[Title 24 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2009 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          24


          Parts 200 to 499

          Revised as of April 1, 2009


          Housing and Urban Development
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2009
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



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

  Title 24:
    SUBTITLE B--Regulations Relating to Housing and Urban 
      Development (Continued)
          Chapter II--Office of Assistant Secretary for 
          Housing--Federal Housing Commissioner, Department of 
          Housing and Urban Development                              5
          Chapter III--Government National Mortgage 
          Association, Department of Housing and Urban 
          Development                                              567
          Chapter IV--Office of Housing and Office of 
          Multifamily Housing Assistance Restructuring, 
          Department of Housing and Urban Development              585
  Finding Aids:
      Table of CFR Titles and Chapters........................     619
      Alphabetical List of Agencies Appearing in the CFR......     639
      List of CFR Sections Affected...........................     649

[[Page iv]]





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

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

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

[[Page v]]



                               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 
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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 
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[[Page vi]]

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the revision dates of the 50 CFR titles.




[[Page vii]]



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    Office of the Federal Register.
    April 1, 2009.







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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, 2009.

    For this volume, Susannah C. Hurley was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.


[[Page 1]]



                 TITLE 24--HOUSING AND URBAN DEVELOPMENT




                  (This book contains parts 200 to 499)

  --------------------------------------------------------------------
                                                                    Part

   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.........................................         200

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

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

[[Page 3]]

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

[[Page 5]]



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




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


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

                          SUBCHAPTER A--GENERAL
Part                                                                Page
200             Introduction to FHA programs................           7
   SUBCHAPTER B--MORTGAGE AND LOAN INSURANCE PROGRAMS UNDER NATIONAL 
                    HOUSING ACT AND OTHER AUTHORITIES
201             Title I property improvement and 
                    manufactured home loans.................          97
202             Approval of lending institutions and 
                    mortgagees..............................         130
203             Single family mortgage insurance............         141
204             Coinsurance.................................         251
206             Home equity conversion mortgage insurance...         252
207             Multifamily housing mortgage insurance......         274
208             Electronic transmission of required data for 
                    certification and recertification and 
                    subsidy billing procedures for 
                    multifamily subsidized projects.........         285
213             Cooperative housing mortgage insurance......         287
214             Housing counseling program..................         295
219             Flexible subsidy program for troubled 
                    projects................................         306
220             Mortgage insurance and insured improvement 
                    loans for urban renewal and concentrated 
                    development areas.......................         306
221             Low cost and moderate income mortgage 
                    insurance--Savings clause...............         315
231             Housing mortgage insurance for the elderly..         325
232             Mortgage insurance for nursing homes, 
                    intermediate care facilities, board and 
                    care homes, and assisted living 
                    facilities..............................         326
234             Condominium ownership mortgage insurance....         340

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235             Mortgage insurance and assistance payments 
                    for home ownership and project 
                    rehabilitation..........................         348
236             Mortgage insurance and interest reduction 
                    payment for rental projects.............         367
241             Supplementary financing for insured project 
                    mortgages...............................         382
242             Mortgage insurance for hospitals............         403
244             Mortgage insurance for group practice 
                    facilities [Title XI]...................         429
245             Tenant participation in multifamily housing 
                    projects................................         429
246             Local rent control..........................         441
247             Evictions from certain subsidized and HUD-
                    owned projects..........................         447
248             Prepayment of low income housing mortgages..         450
251             Coinsurance for the construction or 
                    substantial rehabilitation of 
                    multifamily housing projects............         500
252             Coinsurance of mortgages covering nursing 
                    homes, intermediate care facilities, and 
                    board and care homes....................         502
255             Coinsurance for the purchase or refinancing 
                    of existing multifamily housing projects         504
266             Housing finance agency risk-sharing program 
                    for insured affordable multifamily 
                    project loans...........................         505
    SUBCHAPTER C--PLANNING ASSISTANCE TO HOUSING SPONSORS [RESERVED]
       SUBCHAPTER D--PUBLICLY FINANCED HOUSING PROGRAMS [RESERVED]
                      SUBCHAPTER E--GRANT PROGRAMS
280             Nehemiah Housing Opportunity Grants Program.         531
                       SUBCHAPTERS F-H [RESERVED]
                   SUBCHAPTER I--HUD-OWNED PROPERTIES
290             Disposition of multifamily projects and sale 
                    of HUD-held multifamily mortgages.......         538
291             Disposition of HUD-acquired single family 
                    property................................         548

[[Page 7]]



                          SUBCHAPTER A_GENERAL





PART 200_INTRODUCTION TO FHA PROGRAMS--Table of Contents




Sec.
200.1 Purpose.

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

200.3 Definitions.

                           Eligible Mortgagor

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

                           Eligible Mortgagee

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

                            Eligible Mortgage

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

                Miscellaneous Project Mortgage Insurance

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

                 Miscellaneous Cross Cutting Regulations

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

                            Fees and Charges

200.40 HUD fees.
200.41 Maximum mortgagee fees and charges.

                         Commitment Applications

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

                Requirements Incident to Insured Advances

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

                          General Requirements

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

                          Property Requirements

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

                           Mortgage Provisions

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

                           Cost Certification

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

                               Endorsement

200.100 Insurance endorsement.
200.101 Mortgagor lien certificate.

[[Page 8]]

                        Regulation of Mortgagors

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

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

200.120 Purpose and applicability.
200.121 Requirements and effectiveness.

Subparts C-D [Reserved]

         Subpart E_Mortgage Insurance Procedures and Processing

                        Application for Insurance

200.145 Property and mortgage assessment.

                            Claims for Losses

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

  Subpart F_Placement and Removal Procedures for Participation in FHA 
                                Programs

                          FHA Inspector Roster

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

             Section 203(k) Rehabilitation Loan Consultants

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

                         Nonprofit Organizations

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

                       Subpart G_Appraiser Roster

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

           Subpart H_Participation and Compliance Requirements

          Previous Participation Review and Clearance Procedure

200.210 Policy.
200.213 Applicability of procedure.
200.215 Definitions.
200.217 Filing of previous participation certificate on prescribed form.
200.218 Who must certify and sign.
200.219 Content of certification.
200.222 Certification of previous record on basis of a master list.
200.224 Multifamily Participation Review Committee and Participation 
          Control Officer.
200.225 Approvals by Area Managers for limited partners.
200.226 Determination by the Participation Control Officer.
200.227 Multifamily Participation Review Committee.
200.228 Determination by the Review Committee.
200.229 Withholding approval.
200.230 Standards for disapproval.
200.233 Effect and requirement of approval.
200.236 Modification or withdrawal of certain approvals.
200.239 Notice of determination.
200.241 Request for reconsideration of an adverse determination and 
          request for a hearing.
200.243 Hearing rules--How and when to apply.
200.245 Hearing Officer determines facts and law: Review Committee makes 
          final administrative decision.

              Subpart I_Nondiscrimination and Fair Housing

200.300 Nondiscrimination and fair housing policy.

                 Subpart J_Equal Employment Opportunity

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

Subparts K-L [Reserved]

[[Page 9]]

        Subpart M_Affirmative Fair Housing Marketing Regulations

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

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

Subpart N [Reserved]

             Subpart O_Lead-Based Paint Poisoning Prevention

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

         Subpart P_Physical Condition of Multifamily Properties

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

Subpart R [Reserved]

                  Subpart S_Minimum Property Standards

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

[[Page 10]]

          fenestration products (windows and doors).

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

200.1001 Cross-reference.

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

200.1101 Cross-reference.

  Subpart V_Income Information; Assistance Applicants and Participants

200.1201 Cross-reference.

                    Subpart W_Administrative Matters

200.1301 Expiring Programs--Savings Clause.
200.1302 Additional 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 Sanctions against a MAP lender.
200.1505 Warning letter.
200.1510 Probation.
200.1515 Suspension of MAP privileges.
200.1520 Termination of MAP privileges.
200.1525 Settlement agreements.
200.1530 Bases for sanctioning a MAP lender.
200.1535 MAP Lender Review Board.
200.1540 Imminent harm notice of action.
200.1545 Appeals of MAP Lender Review Board decisions.

