its reasons for appealing the decision. The 
HUD or PAE official who issued the decision under appeal may participate 
in the conference and submit (in person, in writing, or through a 
representative) the basis for the decision.
    (b) Written decision. Within 20 days after the conference, or 20 
days after any agreed-upon extension of time for submission of 
additional materials by or on behalf of the owner, HUD will review the 
evidence presented for the administrative appeal and, using the standard 
of whether the determination of the final decision was reasonable, will 
advise the owner in writing of the

[[Page 670]]

decision to terminate, modify, or affirm the original decision. HUD will 
act, as necessary, to implement the decision, for example, by offering a 
revised Restructuring Commitment to the owner.
    (c) Who is responsible for reviewing appeals? HUD will designate an 
official to review any appeal, conduct the conference, and issue the 
written decision. The official designated must be one who was neither 
directly involved in, nor reports to another directly involved in, 
making the decision being appealed.

[65 FR 15485, Mar. 22, 2000, as amended at 72 FR 66040, Nov. 26, 2007]



Sec.  401.652  No judicial review.

    The reviewing official's decision under Sec.  401.651 is a final 
determination for purposes of section 516(c) of MAHRA and is not subject 
to judicial review.



PART 402_SECTION 8 PROJECT-BASED CONTRACT RENEWAL UNDER SECTION 524
OF MAHRA--Table of Contents



Sec.
402.1 What is the purpose of part 402?
402.2 Definitions.
402.3 Contract provisions.
402.4 Contract renewals under section 524(a)(1) of MAHRA.
402.5 Contract renewals under section 524(b) or (e) of MAHRA .
402.6 What actions must an owner take to request section 8 contract 
          renewal under this part?
402.7 Refusal to consider an owner's request for a Section 8 contract 
          renewal because of actions or omissions of owner or affiliate.
402.8 Tenant protections if a contract is not renewed.
402.9 Waivers and delegations of waiver authority.

    Authority: 42 U.S.C. 1437(c)(8), 1437f note, and 3535(d).

    Source: 63 FR 48953, Sept. 11, 1998, unless otherwise noted.



Sec.  402.1  What is the purpose of part 402?

    This part sets out the terms and conditions under which HUD will 
renew project-based assistance contracts under the authority provided in 
section 524 of MAHRA.

[71 FR 2121, Jan. 12, 2006]



Sec.  402.2  Definitions.

    (a) Terms defined in part 401. In this part, the following terms 
have the meanings given in Sec.  401.2 of this chapter: affiliate, 
disabled family, elderly family, eligible project, HUD, MAHRA, owner, 
PAE, Restructuring Plan, and section 8.
    (b) Terms defined in MAHRA. In this part, the following terms have 
the meanings given in section 512 of MAHRA: expiration date, fair market 
rent, renewal, and tenant-based assistance.
    (c) Other defined terms. In this part, the term--
    Comparable market rents means rents determined in accordance with 
section 524(a)(5) of MAHRA and HUD's instructions.
    Large family means a family of five or more persons.
    OCAF means an operating cost adjustment factor established by HUD, 
which may not be negative, that is applied to the existing contract rent 
(less the portion of that rent paid for debt service).
    Portfolio Reengineering demonstration authority means the authority 
specified in section 524(e)(2)(B) of MAHRA.
    Project-based assistance means the types of assistance listed in 
section 512(2)(B) of MAHRA, or a project-based assistance contract under 
the Section 8 program renewed under section 524 of MAHRA.
    Project eligible for exception rents means a project described in 
section 524(b) of MAHRA.
    SRO contract and SRO project mean, respectively, a project-based 
assistance contract for single-room occupancy dwellings under section 
441 of the Stewart B. McKinney Homeless Assistance Act (42 U.S.C. 
11401), and a project with units covered by such a contract.

[71 FR 2121, Jan. 12, 2006]



Sec.  402.3  Contract provisions.

    The renewal HAP contract shall be construed and administered in 
accordance with all statutory requirements, and with all HUD regulations 
and other

[[Page 671]]

requirements, including changes in HUD regulations and other 
requirements during the term of the renewal HAP contract, unless the 
contract provides otherwise.

[71 FR 2121, Jan. 12, 2006]



Sec.  402.4  Contract renewals under section 524(a)(1) of MAHRA.

