CFR – Title 24

Title 24
Housing and Urban Development
Parts 200 to 499
Revised as of April 1, 2019

Containing a codification of documents
of general applicability and future effect
As of April 1, 2019
Published by the Office of the Federal Register
National Archives and Records Administration
as a Special Edition of the Federal Register

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U.S. GOVERNMENT OFFICIAL EDITION NOTICE
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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 ...................................

619

Chapter IV—Office of Housing and Office of Multifamily Housing
Assistance Restructuring, Department of Housing and Urban
Development ................................................................................

637

Finding Aids:
Table of CFR Titles and Chapters .......................................................

671

Alphabetical List of Agencies Appearing in the CFR .........................

691

List of CFR Sections Affected .............................................................

701

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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 permanent
rules published in the Federal Register by the Executive departments and agencies of the Federal Government. The Code is divided into 50 titles which represent
broad areas subject to Federal regulation. Each title is divided into chapters
which usually bear the name of the issuing agency. Each chapter is further subdivided into parts covering specific regulatory areas.
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 volume.
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Each volume of the Code contains amendments published in the Federal Register since the last revision of that volume of the Code. Source citations for
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The Paperwork Reduction Act of 1980 (Pub. L. 96–511) requires Federal agencies
to display an OMB control number with their information collection request.

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Many agencies have begun publishing numerous OMB control numbers as amendments to existing regulations in the CFR. These OMB numbers are placed as
close as possible to the applicable recordkeeping or reporting requirements.
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Provisions of the Code that are no longer in force and effect as of the revision
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titles, chapters, subchapters, and parts and an alphabetical list of agencies publishing in the CFR are also included in this volume.

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An index to the text of ‘‘Title 3—The President’’ is carried within that volume.
The Federal Register Index is issued monthly in cumulative form. This index
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OLIVER A. POTTS,
Director,
Office of the Federal Register
April 1, 2019.

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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, 2019.
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.

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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 ...........................................................

National Mortgage Association,
Department of Housing and Urban Development ...............

200

CHAPTER III—Government

of Housing and Office of Multifamily
Housing Assistance Restructuring, Department of Housing and Urban Development ...............................................

300

CHAPTER IV—Office

1

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401

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

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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

200

Page

Introduction to FHA programs ...............................

7

SUBCHAPTER B—MORTGAGE AND LOAN INSURANCE PROGRAMS UNDER
NATIONAL HOUSING ACT AND OTHER AUTHORITIES

201
202
203
204
206
207
208
213
214
219
220
221
231
232
234

Title I property improvement and manufactured
home loans ...........................................................
Approval of lending institutions and mortgagees ...
Single family mortgage insurance ..........................
Coinsurance .............................................................
Home equity conversion mortgage insurance .........
Multifamily housing mortgage insurance ...............
Electronic transmission of required data for certification and recertification and subsidy billing
procedures for multifamily subsidized projects ...
Cooperative housing mortgage insurance ...............
Housing counseling program ...................................
Flexible subsidy program for troubled projects ......
Mortgage insurance and insured improvement
loans for urban renewal and concentrated development areas ........................................................
Low cost and moderate income mortgage insurance—Savings clause ............................................
Housing mortgage insurance for the elderly ...........
Mortgage insurance for nursing homes, intermediate care facilities, board and care homes,
and assisted living facilities ................................
Condominium ownership mortgage insurance ........
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95
128
141
248
248
300
314
316
324
337
337
346
356
356
373

24 CFR Ch. II (4–1–19 Edition)
Part

Page

236

Mortgage insurance and interest reduction payment for rental projects .......................................
Supplementary financing for insured project mortgages ....................................................................
Mortgage insurance for hospitals ............................
Mortgage insurance for group practice facilities
[Title XI] ..............................................................
Tenant participation in multifamily housing
projects ................................................................
Local rent control ...................................................
Evictions from certain subsidized and HUD-owned
projects ................................................................
Prepayment of low income housing mortgages .......
Coinsurance for the construction or substantial rehabilitation of multifamily housing projects ......
Coinsurance of mortgages covering nursing homes,
intermediate care facilities, and board and care
homes ...................................................................
Coinsurance for the purchase or refinancing of existing multifamily housing projects ....................
Housing finance agency risk-sharing program for
insured affordable multifamily project loans ......
Credit risk retention ...............................................

241
242
244
245
246
247
248
251
252
255
266
267

380
395
417
445
446
457
463
466
516
518
520
522
546

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
291
292–299

Disposition of multifamily projects and sale of
HUD-held multifamily mortgages ........................
Disposition of HUD-acquired and -owned single
family property ....................................................
[Reserved]

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589
599

SUBCHAPTER A—GENERAL
PART 200—INTRODUCTION TO FHA
PROGRAMS

200.41 Maximum
charges.

mortgagee

Sec.
200.1

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

fees

and

COMMITMENT APPLICATIONS
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

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.

Definitions.
ELIGIBLE MORTGAGOR

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

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

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

PROPERTY REQUIREMENTS

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

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.

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.

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.

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.

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

FEES AND CHARGES
200.40

ENDORSEMENT
200.100

HUD fees.

Insurance endorsement.

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Pt. 200
200.101

24 CFR Ch. II (4–1–19 Edition)
Mortgagor lien certificate.

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

REGULATION OF MORTGAGORS

Subpart H—Participation and Compliance
Requirements

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

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 B—Electronic Submission of Required Data for Mortgage Defaults and
Mortgage Insurance Claims for Insured
Multifamily Mortgages
200.120
200.121

Purpose and applicability.
Requirements and effectiveness.

Subpart I—Nondiscrimination and Fair
Housing

Subparts C–D [Reserved]
Subpart E—Mortgage Insurance
Procedures and Processing

200.300 Nondiscrimination and fair housing
policy.

APPLICATION FOR INSURANCE
200.145

Subpart J—Equal Employment Opportunity

Property and mortgage assessment.
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.

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.

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 F—Placement and Removal Procedures for Participation in FHA Programs
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.

Subpart N [Reserved]
Subpart O—Lead-Based Paint Poisoning
Prevention

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

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

Subpart G—Appraiser Roster

Subpart P—Physical Condition of
Multifamily Properties

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?

200.850 Purpose.
200.853 Applicability.
200.855 Physical condition standards
physical inspection requirements.

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and

Office of Assistant Secretary for Housing, HUD
200.857 Administrative process for scoring
and ranking the physical condition of
multifamily housing properties.

Pt. 200

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 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

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.
200.1303 Annual income exclusions for the
Rent Supplement Program.

Subpart Y—Multifamily Accelerated Processing (MAP): MAP Lender Quality Assurance Enforcement
200.1500
200.1505
200.1510
200.1515

Sanctions against a MAP lender.
Warning letter.
Probation.
Suspension of MAP privileges.

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§ 200.1

24 CFR Ch. II (4–1–19 Edition)

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. 3535(d).

U.S.C.

1702–1715z–21;

ed, 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.

42

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.

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

ELIGIBLE MORTGAGOR
§ 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
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

[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.

§ 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 amend-

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Office of Assistant Secretary for Housing, HUD

§ 200.20

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.

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.

[73 FR 17239, Mar. 31, 2008]

§ 200.16 Project mortgage adjustments
and reductions.

[76 FR 24369, May 2, 2011]

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.

§ 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.

§ 200.17

Mortgage coverage.

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

ELIGIBLE MORTGAGEE

§ 200.18

§ 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.

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
§ 200.20 Refinancing
gages.

[62 FR 20081, Apr. 24, 1997]

§ 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.

insured

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
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.

[80 FR 75936, Dec. 7, 2015]

ELIGIBLE MORTGAGE
§ 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

[72 FR 66037, Nov. 26, 2007]

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§ 200.21

24 CFR Ch. II (4–1–19 Edition)
ment 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.

§ 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.

[72 FR 67545, Nov. 28, 2007]

MISCELLANEOUS CROSS CUTTING
REGULATIONS
§ 200.30 Nondiscrimination and equal
opportunity.

§ 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.

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.
§ 200.31

Debarment and suspension.

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

§ 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.

[72 FR 73494, Dec. 27, 2007]

§ 200.32 Participation and compliance
requirements.
The requirements set forth in 24 CFR
part 200, subpart H, apply to these programs.
§ 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

§ 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]

§ 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 equip-

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§ 200.38

tions 221(d)(3) and 221(d)(5) of the National Housing Act.

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.

[66 FR 28797, May 24, 2001]

§ 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
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,

§ 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.
§ 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.
§ 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]

§ 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 sec-

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§ 200.40

24 CFR Ch. II (4–1–19 Edition)
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
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,

‘‘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
§ 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,

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Office of Assistant Secretary for Housing, HUD
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

§ 200.41

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
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]

§ 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

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§ 200.45

24 CFR Ch. II (4–1–19 Edition)

determined appropriate by the Commissioner.

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

COMMITMENT APPLICATIONS
§ 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 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
§ 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.

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

§ 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.

[61 FR 14415, Apr. 1, 1996]

§ 200.46

§ 200.52

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.

§ 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.

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§ 200.53

24 CFR Ch. II (4–1–19 Edition)
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.

§ 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.

[75 FR 51915, Aug. 23, 2010]

§ 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,

§ 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.
§ 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
§ 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.
§ 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

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PROPERTY REQUIREMENTS

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.
§ 200.62

§ 200.73

§ 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.
§ 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.

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.
§ 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.

§ 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.
§ 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

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§ 200.74

24 CFR Ch. II (4–1–19 Edition)

do not apply to group practice facilities.

forms with the property standards prescribed by the Commissioner.

§ 200.74

§ 200.81 Disbursement
proceeds.

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.

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.

§ 200.82

Smoke detectors.

paint

poisoning

Requirements set forth in 24 CFR
part 35 apply to these programs.
§ 200.78

Energy conservation.
§ 200.83

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

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.

MORTGAGE PROVISIONS
§ 200.80

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.

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.
§ 200.77 Lead-based
prevention.

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 con-

§ 200.84

Payment requirements.

The mortgage shall provide for:

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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.

§ 200.75 Environmental quality determinations and standards.

§ 200.76

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Office of Assistant Secretary for Housing, HUD
(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.

§ 200.87

(3) Interest on the mortgage.
(4) Amortization of the principal of
the mortgage.
§ 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
§ 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.
§ 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.
§ 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

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§ 200.88

24 CFR Ch. II (4–1–19 Edition)
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.

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.
§ 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.

§ 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.

[76 FR 24369, May 2, 2011]

COST CERTIFICATION
§ 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

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Office of Assistant Secretary for Housing, HUD

§ 200.105

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).

§ 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.

§ 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.

ENDORSEMENT
§ 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

REGULATION OF MORTGAGORS
§ 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

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§ 200.106

24 CFR Ch. II (4–1–19 Edition)

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.

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.

§ 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.

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

§ 200.106 Projects with limited distribution mortgagors and program
assistance.
(a) Regulation as limited distribution
mortgagors. In addition to regulation
under § 200.105, limited distribution
mortgagors for projects receiving ‘‘assistance within the jurisdiction of the
Department’’ (as defined in § 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 HUDapproved 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.

§ 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.

[65 FR 61074, Oct. 13, 2000]

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Office of Assistant Secretary for Housing, HUD
(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.

§ 200.145

one- to four-unit property is acceptable
as security for an FHA-insured loan,
the following requirements apply:
(1)(i) In areas where local jurisdictions provide building code enforcement and the requisite documentation,
the lender shall provide a copy of:
(A) The building permit, or its equivalent, and a copy of the certificate of
occupancy, or its equivalent; or
(B) A satisfactory inspection notice
for work completed, or its equivalent.
(ii) The documentation provided
under paragraph (c)(1)(i) of this section
shall be considered satisfactory evidence of completion of the work.
(2) In jurisdictions that do not provide building code enforcement and
requisite documentation, three inspections are required for new construction. For existing construction, only
one inspection and certification of
work completed for structural repairs
and renovations is required. For both
new and existing construction, the
lender shall, in order to ensure compliance with FHA requirements:
(i) Select a Residential Combination
Inspector (or its successor designation)
or a Combination Inspector (or its successor designation) certified by the
International Code Council (or its successor organization) who is licensed or
certified as a home inspector in accordance with the applicable State and
local requirements governing the licensing or certification of those jurisdictions that license or certify such inspectors in the respective jurisdiction.
The lender shall provide a certification
from such inspector that the new construction and/or structural repair or
renovation work is completed satisfactorily and in compliance with any applicable building code.
(ii) In the absence of such Residential
Combination Inspector and Combination Inspector, the lender shall obtain
an inspection performed by a third
party, who is a registered architect, a
professional engineer, or a trades person or contractor, and who has met the
licensing and bonding requirements of
the State in which the property is located. The lender shall provide a certification from such inspector that the
inspector is licensed and bonded under
applicable State law, and that the new
construction and/or structural repair

Subparts C–D [Reserved]
Subpart E—Mortgage Insurance
Procedures and Processing
APPLICATION FOR INSURANCE
§ 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.
(c) For all new construction as well
as structural repairs and/or renovations of existing properties, to the extent that an inspection is required to
determine if construction quality of a

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§ 200.153

24 CFR Ch. II (4–1–19 Edition)

or renovation work is completed satisfactorily and in compliance with any
applicable building code.

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

[61 FR 14404, Apr. 1, 1996, as amended at 83
FR 31042, July 3, 2018]

CLAIMS FOR LOSSES
§ 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]

§ 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]

§ 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
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

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Office of Assistant Secretary for Housing, HUD

§ 200.160

terest 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.

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]

§ 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.

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

§ 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 in-

§ 200.160 Redemption
prior to maturity.

of

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

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§ 200.161

24 CFR Ch. II (4–1–19 Edition)

such call and prior to the named redemption date, the debenture interest
shall cease on the date of purchase.

consultant function under the 203(k)
Program (see § 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.

§ 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.

[67 FR 52380, Aug. 9, 2002]

§ 200.191
ant.

Placement of 203(k) consult-

(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

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

Subpart F—Placement and Removal Procedures for Participation in FHA Programs
SECTION 203(k) REHABILITATION LOAN
CONSULTANTS
§ 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
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

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Office of Assistant Secretary for Housing, HUD
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
§ 200.192.

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 § 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]

§ 200.192

§ 200.193

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
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,

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

§ 200.193 Responsibilities
consultants on the list.

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All consultants included on the list
are responsible for:

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§ 200.194

24 CFR Ch. II (4–1–19 Edition)

(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.

(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 twoyear period.
[67 FR 39239, June 6, 2002]

§ 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 § 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

[67 FR 52381, Aug. 9, 2002]

NONPROFIT ORGANIZATION
§ 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
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:

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Office of Assistant Secretary for Housing, HUD
(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
has been removed from the FHA Nonprofit Organization Roster may apply
for placement on the Roster (in accordance with § 200.194) after the nonprofit
organization’s removal from the Roster

§ 200.202

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.

§ 200.200
ter?

What is the Appraiser Ros-

(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.
§ 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

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§ 200.204

24 CFR Ch. II (4–1–19 Edition)

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.

subpart or any other instructions or
standards issued by HUD; or,
(viii) Failure to comply with HUDimposed 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

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

§ 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;
(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

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Office of Assistant Secretary for Housing, HUD
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
appraiser, available to HUD by statute
or otherwise.

§ 200.210

§ 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.

§ 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
§ 200.212 and § 200.216, as a prerequisite
to participation in HUD’s multifamily
housing and healthcare programs listed
in § 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.

[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]

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§ 200.212

24 CFR Ch. II (4–1–19 Edition)
ercise, 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
§ 200.218.

§ 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 § 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
§ 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
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 ex-

§ 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);

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Office of Assistant Secretary for Housing, HUD
(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.
§ 200.216

§ 200.218

(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 nonprofit;
(4) Mortgagees acting in their capacity as such; and
(5) Public housing agencies (PHAs).

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
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;

§ 200.218

Triggering Events.

(a) Each of the following is a Triggering Event that may subject a Controlling Participant to Previous Participation review under § 200.220:

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§ 200.220

24 CFR Ch. II (4–1–19 Edition)
(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.

(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.
§ 200.220 Previous Participation review.
(a) Scope of review. (1) Upon the occurrence of a Triggering Event, as provided in § 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 § 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
Controlling Participants and, to the
extent requested by HUD, make available to HUD the Controlling Participant’s Previous Participation in Covered Projects.

§ 200.222 Request for reconsideration.
(a) Where participation in a Triggering Event has been disapproved,
otherwise limited or conditioned because of Previous Participation review,

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Office of Assistant Secretary for Housing, HUD

§ 200.415

(b) The affirmative fair housing marketing requirements in 24 CFR part 200,
subpart M and 24 CFR part 108.

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 § 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).

[77 FR 5675, Feb. 3, 2012]

Subpart J—Equal Employment
Opportunity
§ 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.
§ 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.
§ 200.410 Definition
cant’’.

of

§ 200.300 Nondiscrimination and fair
housing policy.

§ 200.415

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
on inquiries regarding sexual orientation or gender identity set forth in 24
CFR 5.105(a)(2); and

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

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‘‘appli-

(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 § 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
§ 200.415 shall mean the developer, or
the builder, dealer or contractor performing the construction, repair or rehabilitation work for the property
owner.

Subpart I—Nondiscrimination and
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§ 200.420

24 CFR Ch. II (4–1–19 Edition)

against an applicant for such employment, because of race, color, religion,
sex, handicap, age, or national origin.

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

[58 FR 41000, July 30, 1993]

§ 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.

Subparts K–L [Reserved]
Subpart M—Affirmative Fair
Housing Marketing Regulations
SOURCE: 37 FR 75, Jan. 5, 1972, unless otherwise noted.

§ 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.
§ 200.605

§ 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.

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]

§ 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.

§ 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

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

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Office of Assistant Secretary for Housing, HUD
§ 200.615

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 Departmentapproved 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.

Applicability.

The affirmative fair housing marketing requirements, as set forth in
paragraphs (a) through (f) of § 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]

§ 200.620

§ 200.625

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

[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]

§ 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
§ 200.620. This form, once approved by
HUD, will be available for public inspection at the sales or rental offices of
the applicant.

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§ 200.630
§ 200.630
ties.

24 CFR Ch. II (4–1–19 Edition)
Notice of housing opportuni-

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.

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.’’

[58 FR 41337, Aug. 3, 1993]

§ 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 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.

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

§ 200.640

§ 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.

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]

APPENDIX TO SUBPART M OF PART 200—
EQUAL HOUSING OPPORTUNITY INSIGNIA
The Equal Housing Opportunity insignia
are as follows:
Equal Housing Opportunity logo:

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EC05OC91.037

40

Office of Assistant Secretary for Housing, HUD
§ 200.805

§ 200.810

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 (openflame 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 leadbased 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 § 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
§ 206.47 of this title.

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/cm2.
§ 200.810 Single family insurance and
coinsurance.
(a) General. (1) The requirements of
this section apply to any one-to fourfamily 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

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

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§ 200.850

24 CFR Ch. II (4–1–19 Edition)
mediate 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).

Subpart P—Physical Condition of
Multifamily Properties
SOURCE: 65 FR 77240, Dec. 8, 2000, unless
otherwise noted.

§ 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.
§ 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 ‘‘tenantbased’’ 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);
(8) Section 232 of the NHA (Mortgage
Insurance for Nursing Homes, Inter-

§ 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 § 200.853.
(b) Entity responsible for inspection of
property. The regulations that govern
the programs listed in § 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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.

§ 200.857

§ 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 § 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 § 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

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

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§ 200.857

24 CFR Ch. II (4–1–19 Edition)

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).
(2) The owner must carefully review
the physical inspection report, particu-

larly 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

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Office of Assistant Secretary for Housing, HUD

§ 200.857

(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

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
the inspection cites a deficiency that
does not exist.

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§ 200.857

24 CFR Ch. II (4–1–19 Edition)

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 nonconformities 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,
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

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§ 200.857

(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

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
may be required of the owner at the
conclusion of the DEC’s evaluation of
the property.

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24 CFR Ch. II (4–1–19 Edition)

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
not prohibit the Office of Housing, the
DEC, or HUD generally, to take what-

ever 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
§ 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 § 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]

§ 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 § 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 § 200.925a(d); or
(2)(i) The applicable State or local
building code, and
(ii) Those portions of the codes identified in § 200.295c which are designated

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Office of Assistant Secretary for Housing, HUD
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 § 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
§ 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 § 200.925a(d) to the list
of construction related areas contained
in § 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 § 200.925b(c)(5)), or if it
fails to regulate subareas in more than
one of the following major areas listed
in § 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 § 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
and other interested parties in jurisdictions without building codes, jurisdic-

§ 200.925a

tions 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
§ 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 § 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

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§ 200.925b

24 CFR Ch. II (4–1–19 Edition)

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,

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 § 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 § 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 caretype 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 § 200.925a(d)(3). The
written notice shall identify, in accordance with appendix J of the Handbook
identified in § 200.929(b)(2), those portions of the codes listed at § 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
§ 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]

§ 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;

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Office of Assistant Secretary for Housing, HUD
(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;

§ 200.925c

(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]

§ 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

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§ 200.926

24 CFR Ch. II (4–1–19 Edition)

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 caretype 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

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]

§ 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
§§ 200.926a–200.926e, apply to single family detached homes, duplexes, threeunit 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 fourunit 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
§ 203.5 of this chapter, or under the
Lender Insurance process described in
§ 203.6 of this chapter;

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Office of Assistant Secretary for Housing, HUD
(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 § 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 § 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
§ 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 § 200.926a(c)(5)), or if it
fails to regulate subareas in more than
one of the following major areas listed
in § 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
§ 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

§ 200.926

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
§ 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 § 200.926c; and
(3) The requirements of § 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
§ 200.926b(a); and
(2) The requirements of § 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,

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§ 200.926

24 CFR Ch. II (4–1–19 Edition)
(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

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 § 200.926c; and
(iii) The requirements of § 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 § 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:

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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
building codes and a current list of ju-

§ 200.926a

risdictions 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 § 200.926c those portions of
the codes listed at § 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]

§ 200.926a Residential
comparison items.

building

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.

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§ 200.926b

24 CFR Ch. II (4–1–19 Edition)
(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 § 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 § 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.

(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]

§ 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.)

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

§ 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

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Office of Assistant Secretary for Housing, HUD

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).

identified below. Depending upon the
major area identified in § 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
Deficient major items from
§ 200.926a as determined by
field office review

(a) Fire safety ........................
(b) Light and ventilation .........
(c) Structural loads and seismic design.
(d) Foundation systems .........
(e) Materials standards ..........
(f) Construction components
(g) Glass ................................
(h) Mechanical .......................
(i) Plumbing ...........................
(j) Electrical ............................

§ 200.926d

Portions of the CABO One
and Two Family Dwelling
Code, 1992 Edition, including
the 1993 amendments, with
which a property must comply
Chapters 2, 9; Section R–
402.
Chapter 2; Section R–309.
Chapter 2.
Chapter 3.
Chapter 26.
Part III.
Chapter 2.
Part IV.
Part V.
Electrical code for 1- and 2family 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]

§ 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

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§ 200.926d

24 CFR Ch. II (4–1–19 Edition)

(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

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

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Office of Assistant Secretary for Housing, HUD
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

§ 200.926d

(3) A signed Elevation Certificate
documenting that the lowest floor (including basement) of the property improvements is built at or above the 100year 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.

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§ 200.926d

24 CFR Ch. II (4–1–19 Edition)

(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 onefamily 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.

(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.

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Office of Assistant Secretary for Housing, HUD
DISTANCE FROM SOURCE OF POLLUTION

(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.

Minimum
horizontal
distance (feet)

Source of pollution
Property Line .................................................
Septic Tank ....................................................
Absorption Field .............................................
Seepage Pit ...................................................
Absorption Bed ..............................................
Sewer Lines w/Permanent Watertight Joints
Other Sewer Lines .........................................
Chemically Poisoned Soil ..............................
Dry Well .........................................................
Other ..............................................................

§ 200.926e

10
50
1 100
1 100
1 100

10
50
3 25

50
(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.

(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]

§ 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.

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§ 200.927

24 CFR Ch. II (4–1–19 Edition)

(a) Roof live loads.

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.

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

(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]

§ 200.927 Incorporation by reference of
minimum property standards.
The Minimum Property Standards as
contained in the handbooks identified
in § 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]

§ 200.929 Description and identification of minimum property standards.
(a) Description. The Minimum Property Standards describe physical standards for housing. They are intended to

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Office of Assistant Secretary for Housing, HUD
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 §§ 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.

§ 200.933

§ 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]

§ 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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
[63 FR 5423, Feb. 2, 1998]

§ 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

[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]

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§ 200.934

24 CFR Ch. II (4–1–19 Edition)
administrators under § 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

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]

§ 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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

§ 200.935

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]

§ 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.

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§ 200.935

24 CFR Ch. II (4–1–19 Edition)

(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.

(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.

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Office of Assistant Secretary for Housing, HUD
(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
manufacturer’s declaration of certifi-

§ 200.935

cation 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

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§ 200.935

24 CFR Ch. II (4–1–19 Edition)

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
or another laboratory at the manufac-

turer’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

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Office of Assistant Secretary for Housing, HUD
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:
Item of equipment, manufacturer, type

§ 200.935

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.

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§ 200.936

24 CFR Ch. II (4–1–19 Edition)

(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.

formance 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 § 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 § 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

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

§ 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 con-

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Office of Assistant Secretary for Housing, HUD
year to assure that the initially accepted quality control procedures are
being followed.

§ 200.940

(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 § 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.

[48 FR 1955, Jan. 17, 1983]

§ 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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. (1) Under the procedures
set forth in paragraph (d)(6) of § 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,
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;

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

§ 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/

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§ 200.942

24 CFR Ch. II (4–1–19 Edition)

federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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 § 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.

(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/
federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. (1) Under the procedures
set forth in § 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

[58 FR 67674, Dec. 22, 1993]

§ 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;
(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;

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Office of Assistant Secretary for Housing, HUD

§ 200.944

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.

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 § 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.

[51 FR 17928, May 16, 1986]

§ 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.

[63 FR 5423, Feb. 2, 1998]

§ 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
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

(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

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§ 200.944

24 CFR Ch. II (4–1–19 Edition)

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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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 § 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 woodbased 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]

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Office of Assistant Secretary for Housing, HUD

§ 200.946

er’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 § 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.

§ 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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 200.935(d)(6) concerning labeling of a product, the administrator’s
validation mark and the manufactur-

[58 FR 67674, Dec. 22, 1993]

§ 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 FiberCement 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.

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§ 200.946

24 CFR Ch. II (4–1–19 Edition)

(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;
(iv) EAUTC Centre Scientifique ET
Technique Du Batiment (CSTB), 84 Avenue Jesu Jaures, B.P. 02–77421 MarneLA-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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures as
set forth in § 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.

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Office of Assistant Secretary for Housing, HUD

§ 200.948

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/
federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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 § 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.

(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.

[58 FR 67675, Dec. 22, 1993]

§ 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.

[60 FR 47841, Sept. 14, 1995]

§ 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.
(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

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§ 200.949

24 CFR Ch. II (4–1–19 Edition)
(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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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 § 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) 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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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 § 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]

§ 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:
(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;

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Office of Assistant Secretary for Housing, HUD
(2) The administrator also shall review the quality assurance procedures
every year to assure that they are
being followed by the manufacturer.

§ 200.952

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 67675, Dec. 22, 1993]

§ 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/federallregister/
codeloflfederallregulations/
ibrllocations.html.
(b) Labeling. Under the procedures set
forth in § 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.
(c) Periodic tests and quality assurance
inspection. Under the procedure set
forth in § 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

[58 FR 67676, Dec. 22, 1993]

§ 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.

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§ 200.954

24 CFR Ch. II (4–1–19 Edition)

(b) Labeling. Under the procedures set
forth in § 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
§ 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.

(b) Labeling. Under the procedures set
forth in § 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
§ 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]

[63 FR 5424, Feb. 2, 1998]

§ 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
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.

§ 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.

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Office of Assistant Secretary for Housing, HUD
(b) Labeling. Under the procedures set
forth in § 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 § 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.

Numbers for applicants in unassisted
programs.
[61 FR 11118, Mar. 18, 1996]

Subpart V—Income Information;
Assistance Applicants and
Participants
§ 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
§ 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 HousingMilitary Personnel (12 U.S.C. 1736–
1746a).
(4) Part 225, Military Housing Insurance (12 U.S.C. 1748b).
(5) Part 226, Armed Services HousingCivilian Employees (12 U.S.C. 1748h–1).
(6) Part 227, Armed Services HousingImpacted 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).

[63 FR 5424, Feb. 2, 1998]

Subpart T—Social Security Numbers and Employer Identification Numbers; Assistance Applicants and Participants
§ 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]

Subpart U—Social Security Numbers and Employer Identification Numbers; Applicants in
Unassisted Programs
§ 200.1101

§ 200.1301

Cross-reference.

The provisions in subpart B of part 5
of this title apply to Social Security
Numbers and Employer Identification

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§ 200.1303

24 CFR Ch. II (4–1–19 Edition)

(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
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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.

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
§ 200.1535, and is not a prerequisite to
the probation, or suspension, or termination of MAP privileges.

[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.

§ 200.1500 Sanctions
lender.

against

a

§ 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 § 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 MAPApproved 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

MAP

(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
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]

§ 200.1505

§ 200.1510

Warning letter.

(a) In general. HUD may issue a warning letter, which specifies problems or

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§ 200.1515

24 CFR Ch. II (4–1–19 Edition)

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.

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.
§ 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
§ 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

§ 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 § 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 MAPapproved 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
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

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Office of Assistant Secretary for Housing, HUD

§ 200.1530

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.

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

§ 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

§ 200.1525 Settlement agreements.
(a) HUD staff, as authorized, may negotiate a settlement agreement with a
MAP lender before or after the

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§ 200.1530

24 CFR Ch. II (4–1–19 Edition)

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,
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

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Office of Assistant Secretary for Housing, HUD
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.

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.

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

§ 200.1535

§ 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
§ 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
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

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§ 200.1540

24 CFR Ch. II (4–1–19 Edition)

(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 postconference 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.
(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 doc-

uments 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.
§ 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 § 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 § 200.1535.
§ 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

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Office of Assistant Secretary for Housing, HUD
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
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 ap-

Pt. 200, App. A

peal 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.
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/
federallregister/codeloflfederallregulations/
ibrllocations.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

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Pt. 200, App. A

24 CFR Ch. II (4–1–19 Edition)

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
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

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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
ASTM D 3679–92 Standard Specification for
Rigid Poly (Vinyl Chloride) (PVC) Siding

Pt. 200, App. A

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 CodeReinforcing 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

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Pt. 200, App. A

24 CFR Ch. II (4–1–19 Edition)

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
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

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Office of Assistant Secretary for Housing, HUD
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-onGround, 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-HeatingCooling 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.
National Terrazzo and Mosaic Association,
3166 Des Plaines Avenue, Suite 132, Des

Pt. 200, App. A

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

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Pt. 200, App. A

24 CFR Ch. II (4–1–19 Edition)

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]

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SUBCHAPTER B—MORTGAGE AND LOAN INSURANCE PROGRAMS UNDER NATIONAL HOUSING ACT AND OTHER
AUTHORITIES
201.43 Administrative reports and examinations.

PART 201—TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS

Subpart F—Default Under the Loan
Obligation

Subpart A—General
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.

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 G—Debts Owed to the United
States Under Title I

Subpart B—Loan and Note Provisions

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.

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.

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

Subpart C—Eligibility and Disbursement
Requirements
§ 201.1

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
201.31
201.32

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 § 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

Reporting of loans for insurance.
Insurance charge.
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.

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§ 201.2

24 CFR Ch. II (4–1–19 Edition)

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.