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

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

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

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



Sec. 200.1  Purpose.

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

[61 FR 14398, Apr. 1, 1996]



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

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



Sec. 200.3  Definitions.

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

[[Page 11]]

                           Eligible Mortgagor



Sec. 200.5  Eligible mortgagor.

    The mortgagor shall be a natural person or entity acceptable to the 
Commissioner, as limited by the applicable section of the Act, and shall 
possess the powers necessary and incidental to operating the project.



Sec. 200.6  Employer identification and social security numbers.

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

                           Eligible Mortgagee



Sec. 200.10  Lender requirements.

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

[62 FR 20081, Apr. 24, 1997]



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

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

                            Eligible Mortgage



Sec. 200.15  Maximum mortgage.

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

[73 FR 17239, Mar. 31, 2008]



Sec. 200.16  Project mortgage adjustments and reductions.

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



Sec. 200.17  Mortgage coverage.

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



Sec. 200.18  Minimum loan prohibition.

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

                Miscellaneous Project Mortgage Insurance



Sec. 200.20  Refinancing insured mortgages.

    An existing mortgage insured under the Act, or an existing mortgage 
held by the Secretary that is subject to a mortgage restructuring and 
rental assistance sufficiency plan under the Multifamily Assisted 
Housing Reform and Affordability Act, 42 U.S.C. 1437f note (MAHRA), may 
be refinanced pursuant to section 223(a)(7) of the Act and such terms 
and conditions as may be established by the Commissioner. The term of 
such refinancing in connection with the implementation of an approved 
restructuring plan under section 401, subpart C of this title, may be up 
to, but not more than, 30 years.

[72 FR 66037, Nov. 26, 2007]



Sec. 200.21  Reinsurance of Commissioner held mortgages.

    Any mortgage assigned to the Commissioner in connection with payment 
under a contract of mortgage insurance, or executed in connection with a

[[Page 12]]

sale by the Commissioner of any property acquired under any section or 
title of the Act, may be insured pursuant to provisions of section 
223(c) of the Act and such terms and conditions established by the 
Commissioner.



Sec. 200.22  Operating loss loans.

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



Sec. 200.23  Projects in declining neighborhoods.

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



Sec. 200.24  Existing projects.

    A mortgage financing the purchase or refinance of an existing rental 
housing project 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.

[72 FR 67545, Nov. 28, 2007]



Sec. 200.25  Supplemental loans.

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

[72 FR 67545, Nov. 28, 2007]

                 Miscellaneous Cross Cutting Regulations



Sec. 200.30  Nondiscrimination and equal opportunity.

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



Sec. 200.31  Debarment and suspension.

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

[72 FR 73494, Dec. 27, 2007]



Sec. 200.32  Participation and compliance requirements.

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



Sec. 200.33  Labor standards

    (a) The requirements set forth in 29 CFR parts 1, 3 and 5 for 
compliance with labor standards laws apply to projects under these 
programs to the extent that labor standards apply as provided in section 
212 of the Act, provided that:
    (1) The labor standards provisions do not apply to projects insured 
under sections 207 or 232 pursuant to section 223(f) of the Act; and
    (2) Supplemental loans under section 241 of the Act are subject to 
the provisions of section 212 applicable to the section or title 
pursuant to which the mortgage covering the project is insured or 
pursuant to which the original mortgage was insured.
    (b) The requirements set forth in 24 CFR part 70 apply to those 
programs with respect to which there is a statutory provision allowing 
HUD waiver of Davis-Bacon prevailing wage rates for volunteers.
    (c) Project commitments, contracts and agreements, as determined by 
the Commissioner, and construction contracts and subcontracts, shall 
include terms, conditions and standards for compliance with applicable 
requirements set forth in 29 CFR parts 1, 3 and 5 and section 212 of the 
Act.
    (d) No advance under a loan or mortgage that is subject to the 
requirements of section 212 shall be eligible for insurance unless there 
is filed with

[[Page 13]]

the application for the advance a certificate as required by the 
Commissioner certifying that the laborers and mechanics employed in 
construction of the project have been paid not less than the wage rates 
required under section 212.



Sec. 200.34  Property and mortgage assessment.

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



Sec. 200.35  Appraisal standards--nondiscrimination requirements.

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



Sec. 200.36  Financial reporting requirements.

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

[63 FR 46592, Sept. 1, 1998]



Sec. 200.37  Preventing crime in federally assisted housing.

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

[66 FR 28797, May 24, 2001]

                            Fees and Charges



Sec. 200.40  HUD fees.

    The following fees apply to mortgages to be insured under this part.
    (a) Application fee--SAMA letter (for new construction). An 
application fee of $1 per thousand dollars of the requested mortgage 
shall accompany the application for a SAMA letter. An additional fee of 
$1 per thousand dollars of the requested mortgage amount shall be 
charged for the review of plans and specifications.
    (b) Application fee--feasibility letter (for substantial 
rehabilitation). An application fee of $3 per thousand dollars of the 
requested mortgage amount shall accompany the application for a 
feasibility letter.
    (c) Application fee--conditional commitment. For a mortgage being 
insured under section 223(f) of the Act (12 U.S.C. 1715n), an 
application-commitment fee of $3 per thousand dollars of the requested 
mortgage amount shall accompany an application for conditional 
commitment.
    (d) Application fee--firm commitment: General. An application for 
firm commitment shall be accompanied by an application-commitment fee 
which, when added to any prior fees received in connection with 
applications for a SAMA letter or a feasibility letter, will aggregate 
$5 per thousand dollars of the requested mortgage amount to be insured. 
The payment of an application-commitment fee shall not be required in 
connection with an insured mortgage involving the sale by the government 
of housing or property acquired, held, or contracted pursuant to the 
Atomic Energy Community Act of 1955 (42 U.S.C. 2301 et seq.).
    (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

[[Page 14]]

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

[[Page 15]]

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]



Sec. 200.41  Maximum mortgagee fees and charges.

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

                         Commitment Applications



Sec. 200.45  Processing of applications.

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

[[Page 16]]

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

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

[61 FR 14415, Apr. 1, 1996]



Sec. 200.46  Commitment issuance.

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



Sec. 200.47  Firm commitments.

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

[[Page 17]]

mortgage money advanced in accordance with terms and conditions 
established by the Commissioner during: construction; substantial 
rehabilitation; or other work acceptable to the Commissioner.

                Requirements Incident to Insured Advances



Sec. 200.50  Building loan agreement.

    The mortgagor and mortgagee must execute a building loan agreement 
approved by the Commissioner, that sets forth the terms and conditions 
under which progress payments may be advanced during construction, 
before initial endorsement of the mortgage for insurance.



Sec. 200.51  Mortgagee certificate.

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



Sec. 200.52  Construction contract.

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



Sec. 200.53  Initial operating funds.

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



Sec. 200.54  Project completion funding.

    The mortgagor shall deposit with the mortgagee cash deemed by the 
Commissioner to be sufficient, when added to the proceeds of the insured 
mortgage, to assure completion of the project and to pay the initial 
service charge, carrying charges, and legal and organizational expenses 
incident to the construction of the project. The Commissioner may accept 
a lesser cash deposit or an alternative to a cash deposit in accordance 
with terms and conditions established by the Commissioner, where the 
required funding is to be provided by a grant or loan from a Federal, 
State, or local government agency or instrumentality.
    (a) An agreement acceptable to the Commissioner shall require that 
funds provided by the mortgagor under requirements of this section must 
be disbursed in full for project work, material and incidental charges 
and expenses before disbursement of any mortgage proceeds, except;
    (b) Low-income housing tax credit syndication proceeds, historic tax 
credit syndication proceeds, or funds provided by a grant or loan from a 
federal, state, or local governmental agency or instrumentality under 
requirements of this section need not be fully disbursed before the 
disbursement of mortgage proceeds, where approved by the Commissioner in 
accordance with terms, conditions, and standards established by the 
Commissioner.