    (a) Initial renewal. (1) HUD may renew any expiring section 8 
project-based assistance contract at initial rents that do not exceed 
comparable market rents.
    (2) Procedure for projects eligible for Restructuring Plan. (i) If 
an owner requests renewal of a contract under this section for a project 
that is eligible for a Restructuring Plan under the Mark-to-Market 
program under part 401 and that has not been rejected under that part, 
HUD or a PAE will determine whether renewal under this section, instead 
of through a Restructuring Plan under part 401 of this chapter, would be 
sufficient. Renewal without a Restructuring Plan will be considered 
sufficient if the rents after renewal would be sufficient to maintain 
both adequate debt service coverage on the HUD-insured or HUD-held 
mortgage and necessary replacement reserves to ensure the long-term 
physical integrity of the project, taking into account any comments 
received under Sec.  401.502(c) of this chapter.
    (ii) If HUD or the PAE determines that renewal under this section 
would be sufficient, HUD will not require a Restructuring Plan.
    (iii) If HUD or the PAE determines that renewal under this section 
would not be sufficient, HUD or the PAE may require a Restructuring Plan 
before the owner's request for contract renewal will be given further 
consideration. If the owner does not cooperate in the development of an 
acceptable Restructuring Plan, HUD will pursue whatever administrative 
actions it considers necessary.
    (b) [Reserved]

[65 FR 15498, Mar. 22, 2000, as amended at 71 FR 2121, Jan. 12, 2006]



Sec.  402.5  Contract renewals under section 524(b) or (e) of MAHRA.

    (a) Renewal of projects eligible for exception rents at owner's 
request. HUD will offer to renew project-based assistance for a project 
eligible for exception rents under section 524(b) of MAHRA at rent 
levels determined under this section instead of Sec.  402.4, except as 
provided in Sec.  402.7, but the owner of a project other than a project 
with assistance under the Section 8 moderate rehabilitation program may 
request renewal under Sec.  402.4.
    (b) Rent levels for projects eligible for exception rents. HUD will 
renew the contract with rent levels at the least of:
    (1) Existing rents adjusted by an OCAF;
    (2) A budget-based rent determined in accordance with instructions 
issued by HUD, subject to a determination by HUD that such a rent level 
is appropriate; or
    (3) In the case of a contract under the Section 8 moderate 
rehabilitation program (other than an SRO contract), the lesser of 
existing rents adjusted by an OCAF, fair market rents (less any amounts 
for tenant-purchased utilities), or comparable market rents, as provided 
in section 524(b)(3) of MAHRA.
    (c) Rent adjustments. (1) After rents have been established under 
this section, rent adjustments will comply with section 524(c) of MAHRA 
except as otherwise required by paragraph (d)(1) of this section for 
preservation projects.
    (2) Rent adjustments for projects assisted under the Section 8 
moderate rehabilitation program, other than projects assisted under the 
moderate rehabilitation single-room occupancy program, shall be 
determined in accordance with section 524(b)(3) of MAHRA.
    (d) Preservation projects and demonstration projects. (1) 
Notwithstanding any other provision of this part except Sec.  402.7, 
upon expiration of a section 8 contract for a project subject to an 
approved plan of action under the Emergency Low-Income Housing 
Preservation Act of 1987 (ELIHPA) or the Low-Income Housing Preservation 
and Resident Homeownership Act of 1990 (LIHPRHA), the Secretary will 
provide

[[Page 672]]

benefits that are comparable to those provided under such plan of 
action. This paragraph (d)(1) applies only to the extent amounts are 
specifically made available in appropriations acts.
    (2) Notwithstanding any other provision of this part except Sec.  
402.7, upon expiration of a Section 8 contract entered into pursuant to 
a Portfolio Reengineering demonstration authority for which HUD made a 
determination that debt restructuring is inappropriate, and the owner of 
the project executed a Portfolio Reengineering Demonstration Program Use 
Agreement, the Secretary will provide the owner, at the request of the 
owner, with benefits comparable to those provided under the contract 
that is expiring. This paragraph (d)(2) applies only to the extent 
amounts are made available in appropriations acts.

[71 FR 2122, Jan. 12, 2006]



Sec.  402.6  What actions must an owner take to request section 8 
contract renewal under this part?

    (a) In general. An owner requesting contract renewal under this part 
must submit to HUD or HUD's designee, at least 120 days before the 
termination or expiration date of any project-based assistance contract, 
all documents or information prescribed by HUD.
    (b) Subsequent renewals. A contract that was initially renewed under 
MAHRA will be renewed at the owner's request under any renewal option 
for which the project is eligible. However, in the case of a project 
that is eligible for a Restructuring Plan under Sec.  401.100, HUD or a 
PAE will determine whether renewal with a Restructuring Plan under part 
401, or without a Restructuring Plan under this part, is necessary.

[71 FR 2122, Jan. 12, 2006]



Sec.  402.7  Refusal to consider an owner's request for a Section 8
contract renewal because of actions or omissions of owner or affiliate.