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 comaker 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

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

§ 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

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Office of Assistant Secretary for Housing, HUD
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 contin-

§ 201.2

uous 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

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§ 201.2

24 CFR Ch. II (4–1–19 Edition)
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

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

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Office of Assistant Secretary for Housing, HUD
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

§ 201.2

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

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§ 201.3

24 CFR Ch. II (4–1–19 Edition)

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 dealerpaid 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]

§ 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]

§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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]

§ 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 § 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
§ 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 author-

§ 201.10

ized at § 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;

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§ 201.10

24 CFR Ch. II (4–1–19 Edition)

(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 § 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 § 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 § 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 HUDapproved appraisal), plus 95 percent of
any applicable charges authorized at
§ 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 § 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;

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Office of Assistant Secretary for Housing, HUD
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
§ 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

§ 201.11

(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]

§ 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 multimodule 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

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§ 201.12

24 CFR Ch. II (4–1–19 Edition)

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]

§ 201.12 Requirements for the note.
The note shall bear the genuine signature of each borrower and of any comaker 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 evi-

dencing 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]

§ 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]

§ 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 11⁄2
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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.
§ 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]

§ 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 refi-

§ 201.19

nancing 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 § 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 § 201.30.
[52 FR 33406, Sept. 3, 1987, as amended at 54
FR 10537, Mar. 14, 1989]

§ 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
§§ 201.20(b) and (c), 201.21(b) through (e),
201.22, 201.23, and 201.26;
(iii) If there are co-makers or cosigners on the original note, the lender
shall require the same co-makers or cosigners on the refinanced note, unless
the lender obtains the Secretary’s approval to release a co-maker or cosigner from liability under the note in
accordance with § 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
§§ 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

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§ 201.19

24 CFR Ch. II (4–1–19 Edition)

§ 201.22 are also met and the Secretary
has approved a release of the original
borrower
and
any
intervening
assumptors
in
accordance
with
§ 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 §§ 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 § 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 § 201.24 and shall release the original lien, unless State law permits a re-

newal 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
§ 201.20(a) or 201.21(a) and meets the requirements of § 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 § 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]

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Office of Assistant Secretary for Housing, HUD

Subpart C—Eligibility and
Disbursement Requirements
§ 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:

§ 201.21

(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]

§ 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.

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§ 201.21

24 CFR Ch. II (4–1–19 Edition)

(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
§ 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 pur-

chase, 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

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Office of Assistant Secretary for Housing, HUD
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,

§ 201.21

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;

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§ 201.22

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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 comaker 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 comaker 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 comaker 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 § 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 comaker 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 comaker 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 faceto-face or telephone interview with the

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Office of Assistant Secretary for Housing, HUD
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 cosigner 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.

§ 201.23

(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]

§ 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

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§ 201.24

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 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 § 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]

§ 201.26 Conditions for loan disbursement.
(a) Property improvement loans. The
lender shall comply with the following
applicable requirements before dis-

§ 201.26

bursing 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 § 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
§ 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 § 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 § 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.

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§ 201.26

24 CFR Ch. II (4–1–19 Edition)

(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
§§ 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
§ 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 § 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 § 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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
§ 201.21(c)(3);
(v) The dealer has performed the inspection and tests required under
§ 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 § 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
§ 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

§ 201.27

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]

§ 201.27

Requirements for dealer loans.

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

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§ 201.27

24 CFR Ch. II (4–1–19 Edition)

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-ofplacement 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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

§ 201.28

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
§ 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

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§ 201.29

24 CFR Ch. II (4–1–19 Edition)

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

to report loans for insurance in accordance with paragraph (a) of this section.

[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]

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

§ 201.29

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

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
§ 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

§ 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 201.32

(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]

§ 201.32 Insurance
account.

coverage

(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 § 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

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§ 201.40

24 CFR Ch. II (4–1–19 Edition)

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
§ 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
§ 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
§ 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 sixmonth 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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

§ 201.42

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.
§ 201.42 Bankruptcy,
death of borrower.

insolvency

(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

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§ 201.43

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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
§ 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 comaker or co-signer, either in a face-toface 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 comaker 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]

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Office of Assistant Secretary for Housing, HUD
§ 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

§ 201.52

local law to repossess or foreclose upon
the property, without waiting for the
notice period under § 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]

§ 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

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§ 201.53

24 CFR Ch. II (4–1–19 Edition)

title or a voluntary surrender of the
property, the notice of default and acceleration under § 201.50(b) shall not be
required.
[50 FR 43523, Oct. 25, 1985, as amended at 61
FR 19799, May 2, 1996]

§ 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 § 201.51(b)(3)).
[50 FR 43523, Oct. 25, 1985, as amended at 61
FR 19799, May 2, 1996]

§ 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 reten-

tion 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 § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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

§ 201.55

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) lllllllllll
By:
lllllllllllllllllllll
Title: llllllllllllllllllll
Date: llllllllllllllllllll

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 § 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]

§ 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 § 201.32, if the insurance claim is

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§ 201.55

24 CFR Ch. II (4–1–19 Edition)

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
§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 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

§ 201.62

(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.
§ 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 § 201.55(a)(1) of this part, plus
amounts described in §§ 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
§ 201.55(b)(1) of this part, plus amounts
described in §§ 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.
§ 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 § 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

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§ 201.63

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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
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
202.12

Title I.
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
§ 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.
§ 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 § 202.6, a nonsupervised
lender under § 202.7, an investing lender
under § 202.9, or a governmental or
similar institution under § 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 § 202.6, a
nonsupervised mortgagee under § 202.7,
an investing mortgagee under § 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 § 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.

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Office of Assistant Secretary for Housing, HUD
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]

§ 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
§ 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 §§ 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.

§ 202.3

(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 §§ 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
§ 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.

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§ 202.3

24 CFR Ch. II (4–1–19 Edition)

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, un-

derwritten, 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 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:

§ 202.3

(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 § 202.5 and the specific
requirements of §§ 202.6, 202.7, 202.8 or
202.10, and 202.12.

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§ 202.4

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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
§ 202.12(a) or with provisions of this
chapter implementing sections 223(a)(7)
and 535 of the Act such as §§ 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.
§ 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 § 202.10(b)) and the requirements for one of the eligible classes of lenders or mortgagees in §§ 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.

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Office of Assistant Secretary for Housing, HUD
(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 comple-

§ 202.5

tion 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 § 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

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§ 202.5

24 CFR Ch. II (4–1–19 Edition)

loan or mortgage origination and servicing.
(i) Fees. The lender or mortgagee, unless approved under § 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

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Office of Assistant Secretary for Housing, HUD
approved supervised and nonsupervised
lenders and mortgagees under § 202.6
and § 202.7, and approved investing
lenders and mortgagees under § 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 §§ 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 nonsmall 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

§ 202.5

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

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§ 202.6

24 CFR Ch. II (4–1–19 Edition)

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
§ 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 § 202.5, a supervised lender or
mortgagee shall meet the following requirements:
(1) Net worth. The net worth requirements appear in § 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, sub-

part 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 § 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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
§ 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

§ 202.7

heightened risk to the FHA insurance
fund.
[75 FR 20734, Apr. 20, 2010, as amended by 78
FR 57060, Sept. 17, 2013]

§ 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 § 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 § 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

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§ 202.8

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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 § 202.5(j),
as determined and verified by the FHAapproved lender or mortgagee.
[75 FR 20734, Apr. 20, 2010, as amended at 77
FR 51468, Aug. 24, 2012]

§ 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.

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Office of Assistant Secretary for Housing, HUD
(b) Additional requirements. In addition to the general approval requirements in § 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
§ 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]

§ 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 per-

§ 202.11

formance of the responsibilities of the
mortgagee. There are no additional requirements beyond the general approval requirements in § 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 § 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
§ 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;

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§ 202.12

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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 § 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 § 202.6, § 202.7 or
§ 202.10, or be specifically approved for
servicing under § 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 abovenormal rate of defaults and claims,
and, if required by the Secretary, a
plan for corrective action with regard

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Office of Assistant Secretary for Housing, HUD
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]

Pt. 203

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

PART 203—SINGLE FAMILY
MORTGAGE INSURANCE

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]

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.

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.
EFFECTIVE DATE
203.249

Effect of amendments.

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Pt. 203

24 CFR Ch. II (4–1–19 Edition)
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.

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.

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.

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

203.345 Postponement of principal payments—mortgagors in military service.
203.346 Postponement of foreclosure—mortgagors in military service.
ASSIGNMENT OF MORTGAGE

One-time or Up-front MIP.
Calculation of one-time MIP.
Mortgagee’s late charge and interRefund 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

FOREBEARANCE RELIEF FOR MILITARY
PERSONNEL

Open-end insurance charges.

MORTGAGE INSURANCE PREMIUMS—ONE-TIME
PAYMENT
203.280
203.281
203.282
est.
203.283

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

Voluntary termination.

TERMINATION OF INSURANCE CONTRACT
203.315 Termination by conveyance to other
than Commissioner.
203.316 Termination by prepayment of mortgage.

203.350
203.351
and
203.353

Assignment of mortgage.
Application for insurance benefits
fiscal data.
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 preforeclosure sale and application for insurance benefits.
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.

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Office of Assistant Secretary for Housing, HUD
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.

Pt. 203

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
ment mortgages.

pay-

COOPERATIVE UNIT MORTGAGES

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.

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.
REHABILITATION LOANS

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.

203.440 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.

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§ 203.1

24 CFR Ch. II (4–1–19 Edition)

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
203.501
203.502
203.508
203.510
203.512

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).

Mortgage servicing generally.
Loss mitigation.
Responsibility for servicing.
Providing information.
Release of personal liability.
Free assumability; exceptions.

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

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.

Subpart
A—Eligibility
Requirements and Underwriting Procedures
DIRECT ENDORSEMENT, LENDER
INSURANCE, AND COMMITMENTS
§ 203.1

MORTGAGEE ACTION AND FORBEARANCE

Underwriting procedures.

The three underwriting procedures
for single family mortgages are:
(a) Direct Endorsement. This procedure, which is described in § 203.5, is
available for mortgagees that are eligible under § 203.3.

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.

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Office of Assistant Secretary for Housing, HUD
(b) Lender insurance. This procedure,
which is described in § 203.6, is available
for mortgagees that are eligible for the
Direct Endorsement program under
§ 203.5, and that are also approved according to § 203.4.
(c) Issuing of commitments through
HUD offices. Processing through HUD
offices as described in § 203.7, with
issuance of commitments, is available
only for mortgages that are not eligible for Direct Endorsement processing
under § 203.5(b) or to the extent required in § 203.3(b)(4), § 203.3(d)(1), or as
determined by the Secretary.
[62 FR 30225, June 2, 1997]

§ 203.3 Approval of mortgagees for Direct Endorsement.
(a) Direct Endorsement approval. To be
approved for the Direct Endorsement
program set forth in § 203.5, a mortgagee must be an approved mortgagee
meeting the requirements of §§ 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 § 203.5(e).
(3) [Reserved]
(4) The mortgagee must submit initially 15 mortgages processed in accordance with §§ 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

§ 203.3

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 §§ 203.3 and
203.255. The documents required by
§ 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 § 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.
(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

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§ 203.4

24 CFR Ch. II (4–1–19 Edition)

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 § 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]

§ 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
§ 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 § 203.6, a mortgagee
must be unconditionally approved for
the Direct Endorsement program as
provided in § 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:
(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

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Office of Assistant Secretary for Housing, HUD
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,

§ 203.5

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 § 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]

§ 203.5

Direct Endorsement process.

(a) General. Under the Direct Endorsement program, the Secretary does
not review applications for mortgage
insurance before the mortgage is executed or issue conditional or firm commitments, except to the extent required by § 203.3(b)(4), § 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 § 203.255. This subpart
provides that certain functions shall be

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§ 203.6

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 203.1.
(2) The provision contained in § 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 § 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]

§ 203.6

Lender Insurance process.

Under the Lender Insurance program,
a mortgagee approved for the program
conducts its own pre-insurance review,
insures the mortgage, and agrees to indemnify HUD in accordance with
§ 203.255(f).
[62 FR 30226, June 2, 1997]

§ 203.7

Commitment process.

For single family mortgage programs
that are not eligible for Direct Endorsement processing under § 203.5, or
for Lender Insurance processing under
§ 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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]

§ 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.

§ 203.10

(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
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–

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§ 203.12

24 CFR Ch. II (4–1–19 Edition)

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 § 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]

§ 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
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]

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Office of Assistant Secretary for Housing, HUD
§ 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]

§ 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]

§ 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-,

§ 203.16a

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.
§ 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:
(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

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§ 203.17

24 CFR Ch. II (4–1–19 Edition)

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
§ 203.17 Mortgage provisions.
(a) Mortgage form. (1) The term mortgage as used in this part, except
§ 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]

§ 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 § 203.29, as announced in accordance with § 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

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Office of Assistant Secretary for Housing, HUD
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 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

§ 203.18

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,
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.

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§ 203.18

24 CFR Ch. II (4–1–19 Edition)

(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 § 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
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
§ 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 § 203.15; and
(ii) Borrower-paid closing costs allowed under § 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 203.18(b), § 203.18(e) or
§ 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 § 203.18, see the List of CFR
Sections Affected, which appears in the
Finding Aids section of the printed volume
and at www.govinfo.gov.

§ 203.18a Solar energy system.
(a) The dollar limitation provided in
§ 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

§ 203.18b

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]

§ 203.18b

Increased mortgage amount.

(a) If any party believes that a mortgage limit established by the Secretary
under § 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
(2) may be an area for which the mortgage
limits
established
under
§ 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-toone or greater, an increase in the mortgage limit may be based on 95 percent

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§ 203.18c

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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]

§ 203.18d Minimum
amount.

principal

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]

§ 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
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

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Office of Assistant Secretary for Housing, HUD
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 goodfaith 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 mort-

§ 203.21

gage 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.
(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]

§ 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]

§ 203.21 Amortization provisions.
The mortgage must contain complete
amortization provisions satisfactory to
the Commissioner, requiring monthly

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§ 203.22

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 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]

§ 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 § 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.
(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]

§ 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:

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Office of Assistant Secretary for Housing, HUD
(1) Premium charges under the contract of insurance (other than a onetime or up-front mortgage insurance
premium paid in accordance with
§§ 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]

§ 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]

§ 203.26 Mortgagor’s payments
mortgage is executed.

when

(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

§ 203.27

date of the first monthly payment
under the mortgage or, where applicable, the one-time mortgage insurance
premium payable pursuant to § 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]

§ 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:
(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

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§ 203.28

24 CFR Ch. II (4–1–19 Edition)

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 § 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]

§ 203.28 Economic
projects.

soundness

of

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 § 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 § 203.18 (e).
(c) To a mortgage of the character
described in § 203.43a.
(d) To a mortgage in a federally impacted area described in § 203.43e.

(e) To a rehabilitation loan of the
character described in § 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]

§ 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 § 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
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:

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Office of Assistant Secretary for Housing, HUD
(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
§ 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 § 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]

§ 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

§ 203.31

(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]

§ 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
§ 203.18(f)(1)) at the time of insurance,
or that the mortgagor meet loan-tovalue or comparable limitations based
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

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§ 203.32

24 CFR Ch. II (4–1–19 Edition)

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
§ 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
§ 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-tovalue 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
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

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Office of Assistant Secretary for Housing, HUD
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]

§ 203.33 Relationship of
mortgage payments.

income

to

(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 longterm 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]

§ 203.34

Credit standing.

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

§ 203.37a

§ 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]

§ 203.36

[Reserved]
ELIGIBLE PROPERTIES

§ 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]

§ 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
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 § 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

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§ 203.37a

24 CFR Ch. II (4–1–19 Edition)

settlement) and the date of execution
of the sales contract that will result in
the FHA mortgage insurance (the resale 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 § 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 § 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 § 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
§ 203.37a(b)(4) shall supersede that
under § 203.37a(b)(3).
(5) Re-sales occurring more than 12
months following acquisition. If the resale 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 EstateOwned (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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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]

§ 203.39

Standards for buildings.

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

§ 203.41

§ 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:
(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

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§ 203.41

24 CFR Ch. II (4–1–19 Edition)

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 lowor 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 § 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, preemptive rights to purchase or rights of
first refusal shall only be held by a
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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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
§ 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, mort-

§ 203.42

gages insured on certain Indian land or
Hawaiian home lands under sections
247 and 248 of the National Housing Act
and §§ 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]

§ 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 § 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
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 § 203.16, so long as the

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§ 203.43

24 CFR Ch. II (4–1–19 Edition)

dwelling is subject to any insured
mortgage.
[56 FR 27692, June 17, 1991, as amended at 61
FR 36264, July 9, 1996]

§ 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, Seventysixth 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, Seventysixth Congress; or
(3) Executed in connection with the
sale by the Government, or any agency
or official thereof, or any of the socalled 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,
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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 (§ 203.45 or § 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

§ 203.43a

residence or secondary residence, as
these terms are defined in § 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 § 203.28 shall not
apply to mortgages insured under this
section.
(h) The provisions of § 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]
(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]

§ 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

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§ 203.43b

24 CFR Ch. II (4–1–19 Edition)

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]

§ 203.43b

[Reserved]

§ 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 §§ 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 § 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.
(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

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Office of Assistant Secretary for Housing, HUD
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:

§ 203.43c

(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;
(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

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§ 203.43d

24 CFR Ch. II (4–1–19 Edition)

§§ 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 § 203.280.
(l) The mortgagee shall upon application for a mortgage insurance commit-

ment 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]

§ 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 § 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 § 203.18(f)(1)) have
been involuntarily unemployed or underemployed and have, thus, incurred
substantial reductions in income that

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Office of Assistant Secretary for Housing, HUD
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]

§ 203.43e

[Reserved]

§ 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 re-

§ 203.43f

quirements 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
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.

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§ 203.43f

24 CFR Ch. II (4–1–19 Edition)

(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.
(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 § 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 foun1 Zone III includes Alaska, Montana, Wyoming, North and South Dakota, Minnesota,
Wisconsin, Michigan, Maine, New Hampshire, and Vermont.

dation, 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:
(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]

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Office of Assistant Secretary for Housing, HUD
§ 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 § 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]

§ 203.43h Eligibility of mortgages on
Indian land insured pursuant to
section 248 of the National Housing
Act.
A mortgage covering a one- to fourfamily 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 coop-

§ 203.43h

erative shares is not authorized under
this section.
(a) Exemptions. (1) The provisions of
subparts I, J, and M of part 200, and
§ 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.
The mortgage must be on a form
which meets the requirements of
§ 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;

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§ 203.43i

24 CFR Ch. II (4–1–19 Edition)

(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 Secretaryheld 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
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]

§ 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
§ 203.43c on homes in federally impacted

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Office of Assistant Secretary for Housing, HUD
areas under § 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 § 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 § 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 §§ 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

§ 203.43i

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.
(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 §§ 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

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§ 203.43j

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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
§ 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 se-

cured 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
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
§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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]

§ 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

§ 203.45

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 §§ 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 § 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/
or interest may increase annually for a
period of five years at a rate of 21⁄2 percent, 5 percent or 71⁄2 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
§ 203.18(f)(1)). It does not apply to a
mortgage that meets the requirements
of §§ 203.18(a)(4), 203.18 (c) through (e),
203.43, 203.43a, 203.43j, or 203.49.

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§ 203.47

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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 § 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.
[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]

§ 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.
(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

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Office of Assistant Secretary for Housing, HUD
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

§ 203.49

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) 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 §§ 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

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§ 203.50

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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.
(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) (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 (3) (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), as Commissioner may
prescribe (in the case of an eligible
non-occupant mortgagor as defined in
§ 203.18(f)(3));
(iv) The limits prescribed in § 203.18a,
based upon the sum of the estimated

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Office of Assistant Secretary for Housing, HUD
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 § 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 §§ 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

§ 203.50

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 § 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 § 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,
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

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§ 203.51

24 CFR Ch. II (4–1–19 Edition)

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 §§ 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; 83 FR
64272, Dec. 14, 2018]

§ 203.51 Applicability.
The provisions of §§ 203.18 (a), (c), (d),
(e)(1), and (f); § 203.29(c); § 203.31;
§ 203.43(c);
203.43(k);
§ 203.43c(g);
§ 203.43d(a), § 203.43g(a)(1); § 203.43j(e);
§ 203.45(g); § 203.49(h); § 203.50(f); and
§ 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 Depart-

ment 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]

§ 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-ofuse equipment, the purification system
must be employed on each water supply source (faucet) serving the property. Where point-of-entry systems are
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.)

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Office of Assistant Secretary for Housing, HUD
(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

§ 203.52

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.
llllllllllllllllllllllll
[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
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

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§ 203.249

24 CFR Ch. II (4–1–19 Edition)

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 HUDinsured 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
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]

EFFECTIVE DATE
§ 203.249 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,

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Office of Assistant Secretary for Housing, HUD
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
§ 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
§ 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.

§ 203.251

(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
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]

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§ 203.255

24 CFR Ch. II (4–1–19 Edition)

ENDORSEMENT AND CONTRACT OF
INSURANCE
§ 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 § 203.5, or under the
Lender Insurance program under § 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 § 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
§ 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 FHAapproved Direct Endorsement mortgagees, Fannie Mae, or Freddie Mac, may
access TOTAL, and only FHA-approved
mortgagees will be able to obtain riskassessments 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
§ 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;

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Office of Assistant Secretary for Housing, HUD
(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

§ 203.255

accordance with § 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 § 206.15 of this chapter; and
(13) The documentation required
under § 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;
(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

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§ 203.255

24 CFR Ch. II (4–1–19 Edition)

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 preendorsement review under paragraph
(c) of this section, the assignee may
submit the required documents for preendorsement 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 § 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
§ 203.6, the mortgagee is responsible for
performing a pre-insurance review that
would otherwise be performed by HUD
under § 203.255(c) on the documents that
would otherwise be submitted to HUD
under § 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
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

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Office of Assistant Secretary for Housing, HUD
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
§ 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]

§ 203.258

§ 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.
§ 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]

§ 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 § 203.43h or
§ 203.43i only if the mortgagor is to occupy the dwelling as a principal residence (as defined in § 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
substitute mortgagor is to occupy the
dwelling as a principal residence or as
a secondary residence (as these terms
are defined in § 203.18(f)) or if the substitute mortgagor is an eligible non-occupant mortgagor (as defined in
§ 203.18(f)).
(3) With respect to any mortgage covering a dwelling to be occupied as a

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§ 203.259

24 CFR Ch. II (4–1–19 Edition)

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
§ 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
§ 203.18(f),
except
that
paragraph
(d)(3)(ii)(A) and (B) of this section
apply in place of § 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 § 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]

MORTGAGE INSURANCE PREMIUMS—IN
GENERAL
§ 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

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Office of Assistant Secretary for Housing, HUD
or debentures at par plus accrued interest.
[48 FR 28805, June 23, 1983]

§ 203.259a

§ 203.264

MORTGAGE INSURANCE PREMIUMS—
PERIODIC PAYMENT
§ 203.260 Amount of mortgage insurance premium (periodic MIP).

Scope.

(a) The Commissioner shall charge a
one-time MIP pursuant to § 203.280 for
mortgages that:
(1) Are insured pursuant to § 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
§ 203.43i; or
(2)(i) Are obligations of the Mutual
Mortgage Insurance Fund under this
part (except insured open-end advances
as provided by § 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 § 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 § 203.284(h)
or § 203.285(d), the Commissioner shall
charge an up-front MIP pursuant to
§ 203.284 or § 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
§§ 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
§ 203.284 or § 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]

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]

§ 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]

§ 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]

§ 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
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]

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§ 203.265

24 CFR Ch. II (4–1–19 Edition)

§ 203.265 Mortgagee’s late charge and
interest.
(a) Periodic MIP which are received
by the Commissioner after the payment dates prescribed by §§ 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
§ 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]

§ 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]

§ 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]

§ 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 § 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]

§ 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
§ 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 §§ 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 § 203.280,
§ 203.284, or § 203.285 of this part, the insurance charge shall be in an amount
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 openend charge on a mortgage with a onetime or up-front MIP, except that all

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Office of Assistant Secretary for Housing, HUD

§ 203.283

references to amortization dates shall
refer to amortization dates of the openend 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.

age 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 56
FR 24624, May 30, 1991; 57 FR 15211, Apr. 24,
1992; 57 FR 46983, Oct. 14, 1992; 58 FR 41003,
July 30, 1993]

[48 FR 28806, June 23, 1983, as amended at 61
FR 36265, July 9, 1996]

MORTGAGE INSURANCE PREMIUMS—ONETIME PAYMENT
§ 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 §§ 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.

§ 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]

[70 FR 19669, Apr. 13, 2005]

§ 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 percent-

§ 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 § 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 (§ 203.315),
(2) By prepayment of the mortgage
(§ 203.316), or
(3) By voluntary agreement with the
approval
of
the
Commissioner
(§ 203.317).

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§ 203.284

24 CFR Ch. II (4–1–19 Edition)

(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
§ 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 § 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 §§ 203.261, 203.262, 203.264,
203.265, 203.266, 203.267, 203.268, 203.269,
203.280, and 203.282 are applicable to
mortgages subject to premiums under
this section.
(g) Definition. As used in this section
the term remaining insured principal balance means the average outstanding

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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]

§ 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:

§ 203.288

(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 §§ 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 § 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
§ 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
the prepayment of any mortgage on or
after May 1, 1972.
[37 FR 8662, Apr. 29, 1972]

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§ 203.295

24 CFR Ch. II (4–1–19 Edition)

VOLUNTARY TERMINATION
§ 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 1to-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.

(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]

§ 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.
§ 203.317 Termination by voluntary
agreement.
The contract of insurance shall be
terminated if the mortgagor and mortgagee jointly request termination.

[37 FR 8662, Apr. 29, 1972]

TERMINATION OF INSURANCE CONTRACT
§ 203.315 Termination by conveyance
to other than Commissioner.
(a) For those mortgages to which the
provisions of § 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 § 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;

§ 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]

§ 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]

§ 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 § 203.368 apply, the
date foreclosure proceedings were instituted by the mortgagee, or the property was otherwise acquired by the

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Office of Assistant Secretary for Housing, HUD
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 § 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]

§ 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
§ 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]

§ 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,

§ 203.340

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]

§ 203.332

[Reserved]

§ 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
§ 203.340 Special forbearance.
(a) If the conditions of § 203.614 are
met and special forbearance relief is
granted pursuant to that section, the
contract of insurance shall continue in
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

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§ 203.341

24 CFR Ch. II (4–1–19 Edition)

been met and special forbearance relief
is granted pursuant thereto prior to
January 1, 1977.
[41 FR 49735, Nov. 10, 1976]

§ 203.341 Partial claim.
If the conditions of § 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]

§ 203.342 Mortgage modification.
If a mortgage is recast pursuant to
§ 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 § 203.401.
[62 FR 60129, Nov. 6, 1997]

§ 203.343 Partial release, addition or
substitution of security.
(a) Except as provided in § 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
§ 203.345 Postponement of principal
payments—mortgagors in military
service.
In addition to the special forbearance
relief afforded by §§ 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.
§ 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
§ 203.355 of this subpart. No postponement or delay in the prosecution of
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]

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Office of Assistant Secretary for Housing, HUD
ASSIGNMENT OF MORTGAGE
§ 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 § 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
§ 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 § 203.604 have
been met. HUD shall then notify the
mortgagee of its approval of the mortgagee’s actions under § 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 § 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 (§ 203.43i of this part) where the
mortgagor has been in default for more
than 180 days, provided that the requirements of § 203.665 are satisfied.
(d) Assignment of mortgages authorized
by section 203(q), National Housing Act.

§ 203.351

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
(§ 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 § 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
§ 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
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]

§ 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

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§ 203.353

24 CFR Ch. II (4–1–19 Edition)

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 ac-

count 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 § 203.43d as set forth in
§ 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]

§ 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
§ 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
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 §§ 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
§§ 203.345 or 203.346:
(1) Obtain a deed-in-lieu of foreclosure (see §§ 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;

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Office of Assistant Secretary for Housing, HUD
(3) Enter into a special forbearance
agreement under § 203.614;
(4) Complete a modification of the
mortgage under § 203.616;
(5) Complete a refinance of the mortgage under § 203.43(c);
(6) Complete an assumption under
§ 203.512;
(7) File a partial claim under § 203.371;
or
(8) Initiate a pre-foreclosure sale
under § 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 § 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 § 203.43h of this part), the
mortgagee
must
comply
with
§§ 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

§ 203.355

the National Housing Act (see § 203.43i
of this part), the mortgagee must comply with §§ 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 § 203.43j of
this part), the mortgagee must comply
with §§ 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
§ 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
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 § 203.614 and
the failure continues for 60 days, the

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§ 203.356

24 CFR Ch. II (4–1–19 Edition)

mortgagee must undertake one of the
actions listed at § 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 § 203.616, refinance under § 203.43(c), or assumption
under § 203.512. Provided that the mortgagee has established the mortgagor’s
eligibility within the time frame provided in § 203.355(a), if a mortgagee enters into a loss mitigation relief measure (i.e., modification under § 203.616,
refinance under § 203.43(c), or assumption under § 203.512) and it fails, the sixmonth period provided in § 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]

§ 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]

§ 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 convey-

ance 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
obtains the prior written consent of
the Commissioner.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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
§ 203.356 of this part.
[57 FR 47971, Oct. 20, 1992, as amended at 61
FR 36453, July 10, 1996]

§ 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

§ 203.363

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]

§ 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.
§ 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
(d) Reimburse the Commissioner for
property expenditures as set forth in
§ 203.364.
§ 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

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§ 203.364

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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]

§ 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 mort-

gagee 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]

§ 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
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

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Office of Assistant Secretary for Housing, HUD
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 threeyear 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]

§ 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.

§ 203.367

(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 § 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
reimburse the Secretary in accordance
with §§ 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]

§ 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

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§ 203.368

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 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 § 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 in-

strument, 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.’’
(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 §§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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 § 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 § 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

§ 203.368

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
amounts shall be itemized and deducted from the claim pursuant to
§ 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
§ 203.402(c), hazard insurance premiums
paid by the mortgagee, the portion of
the hazard insurance premium allocable to the period after acquisition of

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§ 203.369

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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
§ 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
§ 203.360, § 203.367 or § 203.368 of this subpart.
(d) In addition to meeting the requirements of § 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]

§ 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 preforeclosure 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 preforeclosure 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,

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.

§ 203.377

(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
§ 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]

CONDITION OF PROPERTY
§§ 203.375–203.376

[Reserved]

§ 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

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§ 203.378

24 CFR Ch. II (4–1–19 Edition)

action does not constitute an illegal
trespass. ‘‘Reasonable action’’ includes
the commencement of foreclosure
within the time required by § 203.355(b)
of this part.
[57 FR 47972, Oct. 20, 1992]

§ 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 § 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 § 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]

§ 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 § 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
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

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Office of Assistant Secretary for Housing, HUD
obtain insurance, none was available at
a reasonable rate; and
(v) The mortgagee took the actions
required by § 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 § 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 Statelicensed 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 § 203.377 of this part, the
mortgagee must provide notice of such
damage to the Secretary and may not

§ 203.380

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 §§ 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]

§ 203.380
tion.

Certificate of property condi-

(a) The mortgagee shall either:
(1) Certify that as of the date of the
filing of deed for record, or assignment
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
§ 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

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§ 203.381

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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]

§ 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
§ 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
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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 203.387 Acceptability
title evidence.

of

customary

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]

§ 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

§ 203.389

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;
(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.