[61 FR 14399, Apr. 1, 1996, as amended at 68 FR 44845, July 30, 2003]



Sec. 200.55  Financing fees and charges.

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



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

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

[[Page 18]]

                          General Requirements



Sec. 200.60  Assurance of completion for offsite facilities.

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



Sec. 200.61  Title.

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



Sec. 200.62  Certifications.

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



Sec. 200.63  Required deposits and letters of credit.

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

                          Property Requirements



Sec. 200.70  Location and fee interest.

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



Sec. 200.71  Liens.

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



Sec. 200.72  Zoning, deed and building restrictions.

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

[[Page 19]]



Sec. 200.73  Property development.

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



Sec. 200.74  Minimum property standards.

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



Sec. 200.75  Environmental quality determinations and standards.

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



Sec. 200.76  Smoke detectors.

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



Sec. 200.77  Lead-based paint poisoning prevention.

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



Sec. 200.78  Energy conservation.

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

                           Mortgage Provisions



Sec. 200.80  Mortgage form.

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



Sec. 200.81  Disbursement of mortgage proceeds.

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



Sec. 200.82  Maturity.

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

[[Page 20]]



Sec. 200.83  Interest rate.

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



Sec. 200.84  Payment requirements.

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



Sec. 200.85  Covenant against liens.

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



Sec. 200.86  Covenant for fire and other hazard insurance.

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



Sec. 200.87  Mortgage prepayment.

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

[[Page 21]]

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



Sec. 200.88  Late charge.

    The mortgage may provide for the collection by the mortgagee of a 
late charge in accordance with terms, conditions and standards of the 
Commissioner for each dollar of each payment to interest or principal 
more than 15 days in arrears to cover the expense involved in handling 
delinquent payments. Late charges shall be separately charged to and 
collected from the mortgagor and shall not be deducted from any 
aggregate monthly payment.

                           Cost Certification



Sec. 200.95  Certification of cost requirements.

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



Sec. 200.96  Certificates of actual cost.

    (a) The mortgagor's certificate of actual cost, in a form prescribed 
by the Commissioner, shall be submitted upon completion of the physical 
improvements to the satisfaction of the Commissioner and before final 
endorsement, except that in the case of an existing project that does 
not require substantial rehabilitation and where the commitment provides 
for completion of specified repairs after endorsement, a supplemental 
certificate of actual cost will be submitted covering the completed 
costs of any such repairs. The certificate shall show the actual cost to 
the mortgagor, after deduction of any kickbacks, rebates, trade 
discounts, or other similar payments to the mortgagor, or to any of its 
officers, directors, stockholders,

[[Page 22]]

partners or other entity member ownership, of construction and other 
costs, as prescribed by the Commissioner.
    (b) The Certificate of Actual Cost shall be verified by an 
independent Certified Public Accountant or independent public accountant 
in a manner acceptable to the Commissioner.
    (c) Upon the Commissioner's approval of the mortgagor's 
certification of actual cost such certification shall be final and 
incontestable except for fraud or material misrepresentation on the part 
of the mortgagor.



Sec. 200.97  Adjustments resulting from cost certification.

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

                               Endorsement



Sec. 200.100  Insurance endorsement.

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



Sec. 200.101  Mortgagor lien certificate.

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

[[Page 23]]

the mortgage transaction, the purchase of the mortgaged property, the 
construction or rehabilitation of the project or the purchase of the 
equipment financed with mortgage proceeds.

                        Regulation of Mortgagors



Sec. 200.105  Mortgagor supervision.

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

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



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

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

[65 FR 61074, Oct. 13, 2000]



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

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



Sec. 200.120  Purpose and applicability.

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



Sec. 200.121  Requirements and effectiveness.

    (a) Multifamily mortgagees, which are required by 24 CFR part 207 to 
report mortgage delinquencies, defaults, reinstatements, assignment 
elections, withdrawals of assignment elections, and related information, 
must submit this information electronically, over the Internet, in 
accordance with the following schedule of effectiveness:
    (1) Mortgagees having 70 or more insured mortgage loans must comply 
with this section by no later than March 1, 1999;

[[Page 24]]

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

Subparts C-D [Reserved]



         Subpart E_Mortgage Insurance Procedures and Processing

                        Application for Insurance



Sec. 200.145  Property and mortgage assessment.

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

[61 FR 14404, Apr. 1, 1996]

                            Claims for Losses



Sec. 200.153  Presentation of claim.

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

[61 FR 14404, Apr. 1, 1996]



Sec. 200.156  Settlement of claims.

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

[61 FR 14404, Apr. 1, 1996]



Sec. 200.157  Provisions and characteristics of debentures.

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

[[Page 25]]

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

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



Sec. 200.158  Applicability of Treasury regulations to debenture 
transactions.

    The Department of the Treasury acts as fiscal agent for the 
Commissioner in connection with transactions and operations relating to 
debentures. Treasury's General Regulations Governing U.S. Securities (31 
CFR part 306) and its Supplemental Regulations Governing Federal Housing 
Administration Debentures (31 CFR part 337) have been and are adopted as 
revised and amended, to the extent applicable, as the regulations of the 
Commissioner governing the issuance of, transactions in and redemption 
of debentures, including the payment of interest thereon with the 
following exceptions:

[[Page 26]]

    (a) Payment of final interest on maturing or called debentures. If 
the notice of maturity or call for redemption shall so provide, the 
final installment of interest payable on any debentures at maturity or 
earlier redemption date may be paid with the principal in accordance 
with the assignments on the debentures instead of by separate check 
drawn to the order of the registered payee and forwarded to him at his 
address of record.
    (b) Closing of transfer books. If the call for redemption shall so 
provide, the books maintained by the Treasury Department may be closed 
against transfers and denominational exchanges in debentures for three 
full months preceding any interest payment date with respect to any 
debentures called for redemption on such interest payment date.

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



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

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



Sec. 200.160  Redemption of debentures prior to maturity.

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



Sec. 200.161  Administration of debenture transactions.

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



Sec. 200.162  Certificates of claim.

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



  Subpart F_Placement and Removal Procedures for Participation in FHA 
                                Programs

                          FHA Inspector Roster

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



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

    (a) General. The FHA Inspector Roster (Roster) is a list of the 
inspectors selected by FHA as eligible to determine if the construction 
quality of a

[[Page 27]]

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



Sec. 200.171  Placement on the Inspector Roster.

    (a) Application. To be considered for placement on the Roster, an 
inspector must apply to HUD using an application (or materials) in a 
form prescribed by HUD.
    (b) Eligibility. To be eligible for placement on the Roster, an 
inspector must demonstrate the following to HUD:
    (1) A minimum of three years experience in one or more construction-
related fields;
    (2) Possession of an inspector's state or local license or 
certification, if licensing or certification is required by the state or 
local jurisdiction in which the inspector will operate;
    (3) Certification that the applicant inspector has read and fully 
understands the inspection requirements, including any update to those 
requirements, of:
    (i) HUD Handbook 4905.1 REV-1 (Requirements for Existing Housing, 
One to Four Family Units);
    (ii) HUD Handbook 4910.1 (Minimum Property Standards for Housing);
    (iii) HUD Handbook 4145.1 REV-2 (Architectural Processing and 
Inspections for Home Mortgage Insurance);
    (iv) HUD Handbooks 4150.1 and 4150.2 (Valuation Analysis for Home 
Mortgage Insurance);
    (v) HUD Handbook 4930.3G (Permanent Foundations Guide for 
Manufactured Housing);
    (vi) The applicable local, state, or Council of American Building 
Officials (CABO) code; and
    (vii) The HUD requirements at 24 CFR 200.926; and
    (4) Verification that the inspector has taken and passed HUD's 
comprehensive examination for inspectors, after such an examination 
becomes available. Inspectors who are included on the Roster on the date 
when the requirement for the examination becomes effective have until 
six months following that date to pass the comprehensive exam. Failure 
to pass the examination by the deadline date constitutes cause for 
removal under Sec. 200.172.

[[Page 28]]



Sec. 200.172  Removal from the Inspector Roster.