    (a) Determination of eligibility. Notwithstanding 2 CFR part 2424, 
HUD may elect to not consider a request for renewal of project-based 
assistance, if at any time before contract renewal:
    (1) The owner or an affiliate is debarred or suspended under part 2 
CFR part 2424;
    (2) HUD determines that the owner or an affiliate has engaged in 
material adverse financial or managerial actions or omissions as 
described in section 516 of MAHRA, including any outstanding violations 
of civil rights laws, or has failed to certify to compliance with the 
nondiscrimination requirements of 24 CFR 5.105(a), in connection with 
any project of the owner or an affiliate; or
    (3) The project does not meet the physical condition standards in 24 
CFR 5.703 of this title, unless HUD determines that the project will 
meet the standards within a reasonable time after renewal.
    (b) Dispute and appeal. An owner may dispute a rejection under this 
section and seek administrative review under the procedures in subpart F 
of part 401 of this chapter.

[71 FR 2122, Jan. 12, 2006, as amended at 72 FR 73496, Dec. 27, 2007]



Sec.  402.8  Tenant protections if a contract is not renewed.

    (a) Notice of termination. An owner who is not eligible for a 
Restructuring Plan under part 401 of this chapter, or who is eligible 
but does not request restructuring, and who does not renew a contract, 
must provide one year's notice to tenants, to HUD, and to the contract 
administrator as provided in section 8(c)(8)(A) of the United States 
Housing Act of 1937.
    (b) If an owner does not give timely notice. If an owner does not 
give one year's notice of termination as described in paragraph (a) of 
this section, the owner must permit the tenants in assisted units to 
remain in their units at a rental rate no higher than the tenant rent 
payable for the tenants' last month of assisted occupancy under the 
terminated HAP contract until one year after notice is given, even if 
HUD does not continue to make housing assistance payments with respect 
to such units.
    (c) If an owner opts out or fails to renew. In the case where a 
contract for Section 8 rental assistance for a project is terminated or 
expires, an assisted family may elect to remain in

[[Page 673]]

the project and, if eligible, receive tenant-based Section 8 assistance 
under Section 8(t) of the United States Housing Act of 1937.

[71 FR 2122, Jan. 12, 2006]



Sec.  402.9  Waivers and delegations of waiver authority.

    All waivers of provisions of this part, and delegations of the 
authority to waive provisions of this part, are governed by Sec.  5.110 
of this title.

[71 FR 2123, Jan. 12, 2006]

                        PARTS 403	499 [RESERVED]

[[Page 675]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 677]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2018)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 678]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 679]]

    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 680]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)

[[Page 681]]

         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 682]]

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)

[[Page 683]]

      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)

[[Page 684]]

        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)

[[Page 685]]

       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)

[[Page 686]]

        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)

[[Page 687]]

      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Parts 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

[[Page 688]]

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)

[[Page 689]]

        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)

[[Page 690]]

        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 691]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 692]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   ii--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)

[[Page 693]]

       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

[[Page 694]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 695]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)

[[Page 696]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 697]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2018)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 698]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I

[[Page 699]]

  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2

[[Page 700]]

  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105

[[Page 701]]

  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
   Secretary
[[Page 702]]

Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
     of
[[Page 703]]

  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI

[[Page 704]]

  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV

[[Page 705]]

Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               2, X;5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI

[[Page 706]]

Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 707]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2013 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2013

24 CFR
                                                                   78 FR
                                                                    Page
Chapter II
Chapter II Policy statement........................................75238
201 Authority citation revised.....................................75237
201.7 Added........................................................75237
202.3 (b) amended..................................................57060
202.5 (g) revised..................................................57060
202.6 (b)(4) and (c) added.........................................57060
203 Authority citation revised.....................................75237
203.19 Added.......................................................75237
232.1 (b) amended..................................................25185
242 Authority citation revised......................................8341
242.1 Amended.......................................................8341
242.4 Heading and (a) revised.......................................8341
242.15 Revised......................................................8341
242.16 (a)(3), (4) and (5) redesignated as (a)(4), (5) and (6); 
        new (a)(3) added; (a)(2)(ii), new (6) introductory text, 
        (b)(3), (5), (6) and (d) revised............................8341
242.17 (a)(2) through (5) redesignated as (a)(3) through (6); new 
        (a)(2) added; (b) revised...................................8342
242.18 Revised......................................................8343
242.23 (a)(2)(ii) revised; (b) and (c) redesignated as (c) and 
        (d); new (b) added..........................................8343
242.35 (d) revised..................................................8343
242.39 Revised......................................................8343
242.49 (a) revised..................................................8343
242.55 (c) revised..................................................8344
242.91 Revised......................................................8344