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§ 203.390

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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,
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]

§ 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

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Office of Assistant Secretary for Housing, HUD
covered by the provisions of § 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
§ 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]

§ 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 § 203.402, less all applicable
items set forth in § 203.403.
(b) Claims without conveyance of title.
(1) If the mortgagee acquires title to
the mortgaged property pursuant to a

§ 203.401

bid amount equal to the Commissioner’s adjusted fair market value and
the mortgagee elects to retain title as
provided in § 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
§ 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 § 203.402 and subtracting
therefrom all applicable items set forth
in § 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
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 § 203.402 and subtracting therefrom all applicable items
set forth in § 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

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§ 203.402

24 CFR Ch. II (4–1–19 Edition)

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 § 203.402 and subtracting therefrom all applicable items
set forth in § 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 § 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 § 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 § 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 §§ 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
§§ 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]

§ 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
§ 203.379(a)(4).
(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
§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 203.359
of this part.
(3) Reasonable costs for performing
the inspections required by § 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

§ 203.402

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 § 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
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
§ 203.405(b) from the date specified in
§ 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 §§ 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 § 203.356(a) within

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§ 203.402

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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
§§ 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 § 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 § 203.405(b) from the date
specified in § 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
§ 203.401(a) exceeds the amount of the
actual claim being paid in debentures;
plus
(B) Debenture interest at the rate
specified in § 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 §§ 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 preforeclosure sale, without foreclosure or
conveyance to the Commissioner in accordance with § 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
sale on an amount equal to the amount
by which an insurance claim determined in accordance with § 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 § 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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 § 203.405(b) from the date
specified in § 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
§ 203.401(a) exceeds the amount of the
actual claim being paid in debentures;
plus
(B) Debenture interest at the rate
specified in § 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
§ 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 § 203.368(e) or pursuant to
§ 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 § 203.368;
(o) In any case in which the Commissioner, pursuant to § 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

§ 203.402a

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
§ 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 preforeclosure 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,
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]

§ 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 § 203.614
and this failure continues for a period
of 60 days. The interest allowance shall
be computed to:

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§ 203.403

24 CFR Ch. II (4–1–19 Edition)

(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
§ 203.355(c), whichever is earlier, if the
commencement of foreclosure within
the time limits described in § 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]

§ 203.403 Items deducted from payment—conveyed and non-conveyed
properties.
There shall be deducted from the
total of the added items in §§ 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]

§ 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
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 § 203.405(b), from the date
specified in § 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
§§ 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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]

§ 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]

§ 203.406

Maturity of debentures.

Debentures shall mature 20 years
from the date of issue.
§ 203.407

Registration of debentures.

Debentures shall be registered as to
principal and interest.

§ 203.410

§ 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]

§ 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
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.
§ 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

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§ 203.411

24 CFR Ch. II (4–1–19 Edition)

to the Commissioner from the mortgagor; or
(iv) The property was acquired after
default by a third party under the preforeclosure 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 § 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]

§ 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]

§ 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 § 203.512;
(b)
Special
forbearance
under
§§ 203.471 and 203.614;
(c) Recasting or modification of defaulted mortgages under § 203.616,

where the mortgagee is not reimbursed
under § 203.405(a);
(d) Refinancing under § 203.43(c).
[61 FR 35019, July 3, 1996]

§ 203.413

[Reserved]

§ 203.414 Amount of payment—partial
claims.
(a) Claim amount. Where a claim for
partial insurance benefits is filed in accordance with § 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
§ 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
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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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
§ 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.
§ 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.

§ 203.424

count. No mortgagor or mortgagee
shall be subject to any liability arising
under the mutuality of the Mutual
Mortgage Insurance Fund.
§ 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 (§ 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 § 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;
(2) Prepayment of the mortgage
(§ 203.316); or
(3) Voluntary agreement of the mortgagor and mortgagees (§ 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]

[56 FR 18948, Apr. 24, 1991]

§ 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 Ac-

§ 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.

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§ 203.425

24 CFR Ch. II (4–1–19 Edition)

§ 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.
§ 203.426 Inapplicability to housing in
older declining urban areas.
The provisions of §§ 203.420 through
203.425 shall not apply to mortgages financing housing in declining urban
areas meeting the requirements of
§ 203.43a.
§ 203.427 Statute of limitations on payment of distributive shares.
The Commissioner shall not distribute any distributive share to an eligible mortgagor under § 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
§ 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.
§ 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]

§ 203.432 Effect
mortgage.

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insured

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 § 203.431 is
received by HUD.
[45 FR 27929, Apr. 25, 1980]

§ 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:
(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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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.
§ 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 profitsharing 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.

§ 203.437

(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.
GRADUATED PAYMENT MORTGAGES
§ 203.436 Claim procedure—graduated
payment mortgages.
All of the provisions of this subpart
are applicable to mortgages insured
under the provisions of § 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
§ 203.437 Mortgages involving a dwelling unit in a cooperative housing
development.
(a) The provisions of §§ 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

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§ 203.438

24 CFR Ch. II (4–1–19 Edition)

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
§ 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 § 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
§ 203.438 Mortgages on Indian land insured pursuant to section 248 of the
National Housing Act.
(a) Exemptions. The provisions of
§ 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 § 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 § 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,
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
§ 203.439 Mortgages on Hawaiian home
lands insured pursuant to section
247 of the National Housing Act.
(a) Exemptions. The provisions of
§§ 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

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Office of Assistant Secretary for Housing, HUD
previous month. The notice is in addition to the requirement in §§ 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
§ 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
(§ 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 § 203.350(d) and the mortgagee has complied with §§ 203.351 and
203.353.
(c)
Exceptions.
Notwithstanding
§ 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
§ 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
§ 203.440

Definitions.

All of the definitions contained in
§ 203.50 of this subchapter shall apply to

§ 203.441

§§ 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 §§ 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.
(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]

§ 203.441

Insurance of loan.

Under compliance with the commitment, or as provided in § 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]

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§ 203.442

24 CFR Ch. II (4–1–19 Edition)

§ 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 §§ 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.
§ 203.443 Insurance premium.
All of the provisions of §§ 203.260
through 203.269 1 concerning mortgage
insurance premiums, apply to loans insured under § 203.50.
[47 FR 30753, July 15, 1982]

§ 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]

§ 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.
§ 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]

§ 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
1 Section 203.269 was removed at 48 FR
35089, Aug. 3, 1983.

of the current annual insurance premium.
§ 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.
§ 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.
§ 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.
(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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 203.468

[Reserved]

§ 203.469 Reinstatement
loan.

of

defaulted

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.
§ 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]

§ 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 con-

§ 203.476

tinue to be calculated in accordance
with the original amortization provisions of the loan.
§ 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 §§ 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
§§ 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]

§ 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
additional period of time as may be approved by the Commissioner.
[49 FR 21319, May 21, 1984]

§ 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

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§ 203.477

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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]

§ 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
§§ 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;
(ii) If payment is made in cash on a
mortgage endorsed for insurance after
January 23, 2004, debenture interest at
the rate specified in § 203.479 from the
date specified in § 203.486 to the date insurance settlement occurs, except that
where the lender fails to meet any one
of the requirements of §§ 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

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Office of Assistant Secretary for Housing, HUD
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
§§ 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]

§ 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]

§ 203.481

Maturity of debentures.

Debentures shall mature 10 years
from the date of issue.
§ 203.482

Registration of debentures.

§ 203.489

form as the Secretary by regulation
may prescribe.
[59 FR 49816, Sept. 30, 1994]

§ 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.
§ 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 § 203.476(c).
§ 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]

Debentures shall be registered as to
principal and interest.
§ 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

§ 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.
§ 203.489 Sale of insured loan to approved lender.
An insured loan may be sold to another approved lender. The seller shall

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§ 203.491

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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 § 203.489 is received by HUD.
[45 FR 27929, Apr. 25, 1980]

§ 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.
§ 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.
§ 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 profitsharing 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:

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Office of Assistant Secretary for Housing, HUD
(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
§ 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
§ 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]

§ 203.502

Subpart C—Servicing
Responsibilities
SOURCE: 41 FR 49736, Nov. 10, 1976, unless
otherwise noted.

GENERAL REQUIREMENTS
§ 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 § 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]

§ 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
§ 203.357, pre-foreclosure sales under
§ 203.370, partial claims under § 203.414,
assumptions under § 203.512, special forbearance under §§ 203.471 and 203.614,
and recasting of mortgages under
§ 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]

§ 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

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§ 203.508

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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]

§ 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
with the provisions of § 3500.21(e)(1) of
this title and shall contain the information required by § 3500.21(e)(2) of this
title. Servicers must respond to mortgagor inquiries pertaining to the transfer of servicing in accordance with
§ 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]

§ 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 § 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 § 203.512(b)(1) of this part if
the mortgagee or servicer is approved

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Office of Assistant Secretary for Housing, HUD

§ 203.512

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.

§ 203.512 Free
tions.

[58 FR 42649, Aug. 11, 1993]

[58 FR 42649, Aug. 11, 1993; 59 FR 15112, Mar.
31, 1994]

assumability;

(a) Policy of free assumability with no
restrictions. A mortgagee shall not impose, agree to or enforce legal restrictions on conveyance, as defined in
§ 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
sale of other transfer or mortgaged
property to a person who cannot be approved as a substitute mortgagor as
provided in § 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.

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§ 203.550

24 CFR Ch. II (4–1–19 Edition)

PAYMENTS, CHARGES AND ACCOUNTS
§ 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 § 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 § 203.52 or § 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]

§ 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
§ 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
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
§ 203.368(e) and cost of advertising pursuant to § 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 § 203.23(c) and escrow charges in accordance with § 203.23(a);

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Office of Assistant Secretary for Housing, HUD
(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 § 203.377.
(b) reasonable and customary fees must
be predicated upon the actual cost of
the work performed including out-ofpocket 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]

§ 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
(§ 203.25), except as provided in § 203.556.

§ 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 § 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
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]

§ 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

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§ 203.558

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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
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

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Office of Assistant Secretary for Housing, HUD
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
§ 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.
§ 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.
§ 203.604 Contact with the mortgagor.
(a) [Reserved]
(b) The mortgagee must have a faceto-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

§ 203.604

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 § 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
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

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§ 203.605

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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 § 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
§ 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 portfoliowide 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
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 § 30.35(c) of this
title.
[70 FR 21578, Apr. 26, 2005]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.
§ 203.610 Relief for mortgagor in military service.
The mortgagee shall specifically give
consideration to affording the mort-

§ 203.665

gagor the benefit of relief authorized
by §§ 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.
§ 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]

§ 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]

MORTGAGES IN DEFAULT ON PROPERTY
LOCATED ON INDIAN RESERVATIONS
§ 203.664 Processing defaulted mortgages on property located on Indian
land.
Before a mortgagee requests that the
Secretary accept assignment under
§ 203.350(b) of a mortgage insured pursuant to section 248 of the National Housing Act (§ 203.43h), the mortgagee must
submit documents showing that the requirements of § 203.604 have been met.
[61 FR 35020, July 3, 1996]

MORTGAGES IN DEFAULT ON PROPERTY
LOCATED ON HAWAIIAN HOME LANDS
§ 203.665 Processing defaulted mortgages on property located on Hawaiian home lands.
Before a mortgagee requests the Secretary to accept assignment under
§ 203.350(c) of a mortgage insured pursuant to section 247 of the National Housing Act (§ 203.43i), the mortgagee must
submit documents showing that the requirements of § 203.604 have been met.
[61 FR 35020, July 3, 1996]

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§ 203.666

24 CFR Ch. II (4–1–19 Edition)

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.
(a) Applicability. This section applies
to mortgages authorized by section
203(q) of the National Housing Act
(§ 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 § 203.350(d) the
mortgagee must submit documents
showing that the requirements of
§ 203.604 have been met.
[53 FR 13405, Apr. 25, 1988, as amended at 61
FR 35020, July 3, 1996]

OCCUPIED CONVEYANCE
§ 203.670 Conveyance
property.

of

occupied

(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 § 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 § 203.671, the property is

habitable as defined in § 203.673, and,
except
for
conveyances
under
§ 203.671(d), each occupant who intends
to remain in the property after the
conveyance meets the eligibility criteria in § 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]

§ 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
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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 203.674

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.

[45 FR 59563, Sept. 10, 1980]

[53 FR 874, Jan. 14, 1988, as amended at 64 FR
50225, Sept. 15, 1999]

§ 203.673 Habitability.
(a) For purposes of § 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

§ 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 § 203.676, including the
submittal of documents required in
§ 203.675(b)(4).
(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

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§ 203.675

24 CFR Ch. II (4–1–19 Edition)

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 § 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]

§ 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
§ 203.670, the habitability criteria in
§ 203.673, and the eligibility criteria in
§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 203.675(b)(4) shall be submitted within this time period if an occupant seeks to qualify for continued
occupancy under the provisions of
§ 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]

§ 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 rep-

§ 203.678

resented 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 § 203.673). Only material in HUD’s
possession that directly pertains to
conditions for continued occupancy
under §§ 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.
(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]

§ 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 § 203.676, or fails to request
a conference or to appeal a decision to
deny occupied conveyance within the
time period specified in § 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

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§ 203.679

24 CFR Ch. II (4–1–19 Edition)

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]

§ 203.679 Continued
conveyance.

occupancy

after

(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 § 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 § 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]

§ 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 § 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]

§ 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 § 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
AUTHORITY: 12 U.S.C. 1715z–9; 42 U.S.C.
3535(d).

§ 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
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
Subpart A—General
Sec.
206.1
206.3
206.7
206.8

Purpose.
Definitions.
Effect of amendments.
Preemption.

Subpart B—Eligibility; Endorsement
206.9 Eligible mortgagees.
206.13 Disclosure of available HECM program options.
206.15 Insurance.
ELIGIBLE MORTGAGES
206.17
206.19
206.21

Eligible mortgages: general.
Payment options.
Interest rate.

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Office of Assistant Secretary for Housing, HUD

Pt. 206

HUD RESPONSIBILITY TO BORROWERS

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.

206.117 General.
206.119 [Reserved]
206.121 Commissioner authorized to make
payments.
CLAIM PROCEDURE

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.

206.123
206.125
206.127
206.129

Claim procedures in general.
Acquisition and sale of the property.
Application for insurance benefits.
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.
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)

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§ 206.1

24 CFR Ch. II (4–1–19 Edition)

SOURCE: 82 FR 7117, Jan. 19, 2017, unless
otherwise noted.

Subpart A—General
§ 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’’).
§ 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 § 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 § 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 § 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
(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

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Office of Assistant Secretary for Housing, HUD
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 Federallyobserved 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 12Month Disbursement Period in accordance with § 206.25.

§ 206.3

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 § 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
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.

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§ 206.7

24 CFR Ch. II (4–1–19 Edition)

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 onetwelfth 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 § 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.
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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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
§ 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
§ 202.9 of this chapter, is eligible to
apply for insurance. A mortgagee approved under §§ 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.
§ 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

§ 206.17

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.
§ 206.15

Insurance.

Mortgages originated under this part
must be endorsed through the Direct
Endorsement program under § 203.5 of
this chapter, except that any references to § 203.255 in § 203.5 shall mean
§ 206.115. The mortgagee shall submit
the information as described in
§ 206.115(b) for the Direct Endorsement
program; the certificate of housing
counseling as described in § 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
§ 206.45(a)); the mortgagee’s election of
either the assignment or shared premium option under § 206.107; and any
other documentation required by the
Commissioner. If the mortgagee has
complied with the requirements of
§§ 203.3 and 203.5, except that any reference to § 203.255 in these sections
shall mean § 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
§ 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 § 206.21.
(1) Fixed interest rate mortgages
shall use the Single Lump Sum payment option (§ 206.19(e)).
(2) Adjustable interest rate mortgages shall initially provide for the
term
(§ 206.19(a)),
the
tenure
(§ 206.19(b)),
the
line
of
credit
(§ 206.19(c)), or a modified term or modified tenure (§ 206.19(d)) payment option,

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§ 206.19

24 CFR Ch. II (4–1–19 Edition)

subject to a later change in accordance
with § 206.26.
(c) Shared appreciation. A mortgage
may provide for shared appreciation in
accordance with § 206.23.
§ 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
§ 206.25(e), unless the mortgage is prepaid in full or becomes due and payable
earlier under § 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 § 206.25(f), unless the
mortgage is prepaid in full or becomes
due and payable under § 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
§ 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 § 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 § 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
§ 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 § 206.205(b)(1) or selected by
the borrower under § 206.205(b)(2)(i)(B),
the mortgagee shall set aside a portion
of the principal limit, consistent with
the requirements of § 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
§ 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
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 onetwelfth 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

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amounts as reasonably estimated by
the mortgagee.
(3) Servicing Fee Set Aside. When servicing charges will be made as permitted by § 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 § 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 § 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 § 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.

§ 206.21

§ 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 lockin, 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
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 oneyear 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.

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§ 206.23

24 CFR Ch. II (4–1–19 Edition)

(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 onemonth 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:
(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.
§ 206.23 Shared appreciation.
(a) Additional interest based on net appreciated value. Any mortgage for
which the mortgagee has chosen the
shared premium option (§ 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

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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 includ-

§ 206.25

ing 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.
§ 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
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 12Month 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 12Month 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

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§ 206.25

24 CFR Ch. II (4–1–19 Edition)

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 § 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
§ 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;
(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.

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Office of Assistant Secretary for Housing, HUD
(c) Mandatory Obligations for HECM
for Purchase transactions include:
(1) Initial MIP under § 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
§ 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.

§ 206.25

(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
(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
§ 206.19(f)(3); or
(ii) The outstanding loan balance at
the time of a change in payment option
in accordance with § 206.26, plus any remaining servicing charge set aside
under § 206.19(f)(3); and
(iii) The amount of the principal
limit set aside in accordance with
§ 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

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§ 206.25

24 CFR Ch. II (4–1–19 Edition)

limit because the actual average mortgage interest rate exceeds the expected
average mortgage interest rate unless
the HECM becomes due and payable
under § 206.27(c). In the event of a deferral of due and payable status in accordance with § 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
§ 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 § 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
§ 206.27(b)(10); and in the event of a de-

ferral of due and payable status in accordance with § 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.
(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 § 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 § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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 mort-

§ 206.26

gage 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.
§ 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
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 § 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
§ 206.47 are required using a Repair Set
Aside, mortgagees shall comply with
the following:

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§ 206.27

24 CFR Ch. II (4–1–19 Edition)

(1) Adjustable Interest Rate HECMs. (i)
If repairs after closing under § 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
§ 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 § 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 § 206.47,
under conditions established by the
Commissioner.
§ 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 § 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
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 § 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 § 206.205.
(7) The payment of monthly MIP may
be added to the outstanding principal
balance.

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Office of Assistant Secretary for Housing, HUD
(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 § 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
§ 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;

§ 206.31

(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 § 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 § 206.55
cease to be met and have not been
cured as provided for in § 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 § 206.121(c) must be given to
the Commissioner before a Mortgage
Insurance Certificate is issued for the
mortgage. If the Commissioner does
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 § 206.121(c).
§ 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

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§ 206.32

24 CFR Ch. II (4–1–19 Edition)

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 § 206.47(c) and (d), not
to exceed the greater of one and onehalf 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.
§ 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 § 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 § 206.207(b) and
any future Repair Set Aside established pursuant to § 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
§ 206.33

Age of borrower.

The youngest borrower shall be 62
years of age or older at the time of
loan closing.
§ 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.
(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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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).
§ 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 nonHECM 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 § 206.25(a).
§ 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

§ 206.37

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
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

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§ 206.39

24 CFR Ch. II (4–1–19 Edition)

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).
§ 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.
§ 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.
§ 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 NonBorrowing 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;
(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;

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Office of Assistant Secretary for Housing, HUD
(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, NonBorrowing Spouse, and non-borrowing
owner, as applicable, has received
counseling. The borrower shall provide
the mortgagee with a physical copy of
the certificate.
§ 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.

§ 206.44

(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 § 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 § 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 § 206.105(a) or
fees
and
charges
allowed
under
§ 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 § 206.19(f) for repairs under § 206.47,
for property charges under § 206.205, or
for servicing charges under § 206.207(b).
§ 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

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§ 206.45

24 CFR Ch. II (4–1–19 Edition)

contributions and impose requirements
for permissible interested party contributions through a notice in the FEDERAL REGISTER.
ELIGIBLE PROPERTIES
§ 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.
(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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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

§ 206.52

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.
§ 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
been committed to a plan of condominium ownership by deed, or other recorded instrument, that is acceptable
to the Commissioner.
§ 206.52 Eligible sale of
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 §§ 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 resale 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

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§ 206.52

24 CFR Ch. II (4–1–19 Edition)

application for mortgage insurance, in
accordance with § 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,
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 resale 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 EstateOwned (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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 206.107(a)(1) and
§ 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 § 206.31 and the
initial MIP described in § 206.105(a) and
paragraph (c) of this section.
(c) Initial MIP limit. (1) The initial
MIP paid by the mortgagee pursuant to
§ 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.

§ 206.53

(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 § 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
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 antichurning disclosure concurrently with
the disclosures required under § 206.43.
(e) Waiver of counseling requirement.
The borrower and any Non-Borrowing
Spouse may elect not to receive counseling under § 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 § 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 antichurning 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.

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§ 206.55

24 CFR Ch. II (4–1–19 Edition)

(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
§ 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 § 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 NonBorrowing 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.
(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.
§ 206.57 Cure provision enabling reinstatement of Deferral Period.
(a) When the mortgagee is required
by § 206.55(b)(2) to provide an Eligible
Non-Borrowing Spouse with 30 days to

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Office of Assistant Secretary for Housing, HUD
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 NonBorrowing 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 NonBorrowing Spouse to cure the condition which resulted in the Deferral Period
ceasing,
consistent
with
§ 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.

§ 206.61

§ 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
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 NonBorrowing 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 § 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.
§ 206.61 HECM proceeds during a Deferral Period.
(a) The HECM is not assumable.
HECM proceeds may not be disbursed

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§ 206.101

24 CFR Ch. II (4–1–19 Edition)

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
§ 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 § 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.
(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.

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Office of Assistant Secretary for Housing, HUD
(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 profitsharing 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.

§ 206.105

(iv) The responsibility for servicing
the insured mortgages shall remain
with the principal mortgagee.
§ 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
§ 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
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 § 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 § 206.125(c) is completed, as applicable.
§ 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

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§ 206.107

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 206.27(c)(1), or, if due
and payable under § 206.27(c)(1), its due
and payable status has been deferred
pursuant to a Deferral Period;
(iv) An event described in § 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
§ 206.123(a)(3)–(5); and
(v) The mortgage is a first lien of
record and title to the property securing the mortgage is good and marketable. The provisions of § 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
(§ 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 § 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 § 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
§ 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
the expected average mortgage interest
rate.
§ 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.
§ 206.113 Late charge and interest.
(a) Late charge. Initial MIP remitted
to the Commissioner more than 5 days
after the payment date in § 206.111(a)
and monthly MIP remitted to the Commissioner more than 5 days after the
payment date in § 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 § 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.
§ 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 § 203.5 (any reference to
§ 203.255 in § 203.5 shall mean § 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 § 203.5 (any reference to
§ 203.255 in § 203.5 shall mean § 206.115 for
purposes of this section), the mort-

§ 206.115

gagee 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 § 206.52), and a HUD conditional
commitment, or a Lender’s Notice of
Value issued by the Lender Appraisal
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;

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§ 206.115

24 CFR Ch. II (4–1–19 Edition)

(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 § 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 § 206.15;
(9) Documentation providing that the
seller is the owner of record in accordance with § 206.52(a) and the time restriction requirements of § 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
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 preendorsement review under paragraph
(c) of this section, the assignee may
submit the required documents for preendorsement 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 § 206.15, or refer the
matter to the Mortgagee Review Board
for action pursuant to part 25 of this
title.

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Office of Assistant Secretary for Housing, HUD
(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.
§ 206.116

Refunds.

No amount of the initial MIP shall be
refundable except as authorized by the
Commissioner.
HUD RESPONSIBILITY TO BORROWERS
§ 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
§ 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.
§ 206.119

[Reserved]

§ 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,

§ 206.123

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 § 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
insurance will terminate as provided in
§ 206.133(c).
(c) Second mortgage. If the contract of
insurance is terminated as provided in
§ 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
§ 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 § 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

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§ 206.125

24 CFR Ch. II (4–1–19 Edition)

to the Commissioner pursuant to the
Commissioner’s demand, as provided in
§ 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 § 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 § 206.125(g) for an
amount which does not satisfy the outstanding loan balance or fails to sell
the
property
as
provided
in
§ 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
§ 206.125(e).
(b) [Reserved]
§ 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 § 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 § 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 deter-

mined under § 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;
(v) For an Eligible Non-Borrowing
Spouse, correct the condition which resulted in an end to the Deferral Period
in accordance with § 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 § 206.57(d).

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Office of Assistant Secretary for Housing, HUD
(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 § 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 § 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 § 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 § 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

§ 206.125

does not permit the commencement of
the foreclosure in accordance with
§ 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.
(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

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§ 206.127

24 CFR Ch. II (4–1–19 Edition)

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.

§ 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,
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 § 206.135(a) and the certification required under § 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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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 § 206.27(c)(1)
or the date that the Deferral Period, as
provided for in the mortgage by
§ 206.27(c)(3), ends; or the date the Commissioner approved a due and payable
request as provided for in the mortgage
by § 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

§ 206.129

under § 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;
(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 § 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

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§ 206.129

24 CFR Ch. II (4–1–19 Edition)

§ 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
§ 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 preforeclosure 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 §§ 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
§ 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
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
§ 206.125(f)(1)(ii) or § 206.125(g)(4);
(xii) Costs of any appraisal under
§§ 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

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Office of Assistant Secretary for Housing, HUD
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
§ 206.143.
(4) There shall be deducted from the
amount computed in paragraph (d)(2)(i)
of this section:
(i) The items listed in § 206.145; and
(ii) Any adjustment for damage or
neglect to the property pursuant to
§§ 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
§ 206.107(a)(1)
or
§ 206.121(b).
(1) When a mortgagee assigns a mortgage which is eligible for assignment
under § 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 §§ 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

§ 206.129

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 § 206.127(c), or § 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
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 § 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 §§ 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 § 206.125(c) to

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§ 206.131

24 CFR Ch. II (4–1–19 Edition)

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
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 §§ 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
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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
§ 206.133 Termination
contract.

of

insurance

(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.

§ 206.133

(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 § 206.121. Upon reinstatement, the mortgagee shall be
liable for all MIP which would have
been due if no termination had occurred, including late charge and interest as provided in § 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

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§ 206.134

24 CFR Ch. II (4–1–19 Edition)

of the Commissioner shall also cease
immediately.
ADDITIONAL REQUIREMENTS
§ 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.
§ 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 omis-

sion 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.
(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.

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Office of Assistant Secretary for Housing, HUD
§ 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.
§ 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 § 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

§ 206.140

reassignment to the time of reapplication.
§ 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
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.
§ 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

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§ 206.141

24 CFR Ch. II (4–1–19 Edition)

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 § 206.125.
§ 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 § 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.
§ 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 § 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
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 § 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 § 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

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Office of Assistant Secretary for Housing, HUD
(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.
§ 206.143
tion.

Certificate of property condi-

(a) The mortgagee shall certify that
as of the date the mortgagee sold the
property in accordance with § 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 § 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.
§ 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.
§ 206.145 Items
ment.

deducted

from

§ 206.201

(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]
§ 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
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.

pay-

(a) There shall be deducted from the
total of the added items in § 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.

Subpart D—Servicing
Responsibilities
§ 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.

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§ 206.203

24 CFR Ch. II (4–1–19 Edition)

(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.
§ 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 mort-

gage 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]
(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

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Office of Assistant Secretary for Housing, HUD
servicer or the designated employee (or
employee group) changes.
(3) Mortgagees must respond to FHA
requests for information concerning individual accounts.
§ 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 FullyFunded 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

§ 206.205

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;
(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

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§ 206.205

24 CFR Ch. II (4–1–19 Edition)

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 nonpayment. (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 § 206.27(c)(2).
(ii) Fully-Funded LESA for a fixed interest rate HECM with no remaining
funds. If the LESA is exhausted and the
borrower fails to make property charge
payments, the mortgage will become
due and payable under § 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

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Office of Assistant Secretary for Housing, HUD
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 nonpayment.
(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
§ 206.27(c)(2).
(5) Unused LESA funds. During a Deferral Period or when one of the events
listed in § 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

§ 206.205

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
§ 206.107(a)(1) or § 206.121(b), or if payments are made through the second
mortgage under § 206.121(c), the Commissioner is not required to assume the
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

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§ 206.207

24 CFR Ch. II (4–1–19 Edition)

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
§ 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
§ 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 onetwelfth 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 bor-

rower’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 nonpayment. The mortgagee may provide
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 § 206.27(c)(2).
§ 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
§ 206.26(b)(1)(iii); or charges and fees related to additional documents described in § 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

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Office of Assistant Secretary for Housing, HUD
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 § 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

§ 206.211

(iv) The charge is disclosed as required by § 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;
(ii) The charge is disclosed as required by § 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 § 206.19(f)(3);
and
(iv) The charge is payable only from
the Servicing Fee Set Aside.
§ 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.
§ 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

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§ 206.300

24 CFR Ch. II (4–1–19 Edition)

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 § 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 NonBorrowing 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 NonBorrowing 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 NonBorrowing 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
§ 206.300 General.
This subpart provides for the establishment of the HECM Counselor Roster (Roster) and sets forth the require-

ments for the operation of the HECM
Counselor Roster.
§ 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
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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 206.306 Removal from
Counselor Roster.

the

HECM

(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
§ 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 meas-

§ 206.306

ured 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.
(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.

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§ 206.308

24 CFR Ch. II (4–1–19 Edition)

(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 § 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.
§ 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
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.
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.

207.499

Effect of amendments.

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.

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Office of Assistant Secretary for Housing, HUD

§ 207.252
PREMIUMS

Subpart A—Eligibility
Requirements
§ 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
§ 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.

§ 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
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

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§ 207.252a

24 CFR Ch. II (4–1–19 Edition)

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 onefourth 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]

§ 207.252a Premiums—operating
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]

§ 207.252b Premiums—mortgages
insured pursuant to section 223(f) of
the Act.
(a) The mortgagee, upon the initialfinal endorsement of the mortgage for
insurance pursuant to a Commitment
to Insure Upon Completion issued in
accordance with § 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

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Office of Assistant Secretary for Housing, HUD
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 § 207.252 shall apply to
mortgages insured pursuant to section
223(f) of the Act.
[40 FR 10177, Mar. 5, 1975]

§ 207.252c Premiums—mortgages
insured pursuant to section 238(c) of
the Act.
All of the provisions of §§ 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
§§ 207.252 and 207.252a shall be calculated on the basis of one percent.
[42 FR 59674, Nov. 18, 1977]

§ 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]

§ 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]

§ 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 mort-

§ 207.253a

gage 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
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]

§ 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:

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§ 207.254

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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 30day 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
§ 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).
(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

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Office of Assistant Secretary for Housing, HUD
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

§ 207.256b

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]

§ 207.256 Notice to the Commissioner
of default.
(a) If a default as defined in
§ 207.255(a) or (b) is not cured within the
grace period of 30 days provided under
§ 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
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]

§ 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]

§ 207.256b Modification
terms.

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(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.

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§ 207.257

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 207.257 Commissioner’s right to require acceleration.
Upon receipt of notice of violation of
a covenant, as provided for in
§ 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]

§ 207.258 Insurance
ments.

claim

(a) Alternative election by mortgagee.
(1) When the mortgagee becomes eligible to receive mortgage insurance benefits pursuant to § 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

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Office of Assistant Secretary for Housing, HUD
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 thirdparty 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 regu-

§ 207.258

lations 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
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 § 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

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§ 207.258

24 CFR Ch. II (4–1–19 Edition)

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 § 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 pri-

ority 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
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.