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

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

             Section 203(k) Rehabilitation Loan Consultants



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

    (a) Qualified consultant list. HUD maintains a list of qualified 
consultants for use in the rehabilitation loan insurance program 
authorized by section 203(k) of the National Housing Act (12 U.S.C. 
1709(k)) (referred to as the ``203(k) Program'').
    (b) Consultant functions. Only a consultant included on the list may 
be selected by the lender to conduct any consultant function under the 
203(k) Program (see Sec. 203.50(l) of this title).
    (c) Disclaimer. The inclusion of a consultant on the list means only 
that the consultant has met the qualifications and conditions prescribed 
by the Secretary for placement on the list of consultants qualified for 
the 203(k) Program. The inclusion of a consultant on

[[Page 29]]

the list does not create or imply a warranty or endorsement by HUD of 
the consultant, nor does it represent a warranty of any work performed 
by the consultant.

[67 FR 52380, Aug. 9, 2002]



Sec. 200.191  Placement of 203(k) consultant.

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

[67 FR 52380, Aug. 9, 2002]



Sec. 200.192  Removal of 203(k) consultant.

    (a) Cause for removal. HUD may remove a consultant from the list for 
any cause that HUD determines to be detrimental to HUD or its programs. 
Cause for removal includes, but is not limited to:
    (1) Poor performance on a HUD quality control field review;
    (2) Failure to comply with applicable regulations or other written 
instructions or standards issued by HUD;
    (3) Failure to comply with applicable Civil Rights requirements;
    (4) Being debarred or suspended, or subject to a limited denial of 
participation;
    (5) Misrepresentation or fraudulent statements;
    (6) Failure to retain standing as a state licensed architect or 
state-licensed engineer (unless the consultant can demonstrate the 
required three years experience as a home inspector or remodeling 
contractor);
    (7) Failure to retain standing as a state licensed home inspector, 
if the consultant is located in a sate that requires such licensing; or
    (8) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation.
    (b) Procedure for removal. A consultant that is debarred or 
suspended, or subject to a limited denial of participation will be 
automatically removed from the list. In all other cases, the following 
procedure for removal will be followed:
    (1) HUD will give the consultant written notice of the proposed 
removal. The notice will state the reasons for, and the duration of, the 
proposed removal.
    (2) The consultant will have 20 days from the date of the notice (or 
longer, if provided in the notice) to submit a written response 
appealing the proposed removal and to request a conference. A request 
for a conference must be in writing and must be submitted along with the 
written response.

[[Page 30]]

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

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



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

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

[67 FR 52381, Aug. 9, 2002]

                         Nonprofit Organization



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

    (a) Nonprofit Organization Roster. HUD maintains a roster of 
nonprofit organizations that are qualified to participate in certain 
specified FHA activities. In order to be recognized as a nonprofit 
organization for purposes of single family regulations in this chapter, 
an organization must:
    (1) Be included in the Roster; and
    (2) Comply with any requirements stated in a specific applicable 
provision of the single family regulations in this chapter.
    (b) Application. To be included in the Roster, a nonprofit 
organization must apply to HUD using an application (or materials) in a 
form prescribed by HUD (which may require an affordable housing program 
narrative for the activities the nonprofit organization proposes to 
carry out). The nonprofit organization must specify in its application 
the FHA activities it proposes to carry out.
    (c) HUD response to application. HUD's review of the application 
will result in one of the following:
    (1) Approval of the nonprofit organization to participate in all, or 
some, of the FHA activities specified in its application and the 
addition of the nonprofit organization to the Roster.
    (2) Rejection due to deficiencies in the application. HUD will 
provide the nonprofit organization with a period to correct these 
deficiencies.

[[Page 31]]

    (3) Rejection due to the nonprofit organization's failure to submit 
a program that complies with applicable single family regulations in 
this chapter, Mortgagee Letters, or other standards or instructions 
issued by HUD.
    (d) Reapplication after two years. The placement of a nonprofit 
organization on the Roster expires after two years. The nonprofit 
organization must reapply for placement on the Roster, in accordance 
with paragraph (b) of this section, before expiration of the two-year 
period.

[67 FR 39239, June 6, 2002]



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

    (a) Cause for removal. HUD may remove a nonprofit organization from 
the FHA Nonprofit Organization Roster established under Sec. 200.194. 
Removal may be for any cause that HUD determines to be detrimental to 
FHA or any of its programs, including but not limited to:
    (1) Failure to comply with applicable single family regulations in 
this chapter, Mortgagee Letters or other written instructions or 
standards issued by HUD;
    (2) Failure to comply with applicable Civil Rights requirements;
    (3) Holding a significant number of FHA-insured mortgages that are 
in default, foreclosure, or claim status (in determining the number 
considered ``significant,'' HUD may compare the number of insured 
mortgages held by the nonprofit organization against the similar 
holdings of other nonprofit organizations);
    (4) Being debarred or suspended, subject to a limited denial of 
participation, or otherwise sanctioned by HUD;
    (5) Failure to further all objectives described in the affordable 
housing program narrative;
    (6) Misrepresentation or fraudulent statements; or
    (7) Failure to respond within a reasonable time to HUD inquiries, 
including recertification requests or other requests for further 
documentation.
    (b) Procedure for removal. A nonprofit organization that is debarred 
or suspended or subject to a limited denial of participation will be 
automatically removed from the FHA Nonprofit Organization Roster. In all 
other cases, the following procedure for removal applies:
    (1) HUD will give the nonprofit organization written notice of the 
proposed removal. The notice will include the reasons for the proposed 
removal and the duration of the proposed removal.
    (2) The nonprofit organization will have 20 days from the date of 
the notice (or longer, if provided in the notice) to submit a written 
response appealing the proposed removal and to request a conference. A 
request for a conference must be in writing and must be submitted along 
with the written response.
    (3) A HUD official will review the appeal and provide an informal 
conference if requested. The HUD official will send a response either 
affirming, modifying, or canceling the removal. The HUD official will 
not be someone who was involved in HUD's initial removal decision. HUD 
will respond with a decision within 30 days of receiving the response, 
or, if the nonprofit organization has requested a conference, within 30 
days after the completion of the conference. HUD may extend the 30-day 
period by providing written notice to the nonprofit organization.
    (4) If the nonprofit organization does not submit a timely written 
response, the removal will be effective 20 days after the date of HUD's 
initial removal notice (or after a longer period provided in the 
notice). If a written response is submitted, and the initial removal 
decision is affirmed or modified, the removal will be effective on the 
date of HUD's notice affirming or modifying the initial removal 
decision.
    (c) Placement on the Roster after removal. A nonprofit organization 
that has been removed from the FHA Nonprofit Organization Roster may 
apply for placement on the Roster (in accordance with Sec. 200.194) 
after the nonprofit organization's removal from the Roster has expired. 
An application will be rejected if the period for the nonprofit 
organization's removal from the Roster has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against a nonprofit organization, as provided in 2 CFR 
part 2424, or from seeking any other remedy

[[Page 32]]

against a nonprofit organization, available to HUD by statute or 
otherwise.

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



                       Subpart G_Appraiser Roster

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



Sec. 200.200  What is the Appraiser Roster?

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



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

    (a) Application. To apply for placement on the Appraiser Roster, you 
must submit an application to HUD.
    (b) Eligibility. To be eligible for placement on the Appraiser 
Roster:
    (1) You must be a state-licensed or state-certified appraiser with 
credentials that complied with the applicable licensing or certification 
criteria established by the Appraiser Qualification Board (AQB) of the 
Appraisal Foundation and in effect at the time the license or 
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 Interactive Voice Response System.