                                  2014

24 CFR
                                                                   79 FR
                                                                    Page
Chapter II
200.24 Revised.....................................................42189
200.1301 Revised...................................................41423
    (f) added......................................................46182
200.1302 Removed...................................................41424
203 Policy statement...............................................65140
203.9 Amended......................................................50837
203.22 (b) revised.................................................50837
203.49 (d)(2) amended; (h) revised.................................50840
203.558 Revised....................................................50837
207.261 Added......................................................43933
232 Policy statement...............................................59646
232.1009 Revised; interim..........................................55362
    Regulation at 79 FR 55362 confirmed............................74613
257 Removed........................................................41424
267 Added..........................................................77740
    Authority citation added.......................................77766
267.1 Added........................................................77766

                                  2015

24 CFR
                                                                   80 FR
                                                                    Page
Chapter II
200.11 Revised.....................................................75936
200.40 (d) redesignated as (d)(1); new (d)(1) amended; (d)(2) 
        added......................................................48027
200.1301 (g) added.................................................18096
202.10 (c) revised.................................................75936
203 Authority citation revised.....................................51468

[[Page 708]]

    Policy statement.........................................8243, 61980
203.400 Revised....................................................51468
203.476 (g) revised................................................51468
203.478 (c) revised................................................51468
207 Authority citation revised.....................................51468
207.259 (a) revised................................................51468
214 Authority citation revised.....................................75936
214.103 (e) and (i)(2) amended.....................................75936
214.315 (a) amended................................................75936
214.500 Amended....................................................75936
220 Authority citation revised.....................................51468
220.751 (a) revised................................................51468
220.760 Removed....................................................51468
220.822 (b) removed................................................51468
221 Authority citation revised.....................................51468
221.762 (a) removed................................................51468
232 Authority citation revised.....................................51468
232.500 (c)(1)(i), (ii) and (e) revised............................48027
232.505 Revised....................................................48027
232.510 (e) removed; (f) redesignated as new (e); (b), (c), (d) 
        and new (e) revised........................................48027
232.515 Revised....................................................48027
232.520 Revised....................................................48027
232.522 Revised....................................................48027
232.540 Revised....................................................48027
232.565 Amended....................................................48028
232.570 (c) revised................................................48028
232.605 Revised....................................................48028
232.610 (a) revised................................................48028
232.615 (a) revised................................................48028
232.620 Revised....................................................48028
232.885 (a) revised................................................51468
235 Removed........................................................18096
236 Authority citation revised.....................................51468
236.265 (a) removed................................................51468
236.901 Amended....................................................75936
241 Authority citation revised.....................................51468
241.261 Revised....................................................51469
241.885 (a) revised................................................51469
241.1205 Revised...................................................51469
242.58 (c)(1) amended..............................................75936
248.101 Amended....................................................75936
248.173 (q) amended................................................75936
266.510 (c) amended................................................75936
Chapter IV
401.302 (a) amended................................................75936

                                  2016

24 CFR
                                                                   81 FR
                                                                    Page
Chapter II
Chapter II Policy statement........................................73030
200 Technical correction...........................................87812
200.38 Added.......................................................80805
200.210--200.222 (Subpart H) Revised...............................71263
200.1301 (h) added..................................................1121
214.1 Revised......................................................90657
214.3 Amended......................................................90658
214.100 (a) revised................................................90658
214.103 (g)(2) revised; (n) added..................................90658
214.300 (a)(7), (8) and (9) added..................................90658
214.311 Heading and (a) revised; (c) and (d) added.................90658
247 Technical correction...........................................87812
247.1 Undesignated text designated as (a); (b) added...............80806
266 Policy statement...............................................18473
280 (Subchapter E) Removed..........................................1121
291 Heading revised................................................53002
291.1 (a)(1) revised...............................................53002
291.5 (a) and (b) introductory text removed; introductory text 
        added; amended.............................................53002
291.90 Introductory text revised...................................53002
291.100 Heading, (b), (c), (d) and (h) revised.....................53002
291.205 Introductory text, (b), (k)(1), (2) and (l) revised........53003
291.500 Revised....................................................53003
291.505 Revised....................................................53003
291.520 (a) and (b) amended; (c) added.............................53003
291.525 (b) revised................................................53003
291.530 Revised....................................................53003
Chapter IV
Chapter IV Policy statement........................................73030

                                  2017

24 CFR
                                                                   82 FR
                                                                    Page
Chapter II
206 Revised; eff. 9-19-17...........................................7117

                                  2018

 (No regulations published from January 1, 2018, through April 1, 2018)


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