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Office of Assistant Secretary for Housing, HUD
(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

§ 207.258

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 CommissionerComptroller 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.
(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 § 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

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§ 207.258a

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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.
§ 207.258b Partial payment of claim.
(a) Whenever the Commissioner receives notice under § 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 find-

ings as the Commissioner deems appropriate:
(1) The mortgagee is entitled, under
§ 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;
(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 caseby-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 § 207.259(b)(2)(iv), with respect to a partial payment of a claim
under this section. The items referred

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Office of Assistant Secretary for Housing, HUD
to in § 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]

§ 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 § 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 in-

§ 207.259

surance 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 §§ 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.
(iii) The sum of the cash items retained by the mortgagee pursuant to
§ 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

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§ 207.259

24 CFR Ch. II (4–1–19 Edition)

§ 207.255(a)(1)(ii) and a mortgagee refuses to comply promptly with the
Commissioner’s request to accelerate
payment pursuant to § 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
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.

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Office of Assistant Secretary for Housing, HUD
(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]

§ 207.259a Waiver of title objection;
mortgages formerly Commissionerheld.
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.
§ 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

§ 207.261

inspect the project in accordance with
the physical inspection requirements
in 24 CFR part 5, subpart G.
[63 FR 46578, Sept. 1, 1998]

§ 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
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 § 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 taxexempt 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]

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§ 207.263

24 CFR Ch. II (4–1–19 Edition)

RIGHTS IN HOUSING FUND
§ 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.

§ 208.104

[57 FR 58350, Dec. 9, 1992]

AMENDMENTS
§ 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
Sec.
208.101
208.104
208.108
208.112

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.

Purpose.
Applicability.
Requirements.
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.

§ 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 § 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–

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
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);

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Office of Assistant Secretary for Housing, HUD
(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.
§ 208.108

Requirements.

(a) Projects specified in § 208.104(a) that
are automated. Project owners of applicable projects under § 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 § 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 § 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

§ 208.108

(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 § 208.104(b)—(1)
Project owners. Project owners of applicable projects under § 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
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’’ (movein, 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 § 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 § 208.104(c).
Project owners of applicable projects
under § 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

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§ 208.112

24 CFR Ch. II (4–1–19 Edition)

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’’ (movein, 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]

§ 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
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
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.

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Office of Assistant Secretary for Housing, HUD
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
§ 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
§ 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
207.252
207.254

§ 213.252
Definitions.
First, second, and third premiums.
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 §§ 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
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]

§ 213.252 Definitions.
The definitions contained in § 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.

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§ 213.253

24 CFR Ch. II (4–1–19 Edition)

(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.
§ 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.
§ 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
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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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

§ 213.256

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
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.
§ 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

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§ 213.257

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 213.258 Subsequent
miums.

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(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
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.
§ 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.
§ 213.259a Premiums—mortgages
insured pursuant to section 238(c) of
the Act.
All of the provisions of §§ 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 §§ 213.253 through 213.259 shall be
calculated on the basis of one percent.
[42 FR 59675, Nov. 18, 1977]

§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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.

§ 213.270

§ 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.

[37 FR 8662, Apr. 29, 1972]

§ 213.266 Initial
ment.

insurance

endorse-

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.
§ 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.

§ 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
instrument the total of all advances he
has approved for insurance and again
endorse such instrument.
§ 213.269 Endorsement
of
supplementary loans.
The provisions of §§ 213.266, 213.267,
and 213.268 shall apply to supplementary loans.
§ 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:

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§ 213.270

24 CFR Ch. II (4–1–19 Edition)

(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 se-

curity 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.
(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.

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Office of Assistant Secretary for Housing, HUD
(e) Debenture interest. The debentures
shall bear interest as provided in
§ 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
§ 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.

§ 213.279

§ 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.
§ 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.
§ 213.278 Distribution
share.

of

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.
§ 213.279 Maximum
tributive share.

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dis-

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

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§ 213.280

24 CFR Ch. II (4–1–19 Edition)

insurance or to the year of payment of
the share, if paid prior to termination.
§ 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
§ 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
Subpart A—General Program
Requirements
Sec.
214.1
214.3

Purpose.
Definitions.

Subpart B—Approval and Disapproval of
Housing Counseling Agencies
214.100
214.103
214.105
214.107
214.109

General.
Approval criteria.
Preliminary application process.
Approval by HUD.
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
214.503

Audit.
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.

Subpart A—General Program
Requirements
§ 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]

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Office of Assistant Secretary for Housing, HUD
§ 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.

§ 214.3

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.
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.

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§ 214.3

24 CFR Ch. II (4–1–19 Edition)

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.
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]

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Subpart B—Approval and Disapproval of Housing Counseling Agencies
§ 214.100 General.
An organization may be approved by
HUD as a HUD-approved housing counseling agency upon meeting the requirements of § 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]

§ 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 sec-

§ 214.103

tion 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,
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 § 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.

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§ 214.103

24 CFR Ch. II (4–1–19 Edition)

(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,
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

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Office of Assistant Secretary for Housing, HUD
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 § 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;

§ 214.107

(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
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]

§ 214.105
ess.

Preliminary application proc-

(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.
§ 214.107

Approval by HUD.

(a) Notice of approval. If an application package meets all requirements
outlined in § 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.

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§ 214.109

24 CFR Ch. II (4–1–19 Edition)

(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.
§ 214.109

Disapproval by HUD.

If an application package does not
meet all requirements in § 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 § 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
§ 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
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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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
§ 214.307 and § 214.309. At the end of the
approval period, and upon completion
of a successful performance review, if
conducted, HUD will reapprove agencies.
§ 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 ap-

§ 214.300

peals 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
§ 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.
(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

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§ 214.303

24 CFR Ch. II (4–1–19 Edition)

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;
(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]

§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 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

§ 214.303

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.
(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

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§ 214.305

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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).
§ 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.
§ 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 § 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
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 § 214.205.
§ 214.311 Housing
funds.

counseling

(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 § 214.303(e).

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Office of Assistant Secretary for Housing, HUD
(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 § 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.

§ 214.315

(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]

§ 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.
(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
§ 214.303(g).
§ 214.315 Recordkeeping.
(a) Recordkeeping system. Each participating housing counseling agency

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§ 214.317

24 CFR Ch. II (4–1–19 Edition)

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 § 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;
(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]

§ 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
§ 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]

§ 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.

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Office of Assistant Secretary for Housing, HUD

PART 219—FLEXIBLE SUBSIDY PROGRAM
FOR
TROUBLED
PROJECTS
Sec.
219.1
219.2

Pt. 220

220.275

Method of paying insurance benefits.

INSURED HOME IMPROVEMENT LOANS
220.350

Cross-reference.

Subpart C—Eligibility Requirements—
Projects

Program operations.
Savings provision.

AUTHORITY: 12 U.S.C. 1715z-1a; 42 U.S.C.
3535(d).

220.501

Subpart D—Contract Rights and
Obligations—Projects

SOURCE: 61 FR 14405, Apr. 1, 1996, unless
otherwise noted.

§ 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.
§ 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
Subpart A [Reserved]

Eligibility requirements.

PROJECT MORTGAGE INSURANCE
220.751 Cross-reference.
220.753 Forbearance relief.
220.765 Special insurance benefits—forbearance relief cases.
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).

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.

SOURCE: 36 FR 24573, Dec. 22, 1971, unless
otherwise noted.

Subpart A [Reserved]

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§ 220.251

24 CFR Ch. II (4–1–19 Edition)
gage Insurance Fund shall be construed
to refer to the General Insurance Fund.

Subpart B—Contract Rights and
Obligations—Homes
§ 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 Mort-

[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]

§ 220.252 Forbearance of foreclosure
and assignment of mortgage.
All of the provisions of §§ 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.
§ 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 § 220.30(d)).
(2) The Commissioner may approve as
a substitute mortgagor an eligible nonoccupant mortgagor (as defined in
§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
approved by the Commissioner, whichever is greater, in the case of a dwelling described in § 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 § 203.258(c)
of this chapter.
(d) Applicability—earlier mortgagor.
The occupancy and similar requirements set forth in § 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 § 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]

§ 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.

§ 220.751

INSURED HOME IMPROVEMENT LOANS
§ 220.350

Cross-reference.

(a) All of the provisions of §§ 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-tofour family dwellings under section
220(h) of the Act, except as set out in
paragraph (b).
(b) The provisions of §§ 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
§ 220.501

Eligibility requirements.

The requirements set forth in 24 CFR
part 200, subpart A, apply to multifamily project mortgages insured under
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
§ 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 § 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]

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§ 220.753

24 CFR Ch. II (4–1–19 Edition)

§ 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 § 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
§ 220.765 shall be applicable.
§ 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 pro-

vided under this subpart. To receive
the special insurance payment, the
mortgagee shall assign the mortgage to
the Commissioner in compliance with
the requirements of § 207.258(b) of this
chapter.
(b) The special insurance benefits to
the mortgagee shall be a cash payment
computed
in
accordance
with
§ 207.259(b) of this chapter, except that
in lieu of the allowance for debenture
interest in § 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 § 207.258(b) of this chapter and § 220.753(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.
INSURED PROJECT IMPROVEMENT LOANS
§ 220.800

Definitions.

All of the definitions contained in
§ 220.550 shall apply to §§ 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 §§ 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.
§ 220.801 Initial
ment.

insurance

The Commissioner shall indicate his
insurance of the loan by endorsing the

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Office of Assistant Secretary for Housing, HUD
original credit instrument and identifying the section of the Act and the
regulations under which the loan is insured and the date of insurance.
§ 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.
§ 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.
§ 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 onehalf 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 obli-

§ 220.804

gation 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) onehalf of one percent of the average outstanding principal obligation of the
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

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§ 220.804a

24 CFR Ch. II (4–1–19 Edition)

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 §§ 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.
§ 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]

§ 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.

§ 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.
§ 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
§§ 220.800 et seq.
(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 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.
§ 220.811

Date of default.

For the purposes of §§ 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.
§ 220.812

Notice of default.

(a) If the default as defined in § 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.

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Office of Assistant Secretary for Housing, HUD
(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.
§ 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.
§ 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.
§ 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.
§ 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

§ 220.821

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;
(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

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§ 220.822

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 §§ 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]

§ 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 § 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; in-

cluding 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.
§ 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]

§ 220.832 Maturity of debentures.
Debentures shall mature 10 years
from the date of issue.
§ 220.834 Registration of debentures.
Debentures shall be registered as to
principal and interest.
§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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.
§ 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]

§ 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

§ 220.900

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
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
§ 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 §§ 203.664
through 203.666.
[52 FR 48203, Dec. 21, 1987, and 53 FR 9869,
Mar. 28, 1988]

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Pt. 221

24 CFR Ch. II (4–1–19 Edition)

PART 221—LOW COST AND MODERATE INCOME MORTGAGE INSURANCE—SAVINGS CLAUSE
Subpart A—Eligibility Requirements—Low
Cost Homes—Savings Clause

SOURCE: 36 FR 24587, Dec. 22, 1971, unless
otherwise noted.

Subpart
A—Eligibility
ments—Low Cost
Savings Clause
§ 221.1

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 §§ 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.

[66 FR 5913, Jan. 19, 2001]

Subpart B—Contract Rights and
Obligations—Low Cost Homes

Eligibility requirements.

§ 221.251

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

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.

Subpart C—Eligibility Requirements—
Moderate Income Projects
221.501

Cross-reference.

AUTHORITY: 12 U.S.C. 1715b, 1715l, and 1735d;
42 U.S.C. 3535(d).

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.

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 221.20(c)) or
is a private nonprofit or public entity
as provided in section 221(h) of the National Housing Act.

§ 221.254

(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 § 203.258(c)
of this chapter.
(d) Applicability—earlier mortgagor.
The occupancy and similar requirements set forth in § 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 § 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
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]

§ 221.254 Mortgage
insurance
premiums.
(a) All of the provisions of §§ 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
§ 221.60 or § 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.

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§ 221.255

24 CFR Ch. II (4–1–19 Edition)

(b) Whenever the interest rate on a
mortgage insured under this part as
having met the special requirement of
§ 221.60 or § 221.65 shall have been increased to the maximum rate in accordance with § 221.60(j), § 221.65(d)(4), or
§ 221.65(d)(5), the provisions of §§ 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]

§ 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 re-

ceive 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
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 § 203.410 of this chapter. The
interest rate shall be established by
the Commissioner in an amount not in

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Office of Assistant Secretary for Housing, HUD
excess of the annual rate of interest
which the Secretary of the Treasury
shall specify as applicable to the 6month 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]

§ 221.256 Interest rate increase and
payment of mortgage insurance
premiums on mortgages under
§ 221.60 and § 221.65.
(a) Where a mortgage meets the special requirements of § 221.60 or § 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 § 221.60(h) or § 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
§§ 221.60(g)
and

§ 221.280

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
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]

§ 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.
§ 221.280 Waived title objections.
(a) General provisions. All of the provisions of § 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:

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§ 221.300

24 CFR Ch. II (4–1–19 Edition)

(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
§ 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.
§ 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.
(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.
§ 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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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
§ 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.
§ 221.325 Cancellation of hazard insurance.
The provisions of § 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
ments—Moderate
Projects

RequireIncome

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]

§ 221.753 Termination of mortgage insurance.
In addition to the provisions of
§ 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
§ 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]

§ 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
§ 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

§ 221.755

§ 221.755 Premiums first, second, third
and operating loss loans.
All of the provisions of §§ 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 § 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
§§ 207.252 and 207.252a shall be calculated on the basis of one percent.
The provisions of § 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
§ 221.518(b); or

First, second, and third premium.

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§ 221.761

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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 § 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 § 221.763 shall be applicable.
[36 FR 24587, Dec. 22, 1971, as amended at 51
FR 27838, Aug. 4, 1986]

§ 221.762 Payment of insurance benefits.
All of the provisions of § 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
§ 221.518(b) is applicable as of the date
of default, the 1 percent deduction from
insurance
benefits
prescribed
in
§ 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 § 207.259(b)(2)(iv) of
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]

§ 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 § 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 § 207.258(b) of this chapter.
(b) The special insurance benefit to
the mortgagee shall be a cash payment
computed
in
accordance
with
§ 207.259(b) of this chapter, except that
in lieu of the allowance for debenture

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Office of Assistant Secretary for Housing, HUD
interest in § 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 § 207.258(b) of this chapter and § 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.
§ 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 § 221.780.
[49 FR 12698, Mar. 30, 1984, as amended at 57
FR 58351, Dec. 9, 1992]

§ 221.775 Option period.
The mortgagee may exercise its option to assign within one year fol-

§ 221.790

lowing the twentieth anniversary of
the date the mortgage was finally endorsed for insurance.
§ 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 § 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]

§ 221.785 Date of maturity of debentures.
The debentures issues 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.
§ 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.

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§ 221.795

24 CFR Ch. II (4–1–19 Edition)

§ 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.
(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:

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Office of Assistant Secretary for Housing, HUD
(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-ofpocket 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:

§ 221.800

(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
(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
§ 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

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Pt. 231

24 CFR Ch. II (4–1–19 Edition)

National Housing Act apply to mortgages covering one- to four-family
dwellings to be insured under section
221 of the National Housing Act, except
§§ 203.664 through 203.666.

PART 232—MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE FACILITIES,
BOARD AND CARE HOMES, AND
ASSISTED LIVING FACILITIES

[52 FR 48204, Dec. 21, 1987, and 53 FR 9869,
Mar. 28, 1988]

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.

PART 231—HOUSING MORTGAGE
INSURANCE FOR THE ELDERLY
Subpart A—Eligibility Requirements
Sec.
231.1

Subpart A—Eligibility Requirements

Eligibility requirements.

Subpart B—Contract Rights and
Obligations

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 C—Eligibility Requirements—Supplemental Loans To Finance Purchase
and Installation of Fire Safety Equipment

Subpart A—Eligibility
Requirements
§ 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
§ 231.251

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.

232.500

Definitions.

232.505
232.510
232.515
232.520
er.
232.522

Application and application fee.
Commitment and commitment fee.
Refund of fees.
Maximum fees and charges by lend-

FEES AND CHARGES

Inspection fee.
ELIGIBLE SECURITY INSTRUMENTS

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.

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
232.591

Eligibility of property.
Smoke detectors.

232.595

Eligibility of title.

TITLE

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Office of Assistant Secretary for Housing, HUD
232.600

Title evidence.

Subpart F—Eligible Operators and Facilities
and Restrictions on Fund Distributions

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
§ 232.620 Determination of compliance with
fire safety equipment requirements.
232.625 Discrimination prohibited.
232.630 Assurance of completion.

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 D—Contract Rights and
Obligations
232.800

Subpart A—Eligibility
Requirements

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.

232.897

Actions to be taken by lender.

§ 232.2

EXTENSION OF TIME

SOURCE: 61 FR 14406, Apr. 1, 1996, unless
otherwise noted.

§ 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
§§ 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]

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.

§ 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,

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§ 232.3

24 CFR Ch. II (4–1–19 Edition)

that the facility complies with any applicable State or local standards and
requirements for such facility.
§ 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]

§ 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]

§ 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
§ 232.251 Cross-reference.
(a) All of the provisions, except
§ 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
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]

§ 232.252 Definitions.
All of the definitions contained in
§ 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 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 § 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

§ 232.256

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
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-bycase 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]

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§ 232.500

24 CFR Ch. II (4–1–19 Edition)

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.

§ 232.500

Definitions.

In addition to the definitions contained in subpart A, incorporated herein by reference, the following terms, as
used in §§ 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 inter-

mediate 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
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
§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 232.515

§ 232.545

§ 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]

§ 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]

ELIGIBLE SECURITY INSTRUMENTS
§ 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.
§ 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.
§ 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]

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]

§ 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]

§ 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,

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§ 232.550

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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.
§ 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.
§ 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]

§ 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
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]

§ 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
§ 232.530.
(b) Certification of costs as required
by § 232.610.
(c) Certification that fire safety
equipment was installed as required by
§ 232.500(c).
[39 FR 28966, Aug. 12, 1974, as amended at 80
FR 48028, Aug. 11, 2015]

§ 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

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Office of Assistant Secretary for Housing, HUD

§ 232.600

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.

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.

§ 232.585 Prepayment privilege
prepayment charge.

[57 FR 33850, July 30, 1992]

and

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.
§ 232.586 Minimum
amount.

principal

loan

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
§ 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]

§ 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

TITLE
§ 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
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.
§ 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

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§ 232.605

24 CFR Ch. II (4–1–19 Edition)

law experienced in the examination of
titles.

available for examination such records,
including any collateral agreements.

[39 FR 28966, Aug. 12, 1974, as amended at 58
FR 34216, June 24, 1993]

[39 FR 28966, Aug. 12, 1974, as amended at 80
FR 48028, Aug. 11, 2015]

FORM OF CONTRACT

ELIGIBLE BORROWERS

§ 232.605

Contract requirements.

§ 232.615

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
§ 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

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
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
§ 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]

§ 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,

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Office of Assistant Secretary for Housing, HUD
as provided by part 200, subpart U, of
this chapter.
(Approved by the Office of Management and
Budget under control number 2502–0118)

§ 232.805

(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.

[54 FR 39695, Sept. 27, 1989]

PREMIUMS

SPECIAL REQUIREMENTS

§ 232.805

§ 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]

§ 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.
§ 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.

§ 232.800 Definitions.
All of the definitions contained in
§ 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.

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 § 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.

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§ 232.805a
§ 232.805a

24 CFR Ch. II (4–1–19 Edition)

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]

§ 232.815

RIGHTS AND DUTIES OF LENDER UNDER
THE CONTRACT OF INSURANCE

Mortgagee’s late charge.

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.
§ 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.

§ 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.
(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.
§ 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.
§ 232.850 Notice of default.
(a) If the default is not cured within
the 30 day grace period, as defined in
§ 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
being apprised thereof, the Commissioner may require the lender to accelerate payment of the outstanding principal balance due.
§ 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.
§ 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.
§ 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

§ 232.885

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;
(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.
§ 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

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§ 232.890

24 CFR Ch. II (4–1–19 Edition)

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 §§ 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
§ 232.880(h)(i)(ii).
[39 FR 28970, Aug. 12, 1974, as amended at 80
FR 51468, Aug. 25, 2015]

§ 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
execution of the assignment of the loan
to the Commissioner.
§ 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
§ 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
§ 232.897 Actions to be taken by lender.
With respect to any action required
of the lender within a period of time

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Office of Assistant Secretary for Housing, HUD
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.

§ 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]

§ 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]

§ 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.

§ 232.903

(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,
(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).

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§ 232.904

24 CFR Ch. II (4–1–19 Edition)

(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
§ 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
§ 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
§ 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 § 232.11.
[53 FR 33735, Aug. 31, 1988, as amended at 59
FR 61228, Nov. 29, 1994; 77 FR 55136, Sept. 7,
2012]

§ 232.904 Term of the mortgage.
Notwithstanding the provisions of
§ 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
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.
§ 232.905 Labor standards and prevailing wage requirements.
The provisions of §§ 232.70–232.74 of
this part shall not apply to mortgages
insured under commitments issued in
accordance with this subpart.
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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 § 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.

§ 232.1001 Scope.
This subpart establishes requirements applicable to the operators of
healthcare facilities and the facilities
under this part.
§ 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

§ 232.1009

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.
§ 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
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.
§ 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.
§ 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.

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§ 232.1011

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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.
§ 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.
§ 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
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

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Office of Assistant Secretary for Housing, HUD
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
Subpart A—Eligibility Requirements—
Individually Owned Units

§ 234.1

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

Subpart D—Contract Rights and
Obligations—Projects
234.751

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.

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
ments—Individually
Units

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.

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RequireOwned

SOURCE: 61 FR 60161, Nov. 26, 1996, unless
otherwise noted.

§ 234.1

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.

Eligibility requirements.

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§ 234.3

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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 § 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).
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]

§ 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 § 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 203.18 of
this chapter), or must have been sold

§ 234.26

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
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 FHAinsured 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

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§ 234.54

24 CFR Ch. II (4–1–19 Edition)

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
§ 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.;
(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
§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
be located in a condominium project
approved under § 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.
§ 234.63 Location of property.
The mortgage, to be eligible for insurance, shall be on property located in
a State, as defined in § 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.
§ 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.
§ 234.66 Free assumability; exceptions.
For purposes of HUD’s policy of free
assumability with no restrictions, as
provided in § 203.41 of this chapter, the
definition of Legal restrictions on conveyance in § 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
§ 234.251 Definitions.
The definitions in § 203.251 of this
chapter apply to this subpart.
[61 FR 60163, Nov. 26, 1996]

§ 234.255 Cross-reference.
(a) Provisions. All of the provisions of
§§ 203.251 through 203.436 of this chapter
(part 203, subpart B) covering mort-

§ 234.256

gages 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.
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 §§ 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
§§ 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]

§ 234.256 Substitute mortgagors.
(a) Selling mortgagor. The requirements for the selling mortgagor are set
forth in § 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 § 203.258(b)(1) of this chapter.
(2) [Reserved]

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§ 234.259

24 CFR Ch. II (4–1–19 Edition)

(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 § 203.258(c) of this
chapter.
(d) Applicability—earlier mortgagor.
The occupancy and similar requirements set forth in § 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 § 203.258(f) of this chapter.
(f) Substitute mortgagor is defined in
§ 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]

§ 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]

§ 234.260 Assignment of mortgage and
certificate by mortgagee.
In addition to the requirements of
§§ 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]

§ 234.262 Exception to deed in lieu of
foreclosure.
All of the provisions of § 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.
§ 234.265 Contents of deed and supporting documents.
In addition to the requirements of
§ 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.
§ 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
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 § 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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]

§ 234.285

§ 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.
§ 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.
§ 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
§ 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]

§ 234.280 Cancellation of hazard insurance.
The provisions of § 203.382 incorporated by reference shall apply to hazard insurance policies carried solely for
the family unit.
§ 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

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§ 234.501

24 CFR Ch. II (4–1–19 Edition)

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
§ 234.501

Subpart D—Contract Rights and
Obligations—Projects
§ 234.751

Cross-reference.

(a) All of the provisions, except
§ 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.
(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
§ 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
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

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]

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.

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Office of Assistant Secretary for Housing, HUD
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
§ 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 in-

§ 236.2

sure 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
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]

§ 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.

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§ 236.3

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 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]

§ 236.60

Excess income.

(a) Definition. Excess Income consists
of cash collected as rent from the residents by the mortgagor, on a unit-byunit 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
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 nonproject 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

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Office of Assistant Secretary for Housing, HUD
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

§ 236.60

(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.
(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

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§ 236.60

24 CFR Ch. II (4–1–19 Edition)

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 nar-

rative 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)
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

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Office of Assistant Secretary for Housing, HUD
(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

§ 236.252

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
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
§ 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]

§ 236.252 First, second, and third mortgage insurance premiums.
All of the provisions of § 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,

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§ 236.253

24 CFR Ch. II (4–1–19 Edition)

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
§ 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 § 207.252 shall be calculated on the
basis of one percent.
[42 FR 59675, Nov. 18, 1977]

§ 236.253 Premiums—operating
loss
loans.
All of the provisions of § 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
§ 207.252a shall be calculated on the
basis of one percent.
[42 FR 59675, Nov. 18, 1977]

§ 236.254 Termination of mortgage insurance.
In addition to the provisions of
§ 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
§ 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]

§ 236.255 Forbearance relief.
(a) In a case where the mortgage is in
default, the mortgagor and the mort-

gagee 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.
Such determination shall be evidenced
by the Commissioner’s written approval of the forbearance agreement.
(b) The time specified in § 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
§ 236.265(b) shall be applicable.
§ 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
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 236.265
fits.

Subpart C—Interest Reduction
Payments

Payment of insurance bene-

All of the provisions of § 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 § 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 § 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 § 207.259(b) of this chapter,
except that in lieu of the allowance for
debenture interest in § 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 §§ 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 § 236.260
and the mortgage is not in default at
the time of such assignment, the one
percent
deduction
prescribed
in
§ 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]

§ 236.510

§ 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.
§ 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.
§ 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 § 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 § 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

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§ 236.515

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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.
§ 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.
§ 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
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.
§ 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.
§ 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.

§ 236.701

Scope of rental assistance.

The Secretary shall enter into Rental
Assistance Contracts with the owners
of section 236 projects which:

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Office of Assistant Secretary for Housing, HUD
(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]

§ 236.705 Projects eligible for benefits.
(a) Rental assistance payments may
be made with respect to section 236

§ 236.710

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)
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.
§ 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 § 236.2 of subpart A
(contained in the April 1, 1995 edition
of 24 CFR, parts 220 to 499; see the Savings clause at § 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 § 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 § 236.1(c)).

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§ 236.715

24 CFR Ch. II (4–1–19 Edition)

(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 § 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]

§ 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
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]

§ 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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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.
§ 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
§ 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 § 236.55(b), the Total Ten-

§ 236.735

ant 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
May 1, 1983 to Sept. 30, 1983 ..................
Oct. 1, 1983 to Sept. 30, 1984 ..................
Oct. 1, 1984 to Sept. 30, 1985 ..................
Oct. 1, 1985 and after ................................

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28
29
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
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 §§ 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

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§ 236.740

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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.
§ 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.
§ 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.
(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]

§ 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

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Office of Assistant Secretary for Housing, HUD
(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 § 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]

§ 236.760
tus.

Change in tenant income sta-

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 § 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
§ 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]

§ 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

§ 236.1001

or eligible immigration status, as provided in 24 CFR part 5.
[61 FR 13624, Mar. 27, 1996]

Subpart E—Audits
§ 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
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
§ 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

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§ 236.1001

24 CFR Ch. II (4–1–19 Edition)

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 ex-

tent 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
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

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Office of Assistant Secretary for Housing, HUD
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-ofpocket 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

Pt. 241

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]

PART 241—SUPPLEMENTARY FINANCING
FOR
INSURED
PROJECT MORTGAGES
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.

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Pt. 241

24 CFR Ch. II (4–1–19 Edition)

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.

EXTENSION OF TIME
241.897

Actions to be taken by lender.

241.900
241.905

No vested right in fund.
Effect of amendments.

RIGHTS IN HOUSING FUND

PROPERTY REQUIREMENTS
241.590

Subpart E—Insurance for Equity Loans and
Acquisition Loans—Eligibility Requirements

Eligibility of property.
TITLE

241.595 Eligibility of title.
241.600 Title evidence.
FORM OF CONTRACT
241.605
241.610
241.615

Contract requirements.
Assurance of completion.
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

241.1000 Purpose and scope.
241.1005 Definitions.
241.1010 Feasibility letter.
241.1015 Processing of applications and required fees.
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.

Assignment of insured loans.

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Office of Assistant Secretary for Housing, HUD

Subpart A—Eligibility
Requirements
§ 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.

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
207.253a
207.259
207.260
207.262

Definitions.
Termination of insurance contract.
Insurance benefits.
Protection of mortgage security.
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]

§ 241.260

Payment of insurance bene-

All of the provisions of § 207.259 of
this chapter relating to insurance benefits shall apply to multifamily loans
insured under this subpart.

Subpart B—Contract Rights and
Obligations
§ 241.251

dition, 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.
§ 241.261
fits.

[61 FR 14407, Apr. 1, 1996]

§ 241.275

Definitions.

All of the definitions contained in
§ 241.1 shall apply to this subpart. In ad-

[80 FR 51469, Aug. 25, 2015]

§ 241.265 Insurance
against flood.

of

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]

§ 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.
§ 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.

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§ 241.500

24 CFR Ch. II (4–1–19 Edition)

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 HUDInsured or HUD-Held Mortgage
SOURCE: 45 FR 57983, Aug. 29, 1980, unless
otherwise noted.

§ 241.500 Definitions.
In addition to the definitions contained in subpart A of this part, incorporated herein by reference, except
§ 241.1(f), (h) and (i), the following
terms, as used in § 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
§ 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
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
§ 200.40 of this chapter apply to applications submitted under subpart E of this
part.
[61 FR 14416, Apr. 1, 1996]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.
§ 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 endorse-

§ 241.530

ment, 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.
§ 241.525

Refund of fees.

If the amount of the commitment
issued or an increase in loan prior to
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.
§ 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.

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§ 241.530a

24 CFR Ch. II (4–1–19 Edition)

ELIGIBLE SECURITY INSTRUMENTS
§ 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]

§ 241.535 Loan
principal.

multiples—minimum

The loan shall involve a principal obligation in multiples of $100, and the
minimum principal obligation shall be
$10,000.
§ 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.

§ 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.
§ 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.
§ 241.555 Security instrument and lien.
(a) 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 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.
§ 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

§ 241.586

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.
§ 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:
(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.
§ 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.
§ 241.586 Minimum
principal
loan
amount.
A mortgagee may not require, as a
condition of providing a loan insured

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§ 241.590

24 CFR Ch. II (4–1–19 Edition)

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
§ 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
§ 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.
§ 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 Commis-

sioner. 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 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 241.610

§ 241.615
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
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.
§ 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:

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§ 241.625

24 CFR Ch. II (4–1–19 Edition)

(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 gen-

erally accepted auditing standards to
the extent deemed necessary to verify
the actual costs.
ELIGIBLE BORROWERS
§ 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.
§ 241.626 Disclosure and verification of
Social Security and Employer Identification Numbers.
To be eligible for loan 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 39696, Sept. 27, 1989]

SPECIAL REQUIREMENTS
§ 241.630
loss.

Maximum insurance against

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.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 241.640 Employment
prohibited.

discrimination

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]

§ 241.645 Labor standards and
vailing wage requirements.

pre-

(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 §§ 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 § 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 §§ 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

§ 241.805

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.