[73 FR 1432, January 8, 2008]



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

    An unsatisfactory appraiser may be subject to removal, education 
requirements, or other actions, as follows:
    (a) Removal from the Appraiser Roster. HUD officials, as designated 
by the Secretary, may at any time remove a listed appraiser from the 
Appraiser Roster for cause, in accordance with paragraphs (a)(1) through 
(a)(3) of this section. The provisions of paragraphs (a)(1) through 
(a)(3) of this section do not apply to removal actions taken under any 
section in 2 CFR part 2424 or to any other remedy against an appraiser, 
available to HUD by statute or otherwise.
    (1) Cause for removal. Cause for removal includes, but is not 
limited to:
    (i) Significant deficiencies in appraisals, including non-compliance 
with Civil Rights requirements regarding appraisals;
    (ii) Losing standing as a state-certified or state-licensed 
appraiser due to disciplinary action in any state in which the appraiser 
is certified or licensed;
    (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 subpart or any other 
instructions or standards issued by HUD; or,
    (viii) Failure to comply with HUD-imposed education requirements 
under paragraph (d) of this section within the specified period for 
complying with such education requirements.

[[Page 33]]

    (2) Procedure for removal. If you are a listed appraiser and HUD 
decides to remove you for cause from the Appraiser Roster, the following 
procedure applies to you unless you have been issued a final debarment, 
suspension, or limited denial of participation, in which case you are 
subject to paragraph (a)(3) of this section:
    (i) You will be given written notice of your proposed removal. The 
notice will include the reasons for your proposed removal and the 
duration of your proposed removal.
    (ii) You will have 20 days from the date of your notice of proposed 
removal to submit a written response appealing the proposed removal and 
to request a conference. A request for a conference must be in writing 
and must be submitted along with a written response.
    (iii) Within 30 days of receiving your written response, or if you 
have requested a conference, within 30 days after the completion of your 
conference, a HUD official, designated by the Secretary, will review 
your appeal and will send you a final decision either affirming, 
modifying, or canceling your removal from the Appraiser Roster. HUD may 
extend this time upon giving you notice. The HUD official designated by 
the Secretary to review your appeal will not be someone involved in 
HUD's initial removal decision nor will it be someone who reports to a 
person involved in that initial decision.
    (iv) If you do not submit a written response, your removal will be 
effective 20 days after the date of HUD's initial removal notice. If you 
submit a written response, and the removal decision is affirmed or 
modified, your removal or modification will be effective on the date of 
HUD's notice affirming or modifying the initial removal decision.
    (3) Automatic removal for issuance of final debarment, suspension, 
or limited denial of participation. If you are a listed appraiser and 
you have been issued a final debarment, a suspension, or a limited 
denial of participation, the provisions of paragraph (a)(2) of this 
section do not apply to you, and you will be automatically removed from 
the Appraiser Roster.
    (b) Reinstatement. If an appraiser who has been removed from the 
Roster wants to be reinstated on the Roster, the appraiser must follow 
the procedures and requirements contained in this subpart for placement 
on the Roster. Before an appraiser is eligible to reapply for placement 
on the Roster, the appraiser shall comply with the terms of any 
applicable remedial training education requirements, and the time period 
for the appraiser's removal from the Roster shall have expired.
    (c) Automatic suspension from Appraiser Roster--(1) Appraisers 
subject to state disciplinary action. An appraiser whose state licensing 
or 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 licensing or 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 licensed or 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.

[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]



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

    All appraisers listed on the Appraiser Roster are responsible for:
    (a) Obtaining and reading the HUD Appraiser Handbook (4150.2) and 
any updates to the Handbook;

[[Page 34]]

    (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: 45 FR 54199, Aug. 14, 1980, unless otherwise noted.

          Previous Participation Review and Clearance Procedure



Sec. 200.210  Policy.

    It is the Department's policy that participants in its housing 
programs be responsible individuals and organizations who will honor 
their legal, financial and contractual obligations. Accordingly, uniform 
standards are established in this part for approval, disapproval, or 
withholding of action on principals in projects based upon their past 
performance as well as other aspects of their records.



Sec. 200.213  Applicability of procedure.

    The Previous Participation Review and Clearance procedure set forth 
in this part is administered by the Assistant Secretary for Housing-
Federal Housing Commissioner and is applicable to all principals and to 
their:
    (a) Projects already financed or which are proposed to be financed 
with a mortgage insured under the National Housing Act and projects 
subject to a mortgage held by the Secretary under that Act or projects 
acquired by the Secretary under that Act (FHA projects);
    (b) Projects financed or to be financed with direct loans or 
projects acquired by the Secretary pursuant to section 202 of the 
Housing Act of 1959 (Housing for the Elderly and Handicapped);
    (c) Projects in which 20% 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;
    (2) Rent Supplement payments under section 101 of the Housing and 
Urban Development Act of 1965;
    (3) Housing assistance payments under section 8 of the United States 
Housing Act of 1937 (with the exception of the programs described in 24 
CFR part 882, subparts A, B, C and F, and in 24 CFR part 887, which are 
tenant-based programs);
    (d) Sales of projects by the Secretary, including ``all cash'' 
sales.

[45 FR 54199, Aug. 14, 1980, as amended at 56 FR 50820, Oct. 9, 1991; 59 
FR 31522, June 20, 1994]



Sec. 200.215  Definitions.

    (a) Affiliate. Any person or business concern that directly or 
indirectly controls policy of a principal or has the power to do so is 
an affiliate. Persons and business concerns controlled by the same third 
party are also affiliates.
    (b) Felony. A felony is any offense punishable by imprisonment for a 
term exceeding one year, but does not include any offense classified as 
a misdemeanor under the laws of a State and punishable by a term of 
imprisonment of two years or less.
    (c) Packager or Consultant. A person or firm that furnishes or 
proposes to furnish advisory services in connection with the financing 
or construction of a project and the related HUD requirements. Such 
services may include, but are not limited to, the selection and 
negotiation of contracts with a general contractor, architect, attorney 
or management agent.
    (d) Participation Control Officer. (See Sec. 200.224)
    (e) Principal. (1) An individual, joint venture, partnership, 
corporation, trust, nonprofit association, or any other public or 
private entity proposing to participate, or participating, in a project 
as sponsor, owner, prime contractor, Turnkey Developer, management 
agent, nursing home administrator or operator, packager, or consultant; 
and architects and attorneys who have any interest in the project other 
than an arms-length fee arrangement for professional services.

[[Page 35]]

    (2) The term principal also includes: (i) Any affiliates of a 
principal; (ii) if the principal is a partnership, all general partners, 
and each limited partner having a 25 percent or more interest in the 
partnership; (iii) if the principal is a public or private corporation 
or governmental entity; the President, Vice-President, Secretary and 
Treasurer and any other executive officers who are directly responsible 
to the Board of Directors, or the equivalent thereof; all the directors; 
and each stockholder having a 10 percent or more interest.
    (3) Specifically excepted from this definition of a principal are: 
(i) Parties whose sole interest is that of purchaser or owner of less 
than five individual unit(s) in the same condominium or cooperative 
development; (ii) parties whose sole interest is that of a tenant; and 
(iii) Public Housing Agencies.
    (f) Project. A project is: (1) Five or more residential units 
covered by a single mortgage, loan or contract of assistance; (2) a 
hospital, group practice facility or nursing home; (3) cooperative and 
condominium developments; and (4) a subdivision being developed and 
financed with a mortgage under title X of the National Housing Act.
    (g) Review Committee. (See Sec. Sec. 200.224 and 200.93).
    (h) Risk. In order to determine whether a participant's 
participation in a project would constitute an unacceptable risk, the 
following factors must be considered: Financial stability; previous 
performance in accordance with HUD statutes, regulations, and program 
requirements; general business practices; or other factors which 
indicate to the MPRC that the principal could not be expected to operate 
the project in a manner consistent with furthering the Department's 
purpose of supporting and providing decent, safe and affordable housing 
for the public.

[45 FR 54199, Aug. 14, 1980, as amended at 56 FR 50820, Oct. 9, 1991]



Sec. 200.217  Filing of previous participation certificate on 
prescribed form.

