Laws & Regs

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Office of Assistant Secretary for Housing, HUD

§ 203.49

§ 203.47 Eligibility of growing equity
mortgages.

§ 203.49 Eligibility of adjustable rate
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 § 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 § 203.43, § 203.43a, or § 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.

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.
(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

[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]

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cprice-sewell on DSK8KYBLC1PROD with CFR

§ 203.49

24 CFR Ch. II (4–1–10 Edition)

(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.
(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
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) Annual disclosure. At least 25 days
before any adjustment to a mortgagor’s monthly payment may occur, the
mortgagee must advise the mortgagor
of the new mortgage interest rate, the
amount of the new monthly payment,
the current index interest rate value,
and how the payment adjustment was
calculated.
(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 §§ 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

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Office of Assistant Secretary for Housing, HUD
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]

cprice-sewell on DSK8KYBLC1PROD with CFR

§ 203.50 Eligibility
loans.

of

rehabilitation

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 § 203.18 (except
as otherwise provided in paragraphs (f)
(1) and (2) of this section) and § 203.43c
shall not apply to loans insured under
this section.

§ 203.50

(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.
(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
§§ 203.18(a) (1) and (3) (in the case of a
dwelling to be occupied as a principal
residence, as defined in § 203.18(f)(1));
(ii) the limits prescribed in §§ 203.18(a)
(1) and (4) (in the case of a dwelling to
be occupied as a secondary residence,
as defined in § 203.18(f)(2)); (iii) 85 percent of the limits prescribed in
§ 203.18(c), or such higher limit, not to
exceed the limits set forth in §§ 203.18(a)
(1) and (3), as the Secretary may prescribe (in the case of an eligible nonoccupant mortgagor as defined in
§ 203.18(f)(3)); (iv) the limits prescribed
in § 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,

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