§ 241.800 Definitions.
All of the definitions contained in
§ 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
§ 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

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§ 241.805a

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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.
§ 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
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
§ 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

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lender shall be entitled to receive the
benefits of insurance hereinafter provided.
§ 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.
§ 241.850 Notice of default.
(a) If the default is not cured within
the 30 day grace period, as defined in
§ 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.
§ 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.
§ 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

§ 241.880

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.
§ 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.
§ 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
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

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§ 241.885

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 §§ 241.850, 241.875, and
241.880, 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 the
lender.
(iii) The sum of the cash items retained by the lender pursuant to
§ 241.880(h) (1) and (2).
[45 FR 57987, Aug. 29, 1980, as amended at 80
FR 51469, Aug. 25, 2015]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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
§ 241.895

Assignment of insured loans.

EXTENSION OF TIME
Actions to be taken by lend-

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
§ 241.900

§ 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.

(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.

§ 241.897
er.

§ 241.1000

No vested right in fund.

Neither the lender nor the borrower
shall have any vested or other right in
the General Insurance Fund.

§ 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

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§ 241.1005

24 CFR Ch. II (4–1–19 Edition)

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.
§ 241.1005

Definitions.

(a) All of the definitions of § 241.1
apply to equity and acquisition loans
insured under subpart E of this part except the following definitions:
§ 241.1(i)—Borrower;
§ 241.1(k)—Energy conserving improvements;
§ 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 § 248.101
or § 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 § 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 § 248.101 of this
chapter.
Moderate income families has the same
meaning as provided at § 248.101 of this
chapter.
Plan of action has the same meaning
as provided at § 248.101 or § 248.201 of
this chapter.
Preservation equity has the same
meaning as provided at § 248.101 of this
chapter.
Priority purchaser has the same meaning as provided at § 248.101 of this chapter.
Qualified Purchaser has the same
meaning as provided at § 248.101 of this
chapter.
§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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]

§ 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

§ 241.1030

by the required application and commitment fee, must be submitted.
[61 FR 14417, Apr. 1, 1996]

§ 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.
§ 241.1030 Mortgage
miums.

insurance

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

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§ 241.1035

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 241.1040

Eligible lenders.

Lenders approved as mortgagees
under §§ 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]

§ 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 § 241.1046(b).
§ 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.
§ 241.1050 Method of loan payment.
The loan shall provide for monthly
payments on the first day of each

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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.
§ 241.1055 Date of first payment to
principal.
The date for first payment to principal shall be established by the Commissioner.
§ 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]

§ 241.1069

erage. 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]

§ 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
§ 248.233(d) 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.
(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 cov-

§ 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]

§ 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 § 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.

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§ 241.1070
§ 241.1070

24 CFR Ch. II (4–1–19 Edition)
Agreed interest rate.

The equity or acquisition loan shall
bear interest at the rate agreed upon
by the borrower and the lender.
§ 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.
§ 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]

§ 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
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.
§ 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.
§ 241.1100 Prepayment
charges.

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(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.

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§ 241.1205

(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 § 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.

Subpart F—Insurance for Equity
Loans
and
Acquisition
Loans—Contract Rights and
Obligations

§ 241.1105

(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 § 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.

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.
§ 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.

SOURCE: 57 FR 12040, Apr. 8, 1992, unless
otherwise noted.

§ 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.
207.252c Premiums—mortgages insured pursuant to section 238(c) of the Act.
207.254 Insurance endorsement.

§ 241.1205
fits.

Payment of insurance bene-

All the provisions of § 207.259 of this
chapter relating to insurance benefits
shall apply to an equity or acquisition

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§ 241.1210

24 CFR Ch. II (4–1–19 Edition)

loan insured under subpart F of this
part.
[80 FR 51469, Aug. 25, 2015]

§ 241.1210 Condition for payment of insurance benefits.
(a) All of the provisions of § 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.
§ 241.1215 Calculation of insurance
benefits.
All of the provisions of § 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
§ 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.
§ 241.1220 Termination of insurance
benefits.
All of the provisions of § 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
§ 241.1210.
§ 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.
§ 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.
§ 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.
§ 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.

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PART 242—MORTGAGE
INSURANCE FOR HOSPITALS
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
242.40
242.41
242.42
242.43

Insurance endorsement.
Mortgagee certificate.
Certification of cost requirements.
Certificates of actual cost.
Application of cost savings.

242.44

Construction standards.

Subpart E—Construction

Pt. 242

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
242.55

Nondiscrimination.
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.

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§ 242.1

24 CFR Ch. II (4–1–19 Edition)

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,
1715n(f), and 1715u; 42 U.S.C. 3535(d).

1715b,

SOURCE: 72 FR 67546, Nov. 28, 2007, unless
otherwise noted.

Subpart A—General Eligibility
Requirements
§ 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 § 242.43.
Applicant means a HUD multifamilyapproved lender that would be the
mortgagee of record.
Capital debt means the outstanding
indebtedness used for the construction,
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:

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§ 242.1

(Excess of revenues over expenses OR net income) + interest expense + depreciation expense + amortization expense
Current portion of long-term debt [prior year, including capital leases] + interest expense

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
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.

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ER28NO07.052

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§ 242.1

24 CFR Ch. II (4–1–19 Edition)

Non-operating revenues and expenses
are those revenues and expenses not directly related to patient care, hospitalrelated 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
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.

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Office of Assistant Secretary for Housing, HUD
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

§ 242.1

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
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;

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§ 242.2

24 CFR Ch. II (4–1–19 Edition)

(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]

§ 242.2 Program
ciency.

financial

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.
§ 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
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.
§ 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 § 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]

§ 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,

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Office of Assistant Secretary for Housing, HUD
investing mortgagees, and governmental and similar institutions, apply
to these programs.

plicable federal law, among other considerations.
§ 242.10

§ 242.6

Property requirements.

The mortgage, to be eligible for insurance, shall be on property located in
a state, as defined in § 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.
§ 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.
§ 242.8 Standards for licensure
methods of operation.

and

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.
§ 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 ap-

§ 242.11

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 § 242.1. The mortgagor
shall be approved by HUD and, except
in those cases where the hospital is
leased as permitted in § 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,
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]

§ 242.11 Regulatory
quired.

compliance

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.

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§ 242.13

24 CFR Ch. II (4–1–19 Edition)

§ 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.
§ 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.
§ 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
§ 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 marketwide 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
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;

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Office of Assistant Secretary for Housing, HUD
(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

§ 242.16

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
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.

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§ 242.16

24 CFR Ch. II (4–1–19 Edition)

(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;
(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.

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Office of Assistant Secretary for Housing, HUD
(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

§ 242.16

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
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

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§ 242.17

24 CFR Ch. II (4–1–19 Edition)

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
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]

§ 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;

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(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 dol-

§ 242.19

lars 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]

§ 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
(basis points)

Hard cost % of mortgage amount
Less than 5% ............................................................................................................................................
5% or greater but less than 10% ..............................................................................................................
10% or greater but less than 15% ............................................................................................................
15% or greater but less than 20% ............................................................................................................
20% or greater ..........................................................................................................................................

[78 FR 8343, Feb. 5, 2013]

§ 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

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§ 242.20

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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.

§ 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;
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.
§ 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 § 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,

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 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 se-

§ 242.25

cured 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
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]

§ 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
§ 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

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§ 242.26

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 242.27

Maturity.

The mortgage shall have a maturity
not to exceed 25 years from the date
amortization begins.
§ 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.
§ 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.

§ 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
(d) Amortization of the principal of
the mortgage.
§ 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

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which it is inappropriate for the mortgagee to collect monthly payments and
to make payments on behalf of the
mortgagor.
§ 242.32

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]

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.
§ 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]

§ 242.35

§ 242.38

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

§ 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
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.
§ 242.38 Late charge.
The mortgage may provide for the
collection by the mortgagee of a late

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§ 242.39

24 CFR Ch. II (4–1–19 Edition)

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
§ 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]

§ 242.40 Mortgagee certificate.
At initial endorsement, the mortgagee shall execute a Mortgagee Certificate in a form prescribed by HUD.
§ 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.
§ 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.

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(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.
§ 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
§ 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.
§ 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.

§ 242.45

(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
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.

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§ 242.46

24 CFR Ch. II (4–1–19 Edition)

(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.

§ 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,
each progress payment involving mortgage proceeds and the owner’s equity
requirement shall be approved by HUD.
§ 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 offsite 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:

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Office of Assistant Secretary for Housing, HUD
(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 offsite 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 ad-

§ 242.49

vances 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.
§ 242.48 Insured advances for certain
equipment and long lead items.
The Commissioner may allow advances for certain pieces of equipment
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.
§ 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]

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§ 242.50

24 CFR Ch. II (4–1–19 Edition)

§ 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]

§ 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.

§ 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
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]

§ 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.

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Office of Assistant Secretary for Housing, HUD
(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
§ 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.
§ 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

§ 242.56

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
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
§ 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

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§ 242.57

24 CFR Ch. II (4–1–19 Edition)

§ 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]

§ 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.
§ 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
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
§ 242.72, the requirements pertaining to
the mortgagor in § 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]

§ 242.59 Inspection
Commissioner.

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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.

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Office of Assistant Secretary for Housing, HUD
§ 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]

§ 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

§ 242.65

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.
§ 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
financing), equipment leases, or derivative-type transactions, except in conformance with policies and procedures
established by HUD.
§ 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.
§ 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

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§ 242.66

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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
§ 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.
§ 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.
§ 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
any property acquired under any section or title of the Act.
§ 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.
§ 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.
§ 242.74 Smoke detectors.
Each occupied room must include
such smoke detectors as are required
by law.
§ 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.

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Office of Assistant Secretary for Housing, HUD
§ 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.
§ 242.77

nection 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.
§ 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.
§ 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.
§ 242.81 Lead-based
prevention.

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 con-

paint

Energy conservation.

Construction, mechanical equipment,
and energy and metering selections
shall provide cost-effective energy conservation in accordance with standards
established by HUD.
§ 242.83

Debarment and suspension.

The requirements set forth in 24 CFR
part 24 apply to this program.
§ 242.84 Previous participation
compliance requirements.

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The requirements set forth in 24 CFR
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Requirements set forth in 24 CFR
part 35 apply to this program.
§ 242.82

Liens.

§ 242.84

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§ 242.86

24 CFR Ch. II (4–1–19 Edition)

§ 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.
§ 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.
§ 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 §§ 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.
§ 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.
(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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 242.92 Minimum
amount.

principal

loan

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.

§ 244.2

§ 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
which HUD has issued a commitment
to insure.

PART 244—MORTGAGE INSURANCE FOR GROUP PRACTICE FACILITIES [TITLE XI]
Subpart A—Eligibility Requirements
Sec.
244.1
244.2

Eligibility requirements.
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.

§ 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.
§ 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.

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§ 244.251

24 CFR Ch. II (4–1–19 Edition)
245.325 Notification of action on request for
increase.
245.330 Non-insured projects.

Subpart B—Contract Rights and
Obligations
§ 244.251

Cross-reference.

(a) All of the provisions, except
§ 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 § 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

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.
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

Subpart A—General Provisions

Sec.
245.5
245.10
245.15

Purpose.
Applicability of part.
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
245.210

Efforts to obtain assistance.
Availability of information.

Subpart D—Procedures for Requesting Approval of an Increase in Maximum
Permissible Rents
245.305
245.310
245.315
245.320

Applicability of subpart.
Notice to tenants.
Materials to be submitted to HUD.
Request for increase.

§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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 projectpaid 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 Hous-

§ 245.15

ing 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
(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]

§ 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

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§ 245.100

24 CFR Ch. II (4–1–19 Edition)

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.

§ 245.100

Right of tenants to organize.

The tenants of a multifamily housing
project covered under § 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.
§ 245.105 Recognition of tenant organizations.
Owners
of
multifamily
housing
projects covered under § 245.10, and
their agents, must:
(a) Recognize legitimate tenant organizations; and (b) Give reasonable consideration to concerns raised by legitimate tenant organizations.
§ 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 § 245.10 for the purpose described in § 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.
§ 245.115 Protected activities.
(a) Owners of multifamily housing
projects covered under § 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;
(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 projectbased 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 § 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

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Office of Assistant Secretary for Housing, HUD
obtain prior permission before engaging in the activities permitted under
paragraphs (a) and (b) of this section.
§ 245.120 Meeting space.
(a) Owners of multifamily housing
projects covered under § 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 § 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.
§ 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 § 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 § 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 multi-

§ 245.135

family 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
the applicable Notice of Funding Availability for the grant or other effective
grant document.
(2) If a multifamily housing project
covered under § 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.
§ 245.130 Tenants’ rights not to be recanvassed.
A tenant has the right not to be recanvassed against his or her wishes regarding participation in a tenant organization.
§ 245.135

Enforcement.

(a) Owners of housing identified in
§ 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

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§ 245.205

24 CFR Ch. II (4–1–19 Edition)

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
§ 245.205

tains 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]

§ 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]

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 ob-

Subpart D—Procedures for Requesting Approval of an Increase in Maximum Permissible Rents
SOURCE: 50 FR 32403, Aug. 12, 1985, unless
otherwise noted.

§ 245.305

Applicability of subpart.

(a) The requirements of this subpart
apply to any request by a mortgagor,
as provided by § 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.
§ 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 § 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
llllllllllllllllllllllll
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

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Office of Assistant Secretary for Housing, HUD
(HUD). The proposed increase is needed for
the following reasons:
1.
2.
3.
The rent increases for which we have requested approval are:
Bedrooms
5
0
1
2
3
4

..........
..........
..........
..........
..........
..........

Present
rent 1

Proposed
increase 1

Proposed
rent 1

Basic

Market

Basic

Market

Basic

Market

$ .....
.........
.........
.........
.........
.........

$ .........
............
............
............
............
............

$ .....
.........
.........
.........
.........
.........

$ .........
............
............
............
............
............

.........
.........
.........
.........
.........
.........

$

§ 245.315

served with that notice and in accordance
with the terms of existing leases.
llllllllllllllllllllllll
[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
tenants for inspection and copying are
those specified in § 245.315.
§ 245.315 Materials to be submitted to
HUD.

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

When the notice referred to in
§ 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;

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§ 245.320

24 CFR Ch. II (4–1–19 Edition)

(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)

§ 245.320

Request for increase.

Upon expiration of the period for tenant comments required in the notice
format in § 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 § 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.

§ 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
occur (1) within 12 months of the date
of submission of materials to HUD
under § 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 § 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 § 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 § 245.15.
§ 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 §§ 245.305
through 245.320 shall apply to the mortgagor (project owner), except that—
(1) The notice format prescribed in
§ 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 §§ 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 § 245.315(a)(2), if approved by the
local HUD office; and

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Office of Assistant Secretary for Housing, HUD
(3) The State or local agency must
certify that the mortgagor has complied
with
the
requirements
of
§§ 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 § 245.320
(including consideration of anticipated
cost
increases,
as
provided
in
§ 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 § 245.15.

Subpart E—Procedures for Requesting Approval of a Covered Action
SOURCE: 61 FR 57962, Nov. 8, 1996, unless
otherwise noted.

§ 245.405 Applicability of
The requirements of
apply to any request by
as provided by § 245.10,
proval of one or more of
covered actions:

subpart.
this subpart
a mortgagor,
for HUD apthe following

§ 245.410

(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
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.
§ 245.410 Notice to tenants.
At least 30 days before submitting a
request to HUD for approval of an action described in § 245.405, the mortgagor must serve notice of the proposed covered action on the project
tenants, as provided in § 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 § 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;

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§ 245.415

24 CFR Ch. II (4–1–19 Edition)

(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 tenantpaid 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.
§ 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
§§ 245.416 through 245.419, to the local
HUD office when the notice required
under § 245.410 is served on the tenants.
(b) Subsequent submission. If additional notice under § 245.420(c) is required, the mortgagor must submit to
HUD any changes to the materials required under §§ 245.416 through 245.419
when the notice required under
§ 245.420(c) is served on the tenants.
§ 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 com-

parable 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
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)

§ 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,

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Office of Assistant Secretary for Housing, HUD
the mortgagor must submit the following materials to the local HUD office in accordance with §§ 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:

§ 245.419

(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
(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)

§ 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)

§ 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

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§ 245.420

24 CFR Ch. II (4–1–19 Edition)

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)

§ 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
§ 245.415, for a period of 30 days from
the date on which the notice required
under § 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 § 245.415, the mortgagor must notify the tenants of the
change, in the manner provided in
§ 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.
§ 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
§ 245.410,
§ 245.415,
§§ 245.416 through 245.419, as applicable,
§ 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)

§ 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 § 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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 §§ 245.405 through
245.425 apply to the mortgagor (project
owner), except that—
(1) The notice to tenants required
under § 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 §§ 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
§§ 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 § 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 mortga-

Pt. 246

gor’s request for approval of the conversion or reduction, 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
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 § 245.15. If the agency has approved the proposed conversion or a reduction, the notice must set
forth the information prescribed in
§ 245.430(b) (1) and (2).

PART 246—LOCAL RENT CONTROL
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
246.21
246.22

Applicability.
Rental charges.
Procedures.

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§ 246.1

24 CFR Ch. II (4–1–19 Edition)

Subpart D—HUD-Owned Projects
246.30
246.31

Rental charges.
Procedures.

AUTHORITY:
3535(d).

12

U.S.C.

1715b;

42

U.S.C.

Subpart A—General Provisions
§ 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
agent of a project subject to these reg-

ulations 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.

§ 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]

§ 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.’’

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Office of Assistant Secretary for Housing, HUD
§ 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 § 246.7 of this subpart, (2) the
appropriate HUD office pursuant to
§ 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.
§ 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
§ 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 llllllllllllllll
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
level necessary to maintain and operate adequately the project, or to act upon our request, we plan to file a request for preemp-

§ 246.7

tion 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, ll, $lllll.
(2) Current Total Residential Rents Allowed by Local Rent Control Board,
$lllll.
(3) Projected Total Annual Residential
Rents Allowable Under Local Board Regulations 6 Months After Date of this Notice,
$lllll.
(4) Income Required to Operate Project as
Supported by Profit and Loss Statement
Being Submitted to HUD, $lllll.
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.
llllllllllllllllllllllll

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§ 246.8

24 CFR Ch. II (4–1–19 Edition)

(Name of mortgagor or managing agent)
The mortgagor shall comply with all representations made in this Notice.

§ 246.8 Materials to be submitted to
HUD in support of preemption request.
(a) After posting or delivery of the
Notice as required by § 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,
(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 § 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.
§ 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 § 246.7
was given pursuant to the provisions of
that section;

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Office of Assistant Secretary for Housing, HUD
(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.
§ 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,
Headquarters, and shall include appropriate recommendations concerning
the action that should be taken by
HUD.

§ 246.12

(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
§ 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.
§ 246.11 Notification of action on preemption request.
(a) After HUD has considered the preemption request which meets the requirements of § 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 § 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.
§ 246.12 Preemption
term of lease.

of

(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.

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§ 246.20

24 CFR Ch. II (4–1–19 Edition)

Subpart C—Subsidized Insured
Projects
§ 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]

§ 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
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]

§ 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 § 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
§ 246.30

Rental charges.

The Department has exclusive jurisdiction over the rents of all projects

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Office of Assistant Secretary for Housing, HUD

§ 247.2

which it owns, irrespective of the existence, or the provisions, of any State or
local rent control law or ordinance.

247.9 Applicability of procedures.
247.10 Inapplicability to substantial rehabilitation or demolition; right of disposition unimpaired.

[40 FR 49318, Oct. 22, 1975. Redesignated at 44
FR 58506, Oct. 10, 1979, and at 49 FR 6713, Feb.
23, 1984]

AUTHORITY: 12 U.S.C. 1701q, 1701s, 1715b,
1715l, and 1715z–1; 42 U.S.C. 1437a, 1437c, 1437f,
and 3535(d).

§ 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.

SOURCE: 41 FR 43330, Sept. 30, 1976, unless
otherwise noted. Redesignated at 49 FR 6713,
Feb. 23, 1984.

[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 HUDOWNED PROJECTS
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.

Subpart A—Subsidized Projects
§ 247.1 Applicability.
(a) Except as provided in §§ 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 § 247.2(e). (Termination of tenancy of a family assisted with tenantbased 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 § 200.38.
[54 FR 236, Jan. 4, 1989, as amended at 81 FR
80806, Nov. 16, 2016]

§ 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)

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§ 247.3

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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

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
§ 247.4.
(b) Notice of good cause. The conduct
of a tenant cannot be deemed other
good cause under § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 247.3(a)(4), the
termination notice shall be effective,
and the termination notice shall so
state, at the end of a term and in ac-

§ 247.4

cordance 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 § 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 § 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

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§ 247.5

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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.
§ 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]

§ 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.

Subpart B—HUD-Owned Projects
§ 247.8

Incorporation by reference.

All of the provisions of subpart A of
this part covering certain multifamily
projects (excepting § 247.5) apply with
full force to the property described in
§ 247.9 and they are hereby incorporated
by reference.
§ 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.
§ 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
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
248.103
248.105

Definitions.
General prepayment limitation.
Notice of intent.

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Office of Assistant Secretary for Housing, HUD
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.

§ 248.3

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.

§ 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.
§ 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

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§ 248.5

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 248.211 or
§ 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 § 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
§ 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
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
§ 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
§ 248.131. The notice of intent shall be
submitted in accordance with either
§ 248.105 (for owners electing to proceed
under subpart B of this part) or § 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 § 248.131 by filing a new
notice of intent under § 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
§ 248.211 after the Commissioner has incurred the cost of having an appraisal,
or appraisals, performed pursuant to
§ 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
§ 248.201.
(e) The Commissioner shall not
refuse to offer incentives under § 248.231

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Office of Assistant Secretary for Housing, HUD
to any owner who filed a notice of intent under § 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 § 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.

§ 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
§ 248.157(g). For mandatory sales under
§ 248.161, the offer must include a con-

§ 248.101

tract of sale, an earnest money deposit
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-

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§ 248.101

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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
§ 248.111; less
(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 § 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

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Office of Assistant Secretary for Housing, HUD
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 § 248.173 or
§ 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 § 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 Commis-

§ 248.101

sioner or a State or State agency under
parts 221 or 236 of this title 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 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 § 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.

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§ 248.101

24 CFR Ch. II (4–1–19 Edition)

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
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

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Office of Assistant Secretary for Housing, HUD
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.

§ 248.101

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
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 § 248.157 or § 248.161.

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§ 248.103

24 CFR Ch. II (4–1–19 Edition)

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 § 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
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]

§ 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 § 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

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other remedies available by law, including rescission of the prepayment or
reinstatement of the insurance contract.
§ 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 § 248.141, extend the
low income affordability restrictions of
the housing in accordance with
§ 248.153, or transfer the housing to a
qualified purchaser under § 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 prepay-

§ 248.111

ment 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
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.
§ 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 § 248.153 or transfer the
project under § 248.157, the Commissioner shall provide for determination
of the preservation values of the
project pursuant to this section.

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§ 248.111

24 CFR Ch. II (4–1–19 Edition)

(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
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

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Office of Assistant Secretary for Housing, HUD
of rehabilitation expenditures, if any,
that would be necessary to bring the
project up to quality standards required to attract and sustain a marketrate 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 preser-

§ 248.121

vation 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 §§ 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
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]

§ 248.121 Annual authorized return
and aggregate preservation rents.
(a) Annual authorized return. For each
eligible low income housing project appraised under § 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 § 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
§ 248.123. Actual rents received by the
owner (or a qualified purchaser) shall
be determined pursuant to §§ 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—

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§ 248.123

24 CFR Ch. II (4–1–19 Edition)

(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 § 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
§ 241.1067 of this chapter. The debt service on any rehabilitation loan will be
estimated using costs derived from the
appraisals conducted under § 248.111,
taking into account any funds provided
for rehabilitation by State or local
governments and assuming market
rate interest rates.
§ 248.123 Determination of Federal
cost limit.
(a) Initial determination. For each eligible low income housing project appraised under § 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
such relevant local market, shall be determined on the basis of the appraisal
conducted by the appraiser selected by
the Commissioner pursuant to § 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
§ 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.
§ 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
§ 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 § 248.157; or

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Office of Assistant Secretary for Housing, HUD
(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
§ 248.161 or, if no bona fide offers are received, to prepay the mortgage or terminate the mortgage insurance.
§ 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 § 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
§ 248.141 regarding the approval of a
plan of action and a list of the Federal
incentives authorized under § 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 § 248.153 or to transfer the project under § 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 § 248.111;
(2) A statement of the aggregate
preservation rents for the project as
calculated under § 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
§ 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

§ 248.133

(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 § 248.133.
(c) Information to tenants and State or
local governments. The Commissioner
shall provide any information provided
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 § 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 §§ 248.157 and 248.161; and
(2) The potential opportunity of resident homeownership under §§ 248.173 or
248.175.
§ 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 § 248.131, elect to
transfer the project under §§ 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
§ 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 § 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
§ 248.105(c) and with the mortgagee. In

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§ 248.135

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 248.141, or to extend the low income affordability restrictions on the
project under § 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 § 248.131.
(b) Joint Submission. An owner and
purchaser seeking a transfer of the
project under §§ 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 § 248.157 or the purchaser’s making of a bona fide offer under § 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 § 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 ten-

ants 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
to the tenant representative, the officer of State or local government to
whom the owner submitted a notice of
intent under § 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 § 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 § 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 § 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 § 248.153 or transfer the project to
a qualified purchaser in accordance
with §§ 248.157 or 248.161, the plan of action shall include:

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Office of Assistant Secretary for Housing, HUD
(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 § 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 § 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

§ 248.141

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
month time period set forth in paragraph (b) of this section, the notice of
intent filed by the owner under § 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 § 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]

§ 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

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§ 248.141

24 CFR Ch. II (4–1–19 Edition)

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
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

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Office of Assistant Secretary for Housing, HUD
(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

§ 248.141

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
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 § 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]

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§ 248.145

24 CFR Ch. II (4–1–19 Edition)

§ 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 § 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
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 § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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 § 248.153 may be
provided, other than to qualified purchasers under §§ 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 § 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

§ 248.147

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
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]

§ 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
§ 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

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§ 248.147

24 CFR Ch. II (4–1–19 Edition)

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 ac-

cess of and use by the owner of such
amounts set forth in paragraph (c) of
this section, for not more than the 2year period beginning upon the determination that the project is in compliance with the housing standards.
(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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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 § 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.
§ 248.153 Incentives to extend low income use.
(a) Agreements by the Commissioner.
After approving a plan of action filed
pursuant to § 248.145, from an owner of
eligible low income housing that in-

§ 248.153

cludes 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
such agreements as are necessary to
enable the owner to—
(1) Receive the annual authorized return for the project as determined
under § 248.121 for each year after the
approval of the plan of action;
(2) Pay debt service on the federallyassisted 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 nonsection 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;

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§ 248.157

24 CFR Ch. II (4–1–19 Edition)

(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 § 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 § 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
plan of action under subpart B of this
part.
[57 FR 12041, Apr. 8, 1992, as amended at 58
FR 37815, July 13, 1993]

§ 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 § 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
§ 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 § 248.133, the owner may accept a bona fide offer only from:
(i) A resident council intending to
purchase the project under §§ 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

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Office of Assistant Secretary for Housing, HUD
(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 expres-

§ 248.157

sion of interest by a priority purchaser,
the Commissioner shall determine the
status of the priority purchaser with
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 § 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
§ 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
§ 248.173 or § 248.175, in which case the
earnest money deposit shall be equal to

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§ 248.157

24 CFR Ch. II (4–1–19 Edition)

$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 § 248.173(b); or
(iv) If the purchaser is a resident
council intending to retain the project
as rental housing, or a communitybased 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 § 248.173 or
§ 248.175. In order to be effective:
(i) The waiver must be indicated in
the second notice of intent submitted
under § 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 § 248.173 or § 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 re-

turned. 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
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 § 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 § 248.173
or § 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 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;

§ 248.157

(2) Pay the debt service on the federally-assisted mortgage(s) covering the
project;
(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 § 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

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§ 248.161

24 CFR Ch. II (4–1–19 Edition)

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 § 241.70 or
§ 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]

§ 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 § 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 § 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 § 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
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
§ 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 § 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 § 248.153 that would have
been provided to a qualified purchaser
under § 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 § 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.

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Office of Assistant Secretary for Housing, HUD
§ 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 § 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

§ 248.165

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
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 § 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

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§ 248.169

24 CFR Ch. II (4–1–19 Edition)

(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 § 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 §§ 248.157(l) and 248.169.
[57 FR 12041, Apr. 8, 1992, as amended at 64
FR 26639, May 14, 1999]

§ 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 § 248.165, under one of
the following circumstances:

(1) The Commissioner approves a plan
of action under § 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
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 § 248.157 or § 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 § 248.157(o), or a grant under
§ 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 §§ 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 § 248.157 or § 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

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Office of Assistant Secretary for Housing, HUD
complied with the requirements of
§ 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 § 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 § 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

§ 248.173

action to extend the rental assistance
contract and to continue the binding
commitments under § 248.145(a)(2)–(10).
§ 248.173 Resident
homeownership
program.
(a) Formation of resident council. Tenants seeking to purchase eligible low
income housing in accordance with
§§ 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 § 248.157 or
§ 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

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§ 248.173

24 CFR Ch. II (4–1–19 Edition)

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 enti-

ty, and criteria for acceptability of
conventional financing;
(viii) A description of the estimated
costs expected to be paid by the homeowner at closing;
(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 nonpurchasing 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.

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Office of Assistant Secretary for Housing, HUD
(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 federallyassisted 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
§ 248.157(m)(6);
(iv) Other costs, as provided in
§ 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:

§ 248.173

(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
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 § 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

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§ 248.173

24 CFR Ch. II (4–1–19 Edition)

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 §§ 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.
(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

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Office of Assistant Secretary for Housing, HUD
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 § 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

§ 248.173

Trust Fund for each State and unit of
local government and shall require
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 § 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
§ 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

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§ 248.175

24 CFR Ch. II (4–1–19 Edition)

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 § 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 connec-

tion with which such assistance is
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 § 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 § 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
in accordance with the provisions of
§ 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]

§ 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 con-

§ 248.181

solidated plan under 24 CFR part 91
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 § 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]

§ 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.
§ 248.181 Notice to tenants.
Except as provided in §§ 248.105 and
248.133, with respect to the first and

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§ 248.183

24 CFR Ch. II (4–1–19 Edition)

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.
§ 248.183 Preemption
local laws.

of

State

and

(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
§ 248.101 or the voluntary termination
of any insurance contract pursuant to
§ 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
§ 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 re-

striction, only to the extent that it
violates the provisions of this section.
(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.

§ 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 § 251.21 of this chapter, less
allowances specified in the definition
of Adjusted Income in § 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 appre-

§ 248.201

ciation upon resale of membership
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.

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§ 248.203

24 CFR Ch. II (4–1–19 Edition)

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
in the appropriate land records in connection with an approved plan of ac-

tion, 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]

§ 248.203
tion.

General prepayment limita-

(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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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:

§ 248.211

(1) Where the project meets the requirements of § 248.221 of this part—
(i) The Commissioner will approve
the prepayment or the termination of
mortgage
insurance
pursuant
to
§ 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
§ 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 § 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 § 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
§ 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
§ 248.231 of this part in accordance with
a plan of action meeting the standards
of § 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
§ 248.241 of this part; or
(iv) The Commissioner will not approve prepayment or the termination

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§ 248.213

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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
§ 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 § 248.101.
(b) Contents. The plan of action shall
include:

(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
§ 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 § 248.221(b)(1); and
(9) A list of any waivers requested by
the owner pursuant to § 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]

§ 248.215

Notification of deficiencies.

Not later than 60 days after receipt of
a plan of action, the Commissioner will

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Office of Assistant Secretary for Housing, HUD
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.
§ 248.217

delay by the owner in submitting a revised plan of action;
(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.