    (a) Effective October 11, 2005, or on such later date as may be 
allowed by HUD, all principals in HUD multifamily mortgage and project 
based subsidy programs must submit an electronic Previous Participation 
Certificate (form HUD-2530) via HUD's secure web server as a condition 
prerequisite to new or revised participation. Prior to this date, 
principals are required to file form HUD-2530 as a condition 
prerequisite to new or revised participation. Filing requirements are as 
prescribed by the Assistant Secretary for Housing-Federal Housing 
Commissioner at the occurrence of any of the events below:
    (1) With an Application for a Site Appraisal/Market Analysis Letter, 
Feasibility Letter, Conditional Commitment for Mortgage Insurance, or 
Firm Commitment for Mortgage Insurance, whichever application is first 
filed, for projects to be financed or refinanced with mortgages insured 
under the National Housing Act;
    (2) With an Application for a Fund Reservation for projects financed 
or to be financed with direct loans or capital advances under section 
202 of the Housing Act of 1959 (Housing for the Elderly and 
Handicapped);
    (3) With an Application for a Fund Reservation for projects financed 
or to be financed with direct loans or capital advances under Section 
811 of the Cranston-Gonzales National Affordable Housing Act (Supportive 
Housing for Persons with Disabilities);
    (4) With the first request for a reservation of funds for assistance 
payments for projects in which 20 percent or more of the units are to 
receive a subsidy described in Sec. 200.213(c);
    (5) With an Application for any Transfer of Physical Assets;
    (6) With a request to assume any existing Housing Assistance 
Payments Contract, Interest Reduction Contract, Rent Supplement 
Contract, or Rental Assistance Payments Contract;
    (7) With a request to change ownership of a property regulated or 
controlled by a HUD ``use agreement'';
    (8) With an application or request to change the approved lessee 
operating a nursing home, assisted living, or skilled care facility;
    (9) With a bid to purchase a project being sold at foreclosure by 
HUD or by a foreclosure commissioner acting for HUD, when the terms of 
the sale permit HUD to disapprove a bidder;
    (10) With a bid to purchase a Secretary-owned project;

[[Page 36]]

    (11) With a bid to purchase a mortgage note held by the 
Commissioner;
    (12) At least 30 days prior to the date of any proposed substitution 
or addition of a new principal in an existing project, such as 
management agents, LLC members, directors, or partners, or proposed 
participation in a different capacity from that previously approved for 
the same project;
    (13) At least 30 days prior to the proposed acquisition by an 
existing limited partner, stockholder, or any principal of additional 
interests resulting in a total interest of at least 25 percent 
(partners) or 10 percent (non-partners); or
    (14) Certificates of participation must be submitted for interests 
acquired by any party or organization by inheritance or court decree 
within 30 days after said acquisition or decree, but will not be subject 
to review or disapproval.
    (b) Certificates are not required for interests acquired by 
inheritance or by Court decree.

[45 FR 54199, Aug. 14, 1980, as amended at 59 FR 31522, June 20, 1994; 
70 FR 19662, Apr. 13, 2005]



Sec. 200.218  Who must certify and sign.

    All principals must certify and sign the certificate personally as 
to their individual record and are responsible for its timely filing 
with the HUD Area Office in whose jurisdiction the project or proposal 
is located except:
    (a) When a corporation is a principal all its officers, directors 
and principal stockholders need not individually sign, certify nor file 
the certificate when they all have the same record. When their previous 
participation records are the same the officer authorized to sign for 
the corporation will list on the certificate the full names for all such 
principals connected with the corporation who do not elect to sign. 
Those principals who have a separate participation record outside that 
of their corporation must certify, sign and file. The objective is full 
disclosure.
    (b) The Participation Control Officer is authorized to waive the 
requirement for signatures for good cause in cases where he finds that 
adequate provision has been made for full disclosure, and the signature 
is thereafter provided.



Sec. 200.219  Content of certification.

    (a) Each principal who executes the certificate certifies that:
    (1) The certificate contains a listing of every assisted or insured 
project of HUD, Farmers Home Administration and State or local 
government housing finance agencies in which the principal has been or 
is now a principal;
    (2) For a period beginning 10 years prior to the date of the 
certificate under review and except as shown on the certificate:
    (i) No mortgage on a project listed has ever been in default nor has 
mortgage relief been given;
    (ii) There have been no defaults or noncompliances under any 
conventional construction contract or Turnkey contract of sale in 
connection with a public housing project;
    (iii) There are no known unresolved findings raised as a result of 
HUD audits, management reviews or other governmental investigations;
    (iv) There has been no suspension or termination of payments under 
any HUD assistance contract attributable to the fault or negligence of 
principal;
    (v) The principal has not been convicted of a felony (See 
definitions Sec. 200.215(b)) and is not presently the subject of a 
complaint or indictment charging a felony;
    (vi) The principal has not been suspended, debarred, or otherwise 
restricted by any Department or Agency of the Federal Government or of a 
State Government from doing business with such Department or Agency;
    (vii) The principal has not defaulted on an obligation covered by a 
surety or performance bond, and has not been the subject of a Claim 
under an employee fidelity bond;
    (3) The principal has listed all parties who are known to him to be 
principals under Sec. 200.215(e)(2);
    (4) The principal is not a HUD employee or a member of an employee's 
immediate household as defined by HUD's Standards of Conduct in 24 CFR 
0.735-205(c);
    (5) Except as shown on the certificate under review, the principal 
is not a

[[Page 37]]

participant: (i) In a HUD assisted or insured project on which 
construction, as of the date of said certificate, has stopped for a 
period in excess of twenty days or; (ii) in an insured project on which 
construction, as of the date of said certificate, has been substantially 
completed for more than 90 days and documents for closing, including 
cost certification, have not been filed with HUD;
    (b) The project owner shall certify that he has also listed all 
other parties who are principals under Sec. 200.215(e)(1).
    (c) If a principal cannot certify as to any items under paragraphs 
(a) and (b) of this section, such items may be deleted from the face of 
the certificate and a full explanation of the reason for the deletion, 
signed by the principal, may be attached to the certificate for HUD's 
review, evaluation and determination.
    (d) Each principal who executes the certificate must also certify 
that said principal is not a Member of Congress or a Resident 
Commissioner.



Sec. 200.222  Certification of previous record on basis of a master list.

    A principal may avoid repetitious listings by providing HUD with a 
complete master list, acceptable to the Participation Control Officer, 
of all projects in which the principal has participated. Where such a 
list has been provided, the principal may submit a certificate which 
refers to the master list and which supplements it by the addition of 
all information required under Sec. 200.219 with respect to occurrences 
since the date of the master list (including subsequent occurrences with 
respect to the projects on the master list as well as subsequent 
projects). Partners, corporate officers, directors and stockholders may 
likewise refer to and thereby incorporate their firm's master list when 
they certify.



Sec. 200.224  Multifamily Participation Review Committee and 
Participation Control Officer.

    The membership and authority of the Multifamily Participation Review 
Committee (hereinafter referred to as the Review Committee) are set 
forth in Sec. 200.227. A majority of the members of the Review 
Committee shall constitute a quorum. The Executive Secretary of the 
Review Committee shall be the Participation Control Officer under this 
part and shall serve under the administrative supervision of the 
Director of the Participation and Compliance Division, who acts as 
Participation Control Officer in his absence.

[45 FR 54199, Aug. 14, 1980, as amended at 61 FR 7944, Feb. 29, 1996]



Sec. 200.225  Approvals by Area Managers for limited partners.

    The Area Manager of the HUD Area Office where the certificate is 
filed is authorized to review the certificate and approve for 
participation limited partner principals: Provided, That they have no 
previous record of participation or their only participation in previous 
projects covered by these regulations has been as a limited partner. All 
other certificates must be forwarded to the Participation Control 
Officer.



Sec. 200.226  Determination by the Participation Control Officer.

    (a) The Participation Control Officer is authorized to:
    (1) Approve a principal when a review of the previous participation 
certificate and other available information reveals that there are no 
grounds to withhold approval or disapprove under the standards in Sec. 
200.229 or Sec. 200.230, respectively;
    (2) Disapprove a principal who; (i) is suspended or debarred or 
otherwise restricted under 2 CFR part 2424; or (ii) has been disapproved 
for participation no more than 12 months prior to the filing of the 
certificate under review, unless the principal has requested 
reconsideration of the disapproval;
    (3) Refer all other cases to the Review Committee, together with all 
available information and documents and a recommendation of the action 
to be taken.

