24 CFR 200a

[Code of Federal Regulations]
[Title 24, Volume 2]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR200]

[Page 10-23]

TITLE 24--HOUSING AND URBAN DEVELOPMENT

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

PART 200--INTRODUCTION TO FHA PROGRAMS--Table of Contents

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'', ``HUD'', and
``Secretary'', as used in this subpart A shall have the meanings given
these definitions 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.

Eligible Mortgagor

Sec. 200.5 Eligible mortgagor.

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.

[[Page 11]]

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 24 CFR part 44, Non-Federal Governmental
Audit Requirements, apply to State and local governments (as defined in
24 CFR part 44) that receive mortgage insurance as mortgagees.

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 110 percent in any geographical area in which
the Commissioner finds that cost levels so require; and
(b) By not to exceed 140 percent where the Commissioner determines
it necessary on a project-by-project basis.

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 insured mortgage may be refinanced pursuant to
provisions of section 223(a)(7) of the Act and such terms and conditions
established by the Commissioner.

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.

[[Page 12]]

Sec. 200.24 Existing projects.

A mortgage financing the purchase or refinance of an existing rental
housing 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, or hospital under section 242 of
the Act may be insured pursuant to provisions of section 223(f) of the
Act and such terms and conditions established by the Commissioner.

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, hospital or group practices facility, may be
insured pursuant to the provisions of section 241 of the Act and such
terms and conditions established by the Commissioner.

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 24 CFR part 24, except subpart F,
apply to these programs.

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 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

[[Page 13]]

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]

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. For a mortgage being insured under section 242 of the Act
(12 U.S.C. 1715z-7), an application fee of $1.50 per thousand dollars of
the amount loaned shall be paid to the Commissioner at the time the
hospital proposal is submitted to the Secretary of Health and Human
Services for approval.
(d) Application fee--firm commitment: General. (1) Except as
provided in paragraph (d)(2) of this section, an application for firm
commitment shall be accompanied by an application-commitment fee which,
when added to any prior fees received in connection with applications
for a SAMA letter or a feasibility letter will aggregate $5 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--firm commitment: Hospitals. A firm-commitment
fee which, when added to the application fee, shall aggregate $3 per
thousand dollars of the amount of the loan set forth in the firm
commitment shall be paid within 30 days after the date of the
commitment. If the payment of a commitment fee is not received by the
Commissioner within 30 days after the date of issuance of the
commitment, the commitment shall expire on the 30th day.
(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

[[Page 14]]

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--(1) In general. Paragraph (f)(1) of this
section applies to all applications except applications involving
hospitals.
(i) 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 a combined
additional application and commitment fee. This combined additional fee
shall be in an amount which 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.
(ii) 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 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 which 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.
(iii) 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.
(2) Hospitals. Paragraph (f)(2) of this section applies to
applications in connection with a mortgage to be insured under section
242 of the Act.
(i) Increase in commitment prior to endorsement. Upon 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 commitment, an additional application fee of
$1.50 per thousand dollars computed on the amount of the increase
requested shall accompany the application. 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 for the increased amount will expire 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. Where insurance of advances is involved, the
additional inspection fee shall be paid at the time of initial
endorsement. Where insurance upon completion is involved, the additional
inspection fee shall be paid prior to the date construction is begun or
within 30 days after the date of the issuance of the amended commitment,
if construction has begun.
(ii) 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 or by
substitution of a new mortgage, an additional application fee of $1.50
per thousand dollars computed

[[Page 15]]

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 increase is granted.
(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 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
organizations.
(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. 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.

[61 FR 14414, Apr. 1, 1996]

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

[[Page 16]]

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
(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

[[Page 17]]

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 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.

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

[[Page 18]]

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.
(a) 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;
(b) 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.

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.

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

[[Page 19]]

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.

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.

[[Page 20]]

(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.

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.

[[Page 21]]

(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 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.

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
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.

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.

[[Page 22]]

(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 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

[[Page 23]]

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:
(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]