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 § 248.101, to the parties, and in the manner, specified in
§ 248.213(a).
[58 FR 37817, July 13, 1993]

§ 248.218 Tenant notice
tunity to comment.

and

oppor-

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)

§ 248.219

§ 248.221

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

§ 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—

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§ 248.223

24 CFR Ch. II (4–1–19 Edition)

(i) The availability of decent, safe
and sanitary housing affordable to lowincome 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
§ 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]

§ 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
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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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 § 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;

§ 248.233

(h) Provision of flexible subsidy assistance;
(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.
§ 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;

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§ 248.234

24 CFR Ch. II (4–1–19 Edition)

(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 § 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
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]

§ 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 § 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 § 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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
§ 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

§ 248.301

by the agreement shall be subject to
any law then affecting low income affordability restrictions.
§ 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 §§ 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.
§ 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.

§ 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.
§ 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;

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§ 248.303

24 CFR Ch. II (4–1–19 Edition)

(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.
§ 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.
§ 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).
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.

§ 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 § 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.
§ 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
§ 248.153 or transfer the housing to a
qualified purchaser under § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 248.315 Preservation agreements.
(a) Agreements required. Owners of
projects with State assisted or subsidized mortgages whose plans of action have been approved under § 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
§ 248.145. Such agreements may provide
for the renewal of any assistance made
available under § 248.319(c).
(b) Term of agreement. Preservation
agreements shall be coterminous with
the expiration of any assistance provided under § 248.153 and made available
in accordance with § 248.319(c).
§ 248.319 Application for assistance.
(a) Application for assistance. State
agencies or local housing authorities
shall submit an application for assist-

§ 248.319

ance in a form prescribed by the Commissioner with the local HUD field office having jurisdiction over the
project. The application shall include:
(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 § 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 § 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 § 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

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§ 248.401

24 CFR Ch. II (4–1–19 Edition)

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 § 886.120 of this
title.

Subpart E—Technical Assistance
and Capacity Building
SOURCE: 58 FR 37817, July 13, 1993, unless
otherwise noted.

§ 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
§ 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.
§ 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
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 § 248.105 or § 248.211, or has filed a
notice of intent and entered into a
binding agreement to sell the housing

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 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.
§ 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.
§ 248.415 Delivery
of
assistance
through intermediaries.
(a) General. The Commissioner shall
approve and disburse assistance under
§ 248.405 and § 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 se-

§ 248.415

lect eligible intermediaries to administer assistance under subpart E of this
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 § 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 § 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 § 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 § 248.410,
preference shall be given to eligible regional, State and local intermediaries,
over national nonprofit organizations.

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§ 248.420

24 CFR Ch. II (4–1–19 Edition)

(c) Conflicts of interest. Eligible intermediaries selected under paragraph (b)
of this section to disburse assistance
under § 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.
§ 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;
(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 § 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
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).

§ 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

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Office of Assistant Secretary for Housing, HUD
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

§ 251.2

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 41318, Oct. 10, 1990]

§ 251.2 GNMA right to assignment.
If the lender-issuer defaults on its obligations under the GNMA MortgageBacked Securities Program, GNMA
will have the right to cause all Coinsured Mortgages held in GNMA pools
by the defaulting coinsuring lenderissuer to be assigned to another
GNMA-approved
coinsuring
lenderissuer, 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

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§ 251.3

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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;
(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]

§ 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
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).

§ 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

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Office of Assistant Secretary for Housing, HUD
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.

§ 252.2

(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 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]

§ 252.2 GNMA right to assignment.
If the lender-issuer defaults on its obligations under the GNMA MortgageBacked Securities Program, GNMA
will have the right to cause all Coinsured Mortgages held in GNMA pools
by the defaulting coinsuring lenderissuer to be assigned to another
GNMA-approved
coinsuring
lenderissuer, 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

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§ 252.3

24 CFR Ch. II (4–1–19 Edition)

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]

§ 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]

§ 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
Sec.
255.1 Termination of program.
255.2 GNMA right to assignment.
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).

§ 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

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Office of Assistant Secretary for Housing, HUD
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 des-

§ 255.2

ignated 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]

§ 255.2

GNMA right to assignment.

If the lender-issuer defaults on its obligations under the GNMA MortgageBacked Securities Program, GNMA
will have the right to cause all Coinsured Mortgages held in GNMA pools
by the defaulting coinsuring lenderissuer to be assigned to another
GNMA-approved
coinsuring
lenderissuer, 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

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§ 255.3

24 CFR Ch. II (4–1–19 Edition)

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]

§ 255.3 Case-by-case conversion to full
insurance.

266.215 Functions delegated by HUD to
HFAs.
266.220 Nondiscrimination in housing and
employment.
266.225 Labor standards.

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.

CROSS REFERENCE: The provisions of 24
CFR 251.3 apply to this part.

Subpart E—Mortgage and Closing
Requirements; HUD Endorsement

[61 FR 49038, Sept. 17, 1996]

§ 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
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 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

Subpart C—Program Requirements
266.200
266.205
266.210

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.

Insurance endorsement.
ASSIGNMENTS

Eligible projects.
Ineligible projects.
HUD-retained review functions.

266.616 Transfer of partial interest under
participation agreement.

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Office of Assistant Secretary for Housing, HUD
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

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
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.
§ 266.5

§ 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

§ 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

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§ 266.5

24 CFR Ch. II (4–1–19 Edition)

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 § 266.210.
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,

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Office of Assistant Secretary for Housing, HUD
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 loanto-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
§ 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 origina-

§ 266.20

tion 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.
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.
§ 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.
§ 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]

§ 266.20 Effect of amendments.
The Commissioner may amend the
regulations in this part from time to
time. Amendments to the regulations

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§ 266.25

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 risksharing agreement with HUD with respect to the rights, benefits, and obligations of the HFA under the contract
of insurance.
§ 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
§ 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 § 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;
(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 loanto-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]

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Office of Assistant Secretary for Housing, HUD
§ 266.105 Application requirements.
(a) Applications for approval as a HUDapproved 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]

§ 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

§ 266.115

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
$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.
§ 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
§ 266.420(b). Information relative to

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§ 266.120

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 ob-

ligation bonds (or if such designation
or rating is lost, comply with paragraph (e)(6) of this section);
(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 Risksharing 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.
§ 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;

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Office of Assistant Secretary for Housing, HUD
(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

§ 266.200

the informal hearing, which decision
will constitute final HUD action.
(2) Sanctions imposed by Headquarters will be handled in a similar
manner, except that the informal hearing shall be before the Commissioner
or his or her designee.
§ 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
§ 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-

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§ 266.205

24 CFR Ch. II (4–1–19 Edition)

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 shortlived 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 sup-

portable 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
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
§ 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 § 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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.

§ 266.215

(b) Environmental review requirements.
To determine compliance with the requirements of the National Environmental Policy Act of 1969 and related
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]

§ 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
§ 266.225(e). (Enforcement of Davis-

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§ 266.220

24 CFR Ch. II (4–1–19 Edition)

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 LeadBased Paint requirements subject to
terms specified by the Commissioner.
§ 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 19641965 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
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.
§ 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 DavisBacon 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 DavisBacon wage rates under paragraph (a)
of this section shall be eligible for insurance under this part unless the HFA
determines (in accordance with the

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Office of Assistant Secretary for Housing, HUD
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 incorpo-

§ 266.300

ration of the proper clauses and wage
determination.

Subpart D—Processing,
Development, and Approval
§ 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 §§ 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 § 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

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§ 266.305

24 CFR Ch. II (4–1–19 Edition)

will endorse the mortgage note for insurance upon presentation by the HFA
of the Closing Docket and certifications required in § 266.420(b), subject
to HUD’s right to adjust under § 266.417.
§ 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 § 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-tovalue ratios of the projects to be insured as specified in § 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 § 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 § 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 ap-

proval 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 § 266.420(b), subject
to HUD’s right to adjust under § 266.417.
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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

§ 266.410

remedied within the time period required by the HFA.
(e) Mortgagee of record. The HFA must
remain the mortgagee of record as long
as mortgage insurance is in force.
§ 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
§ 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.
§ 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.
§ 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.
§ 266.410

Mortgage provisions.

(a) Form. The mortgage and note
must be executed on a form approved

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§ 266.415

24 CFR Ch. II (4–1–19 Edition)

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
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.
§ 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.
§ 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 266.110(b).

§ 266.505

(9) Certifications required under
§ 266.415 concerning liens and contractual obligations.
(10) Copies of the Hazard Insurance
Policy with a clause making the loss
payable to the HFA.
(11) For projects subject to DavisBacon prevailing requirements under
§ 266.225, the certification and information concerning payment of prevailing
wage rates required by § 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
§ 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.
§ 266.505 Regulatory
quirements.

agreement

(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.

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§ 266.507

24 CFR Ch. II (4–1–19 Edition)

(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 § 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]

§ 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]

§ 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
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]

§ 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.
§ 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
§ 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 § 266.630,
or prepayments, for the year following
the date on which the premium becomes payable.
§ 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 § 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 § 266.606(a),
the HFA on each anniversary of the

§ 266.604

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, prepayments, or a partial claim payment
under § 266.630, for the year following
the date on which the premium becomes payable.
§ 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
HUD

Prescribed percentage for calculating
HFA’s annual MIP

HFA
90
75
50
40
30
20
10

10
25
50
60
70
80
90

(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 § 266.600(c) or § 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 § 266.600(c) or
§ 266.602(d).

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§ 266.606

24 CFR Ch. II (4–1–19 Edition)

(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.

fore the date of the first payment to
principal.

§ 266.606 Mortgage
insurance
premium: Duration and method of paying.

§ 266.612

(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.
§ 266.608 Mortgage
insurance
mium: Pro rata refund.

pre-

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 be-

§ 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
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
§ 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

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Office of Assistant Secretary for Housing, HUD
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
§ 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.
§ 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 § 266.620 occurs.

§ 266.626
CLAIM PROCEDURES

§ 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

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§ 266.628

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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 § 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.
§ 266.630 Partial payment of claims.
(a) General. When the Commissioner
receives a claim for a partial payment
under § 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 § 266.630.

Otherwise, the HFA must file for an
initial claim payment under § 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.

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Office of Assistant Secretary for Housing, HUD
(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.
§ 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.
§ 266.634 Reinstatement
tract of insurance.

of

the

con-

(a) Conditions for reinstatement. After
the initial claim payment, HUD may

§ 266.638

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
§ 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.
§ 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.
§ 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

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§ 266.640

24 CFR Ch. II (4–1–19 Edition)

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
§ 266.628(a)(1) (minus any excess funds
returned to HUD under § 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 § 266.634; or
(ii) Final claim settlement under
§ 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

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.
§ 266.640 Foreclosure and acquisition.
The HFA is not required to foreclose
the insured mortgage. It may accept a
deed-in-lieu of foreclosure.
§ 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.
§ 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-inlieu of foreclosure; or
(b) Expiration of the term of the HFA
debenture.
§ 266.646 Determining the amount of
loss.
The amount of the total loss to be
shared by HUD and the HFA is equal
to:

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Office of Assistant Secretary for Housing, HUD
(a) The amount of the initial claim
payment;
(b) Plus all items set forth in
§ 266.648; and
(c) Less all items set forth in § 266.650.
§ 266.648

Items included in total loss.

In computing the total loss, the following items are added to the amount
described in § 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.
§ 266.650
loss.

Items deducted from total

In computing insurance benefits, the
following items are deducted from the
amounts described in § 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;

§ 266.654

(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 § 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 § 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.
§ 266.652 Determining share of loss.
The total loss computed in § 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.
§ 266.654 Final claim settlement and
HFA Debenture redemption.
(a) Final claim payment. If the initial
claim amount, as determined under
§ 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.

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§ 266.656

24 CFR Ch. II (4–1–19 Edition)

(b) HFA reimbursement payment. If the
initial claim amount, as determined
under § 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.
§ 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.
§ 266.658 Program
compliance.

monitoring

and

HUD will monitor the performance of
the HFA for compliance with the provisions of this subpart.

PART 267—CREDIT RISK RETENTION
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 communityfocused 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.

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Office of Assistant Secretary for Housing, HUD

Subpart A—Authority, Purpose,
Scope and Definitions
§ 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]

§ 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.

§ 267.2

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 § 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:

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§ 267.2

24 CFR Ch. II (4–1–19 Edition)

(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

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 § 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 § 1026.43(b) of
Regulation Z (12 CFR 1026.43(b)(1));

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Office of Assistant Secretary for Housing, HUD
(2) Any transaction that is exempt
from the definition of ‘‘covered transaction’’ under § 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.

§ 267.3

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
§ 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 §§ 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-

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§ 267.4

24 CFR Ch. II (4–1–19 Edition)

owned affiliates, as applicable) retains
an economic interest in the credit risk
of the securitized assets in accordance
with any one of §§ 267.4, 267.5, 267.8,
267.9, or 267.10.
§ 267.4 Standard risk retention.
(a) General requirement. Except as provided in §§ 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:
(1) The account is held by the trustee
(or person performing similar func-

tions) 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

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Office of Assistant Secretary for Housing, HUD
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;
(5) Lag time between default and recovery; and

§ 267.4

(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

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§ 267.5

24 CFR Ch. II (4–1–19 Edition)

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.
(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.
§ 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

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Office of Assistant Secretary for Housing, HUD
(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
§ 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
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

§ 267.5

which funds held in an eligible horizontal cash reserve account pursuant
to § 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 § 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.

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§ 267.5

24 CFR Ch. II (4–1–19 Edition)

(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 § 267.4
are permitted to be invested; and
(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 § 267.5, the sponsor, or notwithstanding § 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

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Office of Assistant Secretary for Housing, HUD
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 § 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
interest as a percentage of the fair
value of the outstanding investor ABS
interests in the series supported by the

§ 267.5

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 § 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

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§ 267.6

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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
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 § 267.5 to satisfy the
risk retention requirements of § 267.3,
does not violate the requirements of
this part if its seller’s interest falls
below the level required by § 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.
§ 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

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Office of Assistant Secretary for Housing, HUD
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 originatorseller 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,
(B) From an underwriter of the ABS
interests issued by the intermediate
SPV, or

§ 267.6

(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 whollyowned 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

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§ 267.6

24 CFR Ch. II (4–1–19 Edition)

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 § 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 § 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
that is subject to such standards, or a
subsidiary thereof.

(b) In general. An ABCP conduit sponsor satisfies the risk retention requirement of § 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
§ 267.4 or § 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

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Office of Assistant Secretary for Housing, HUD
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
(2) The same regulated liquidity provider has entered into one or more le-

§ 267.6

gally 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 originatorseller 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.

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§ 267.7

24 CFR Ch. II (4–1–19 Edition)

§ 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 § 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 § 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 thirdparty 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 thirdparty purchaser conducts an independent review of the credit risk of
each securitized asset prior to the sale
of the asset-backed securities in the
securitization transaction that in-

cludes, 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

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Office of Assistant Secretary for Housing, HUD
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:

§ 267.7

(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 mortgagebacked 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

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§ 267.7

24 CFR Ch. II (4–1–19 Edition)

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 § 267.4 if the sponsor had relied
on retaining an eligible horizontal residual interest in that section to meet
the requirements of § 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 § 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,
such as compensating factors or a de-

termination 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 § 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 § 267.4; provided that, the hedging and other restrictions in § 267.12 shall not apply on
or after the date that each CRE loan
(as defined in § 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 § 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

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Office of Assistant Secretary for Housing, HUD
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 thirdparty 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.
§ 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
timely payment of principal and interest on all ABS interests issued by the

§ 267.9

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 § 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.
§ 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

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§ 267.9

24 CFR Ch. II (4–1–19 Edition)

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 § 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
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

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Office of Assistant Secretary for Housing, HUD
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 § 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 armslength 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
unscheduled acceleration, payment default, or bankruptcy default of such
CLO-eligible loan tranche, provided

§ 267.9

that such lead arranger complies with
limitations on hedging, transferring
and pledging in § 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 CLOeligible 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)

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§ 267.10

24 CFR Ch. II (4–1–19 Edition)

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
§ 267.12; and
(2) CLO manager. The full legal name
and form of organization of the CLO
manager.
§ 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.
(C) The types of securities referred to
in paragraphs (ii)(A) and (B) of this def-

inition 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 § 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 § 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

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Office of Assistant Secretary for Housing, HUD
any combination thereof, in accordance
with the requirements of § 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 assetbacked 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;
(2) A description of the form and subordination features of such retained in-

§ 267.11

terest in accordance with the disclosure obligations in § 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 § 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 § 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 § 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
§ 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 § 267.4, with respect to a
securitization transaction may offset
the amount of its risk retention requirements under § 267.4 by the amount
of the eligible interests, respectively,

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§ 267.12

24 CFR Ch. II (4–1–19 Edition)

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 § 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
§ 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 § 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 § 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
(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 § 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.
§ 267.12 Hedging, transfer and financing prohibitions.
(a) Transfer. Except as permitted by
§ 267.7(b)(8), and subject to § 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 majorityowned 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,

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Office of Assistant Secretary for Housing, HUD
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 majorityowned 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
(or any of its majority-owned affiliates) is required to retain pursuant to
subpart B of this part.

§ 267.12

(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

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§ 267.13

24 CFR Ch. II (4–1–19 Edition)

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
mortgages at the cut-off date or similar date for establishing the composition
of
the
securitized
assets
collateralizing the asset-backed securi-

ties
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
§ 267.5.

Subpart D—Exceptions and
Exemptions
§ 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

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Office of Assistant Secretary for Housing, HUD
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
this section with respect to a
securitization transaction shall not
lose such exemption with respect to
such transaction if, after closing of the

§ 267.14

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.
§ 267.14 Definitions
applicable
to
qualifying commercial loans, qualifying commercial real estate loans,
and qualifying automobile loans.
The following definitions apply for
purposes of §§ 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;

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§ 267.14

24 CFR Ch. II (4–1–19 Edition)

(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 firstlien 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
§ 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
§ 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
(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:

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Office of Assistant Secretary for Housing, HUD
(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
§ 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
§ 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
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-

§ 267.14

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

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§ 267.15

24 CFR Ch. II (4–1–19 Edition)

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 longterm 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 tradein 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
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.
§ 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 §§ 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 § 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 assetbacked securities issued pursuant to

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Office of Assistant Secretary for Housing, HUD
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
§§ 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.
§ 267.16 Underwriting standards
qualifying commercial loans.

for

(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:

§ 267.16

(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;

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§ 267.16

24 CFR Ch. II (4–1–19 Edition)

(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.
(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 assetbacked 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 § 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 assetbacked 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 assetbacked 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 § 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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
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

§ 267.17

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).

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§ 267.17

24 CFR Ch. II (4–1–19 Edition)

(C) Provides an ‘‘as is’’ opinion of the
market value of the real property,
which includes an income approach; 2
(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
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);
2 See

USPAP, Standard 1.

(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

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Office of Assistant Secretary for Housing, HUD
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.
(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:

§ 267.17

(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

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§ 267.17

24 CFR Ch. II (4–1–19 Edition)

(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 assetbacked 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 § 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 assetbacked 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 assetbacked security;
(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 § 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

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Office of Assistant Secretary for Housing, HUD
principal amount of such repurchased
loan(s) and the cause for such cure or
repurchase.
§ 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
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 con-

§ 267.18

sumer 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;

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§ 267.19

24 CFR Ch. II (4–1–19 Edition)

(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 assetbacked 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 § 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 assetbacked 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 assetbacked 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 § 267.15 with respect to a
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.
§ 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 § 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 firstlien residential mortgages, until such
class has no principal or notional balance remaining.

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Office of Assistant Secretary for Housing, HUD
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 § 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 assetbacked 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;
(3) State and municipal securitizations.
Any asset-backed security that is a security issued or guaranteed by any
State, or by any political subdivision

§ 267.19

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;

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§ 267.19

24 CFR Ch. II (4–1–19 Edition)

(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.
(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;

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Office of Assistant Secretary for Housing, HUD
(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
§ 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
§ 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
asset-backed securities issued pursuant
to the securitization transaction (the
community-focused residential mortgage asset ratio); provided that:

§ 267.19

(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 assetbacked 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 § 267.13, and servicing assets.
(2) The depositor with respect to the
securitization provides the certifications set forth in § 267.13(b)(4) with
respect to the process for ensuring that
all assets that collateralize the assetbacked 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 § 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-tofour 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

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§ 267.20

24 CFR Ch. II (4–1–19 Edition)

bank shall not on that basis qualify for
exemption under this part.
§ 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
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

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Office of Assistant Secretary for Housing, HUD
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
part. In such cases, compliance with
section 15G and this part is required.

§ 267.21

§ 267.22
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)).
§ 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 § 267.13, a review of the community-focused residential
mortgage
exemption
in
§ 267.19(f), and a review of the exemption for qualifying three-to-four unit
residential
mortgage
loans
in
§ 267.19(g):
(1) No later than four years after the
effective date of the rule (as it relates
to securitizers and originators of assetbacked 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

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§ 267.22

24 CFR Ch. II (4–1–19 Edition)

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]

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SUBCHAPTER I—HUD-OWNED PROPERTIES
PART 290—DISPOSITION OF MULTIFAMILY PROJECTS AND SALE OF
HUD-HELD MULTIFAMILY MORTGAGES
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
§ 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]

§ 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

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§ 290.3

24 CFR Ch. II (4–1–19 Edition)

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, projectbased 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 lowand 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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 § 290.17.
(b) Evictions. Eviction from a HUDowned 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 § 290.17 to tenants required to vacate the premises.

§ 290.9

§ 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

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§ 290.11

24 CFR Ch. II (4–1–19 Edition)

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)

§ 290.11 Notification requirements.
(a) In general. HUD may combine two
or more of the required notifications,
as appropriate, to simplify the disposition process.

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Office of Assistant Secretary for Housing, HUD
(b) Timing of notifications. Disposition-related notifications (i.e., preforeclosure notification to tenants and
units of general local government; predisposition 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.

§ 290.15

§ 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.
§ 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.

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§ 290.17

24 CFR Ch. II (4–1–19 Edition)

(b) Environmental requirements. HUD
will perform, and include in the final
disposition plan, the environmental reviews required by 24 CFR part 50.
§ 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, ac-

cessible), decent, safe, and sanitary replacement housing, and fair housingrelated 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;

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Office of Assistant Secretary for Housing, HUD
(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.
§ 290.18 Restrictions on sale to former
mortgagors.
The defaulting mortgagor, or any
principal, successor, affiliate, or assignee thereof, on the mortgage on the

§ 290.21

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]

§ 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.
§ 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

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§ 290.23

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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 HUDowned project, tenants must be provided relocation assistance as described in § 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.
§ 290.27

Up-front grants and loans.

(a) General. HUD may provide upfront 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

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Office of Assistant Secretary for Housing, HUD
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 § 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 nonperformance, 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

§ 290.31

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 nonprofit, 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
§ 290.30 General.
(a) Except as otherwise provided in
§ 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]

§ 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

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§ 290.33

24 CFR Ch. II (4–1–19 Edition)

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.
§ 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.
§ 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.
§ 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
§ 290.3:
(a) The mortgage purchaser and its
successors and assigns shall require the
mortgagor to record a covenant run-

ning 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 tenantbased, 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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 § 290.3.
(c) Applicability to mortgages securing
unsubsidized projects receiving projectbased
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 § 290.5; or
(ii) A subsidized project, as defined in
§ 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]

Pt. 291

PART 291—DISPOSITION OF HUDACQUIRED AND -OWNED SINGLE
FAMILY PROPERTY
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.

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§ 291.1

24 CFR Ch. II (4–1–19 Edition)

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.

§ 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]

§ 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 Sec-

retary) 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
§ 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.

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Office of Assistant Secretary for Housing, HUD
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]

§ 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.

§ 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 § 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;

§ 291.100

(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 § 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 § 291.210(a);
(2) Direct sales to displaced persons,
sales of razed lots, or auctions, the procedures for which are described in
§ 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 § 291.210(c);
(d) Bulk sales, the procedures for
which are described in § 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]

§ 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 §§ 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 §§ 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.

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§ 291.100

24 CFR Ch. II (4–1–19 Edition)

(2) Neither HUD nor any transferor
pursuant to §§ 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
§ 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

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Office of Assistant Secretary for Housing, HUD
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 HUDqualified real estate brokers. (1) In general. Real estate brokers that are involved in Real Estate Owned (REO)
sales will be removed from HUD’s

§ 291.100

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

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§ 291.200

24 CFR Ch. II (4–1–19 Edition)

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 HUDowned 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 15day 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 de-

layed 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.

§ 291.200 Future
method.

REO

(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

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Office of Assistant Secretary for Housing, HUD
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]

§ 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
§ 291.100(h).
(2) For properties being offered with
insured mortgages, priority will be
given to owner-occupant purchasers, as
defined in § 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 great-

§ 291.205

est 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

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§ 291.210

24 CFR Ch. II (4–1–19 Edition)

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]

§ 291.210

Direct sales procedures.

When HUD conducts the sales listed
in § 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

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Office of Assistant Secretary for Housing, HUD
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 pro-

§ 291.210

grams. 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.

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§ 291.301

24 CFR Ch. II (4–1–19 Edition)

Subpart D—Sale of HUD-Held
Single Family Mortgage Loans
SOURCE: 62 FR 3769, Jan. 24, 1997, unless
otherwise noted.

§ 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 § 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.
§ 291.302 Purpose and general policy.
This subpart sets forth HUD’s policy
and procedures for the sale of HUDheld 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 HUDheld single family mortgage loans.
§ 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]

§ 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

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Office of Assistant Secretary for Housing, HUD
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.
§ 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.

§ 291.307

§ 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.
§ 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

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§ 291.400

24 CFR Ch. II (4–1–19 Edition)

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
§ 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.

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Office of Assistant Secretary for Housing, HUD
(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 leaseoption 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]

§ 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:

§ 291.415

(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]

§ 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

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§ 291.430

24 CFR Ch. II (4–1–19 Edition)

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 lowincome 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]

§ 291.430 Elimination
paint hazards.

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

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Office of Assistant Secretary for Housing, HUD
title, apply to activities covered by
this subpart.
[64 FR 50225, Sept. 15, 1999, as amended at 69
FR 34275, June 21, 2004]

§ 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.

§ 291.500

(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]

§ 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.

§ 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]

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§ 291.505
§ 291.505

24 CFR Ch. II (4–1–19 Edition)
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]

§ 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 HUDacquired 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 par-

ticipating 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 HUDacquired 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]

§ 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 § 291.520), teacher (as described in
§ 291.525), or firefighter/emergency medical technician (as described in
§ 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 § 291.520), teacher (as
described in § 291.525), or firefighter/
emergency medical technician (as described in § 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 § 291.535;
(d) The person must agree to own,
and live in as his/her sole residence, the

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Office of Assistant Secretary for Housing, HUD
home for the entire duration of the
owner-occupancy term, as described in
§ 291.540, and to certify to that occupancy, as described in § 291.565;
(e) The person must agree to execute
a second mortgage and note on the
home, as described in § 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.
§ 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]

§ 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

§ 291.535

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]

§ 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]

§ 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.

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§ 291.540

24 CFR Ch. II (4–1–19 Edition)

§ 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 antici-

pated 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.
§ 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.
§ 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
§ 291.540(b). The amount of the second
mortgage will be reduced by 1/36th on

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Office of Assistant Secretary for Housing, HUD
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.
§ 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 § 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:

§ 291.565

(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.
§ 291.560 Ineligibility of multiple-unit
properties.
Only single-unit properties are eligible for the GNND Sales Program.
§ 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]

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CHAPTER III—GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Part

Page

300
310
320
330
340
341–349
350
351–399

General ....................................................................
Bylaws of the Government National Mortgage Association ...............................................................
Guaranty of mortgage-backed securities ................
Guaranty of multiclass securities ...........................
Fiduciary activities ................................................
[Reserved]
Book-entry procedures ............................................
[Reserved]

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622
622
627
630
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III of the National Housing Act, 12
U.S.C. 1716, et seq.

PART 300—GENERAL
Sec.
300.1
300.3
300.5
300.7
300.9
300.11
300.13
300.15
300.17

§ 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.

Scope of chapter.
Description.
Creation and status.
Area of operations.
Office.
Authority of officers.
Power of attorney.
Exceptions.
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.

§ 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 § 300.9.
§ 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]

§ 300.5

§ 300.9 Office.
The Association directs its operations from its office located at 451
Seventh Street, SW., Washington DC
20410.

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

§ 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.
§ 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.
§ 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

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§ 300.17

24 CFR Ch. III (4–1–19 Edition)
Subpart B—Bond-Type Securities

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.

320.21
320.23
320.25
320.27
320.29
320.31
320.33

§ 300.17

AUTHORITY: 12 U.S.C. 1721(g) and 1723a(a);
and 42 U.S.C. 3535(d).

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
AUTHORITY: 12 U.S.C. 1723 and 42 U.S.C.
3535(d).
SOURCE: 60 FR 42015, Aug. 14, 1995, unless
otherwise noted.

§ 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

SOURCE: 60 FR 42015, Aug. 14, 1995, unless
otherwise noted.

Subpart A—Pass-Through Type
Securities
§ 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.
§ 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

Subpart A—Pass-Through Type Securities
Sec.
320.1
320.3
320.5
320.7
320.8
320.9
320.10
320.11
320.12
320.13
320.15
320.17

General.
Eligible issuers.
Securities.
Mortgages.
Guaranty.
Default.
Fees.

General.
Eligible issuers of securities.
Securities.
Mortgages.
Excess Yield Securities.
Pool administration.
Financial reporting.
Insurance coverage.
Integrity.
Guaranty.
Default.
Fees.

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Government National Mortgage Association, HUD
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 mortgagebacked 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 mortgagebacked 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

§ 320.3

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)

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§ 320.5

24 CFR Ch. III (4–1–19 Edition)

§ 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 mortgagebacked 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

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Government National Mortgage Association, HUD
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 § 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]

§ 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.
§ 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 in-

§ 320.12

terest as provided by the terms of the
security.
[71 FR 32389, June 5, 2006]

§ 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)

§ 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]

§ 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.
§ 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

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§ 320.13

24 CFR Ch. III (4–1–19 Edition)

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.
§ 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]

§ 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 § 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.
§ 320.17

Fees.

The Association may impose application fees, guaranty fees, securities
transfer fees and other fees.

Subpart B—Bond-Type Securities
§ 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’’).
§ 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.
§ 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

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Government National Mortgage Association, HUD
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.
§ 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.

§ 330.5

PART 330—GUARANTY OF
MULTICLASS SECURITIES
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.

§ 330.1

Scope of part.

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.

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).

§ 320.31

§ 330.5

§ 320.29

Guaranty.

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.
§ 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.

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.

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§ 330.10

24 CFR Ch. III (4–1–19 Edition)

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 mortgagebacked 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]

§ 330.10

§ 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)

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.

§ 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;

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Government National Mortgage Association, HUD
(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:

§ 330.30

(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.
§ 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.
§ 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

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§ 330.35

24 CFR Ch. III (4–1–19 Edition)

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]

§ 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.
§ 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.
§ 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.

(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.
§ 330.60

PART 340—FIDUCIARY ACTIVITIES

§ 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.
§ 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:

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.

Sec.
340.1
340.3

General.
Appropriations.

AUTHORITY: 12 U.S.C. 1723a and 42 U.S.C.
3535(d).
SOURCE: 60 FR 42019, Aug. 14, 1995, unless
otherwise noted.

§ 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

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Government National Mortgage Association, HUD
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.
§ 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 § 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.

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.

§ 350.1

PART 350—BOOK-ENTRY
PROCEDURES
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.