[45 FR 54199, Aug. 14, 1980, as amended at 72 FR 73494, Dec. 27, 2007]



Sec. 200.227  Multifamily Participation Review Committee.

    (a) Members. (1) The Director, Office of Lender Activities and Land 
Sales Registration serves as Chairman and does not vote. The Committee 
is composed of the following voting members

[[Page 38]]

or their designees representing the Assistant Secretary for Housing- 
Federal Housing Commissioner: the Director of the Office of Insured 
Multifamily Housing Development; the Director of the Office of the 
Elderly and Assisted Housing; the Director of the Office of Multifamily 
Housing Management; the Director of the Office of Multifamily 
Preservation and Property Disposition; the Director of the Previous 
Participation and Compliance Division; and a designee of the Director of 
the Office of Lender Activities and Land Sales Registration.
    (2) The Committee also includes, as non-voting members, the General 
Counsel or his or her designee, who provides legal counsel, and the 
Participation Control Officer in the Office of Lender Activities and 
Land Sales Registration. The Participation Control Officer is the 
Executive Secretary to the Committee and is empowered to issue and sign 
all notices, orders, letters and directives on behalf of the committee, 
to keep minutes, and to perform other duties assigned by the Chairman or 
directed by the Committee.
    (b) Functions. The Committee will act for the Assistant Secretary 
for Housing-Federal Housing Commissioner and for the Assistant Secretary 
for Public and Indian Housing to determine the acceptability of 
participants in multifamily proposals under subpart H of this part.

[50 FR 37520, Sept. 16, 1985, as amended at 56 FR 41791, Aug. 23, 1991; 
59 FR 31522, June 20, 1994. Redesignated at 61 FR 7943, Feb. 29, 1996]



Sec. 200.228  Determination by the Review Committee.

    (a) The Review Committee shall make one of the following 
determinations in connection with every case referred to it by the 
Participation Control Officer:
    (1) Approve the principal after consideration of the entire record 
in the light of the standards in Sec. 200.230. All mitigating or 
extenuating factors will be considered. In each case, the decision shall 
be within the discretion of the Review Committee and rendered in the 
best interest of the Government and the public;
    (2) Conditionally approve the principal's participation with such 
conditions or limitations which in the Review Committee's judgment are 
necessary to make the principal approvable;
    (3) Withhold approval of the principal in accordance with Sec. 
200.229; or
    (4) Disapprove the principal when approval is not justified and 
withholding approval is not appropriate.
    (b) All determinations by the Review Committee shall be made by 
majority vote of those members present and entitled to vote.



Sec. 200.229  Withholding approval.

    Approval of a principal may be withheld for:
    (a) A period not to exceed 120 days when such action is deemed 
necessary to secure additional information upon which to base a final 
action including a determination as to whether a suspension or debarment 
action will be taken; or
    (b) For a longer period pending the resolution of a criminal 
complaint or indictment.



Sec. 200.230  Standards for disapproval.

    The standards for disapproval shall be as follows:
    (a) Suspension, debarment or other restriction of the principal 
under 2 CFR part 2424;
    (b) Suspension, debarment or other restriction of the principal by 
any other Department or Agency of the Federal Government from doing 
business with such Department or Agency;
    (c) Unless the Review Committee finds mitigating or extenuating 
circumstances that enable it to make a risk determination for approval, 
any of the following occurrences attributable or legally imputable to a 
principal may be the basis for disapproval, whether or not the principal 
was actively involved in the project:
    (1) Mortgage defaults, assignments or foreclosures, unless the 
Review Committee determines that the default, assignment or foreclosure 
was caused by circumstances beyond the principal's control;
    (2) Defaults or noncompliance under any conventional construction 
contract or turnkey contract of sale in

[[Page 39]]

connection with a public housing project;
    (3) Violation of the regulatory agreement or noncompliance with any 
other obligation to HUD that has not been corrected to the satisfaction 
of the Review Committee at the time of its consideration;
    (4) Suspension or termination of payments under any HUD assistance 
contract;
    (5) Defaults under an obligation covered by a surety or performance 
bond and/or claims under an employee fidelity bond;
    (6) Unresolved findings as a result of HUD or other governmental 
audits or investigations; or
    (7) A criminal record or other evidence that the principal's 
previous conduct or method of doing business has been such that his 
participation in the project would make it an unacceptable risk from the 
underwriting standpoint of an insurer, lender or governmental agency;
    (d) With respect to any HUD insured or assisted projects, work 
stoppage for a period in excess of 20 days, or in the case of an insured 
project, failure to achieve final endorsement of the mortgage where the 
project has been substantially completed for more than 90 days but 
documents for closing, including cost certification have not been filed 
with HUD and such is chargeable to the fault or neglect of the 
principal;
    (e) Any serious and significant violation by a management agent of a 
project management contract, where the contract required HUD or other 
Governmental agency approval at its inception;
    (f) Submission of a false or materially incomplete form 2530 
certification application.
    (g) Any other significant violation of or noncompliance with 
regulations, or programs or contract requirements of HUD, Farmers Home 
Administration or a State or local government's Housing Finance Agency 
in connection with any insured or assisted project.

[45 FR 54199, Aug. 14, 1980, as amended at 56 FR 50820, Oct. 9, 1991; 72 
FR 73494, Dec. 27, 2007]



Sec. 200.233  Effect and requirement of approval.

    Approval is required as a precondition for participation and 
constitutes clearance of the principal under this part for participation 
only for a specific project in a specific role. Approval of a principal 
does not obligate the Department to approve the principal's applications 
or contracts for program participation.



Sec. 200.236  Modification or withdrawal of certain approvals.

    Approvals will not be modified or withdrawn, except in cases where 
the principal is subsequently suspended or debarred from further 
participation in any HUD programs under 2 CFR part 2424, or is found by 
the Review Committee to have obtained approval based upon submission to 
HUD of a false, fraudulent, or incomplete report or certificate. In such 
cases, the Review Committee may take such action, including modification 
or withdrawal of approval, as it determines to be in the best interest 
of the Department and the public. For the purpose of this section, the 
term ``approval'' includes conditional approval.

[72 FR 73494, Dec. 27, 2007]



Sec. 200.239  Notice of determination.

    The Participation Control Officer shall give written notice to the 
principal and to the field office concerned of disapproval under Sec. 
200.226, and conditional approval, withholding of approval or 
disapproval by the Review Committee under Sec. 200.228. In the case of 
any such adverse notice:
    (a) The notice shall contain a general statement of the reasons for 
the determination; and
    (b) The notice to the principal shall be sent by certified mail to 
the address shown on the certificate with a return receipt requested.



Sec. 200.241  Request for reconsideration of an adverse determination
and request for a hearing.

    (a) Where approval has been withheld, denied, or conditionally 
granted, the principal may request reconsideration by the Review 
Committee. Such

[[Page 40]]

request shall be made in writing, within 30 days of receipt of the 
notice of such action, addressed to the Review Committee. It may contain 
such supporting material as principal desires; or
    (b) The principal may file a request for a hearing before a Hearing 
Officer as provided in Sec. 200.243. Such request for a hearing shall 
be made in writing within 30 days from the date of receipt of the 
determination.



Sec. 200.243  Hearing rules--How and when to apply.

    (a) A principal who has been disapproved, conditionally approved, or 
who has had approval withheld by the Review Committee, either initially 
or after reconsideration, or who is disapproved by the Participation 
Control Officer, may request a hearing before a Hearing Officer. The 
hearing will be conducted in accordance with the provisions of 24 CFR 
part 26, subpart A, except as modified by this section. Requests for 
hearing must be made within 30 days from the date of receipt of notice 
of the adverse determination.
    (1) Except as provided in paragraphs (a)(2) and (3) of this section, 
a principal may request an oral hearing before a hearing officer.
    (2) Where a disapproval is based solely on a suspension or debarment 
that has been previously adjudicated, the hearing shall be limited to 
the opportunity to submit documentary evidence and written briefs for 
consideration by a hearing officer.
    (3) Where a disapproval is based on a suspension and an appeal is 
pending, the hearing shall be stayed pending the outcome of the 
suspension, unless the parties and the hearing officer agree that the 
matter should be consolidated with the suspension for hearing.
    (b) Hearings and review of determination by the Hearing Officer 
shall be governed by the procedures contained in 2 CFR part 2424, except 
as modified in paragraph (a) of this section and by Sec. 200.245.