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.
§ 350.2

PARTS 341–349 [RESERVED]

§ 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

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§ 350.3

24 CFR Ch. III (4–1–19 Edition)

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 bookentry 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 func-

tion 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 Bookentry 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.
§ 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.
§ 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):

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Government National Mortgage Association, HUD
(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
§ 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
§ 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 Bookentry Ginnie Mae Securities.

§ 350.5

§ 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

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§ 350.6

24 CFR Ch. III (4–1–19 Edition)

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 § 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.
§ 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 § 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.

§ 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 Bookentry 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.
§ 350.8 Withdrawal of Eligible Bookentry 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 Bookentry 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.

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Government National Mortgage Association, HUD
(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]

§ 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.

§ 350.11

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.
§ 350.11 Notice of Attachment for
Ginnie Mae Securities in Bookentry 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.

§ 350.10 Liability of Federal Reserve
Banks as Depositories.
The Federal Reserve Banks as Depositories may rely on the information

PARTS 351–399 [RESERVED]

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CHAPTER IV—OFFICE OF HOUSING AND
OFFICE OF MULTIFAMILY HOUSING
ASSISTANCE RESTRUCTURING, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Part

Page

400
401
402
403–499

[Reserved]
Multifamily Housing Mortgage and Housing Assistance Restructuring Program (Mark-to-Market) .......................................................................
Section 8 Project-based contract renewal under
section 524 of MAHRA ..........................................
[Reserved]

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639
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PART 400 [RESERVED]
PART 401—MULTIFAMILY HOUSING
MORTGAGE AND HOUSING ASSISTANCE RESTRUCTURING PROGRAM (MARK-TO-MARKET)
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.

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§ 401.1

24 CFR Ch. IV (4–1–19 Edition)

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
§ 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.
§ 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 lowincome 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 § 401.410(b).
Disabled family has the meaning given
in § 5.403(b) of this title.
Elderly family has the meaning given
in § 5.403(b) of this title.
Eligible project means a project that
meets the requirements for eligibility
for a Restructuring Plan in § 401.100.
HUD means a HUD official authorized to act under the provisions of
MAHRA, and otherwise has the meaning given in § 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 § 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 communitybased 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
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 §§ 401.310
through 401.313 appear in § 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]

§ 401.3 Who may waive provisions in
this part?
The Assistant Secretary for HousingFederal Housing Commissioner may
waive any provision of this part, subject to § 5.110 of this title.
[68 FR 3363, Jan. 23, 2003]

§ 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 § 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 with-

out a Plan, in accordance with the applicable requirements in § 402.6 of this
chapter, HUD will consider the request
in accordance with § 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 § 402.4 of this chapter.
[65 FR 15485, Mar. 22, 2000, as amended at 65
FR 53900, Sept. 6, 2000]

§ 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;

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§ 401.101

24 CFR Ch. IV (4–1–19 Edition)

(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 § 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 § 401.600 or part 402 of this chapter.
[71 FR 2121, Jan. 12, 2006]

§ 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 § 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 § 401.480.

(d) Notice to tenants. The PAE or HUD
will give notice to tenants of a rejection in accordance with §§ 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)
§ 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.
§ 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,

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Housing and Multifamily Housing Assistance Restructuring, HUD
or contract with other qualified entities to perform those functions.
§ 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 §§ 401.301 through 401.314,
as well as other terms and conditions
required by HUD.
§ 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.
§ 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]

§ 401.303 PRA indemnity
for SHFAs and HAs.

provisions

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.

§ 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 nonHUD 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]

§ 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

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§ 401.310

24 CFR Ch. IV (4–1–19 Edition)

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
§ 401.304(a) and amounts for reimbursement of third-party vendors to the
PAE authorized by § 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]

§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
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 § 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]

§ 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 § 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

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§ 401.312

24 CFR Ch. IV (4–1–19 Edition)

(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.
§ 401.312
tion.

Confidentiality

of

(3) Find the PAE in default under an
existing PRA with the right of termination for cause under § 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.
§ 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 § 401.405.

informa-

Subpart C—Restructuring Plan

A PAE and every other restricted
person (as defined in § 401.310) has a
duty to protect confidential information, except as provided in §§ 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.
§ 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 § 401.310) violates §§ 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;

§ 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.
§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
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]

§ 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.
§ 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 § 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 § 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 § 401.451(c) or otherwise) that
the project does not meet the housing
quality standards in § 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 § 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]

§ 401.404 Proposed
Commitment.

Restructuring

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 § 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;

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§ 401.405

24 CFR Ch. IV (4–1–19 Edition)

(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.
§ 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.
§ 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.
§ 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.

§ 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
§ 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
§ 401.558.
(h) Reporting. The Use Agreement
must contain appropriate financial and
other reporting requirements for the

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Housing and Multifamily Housing Assistance Restructuring, HUD
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 projectbased 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]

§ 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
§ 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 un-

§ 401.411

able 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.
§ 401.411 Guidelines
exception rents.

for

(a) When do exception rents apply? (1)
The Restructuring Plan may provide
for exception rents established under
section 514(g)(2) of MAHRA for projectbased assistance if the PAE determines
that project income under the rent levels established under § 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 § 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;

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§ 401.412

24 CFR Ch. IV (4–1–19 Edition)

(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 § 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.
§ 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.
§ 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 cor-

poration or nonprofit cooperative housing trust.
§ 401.421 Rental Assistance Assessment
Plan.
(a) Plan required. For any project not
subject to mandatory project-based assistance under § 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 §§ 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]

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Housing and Multifamily Housing Assistance Restructuring, HUD
§ 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 § 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 nonproject 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 § 401.451, determines that the owner’s evaluation either fails to address specific necessary
work items or fails to propose a costeffective 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]

§ 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
§ 401.403(b)(2)(iii).
(2) After consultation with the owner
and an opportunity for the owner to
modify its evaluation performed under
§ 401.450, the PAE must either certify to
the accuracy and completeness of the
owner’s evaluation performed under
§ 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
§ 401.403(b)(2)(iii) and providing tenantbased assistance for displaced tenants
under § 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.
§ 401.452 Property standards for rehabilitation.
The restructuring plan must provide
for the level of rehabilitation needed to

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§ 401.453

24 CFR Ch. IV (4–1–19 Edition)

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
§ 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]

§ 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 § 401.558.
§ 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 § 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.

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Housing and Multifamily Housing Assistance Restructuring, HUD
(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.
§ 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 § 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 § 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 Restruc-

turing 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 § 401.560 and the
physical condition standards prescribed
in § 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 § 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

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§ 401.471

24 CFR Ch. IV (4–1–19 Edition)

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 tenantendorsed in accordance with § 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 § 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]

§ 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.
§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
direct grant from HUD under section
236(s) of the NA made in accordance
with § 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]

§ 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 costanalysis that is consistent with the
owner’s evaluation of physical condition under § 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.
§ 401.474 Project accounts.
(a) Accounts from other projects. The
accounts listed in § 401.472(a)(1) may be
used for other eligible projects only if:
(1) The projects are included in a
Consolidated Restructuring Plan under
§ 401.401; and
(2) The funds are used for rehabilitation or to reduce a section 541(b) claim
paid by HUD under § 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.
§ 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

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§ 401.480

24 CFR Ch. IV (4–1–19 Edition)

neither adversely affect an owner’s eligibility for a Restructuring Plan nor
exempt the owner from the requirements of § 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 § 401.101 or § 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 § 401.101 or
§ 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
§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
purchaser’s plans for the project, including any request made to HUD for
debt relief under § 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]

§ 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 § 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 § 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

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§ 401.500

24 CFR Ch. IV (4–1–19 Edition)

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.
§ 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 tenantbased 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 § 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 sub-

mission 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 tenantbased assistance under § 401.602(c).
[65 FR 15485, Mar. 22, 2000, as amended at 72
FR 66040, Nov. 26, 2007]

§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
and any tenant organization for the
project, and post a notice in the
project, for all notices required by
§§ 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]

§ 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 § 402.4 of this
chapter, HUD or the PAE must notify,
or ensure that the owner notifies, all
parties identified in § 401.501 of the request and of:
(1) The availability (as provided in
§ 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 § 401.450 and
§ 402.6(a)(3) of this chapter;
(ii) The market analysis required by
§ 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
§ 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 com-

ments 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]

§ 401.503

Access to information.

(a) PAE responsibilities. The PAE must
provide to parties entitled to notice
under § 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 § 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
§ 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 § 401.408. All provisions of

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§ 401.552

24 CFR Ch. IV (4–1–19 Edition)

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 § 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]

§ 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
§ 401.461(b)(3)(ii)(A). HUD may designate
the PAE, with the PAE’s consent, as
servicer for the second mortgage.
§ 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
(§ 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]

§ 401.556 Leasing
holders.

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voucher

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.
§ 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 § 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 § 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 § 5.703 of this
title will apply. In addition, any unit
in which the tenant receives tenantbased 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]

§ 401.560 Property management standards.
(a) General. Each PAE is required by
section 518 of MAHRA to establish
management standards consistent with

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Housing and Multifamily Housing Assistance Restructuring, HUD
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
§ 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]

§ 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 § 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
§ 401.402 or if the owner’s request is rejected under § 401.403 or § 401.405.
[71 FR 2121, Jan. 12, 2006]

§ 401.601

[Reserved]

§ 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
§§ 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
§§ 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 § 402.4 of this chapter.
(3) Notices required by this paragraph must be provided to tenants and

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§ 401.605

24 CFR Ch. IV (4–1–19 Edition)

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 § 401.101, § 401.403,
§ 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]

§ 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 §§ 401.410 or 401.411.
§ 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
§ 401.645 Owner request
HUD decision.

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review

(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-toMarket 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.

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Housing and Multifamily Housing Assistance Restructuring, HUD
(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-toMarket program or that a restructuring of the property is not feasible.
[72 FR 66040, Nov. 26, 2007]

§ 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 § 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 § 401.651.
(b) Upon receipt of final decision. HUD
will send the owner a written notice of
the final decision under § 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
§ 401.461(b)(4), the owner may request
an administrative appeal in accordance
with § 401.651.
[72 FR 66040, Nov. 26, 2007]

§ 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 § 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

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§ 401.652

24 CFR Ch. IV (4–1–19 Edition)

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]

§ 401.652

No judicial review.

The reviewing official’s decision
under § 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 PROJECTBASED
CONTRACT
RENEWAL
UNDER
SECTION
524
OF
MAHRA
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.

§ 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]

§ 402.2 Definitions.
(a) Terms defined in part 401. In this
part, the following terms have the
meanings given in § 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]

§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
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]

§ 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 Markto-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 § 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]

§ 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 § 402.4, except as provided in § 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 § 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
§ 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 LowIncome Housing Preservation and Resident Homeownership Act of 1990
(LIHPRHA), the Secretary will provide

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§ 402.6

24 CFR Ch. IV (4–1–19 Edition)

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 § 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]

§ 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 § 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]

§ 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]

§ 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

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Housing and Multifamily Housing Assistance Restructuring, HUD
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]

§ 402.9

§ 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 § 5.110 of this title.
[71 FR 2123, Jan. 12, 2006]

PARTS 403–499 [RESERVED]

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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

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Table of CFR Titles and Chapters
(Revised as of April 1, 2019)

Title 1—General Provisions
I
II
III
IV
VI

Administrative Committee of the Federal Register (Parts 1—49)
Office of the Federal Register (Parts 50—299)
Administrative Conference of the United States (Parts 300—399)
Miscellaneous Agencies (Parts 400—599)
National Capital Planning Commission (Parts 600—699)

Title 2—Grants and Agreements

I
II

III
IV
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVIII
XX
XXII
XXIII
XXIV
XXV
XXVI

SUBTITLE A—OFFICE OF MANAGEMENT AND BUDGET GUIDANCE FOR
GRANTS AND AGREEMENTS
Office of Management and Budget Governmentwide Guidance for
Grants and Agreements (Parts 2—199)
Office of Management and Budget Guidance (Parts 200—299)
SUBTITLE B—FEDERAL AGENCY REGULATIONS FOR GRANTS AND
AGREEMENTS
Department of Health and Human Services (Parts 300—399)
Department of Agriculture (Parts 400—499)
Department of State (Parts 600—699)
Agency for International Development (Parts 700—799)
Department of Veterans Affairs (Parts 800—899)
Department of Energy (Parts 900—999)
Department of the Treasury (Parts 1000—1099)
Department of Defense (Parts 1100—1199)
Department of Transportation (Parts 1200—1299)
Department of Commerce (Parts 1300—1399)
Department of the Interior (Parts 1400—1499)
Environmental Protection Agency (Parts 1500—1599)
National Aeronautics and Space Administration (Parts 1800—
1899)
United States Nuclear Regulatory Commission (Parts 2000—2099)
Corporation for National and Community Service (Parts 2200—
2299)
Social Security Administration (Parts 2300—2399)
Department of Housing and Urban Development (Parts 2400—
2499)
National Science Foundation (Parts 2500—2599)
National Archives and Records Administration (Parts 2600—2699)

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Chap.

XXVII
XXVIII
XXIX
XXX
XXXI
XXXII

Title 2—Grants and Agreements—Continued
Small Business Administration (Parts 2700—2799)
Department of Justice (Parts 2800—2899)
Department of Labor (Parts 2900—2999)
Department of Homeland Security (Parts 3000—3099)
Institute of Museum and Library Services (Parts 3100—3199)
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
XXXVI
XXXVII
LVIII
LIX

Export-Import Bank of the United States (Parts 3500—3599)
Office of National Drug Control Policy, Executive Office of the
President (Parts 3600—3699)
Peace Corps (Parts 3700—3799)
Election Assistance Commission (Parts 5800—5899)
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
II

Office of Personnel Management (Parts 1—1199)
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
VIII
IX
XI

Federal Retirement Thrift Investment Board (Parts 1600—1699)
Office of Special Counsel (Parts 1800—1899)
Appalachian Regional Commission (Parts 1900—1999)
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
XXIII
XXIV
XXV
XXVI

Federal Deposit Insurance Corporation (Parts 3200—3299)
Department of Energy (Parts 3300—3399)
Federal Energy Regulatory Commission (Parts 3400—3499)
Department of the Interior (Parts 3500—3599)
Department of Defense (Parts 3600—3699)

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Chap.

XXVIII
XXIX
XXX
XXXI

Title 5—Administrative Personnel—Continued
Department of Justice (Parts 3800—3899)
Federal Communications Commission (Parts 3900—3999)
Farm Credit System Insurance Corporation (Parts 4000—4099)
Farm Credit Administration (Parts 4100—4199)

XXXIII

Overseas Private Investment Corporation (Parts 4300—4399)

XXXIV

Securities and Exchange Commission (Parts 4400—4499)

XXXV
XXXVI
XXXVII
XL
XLI
XLII
XLIII
XLV
XLVI
XLVII
XLVIII
XLIX
L
LII

Office of Personnel Management (Parts 4500—4599)
Department of Homeland Security (Parts 4600—4699)
Federal Election Commission (Parts 4700—4799)
Interstate Commerce Commission (Parts 5000—5099)
Commodity Futures Trading Commission (Parts 5100—5199)
Department of Labor (Parts 5200—5299)
National Science Foundation (Parts 5300—5399)
Department of Health and Human Services (Parts 5500—5599)
Postal Rate Commission (Parts 5600—5699)
Federal Trade Commission (Parts 5700—5799)
Nuclear Regulatory Commission (Parts 5800—5899)
Federal Labor Relations Authority (Parts 5900—5999)
Department of Transportation (Parts 6000—6099)
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
LVII

National Endowment for the Humanities (Parts 6600—6699)
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
LXI
LXII

United States Postal Service (Parts 7000—7099)
National Labor Relations Board (Parts 7100—7199)
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
LXXI
LXXIII

Court Services and Offender Supervision Agency for the District
of Columbia (Parts 8000—8099)
Consumer Product Safety Commission (Parts 8100—8199)
Department of Agriculture (Parts 8300—8399)

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Chap.

Title 5—Administrative Personnel—Continued

LXXIV

Federal Mine Safety and Health Review Commission (Parts
8400—8499)

LXXVI

Federal Retirement Thrift Investment Board (Parts 8600—8699)

LXXVII
LXXX

Office of Management and Budget (Parts 8700—8799)
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
CI

National Council on Disability (Parts 10000—10049)
National Mediation Board (Part 10101)

Title 6—Domestic Security
I
X

Department of Homeland Security, Office of the Secretary
(Parts 1—199)
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
(Parts 500—599)

Service,

Department

of

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)

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Chap.

Title 7—Agriculture—Continued

IX

Agricultural Marketing Service (Marketing Agreements and Orders; Fruits, Vegetables, Nuts), Department of Agriculture
(Parts 900—999)

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
XLII

[Reserved]
Rural Business-Cooperative Service and Rural Utilities Service,
Department of Agriculture (Parts 4200—4299)

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Title 8—Aliens and Nationality

Chap.

I
V

Department of Homeland Security (Immigration and Naturalization) (Parts 1—499)
Executive Office for Immigration Review, Department of Justice
(Parts 1000—1399)

Title 9—Animals and Animal Products
I
II

III

Animal and Plant Health Inspection Service, Department of Agriculture (Parts 1—199)
Grain Inspection, Packers and Stockyards Administration
(Packers and Stockyards Programs), Department of Agriculture (Parts 200—299)
Food Safety and Inspection Service, Department of Agriculture
(Parts 300—599)

Title 10—Energy
I
II
III
X
XIII
XVII
XVIII

Nuclear Regulatory Commission (Parts 0—199)
Department of Energy (Parts 200—699)
Department of Energy (Parts 700—999)
Department of Energy (General Provisions) (Parts 1000—1099)
Nuclear Waste Technical Review Board (Parts 1300—1399)
Defense Nuclear Facilities Safety Board (Parts 1700—1799)
Northeast Interstate Low-Level Radioactive Waste Commission
(Parts 1800—1899)

Title 11—Federal Elections
I
II

Federal Election Commission (Parts 1—9099)
Election Assistance Commission (Parts 9400—9499)

Title 12—Banks and Banking
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
XIII

Comptroller of the Currency, Department of the Treasury (Parts
1—199)
Federal Reserve System (Parts 200—299)
Federal Deposit Insurance Corporation (Parts 300—399)
Export-Import Bank of the United States (Parts 400—499)
(Parts 500—599) [Reserved]
Farm Credit Administration (Parts 600—699)
National Credit Union Administration (Parts 700—799)
Federal Financing Bank (Parts 800—899)
Federal Housing Finance Board (Parts 900—999)
Bureau of Consumer Financial Protection (Parts 1000—1099)
Federal Financial Institutions Examination Council (Parts
1100—1199)
Federal Housing Finance Agency (Parts 1200—1299)
Financial Stability Oversight Council (Parts 1300—1399)

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Chap.

XIV
XV
XVI
XVII
XVIII

Title 12—Banks and Banking—Continued
Farm Credit System Insurance Corporation (Parts 1400—1499)
Department of the Treasury (Parts 1500—1599)
Office of Financial Research (Parts 1600—1699)
Office of Federal Housing Enterprise Oversight, Department of
Housing and Urban Development (Parts 1700—1799)
Community Development Financial Institutions Fund, Department of the Treasury (Parts 1800—1899)

Title 13—Business Credit and Assistance
I
III
IV
V

Small Business Administration (Parts 1—199)
Economic Development Administration, Department of Commerce (Parts 300—399)
Emergency Steel Guarantee Loan Board (Parts 400—499)
Emergency Oil and Gas Guaranteed Loan Board (Parts 500—599)

Title 14—Aeronautics and Space
I
II
III
V
VI

Federal Aviation Administration, Department of Transportation
(Parts 1—199)
Office of the Secretary, Department of Transportation (Aviation
Proceedings) (Parts 200—399)
Commercial Space Transportation, Federal Aviation Administration, Department of Transportation (Parts 400—1199)
National Aeronautics and Space Administration (Parts 1200—
1299)
Air Transportation System Stabilization (Parts 1300—1399)

Title 15—Commerce and Foreign Trade

I
II
III
IV
VII
VIII
IX
XI

SUBTITLE A—OFFICE OF THE SECRETARY OF COMMERCE (PARTS 0—
29)
SUBTITLE B—REGULATIONS RELATING TO COMMERCE AND FOREIGN
TRADE
Bureau of the Census, Department of Commerce (Parts 30—199)
National Institute of Standards and Technology, Department of
Commerce (Parts 200—299)
International Trade Administration, Department of Commerce
(Parts 300—399)
Foreign-Trade Zones Board, Department of Commerce (Parts
400—499)
Bureau of Industry and Security, Department of Commerce
(Parts 700—799)
Bureau of Economic Analysis, Department of Commerce (Parts
800—899)
National Oceanic and Atmospheric Administration, Department
of Commerce (Parts 900—999)
National Technical Information Service, Department of Commerce (Parts 1100—1199)

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Title 15—Commerce and Foreign Trade—Continued

Chap.

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
II

Federal Trade Commission (Parts 0—999)
Consumer Product Safety Commission (Parts 1000—1799)

Title 17—Commodity and Securities Exchanges
I
II
IV

Commodity Futures Trading Commission (Parts 1—199)
Securities and Exchange Commission (Parts 200—399)
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
II

U.S. Customs and Border Protection, Department of Homeland
Security; Department of the Treasury (Parts 0—199)
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
II
III

Office of Workers’ Compensation Programs, Department of
Labor (Parts 1—199)
Railroad Retirement Board (Parts 200—399)
Social Security Administration (Parts 400—499)

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Chap.

Title 20—Employees’ Benefits—Continued

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
II

Department of State (Parts 1—199)
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
VII
IX
X

Broadcasting Board of Governors (Parts 500—599)
Overseas Private Investment Corporation (Parts 700—799)
Foreign Service Grievance Board (Parts 900—999)
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
XVI
XVII

African Development Foundation (Parts 1500—1599)
Japan-United States Friendship Commission (Parts 1600—1699)
United States Institute of Peace (Parts 1700—1799)

Title 23—Highways
I

Federal Highway Administration, Department of Transportation
(Parts 1—999)

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Chap.

Title 23—Highways—Continued

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)

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)

XXIV

Board of Directors of the HOPE for Homeowners Program (Parts
4000—4099) [Reserved]

XXV

Neighborhood Reinvestment Corporation (Parts 4100—4199)

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Title 25—Indians

Chap.

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
(Part 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
III
V
VI
VII

Department of Justice (Parts 0—299)
Federal Prison Industries, Inc., Department of Justice (Parts
300—399)
Bureau of Prisons, Department of Justice (Parts 500—599)
Offices of Independent Counsel, Department of Justice (Parts
600—699)
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)

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)

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Title 29—Labor—Continued

Chap.

II
III
IV
V
IX
X
XII
XIV
XVII
XX
XXV
XXVII
XL

Office of Labor-Management Standards, Department of Labor
(Parts 200—299)
National Railroad Adjustment Board (Parts 300—399)
Office of Labor-Management Standards, Department of Labor
(Parts 400—499)
Wage and Hour Division, Department of Labor (Parts 500—899)
Construction Industry Collective Bargaining Commission (Parts
900—999)
National Mediation Board (Parts 1200—1299)
Federal Mediation and Conciliation Service (Parts 1400—1499)
Equal Employment Opportunity Commission (Parts 1600—1699)
Occupational Safety and Health Administration, Department of
Labor (Parts 1900—1999)
Occupational Safety and Health Review Commission (Parts
2200—2499)
Employee Benefits Security Administration, Department of
Labor (Parts 2500—2599)
Federal Mine Safety and Health Review Commission (Parts
2700—2799)
Pension Benefit Guaranty Corporation (Parts 4000—4999)

Title 30—Mineral Resources
I
II
IV
V
VII
XII

Mine Safety and Health Administration, Department of Labor
(Parts 1—199)
Bureau of Safety and Environmental Enforcement, Department
of the Interior (Parts 200—299)
Geological Survey, Department of the Interior (Parts 400—499)
Bureau of Ocean Energy Management, Department of the Interior (Parts 500—599)
Office of Surface Mining Reclamation and Enforcement, Department of the Interior (Parts 700—999)
Office of Natural Resources Revenue, Department of the Interior
(Parts 1200—1299)

Title 31—Money and Finance: Treasury

I
II
IV
V
VI
VII

SUBTITLE A—OFFICE OF THE SECRETARY OF THE TREASURY (PARTS
0—50)
SUBTITLE B—REGULATIONS RELATING TO MONEY AND FINANCE
Monetary Offices, Department of the Treasury (Parts 51—199)
Fiscal Service, Department of the Treasury (Parts 200—399)
Secret Service, Department of the Treasury (Parts 400—499)
Office of Foreign Assets Control, Department of the Treasury
(Parts 500—599)
Bureau of Engraving and Printing, Department of the Treasury
(Parts 600—699)
Federal Law Enforcement Training Center, Department of the
Treasury (Parts 700—799)

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Title 31—Money and Finance: Treasury—Continued

Chap.

VIII
IX
X

Office of Investment Security, Department of the Treasury
(Parts 800—899)
Federal Claims Collection Standards (Department of the Treasury—Department of Justice) (Parts 900—999)
Financial Crimes Enforcement Network, Department of the
Treasury (Parts 1000—1099)

Title 32—National Defense

I
V
VI
VII

SUBTITLE A—DEPARTMENT OF DEFENSE
Office of the Secretary of Defense (Parts 1—399)
Department of the Army (Parts 400—699)
Department of the Navy (Parts 700—799)
Department of the Air Force (Parts 800—1099)
SUBTITLE B—OTHER REGULATIONS RELATING TO NATIONAL DEFENSE

XII
XVI
XVII
XVIII
XIX
XX
XXI
XXIV
XXVII
XXVIII

Defense Logistics Agency (Parts 1200—1299)
Selective Service System (Parts 1600—1699)
Office of the Director of National Intelligence (Parts 1700—1799)
National Counterintelligence Center (Parts 1800—1899)
Central Intelligence Agency (Parts 1900—1999)
Information Security Oversight Office, National Archives and
Records Administration (Parts 2000—2099)
National Security Council (Parts 2100—2199)
Office of Science and Technology Policy (Parts 2400—2499)
Office for Micronesian Status Negotiations (Parts 2700—2799)
Office of the Vice President of the United States (Parts 2800—
2899)

Title 33—Navigation and Navigable Waters
I
II
IV

Coast Guard, Department of Homeland Security (Parts 1—199)
Corps of Engineers, Department of the Army, Department of Defense (Parts 200—399)
Saint Lawrence Seaway Development Corporation, Department
of Transportation (Parts 400—499)

Title 34—Education

I
II
III

SUBTITLE A—OFFICE OF THE SECRETARY, DEPARTMENT OF EDUCATION (PARTS 1—99)
SUBTITLE B—REGULATIONS OF THE OFFICES OF THE DEPARTMENT
OF EDUCATION
Office for Civil Rights, Department of Education (Parts 100—199)
Office of Elementary and Secondary Education, Department of
Education (Parts 200—299)
Office of Special Education and Rehabilitative Services, Department of Education (Parts 300—399)

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Chap.

Title 34—Education—Continued

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
XII

(Parts 1100—1199) [Reserved]
National Council on Disability (Parts 1200—1299)

Title 35 [Reserved]
Title 36—Parks, Forests, and Public Property
I
II
III
IV
V
VI
VII
VIII
IX
X

National Park Service, Department of the Interior (Parts 1—199)
Forest Service, Department of Agriculture (Parts 200—299)
Corps of Engineers, Department of the Army (Parts 300—399)
American Battle Monuments Commission (Parts 400—499)
Smithsonian Institution (Parts 500—599)
[Reserved]
Library of Congress (Parts 700—799)
Advisory Council on Historic Preservation (Parts 800—899)
Pennsylvania Avenue Development Corporation (Parts 900—999)
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
II

United States Patent and Trademark Office, Department of
Commerce (Parts 1—199)
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)

Title 38—Pensions, Bonuses, and Veterans’ Relief
I
II

Department of Veterans Affairs (Parts 0—199)
Armed Forces Retirement Home (Parts 200—299)

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Title 39—Postal Service

Chap.

I
III

United States Postal Service (Parts 1—999)
Postal Regulatory Commission (Parts 3000—3099)

Title 40—Protection of Environment
I
IV
V
VI
VII

VIII

Environmental Protection Agency (Parts 1—1099)
Environmental Protection Agency and Department of Justice
(Parts 1400—1499)
Council on Environmental Quality (Parts 1500—1599)
Chemical Safety and Hazard Investigation Board (Parts 1600—
1699)
Environmental Protection Agency and Department of Defense;
Uniform National Discharge Standards for Vessels of the
Armed Forces (Parts 1700—1799)
Gulf Coast Ecosystem Restoration Council (Parts 1800—1899)

Title 41—Public Contracts and Property Management

50
51
60
61
62—100

101
102
103—104
105
109
114
115
128
129—200

300
301

SUBTITLE A—FEDERAL PROCUREMENT REGULATIONS SYSTEM
[NOTE]
SUBTITLE B—OTHER PROVISIONS RELATING TO PUBLIC CONTRACTS
Public Contracts, Department of Labor (Parts 50–1—50–999)
Committee for Purchase From People Who Are Blind or Severely
Disabled (Parts 51–1—51–99)
Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor (Parts 60–1—60–999)
Office of the Assistant Secretary for Veterans’ Employment and
Training Service, Department of Labor (Parts 61–1—61–999)
[Reserved]
SUBTITLE C—FEDERAL PROPERTY MANAGEMENT REGULATIONS
SYSTEM
Federal Property Management Regulations (Parts 101–1—101–99)
Federal Management Regulation (Parts 102–1—102–299)
[Reserved]
General Services Administration (Parts 105–1—105–999)
Department of Energy Property Management Regulations (Parts
109–1—109–99)
Department of the Interior (Parts 114–1—114–99)
Environmental Protection Agency (Parts 115–1—115–99)
Department of Justice (Parts 128–1—128–99)
[Reserved]
SUBTITLE D—OTHER PROVISIONS RELATING TO PROPERTY MANAGEMENT [RESERVED]
SUBTITLE E—FEDERAL INFORMATION RESOURCES MANAGEMENT
REGULATIONS SYSTEM [RESERVED]
SUBTITLE F—FEDERAL TRAVEL REGULATION SYSTEM
General (Parts 300–1—300–99)
Temporary Duty (TDY) Travel Allowances (Parts 301–1—301–99)

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Title 41—Public Contracts and Property Management—Continued
Chap.

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
II—III

Public Health Service, Department of Health and Human Services (Parts 1—199)
[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)

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)

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Chap.

V
VI
VII
VIII
IX

Title 45—Public Welfare—Continued
Foreign Claims Settlement Commission of the United States,
Department of Justice (Parts 500—599)
National Science Foundation (Parts 600—699)
Commission on Civil Rights (Parts 700—799)
Office of Personnel Management (Parts 800—899)
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
XVIII
XXI

National Commission on Libraries and Information Science
(Parts 1700—1799)
Harry S. Truman Scholarship Foundation (Parts 1800—1899)
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)

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)

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Title 48—Federal Acquisition Regulations System

Chap.

1
2
3
4
5
6
7
8
9
10
12
13
14
15
16
17
18
19
20
21
23
24
25
28
29
30
34
51
52
53
54
57
61
99

Federal Acquisition Regulation (Parts 1—99)
Defense Acquisition Regulations System, Department of Defense
(Parts 200—299)
Department of Health and Human Services (Parts 300—399)
Department of Agriculture (Parts 400—499)
General Services Administration (Parts 500—599)
Department of State (Parts 600—699)
Agency for International Development (Parts 700—799)
Department of Veterans Affairs (Parts 800—899)
Department of Energy (Parts 900—999)
Department of the Treasury (Parts 1000—1099)
Department of Transportation (Parts 1200—1299)
Department of Commerce (Parts 1300—1399)
Department of the Interior (Parts 1400—1499)
Environmental Protection Agency (Parts 1500—1599)
Office of Personnel Management, Federal Employees Health
Benefits Acquisition Regulation (Parts 1600—1699)
Office of Personnel Management (Parts 1700—1799)
National Aeronautics and Space Administration (Parts 1800—
1899)
Broadcasting Board of Governors (Parts 1900—1999)
Nuclear Regulatory Commission (Parts 2000—2099)
Office of Personnel Management, Federal Employees Group Life
Insurance Federal Acquisition Regulation (Parts 2100—2199)
Social Security Administration (Parts 2300—2399)
Department of Housing and Urban Development (Parts 2400—
2499)
National Science Foundation (Parts 2500—2599)
Department of Justice (Parts 2800—2899)
Department of Labor (Parts 2900—2999)
Department of Homeland Security, Homeland Security Acquisition Regulation (HSAR) (Parts 3000—3099)
Department of Education Acquisition Regulation (Parts 3400—
3499)
Department of the Army Acquisition Regulations (Parts 5100—
5199)
Department of the Navy Acquisition Regulations (Parts 5200—
5299)
Department of the Air Force Federal Acquisition Regulation
Supplement (Parts 5300—5399) [Reserved]
Defense Logistics Agency, Department of Defense (Parts 5400—
5499)
African Development Foundation (Parts 5700—5799)
Civilian Board of Contract Appeals, General Services Administration (Parts 6100—6199)
Cost Accounting Standards Board, Office of Federal Procurement Policy, Office of Management and Budget (Parts 9900—
9999)

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Title 49—Transportation

Chap.

I
II
III
IV
V
VI
VII
VIII
X
XI
XII

SUBTITLE A—OFFICE OF THE SECRETARY OF TRANSPORTATION
(PARTS 1—99)
SUBTITLE B—OTHER REGULATIONS RELATING TO TRANSPORTATION
Pipeline and Hazardous Materials Safety Administration, Department of Transportation (Parts 100—199)
Federal Railroad Administration, Department of Transportation
(Parts 200—299)
Federal Motor Carrier Safety Administration, Department of
Transportation (Parts 300—399)
Coast Guard, Department of Homeland Security (Parts 400—499)
National Highway Traffic Safety Administration, Department of
Transportation (Parts 500—599)
Federal Transit Administration, Department of Transportation
(Parts 600—699)
National Railroad Passenger Corporation (AMTRAK) (Parts
700—799)
National Transportation Safety Board (Parts 800—999)
Surface Transportation Board (Parts 1000—1399)
Research and Innovative Technology Administration, Department of Transportation (Parts 1400—1499) [Reserved]
Transportation Security Administration, Department of Homeland Security (Parts 1500—1699)

Title 50—Wildlife and Fisheries
I
II

III
IV

V
VI

United States Fish and Wildlife Service, Department of the Interior (Parts 1—199)
National Marine Fisheries Service, National Oceanic and Atmospheric Administration, Department of Commerce (Parts 200—
299)
International Fishing and Related Activities (Parts 300—399)
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)
Marine Mammal Commission (Parts 500—599)
Fishery Conservation and Management, National Oceanic and
Atmospheric Administration, Department of Commerce (Parts
600—699)

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Alphabetical List of Agencies Appearing in the CFR
(Revised as of April 1, 2019)
CFR Title, Subtitle or
Chapter

Agency

Administrative Conference of the United States
Advisory Council on Historic Preservation
Advocacy and Outreach, Office of
Afghanistan Reconstruction, Special Inspector General for
African Development Foundation
Federal Acquisition Regulation
Agency for International Development
Federal Acquisition Regulation
Agricultural Marketing Service
Agricultural Research Service
Agriculture, Department of
Advocacy and Outreach, Office of
Agricultural Marketing Service
Agricultural Research Service
Animal and Plant Health Inspection Service
Chief Financial Officer, Office of
Commodity Credit Corporation
Economic Research Service
Energy Policy and New Uses, Office of
Environmental Quality, Office of
Farm Service Agency
Federal Acquisition Regulation
Federal Crop Insurance Corporation
Food and Nutrition Service
Food Safety and Inspection Service
Foreign Agricultural Service
Forest Service
Grain Inspection, Packers and Stockyards Administration
Information Resources Management, Office of
Inspector General, Office of
National Agricultural Library
National Agricultural Statistics Service
National Institute of Food and Agriculture
Natural Resources Conservation Service
Operations, Office of
Procurement and Property Management, Office of
Rural Business-Cooperative Service
Rural Development Administration
Rural Housing Service
Rural Telephone Bank
Rural Utilities Service
Secretary of Agriculture, Office of
Transportation, Office of
World Agricultural Outlook Board
Air Force, Department of
Federal Acquisition Regulation Supplement
Air Transportation Stabilization Board
Alcohol and Tobacco Tax and Trade Bureau
Alcohol, Tobacco, Firearms, and Explosives, Bureau of
AMTRAK
American Battle Monuments Commission
American Indians, Office of the Special Trustee
Animal and Plant Health Inspection Service

1, III
36, VIII
7, XXV
5, LXXXIII
22, XV
48, 57
2, VII; 22, II
48, 7
7, I, IX, X, XI
7, V
2, IV; 5, LXXIII
7, XXV
7, I, IX, X, XI
7, V
7, III; 9, I
7, XXX
7, XIV
7, XXXVII
2, IX; 7, XXIX
7, XXXI
7, VII, XVIII
48, 4
7, IV
7, II
9, III
7, XV
36, II
7, VIII; 9, II
7, XXVII
7, XXVI
7, XLI
7, XXXVI
7, XXXIV
7, VI
7, XXVIII
7, XXXII
7, XVIII, XLII
7, XLII
7, XVIII, XXXV
7, XVI
7, XVII, XVIII, XLII
7, Subtitle A
7, XXXIII
7, XXXVIII
32, VII
48, 53
14, VI
27, I
27, II
49, VII
36, IV
25, VII
7, III; 9, I

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CFR Title, Subtitle or
Chapter

Agency

Appalachian Regional Commission
Architectural and Transportation Barriers Compliance Board
Arctic Research Commission
Armed Forces Retirement Home
Army, Department of
Engineers, Corps of
Federal Acquisition Regulation
Bilingual Education and Minority Languages Affairs, Office of
Blind or Severely Disabled, Committee for Purchase from
People Who Are
Broadcasting Board of Governors
Federal Acquisition Regulation
Career, Technical, and Adult Education, Office of
Census Bureau
Centers for Medicare & Medicaid Services
Central Intelligence Agency
Chemical Safety and Hazardous Investigation Board
Chief Financial Officer, Office of
Child Support Enforcement, Office of
Children and Families, Administration for
Civil Rights, Commission on
Civil Rights, Office for
Council of the Inspectors General on Integrity and Efficiency
Court Services and Offender Supervision Agency for the
District of Columbia
Coast Guard
Coast Guard (Great Lakes Pilotage)
Commerce, Department of
Census Bureau
Economic Analysis, Bureau of
Economic Development Administration
Emergency Management and Assistance
Federal Acquisition Regulation
Foreign-Trade Zones Board
Industry and Security, Bureau of
International Trade Administration
National Institute of Standards and Technology
National Marine Fisheries Service
National Oceanic and Atmospheric Administration
National Technical Information Service
National Telecommunications and Information
Administration
National Weather Service
Patent and Trademark Office, United States
Secretary of Commerce, Office of
Commercial Space Transportation
Commodity Credit Corporation
Commodity Futures Trading Commission
Community Planning and Development, Office of Assistant
Secretary for
Community Services, Office of
Comptroller of the Currency
Construction Industry Collective Bargaining Commission
Consumer Financial Protection Bureau
Consumer Product Safety Commission
Copyright Royalty Board
Corporation for National and Community Service
Cost Accounting Standards Board
Council on Environmental Quality
Court Services and Offender Supervision Agency for the
District of Columbia
Customs and Border Protection
Defense Contract Audit Agency
Defense, Department of
Advanced Research Projects Agency
Air Force Department

5, IX
36, XI
45, XXIII
5, XI
32, V
33, II; 36, III
48, 51
34, V
41, 51
22, V
48, 19
34, IV
15, I
42, IV
32, XIX
40, VI
7, XXX
45, III
45, II, III, IV, X, XIII
5, LXVIII; 45, VII
34, I
5, XCVIII
5, LXX
33, I; 46, I; 49, IV
46, III
2, XIII; 44, IV; 50, VI
15, I
15, VIII
13, III
44, IV
48, 13
15, IV
15, VII
15, III; 19, III
15, II; 37, IV
50, II, IV
15, IX; 50, II, III, IV, VI
15, XI
15, XXIII; 47, III, IV
15, IX
37, I
15, Subtitle A
14, III
7, XIV
5, XLI; 17, I
24, V, VI
45, X
12, I
29, IX
5, LXXXIV; 12, X
5, LXXI; 16, II
37, III
2, XXII; 45, XII, XXV
48, 99
40, V
5, LXX; 28, VIII
19, I
32, I
2, XI; 5, XXVI; 32,
Subtitle A; 40, VII
32, I
32, VII

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CFR Title, Subtitle or
Chapter

Agency

Army Department
Defense Acquisition Regulations System
Defense Intelligence Agency
Defense Logistics Agency
Engineers, Corps of
National Imagery and Mapping Agency
Navy Department
Secretary of Defense, Office of
Defense Contract Audit Agency
Defense Intelligence Agency
Defense Logistics Agency
Defense Nuclear Facilities Safety Board
Delaware River Basin Commission
Denali Commission
Disability, National Council on
District of Columbia, Court Services and Offender Supervision
Agency for the
Drug Enforcement Administration
East-West Foreign Trade Board
Economic Analysis, Bureau of
Economic Development Administration
Economic Research Service
Education, Department of
Bilingual Education and Minority Languages Affairs, Office
of
Career, Technical, and Adult Education, Office of
Civil Rights, Office for
Educational Research and Improvement, Office of
Elementary and Secondary Education, Office of
Federal Acquisition Regulation
Postsecondary Education, Office of
Secretary of Education, Office of
Special Education and Rehabilitative Services, Office of
Educational Research and Improvement, Office of
Election Assistance Commission
Elementary and Secondary Education, Office of
Emergency Oil and Gas Guaranteed Loan Board
Emergency Steel Guarantee Loan Board
Employee Benefits Security Administration
Employees’ Compensation Appeals Board
Employees Loyalty Board
Employment and Training Administration
Employment Policy, National Commission for
Employment Standards Administration
Endangered Species Committee
Energy, Department of
Federal Acquisition Regulation
Federal Energy Regulatory Commission
Property Management Regulations
Energy, Office of
Engineers, Corps of
Engraving and Printing, Bureau of
Environmental Protection Agency
Federal Acquisition Regulation
Property Management Regulations
Environmental Quality, Office of
Equal Employment Opportunity Commission
Equal Opportunity, Office of Assistant Secretary for
Executive Office of the President
Environmental Quality, Council on
Management and Budget, Office of
National Drug Control Policy, Office of
National Security Council

32, V; 33, II; 36, III; 48,
51
48, 2
32, I
32, I, XII; 48, 54
33, II; 36, III
32, I
32, VI; 48, 52
2, XI; 32, I
32, I
32, I
32, XII; 48, 54
10, XVII
18, III
45, IX
5, C; 34, XII
5, LXX; 28, VIII
21, II
15, XIII
15, VIII
13, III
7, XXXVII
2, XXXIV; 5, LIII
34, V
34, IV
34, I
34, VII
34, II
48, 34
34, VI
34, Subtitle A
34, III
34, VII
2, LVIII; 11, II
34, II
13, V
13, IV
29, XXV
20, IV
5, V
20, V
1, IV
20, VI
50, IV
2, IX; 5, XXIII; 10, II,
III, X
48, 9
5, XXIV; 18, I
41, 109
7, XXIX
33, II; 36, III
31, VI
2, XV; 5, LIV; 40, I, IV,
VII
48, 15
41, 115
7, XXXI
5, LXII; 29, XIV
24, I
3, I
40, V
2, Subtitle A; 5, III,
LXXVII; 14, VI; 48, 99
2, XXXVI; 21, III
32, XXI; 47, 2

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CFR Title, Subtitle or
Chapter

Agency

Presidential Documents
Science and Technology Policy, Office of
Trade Representative, Office of the United States
Export-Import Bank of the United States
Family Assistance, Office of
Farm Credit Administration
Farm Credit System Insurance Corporation
Farm Service Agency
Federal Acquisition Regulation
Federal Aviation Administration
Commercial Space Transportation
Federal Claims Collection Standards
Federal Communications Commission
Federal Contract Compliance Programs, Office of
Federal Crop Insurance Corporation
Federal Deposit Insurance Corporation
Federal Election Commission
Federal Emergency Management Agency
Federal Employees Group Life Insurance Federal Acquisition
Regulation
Federal Employees Health Benefits Acquisition Regulation
Federal Energy Regulatory Commission
Federal Financial Institutions Examination Council
Federal Financing Bank
Federal Highway Administration
Federal Home Loan Mortgage Corporation
Federal Housing Enterprise Oversight Office
Federal Housing Finance Agency
Federal Housing Finance Board
Federal Labor Relations Authority
Federal Law Enforcement Training Center
Federal Management Regulation
Federal Maritime Commission
Federal Mediation and Conciliation Service
Federal Mine Safety and Health Review Commission
Federal Motor Carrier Safety Administration
Federal Prison Industries, Inc.
Federal Procurement Policy Office
Federal Property Management Regulations
Federal Railroad Administration
Federal Register, Administrative Committee of
Federal Register, Office of
Federal Reserve System
Board of Governors
Federal Retirement Thrift Investment Board
Federal Service Impasses Panel
Federal Trade Commission
Federal Transit Administration
Federal Travel Regulation System
Financial Crimes Enforcement Network
Financial Research Office
Financial Stability Oversight Council
Fine Arts, Commission of
Fiscal Service
Fish and Wildlife Service, United States
Food and Drug Administration
Food and Nutrition Service
Food Safety and Inspection Service
Foreign Agricultural Service
Foreign Assets Control, Office of
Foreign Claims Settlement Commission of the United States
Foreign Service Grievance Board
Foreign Service Impasse Disputes Panel
Foreign Service Labor Relations Board
Foreign-Trade Zones Board
Forest Service
General Services Administration

3
32, XXIV; 47, II
15, XX
2, XXXV; 5, LII; 12, IV
45, II
5, XXXI; 12, VI
5, XXX; 12, XIV
7, VII, XVIII
48, 1
14, I
14, III
31, IX
5, XXIX; 47, I
41, 60
7, IV
5, XXII; 12, III
5, XXXVII; 11, I
44, I
48, 21
48, 16
5, XXIV; 18, I
12, XI
12, VIII
23, I, II
1, IV
12, XVII
5, LXXX; 12, XII
12, IX
5, XIV, XLIX; 22, XIV
31, VII
41, 102
46, IV
29, XII
5, LXXIV; 29, XXVII
49, III
28, III
48, 99
41, 101
49, II
1, I
1, II
12, II
5, LVIII
5, VI, LXXVI
5, XIV
5, XLVII; 16, I
49, VI
41, Subtitle F
31, X
12, XVI
12, XIII
45, XXI
31, II
50, I, IV
21, I
7, II
9, III
7, XV
31, V
45, V
22, IX
22, XIV
22, XIV
15, IV
36, II
5, LVII; 41, 105

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CFR Title, Subtitle or
Chapter

Agency

Contract Appeals, Board of
Federal Acquisition Regulation
Federal Management Regulation
Federal Property Management Regulations
Federal Travel Regulation System
General
Payment From a Non-Federal Source for Travel Expenses
Payment of Expenses Connected With the Death of Certain
Employees
Relocation Allowances
Temporary Duty (TDY) Travel Allowances
Geological Survey
Government Accountability Office
Government Ethics, Office of
Government National Mortgage Association
Grain Inspection, Packers and Stockyards Administration
Gulf Coast Ecosystem Restoration Council
Harry S. Truman Scholarship Foundation
Health and Human Services, Department of
Centers for Medicare & Medicaid Services
Child Support Enforcement, Office of
Children and Families, Administration for
Community Services, Office of
Family Assistance, Office of
Federal Acquisition Regulation
Food and Drug Administration
Indian Health Service
Inspector General (Health Care), Office of
Public Health Service
Refugee Resettlement, Office of
Homeland Security, Department of
Coast Guard
Coast Guard (Great Lakes Pilotage)
Customs and Border Protection
Federal Emergency Management Agency
Human Resources Management and Labor Relations
Systems
Immigration and Customs Enforcement Bureau
Transportation Security Administration
HOPE for Homeowners Program, Board of Directors of
Housing and Urban Development, Department of
Community Planning and Development, Office of Assistant
Secretary for
Equal Opportunity, Office of Assistant Secretary for
Federal Acquisition Regulation
Federal Housing Enterprise Oversight, Office of
Government National Mortgage Association
Housing—Federal Housing Commissioner, Office of
Assistant Secretary for
Housing, Office of, and Multifamily Housing Assistance
Restructuring, Office of
Inspector General, Office of
Public and Indian Housing, Office of Assistant Secretary for
Secretary, Office of
Housing—Federal Housing Commissioner, Office of Assistant
Secretary for
Housing, Office of, and Multifamily Housing Assistance
Restructuring, Office of
Immigration and Customs Enforcement Bureau
Immigration Review, Executive Office for
Independent Counsel, Office of
Independent Counsel, Offices of
Indian Affairs, Bureau of
Indian Affairs, Office of the Assistant Secretary

48,
48,
41,
41,
41,
41,
41,
41,

61
5
102
101
Subtitle F
300
304
303

41, 302
41, 301
30, IV
4, I
5, XVI
24, III
7, VIII; 9, II
2, LIX; 40, VIII
45, XVIII
2, III; 5, XLV; 45,
Subtitle A
42, IV
45, III
45, II, III, IV, X, XIII
45, X
45, II
48, 3
21, I
25, V
42, V
42, I
45, IV
2, XXX; 5, XXXVI; 6, I;
8, I
33, I; 46, I; 49, IV
46, III
19, I
44, I
5, XCVII
19, IV
49, XII
24, XXIV
2, XXIV; 5, LXV; 24,
Subtitle B
24, V, VI
24,
48,
12,
24,
24,

I
24
XVII
III
II, VIII, X, XX

24, IV
24,
24,
24,
24,

XII
IX
Subtitle A, VII
II, VIII, X, XX

24, IV
19, IV
8, V
28, VII
28, VI
25, I, V
25, VI

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CFR Title, Subtitle or
Chapter

Agency

Indian Arts and Crafts Board
Indian Health Service
Industry and Security, Bureau of
Information Resources Management, Office of
Information Security Oversight Office, National Archives and
Records Administration
Inspector General
Agriculture Department
Health and Human Services Department
Housing and Urban Development Department
Institute of Peace, United States
Inter-American Foundation
Interior, Department of
American Indians, Office of the Special Trustee
Endangered Species Committee
Federal Acquisition Regulation
Federal Property Management Regulations System
Fish and Wildlife Service, United States
Geological Survey
Indian Affairs, Bureau of
Indian Affairs, Office of the Assistant Secretary
Indian Arts and Crafts Board
Land Management, Bureau of
National Indian Gaming Commission
National Park Service
Natural Resource Revenue, Office of
Ocean Energy Management, Bureau of
Reclamation, Bureau of
Safety and Enforcement Bureau, Bureau of
Secretary of the Interior, Office of
Surface Mining Reclamation and Enforcement, Office of
Internal Revenue Service
International Boundary and Water Commission, United States
and Mexico, United States Section
International Development, United States Agency for
Federal Acquisition Regulation
International Development Cooperation Agency, United
States
International Joint Commission, United States and Canada
International Organizations Employees Loyalty Board
International Trade Administration
International Trade Commission, United States
Interstate Commerce Commission
Investment Security, Office of
James Madison Memorial Fellowship Foundation
Japan–United States Friendship Commission
Joint Board for the Enrollment of Actuaries
Justice, Department of
Alcohol, Tobacco, Firearms, and Explosives, Bureau of
Drug Enforcement Administration
Federal Acquisition Regulation
Federal Claims Collection Standards
Federal Prison Industries, Inc.
Foreign Claims Settlement Commission of the United
States
Immigration Review, Executive Office for
Independent Counsel, Offices of
Prisons, Bureau of
Property Management Regulations
Labor, Department of
Employee Benefits Security Administration
Employees’ Compensation Appeals Board
Employment and Training Administration
Employment Standards Administration
Federal Acquisition Regulation
Federal Contract Compliance Programs, Office of

25, II
25, V
15, VII
7, XXVII
32, XX

7, XXVI
42, V
24, XII, XV
22, XVII
5, LXIII; 22, X
2, XIV
25, VII
50, IV
48, 14
41, 114
50, I, IV
30, IV
25, I, V
25, VI
25, II
43, II
25, III
36, I
30, XII
30, V
43, I
30, II
2, XIV; 43, Subtitle A
30, VII
26, I
22, XI
22, II
48, 7
22, XII
22, IV
5, V
15, III; 19, III
19, II
5, XL
31, VIII
45, XXIV
22, XVI
20, VIII
2, XXVIII; 5, XXVIII;
28, I, XI; 40, IV
27, II
21, II
48, 28
31, IX
28, III
45, V
8, V
28, VI
28, V
41, 128
2, XXIX; 5, XLII
29, XXV
20, IV
20, V
20, VI
48, 29
41, 60

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CFR Title, Subtitle or
Chapter

Agency

Federal Procurement Regulations System
Labor-Management Standards, Office of
Mine Safety and Health Administration
Occupational Safety and Health Administration
Public Contracts
Secretary of Labor, Office of
Veterans’ Employment and Training Service, Office of the
Assistant Secretary for
Wage and Hour Division
Workers’ Compensation Programs, Office of
Labor-Management Standards, Office of
Land Management, Bureau of
Legal Services Corporation
Libraries and Information Science, National Commission on
Library of Congress
Copyright Royalty Board
U.S. Copyright Office
Local Television Loan Guarantee Board
Management and Budget, Office of
Marine Mammal Commission
Maritime Administration
Merit Systems Protection Board
Micronesian Status Negotiations, Office for
Military Compensation and Retirement Modernization
Commission
Millennium Challenge Corporation
Mine Safety and Health Administration
Minority Business Development Agency
Miscellaneous Agencies
Monetary Offices
Morris K. Udall Scholarship and Excellence in National
Environmental Policy Foundation
Museum and Library Services, Institute of
National Aeronautics and Space Administration
Federal Acquisition Regulation
National Agricultural Library
National Agricultural Statistics Service
National and Community Service, Corporation for
National Archives and Records Administration
Information Security Oversight Office
National Capital Planning Commission
National Counterintelligence Center
National Credit Union Administration
National Crime Prevention and Privacy Compact Council
National Drug Control Policy, Office of
National Endowment for the Arts
National Endowment for the Humanities
National Foundation on the Arts and the Humanities
National Geospatial-Intelligence Agency
National Highway Traffic Safety Administration
National Imagery and Mapping Agency
National Indian Gaming Commission
National Institute of Food and Agriculture
National Institute of Standards and Technology
National Intelligence, Office of Director of
National Labor Relations Board
National Marine Fisheries Service
National Mediation Board
National Oceanic and Atmospheric Administration
National Park Service
National Railroad Adjustment Board
National Railroad Passenger Corporation (AMTRAK)
National Science Foundation
Federal Acquisition Regulation
National Security Council

41,
29,
30,
29,
41,
29,
41,

50
II, IV
I
XVII
50
Subtitle A
61; 20, IX

29, V
20, I, VII
29, II, IV
43, II
45, XVI
45, XVII
36, VII
37, III
37, II
7, XX
5, III, LXXVII; 14, VI;
48, 99
50, V
46, II
5, II, LXIV
32, XXVII
5, XCIX
22, XIII
30, I
15, XIV
1, IV
31, I
36, XVI
2, XXXI
2, XVIII; 5, LIX; 14, V
48, 18
7, XLI
7, XXXVI
2, XXII; 45, XII, XXV
2, XXVI; 5, LXVI; 36,
XII
32, XX
1, IV, VI
32, XVIII
5, LXXXVI; 12, VII
28, IX
2, XXXVI; 21, III
2, XXXII
2, XXXIII
45, XI
32, I
23, II, III; 47, VI; 49, V
32, I
25, III
7, XXXIV
15, II; 37, IV
5, IV; 32, XVII
5, LXI; 29, I
50, II, IV
5, CI; 29, X
15, IX; 50, II, III, IV, VI
36, I
29, III
49, VII
2, XXV; 5, XLIII; 45, VI
48, 25
32, XXI

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CFR Title, Subtitle or
Chapter

Agency

National Security Council and Office of Science and
Technology Policy
National Technical Information Service
National Telecommunications and Information
Administration
National Transportation Safety Board
Natural Resources Conservation Service
Natural Resource Revenue, Office of
Navajo and Hopi Indian Relocation, Office of
Navy, Department of
Federal Acquisition Regulation
Neighborhood Reinvestment Corporation
Northeast Interstate Low-Level Radioactive Waste
Commission
Nuclear Regulatory Commission
Federal Acquisition Regulation
Occupational Safety and Health Administration
Occupational Safety and Health Review Commission
Ocean Energy Management, Bureau of
Oklahoma City National Memorial Trust
Operations Office
Overseas Private Investment Corporation
Patent and Trademark Office, United States
Payment From a Non-Federal Source for Travel Expenses
Payment of Expenses Connected With the Death of Certain
Employees
Peace Corps
Pennsylvania Avenue Development Corporation
Pension Benefit Guaranty Corporation
Personnel Management, Office of
Human Resources Management and Labor Relations
Systems, Department of Homeland Security
Federal Acquisition Regulation
Federal Employees Group Life Insurance Federal
Acquisition Regulation
Federal Employees Health Benefits Acquisition Regulation
Pipeline and Hazardous Materials Safety Administration
Postal Regulatory Commission
Postal Service, United States
Postsecondary Education, Office of
President’s Commission on White House Fellowships
Presidential Documents
Presidio Trust
Prisons, Bureau of
Privacy and Civil Liberties Oversight Board
Procurement and Property Management, Office of
Public Contracts, Department of Labor
Public and Indian Housing, Office of Assistant Secretary for
Public Health Service
Railroad Retirement Board
Reclamation, Bureau of
Refugee Resettlement, Office of
Relocation Allowances
Research and Innovative Technology Administration
Rural Business-Cooperative Service
Rural Development Administration
Rural Housing Service
Rural Telephone Bank
Rural Utilities Service
Safety and Environmental Enforcement, Bureau of
Saint Lawrence Seaway Development Corporation
Science and Technology Policy, Office of
Science and Technology Policy, Office of, and National
Security Council
Secret Service
Securities and Exchange Commission

47, II
15, XI
15, XXIII; 47, III, IV, V
49, VIII
7, VI
30, XII
25, IV
32, VI
48, 52
24, XXV
10, XVIII
2, XX; 5, XLVIII; 10, I
48, 20
29, XVII
29, XX
30, V
36, XV
7, XXVIII
5, XXXIII; 22, VII
37, I
41, 304
41, 303
2, XXXVII; 22, III
36, IX
29, XL
5, I, XXXV; 5, IV; 45,
VIII
5, XCVII
48, 17
48, 21
48, 16
49, I
5, XLVI; 39, III
5, LX; 39, I
34, VI
1, IV
3
36, X
28, V
6, X
7, XXXII
41, 50
24, IX
42, I
20, II
43, I
45, IV
41, 302
49, XI
7, XVIII, XLII
7, XLII
7, XVIII, XXXV
7, XVI
7, XVII, XVIII, XLII
30, II
33, IV
32, XXIV
47, II
31, IV
5, XXXIV; 17, II

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CFR Title, Subtitle or
Chapter

Agency

Selective Service System
Small Business Administration
Smithsonian Institution
Social Security Administration
Soldiers’ and Airmen’s Home, United States
Special Counsel, Office of
Special Education and Rehabilitative Services, Office of
State, Department of
Federal Acquisition Regulation
Surface Mining Reclamation and Enforcement, Office of
Surface Transportation Board
Susquehanna River Basin Commission
Tennessee Valley Authority
Trade Representative, United States, Office of
Transportation, Department of
Commercial Space Transportation
Emergency Management and Assistance
Federal Acquisition Regulation
Federal Aviation Administration
Federal Highway Administration
Federal Motor Carrier Safety Administration
Federal Railroad Administration
Federal Transit Administration
Maritime Administration
National Highway Traffic Safety Administration
Pipeline and Hazardous Materials Safety Administration
Saint Lawrence Seaway Development Corporation
Secretary of Transportation, Office of
Transportation Statistics Bureau
Transportation, Office of
Transportation Security Administration
Transportation Statistics Bureau
Travel Allowances, Temporary Duty (TDY)
Treasury, Department of the
Alcohol and Tobacco Tax and Trade Bureau
Community Development Financial Institutions Fund
Comptroller of the Currency
Customs and Border Protection
Engraving and Printing, Bureau of
Federal Acquisition Regulation
Federal Claims Collection Standards
Federal Law Enforcement Training Center
Financial Crimes Enforcement Network
Fiscal Service
Foreign Assets Control, Office of
Internal Revenue Service
Investment Security, Office of
Monetary Offices
Secret Service
Secretary of the Treasury, Office of
Truman, Harry S. Scholarship Foundation
United States and Canada, International Joint Commission
United States and Mexico, International Boundary and Water
Commission, United States Section
U.S. Copyright Office
Utah Reclamation Mitigation and Conservation Commission
Veterans Affairs, Department of
Federal Acquisition Regulation
Veterans’ Employment and Training Service, Office of the
Assistant Secretary for
Vice President of the United States, Office of
Wage and Hour Division
Water Resources Council
Workers’ Compensation Programs, Office of
World Agricultural Outlook Board

32, XVI
2, XXVII; 13, I
36, V
2, XXIII; 20, III; 48, 23
5, XI
5, VIII
34, III
2, VI; 22, I; 28, XI
48, 6
30, VII
49, X
18, VIII
5, LXIX; 18, XIII
15, XX
2, XII; 5, L
14, III
44, IV
48, 12
14, I
23, I, II
49, III
49, II
49, VI
46, II
23, II, III; 47, IV; 49, V
49, I
33, IV
14, II; 49, Subtitle A
49, XI
7, XXXIII
49, XII
49, XI
41, 301
2, X;5, XXI; 12, XV; 17,
IV; 31, IX
27, I
12, XVIII
12, I
19, I
31, VI
48, 10
31, IX
31, VII
31, X
31, II
31, V
26, I
31, VIII
31, I
31, IV
31, Subtitle A
45, XVIII
22, IV
22, XI
37, II
43, III
2, VIII; 38, I
48, 8
41, 61; 20, IX
32, XXVIII
29, V
18, VI
20, I, VII
7, XXXVIII

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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, 2014 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.govinfo.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.govinfo.gov.

2014

24 CFR—Continued

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

Chapter II—Continued
203 Authority citation revised ...... 51468
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

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24 CFR (4–1–19 Edition)

24 CFR—Continued

24 CFR—Continued

80 FR
Page

Chapter II—Continued
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

2017
24 CFR

2016
24 CFR

82 FR
Page

Chapter II
206 Revised; eff. 9-19-17 ................... 7117

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

2018
24 CFR

83 FR
Page

Chapter II
200.145 (c) added ............................ 31042
200.170—200.172 Undesignated
center heading and sections removed ...................................... 31042
203.18 (a)(3) removed; (a)(4) redesignated as new (a)(3).................. 64272
203.50 (f)(1) revised ........................ 64272
203.200—203.209 Undesignated
center heading and sections removed ...................................... 64272
Chapter III
330 Policy statement .................... 31042

2019
(No regulations published from
January 1, 2019, through April 1, 2019)

Æ

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Chapter II—Continued
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

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