[45 FR 54199, Aug. 14, 1980, as amended at 56 FR 50820, Oct. 9, 1991; 61 
FR 50219, Sept. 24, 1996; 72 FR 73494, Dec. 27, 2007]



Sec. 200.245  Hearing Officer determines facts and law: Review 
Committee makes final administrative decision.

    The Hearing Officer will determine the facts and the law relevant to 
the issues and will report the determination in writing to the Review 
Committee and to the principal. The Review Committee shall be bound by 
the Hearing Officer's findings of facts and law and will make a final 
decision based upon its application of the uniform underwriting and risk 
evaluation standards contained in this part. It will notify principal of 
the final action taken.



              Subpart I_Nondiscrimination and Fair Housing



Sec. 200.300  Nondiscrimination and fair housing policy.

    Federal Housing Administration programs shall be administered in 
accordance with:
    (a) The nondiscrimination and fair housing requirements set forth in 
24 CFR part 5; and
    (b) The affirmative fair housing marketing requirements in 24 CFR 
part 200, subpart M and 24 CFR part 108.

[61 FR 7944, Feb. 29, 1996]



                 Subpart J_Equal Employment Opportunity



Sec. 200.400  Purpose.

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



Sec. 200.405  Notice to public.

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

[[Page 41]]



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

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



Sec. 200.415  Agreement of applicant.

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

[58 FR 41000, July 30, 1993]



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

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



Sec. 200.425  Exemptions.

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



Sec. 200.430  Sanctions.

    Failure or refusal to comply and give satisfactory assurances of 
future compliance with the requirements of this subpart shall be proper 
basis for applying sanctions. The sanctions shall be applied in 
accordance with the provisions of Executive Order 11246 and the relevant 
regulations of the Secretary of Labor.

Subparts K-L [Reserved]



        Subpart M_Affirmative Fair Housing Marketing Regulations

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



Sec. 200.600  Purpose.

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



Sec. 200.605  Authority.

    The regulations in this subpart are issued pursuant to the authority 
to issue regulations granted to the Secretary by section 7(d) of the 
Department of Housing and Urban Development Act of 1965, 42 U.S.C. 
3535(d), and implement the functions, powers, and

[[Page 42]]

duties imposed on the Secretary by Executive Order 11063, 27 FR 11527, 
and title VIII of the Civil Rights Act of 1968, as amended, 42 U.S.C. 
3608.

[40 FR 20080, May 8, 1975]



Sec. 200.610  Policy.

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

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



Sec. 200.615  Applicability.

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

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



Sec. 200.620  Requirements.

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

[[Page 43]]

printed material used in connection with sales or rentals, the 
Department-approved Equal Housing Opportunity logo or slogan or 
statement.
    (f) Post in a conspicuous position on all FHA project sites a sign 
displaying prominently either the Department-approved Equal Housing 
Opportunity logo or slogan or statement.

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



Sec. 200.625  Affirmative fair housing marketing plan.

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



Sec. 200.630  Notice of housing opportunities.

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

[58 FR 41337, Aug. 3, 1993]



Sec. 200.635  Compliance.

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

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



Sec. 200.640  Effect on other requirements.

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

[58 FR 41337, Aug. 3, 1993]



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

    The Equal Housing Opportunity insignia are as follows:
    Equal Housing Opportunity logo:
    [GRAPHIC] [TIFF OMITTED] TC05OC91.037
    
    Equal Housing Opportunity statement: ``We are pledged to the letter 
and spirit of U.S. policy for the achievement of equal housing 
opportunity throughout the Nation. We encourage and support an 
affirmative advertising and marketing program in which there are no 
barriers to obtaining housing because of race, color, religion, sex, or 
national origin.''
    Equal Housing Opportunity slogan: ``Equal Housing Opportunity.''

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

Subpart N [Reserved]

[[Page 44]]



             Subpart O_Lead-Based Paint Poisoning Prevention

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



Sec. 200.800  Lead-based paint.

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



Sec. 200.805  Definitions.

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



Sec. 200.810  Single family insurance and coinsurance.

    (a) General. (1) The requirements of this section apply to any one-
to four-family dwelling which was constructed before 1978 and is the 
subject of an application for mortgage insurance under section 203(b) or 
other sections of the National Housing Act relating to the insurance or 
coinsurance of mortgages on one-to-four-family dwellings. Such other 
sections include:
    (i) Section 244 (coinsurance);
    (ii) Section 213 (cooperative housing insurance);
    (iii) Section 220 (rehabilitation and neighborhood conservation 
housing insurance);
    (iv) Section 221 (housing for moderate income and displaced 
families);
    (v) Section 222 (mortgagor insurance for servicemen);
    (vi) Section 809 (armed services housing for civilian employees);
    (vii) Section 810 (armed services housing in impacted areas);
    (viii) Section 234 (mortgage insurance for condominiums);
    (ix) Section 235 (mortgage assistance payments for home ownership 
and project rehabilitation);
    (x) Section 237 (special mortgage insurance for low and moderate 
income families); and
    (xi) Section 240 (mortgage insurance on loans for purchase of fee 
simple title from lessors).
    (2) [Reserved]
    (3) Applications for insurance in connection with a refinancing 
transaction where an appraisal is not required under the applicable 
procedures established by the Commissioner are excluded from the 
coverage of this section. Any housing assisted under the programs set 
out in this section for which no new activity is applied for or required 
is not covered by this section.
    (b) Appraisal. The appraiser shall, when appraising a dwelling 
constructed prior to 1978, inspect the dwelling for defective paint 
surfaces.
    (c) Treatment of defective paint surfaces. For defective paint 
surfaces, treatment shall be provided to defective areas. Treatment of 
hazards shall consist of covering or removing defective paint surfaces. 
Covering may be accomplished by such means as adding a layer of 
wallboard to the wall surface. Depending on the wall condition, 
wallcoverings which are permanently attached may be used. Covering or 
replacing trim surfaces is also permitted. Paint removal may be 
accomplished by such methods as scraping, heat treatment (infra-red or 
coil type heat guns) or chemicals. Machine sanding and use of propane or 
gasoline torches (open-flame methods) are not permitted. Washing and 
repainting without thorough removal or covering does not constitute 
adequate treatment. In the case of defective paint spots, scraping and 
repainting the defective area is considered adequate treatment. 
Treatment of a defective paint surface is not required if such a surface 
is found to not be a lead-based paint surface by a lead-based paint 
inspector certified pursuant to procedures of the U.S. Environmental 
Protection Agency at 40 CFR part 745.

[[Page 45]]

    (d) Home equity conversion mortgage insurance. The requirements of 
this section, as modified by the following sentence, apply to a dwelling 
which is the subject of an application for mortgage insurance under 
section 255 of the National Housing Act (home equity conversion 
insurance) unless the mortgagor provides the certification described in 
Sec. 206.45(d) of this title. The defective paint surface may be 
treated after the mortgage is endorsed for insurance, provided that the 
defective paint surface is treated as expeditiously as possible in 
accordance with the repair work provisions contained in Sec. 206.47 of 
this title.

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



         Subpart P_Physical Condition of Multifamily Properties

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



Sec. 200.850  Purpose.

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



Sec. 200.853  Applicability.

    This subpart applies to:
    (a) Housing assisted by HUD under the following programs:
    (1) All Section 8 project-based assistance. ``Project-based 
assistance'' means Section 8 assistance that is attached to the 
structure (see 24 CFR 982.1(b)(1) regarding the distinction between 
``project-based'' and ``tenant-based'' assistance);
    (2) Section 202 Program of Supportive Housing for the Elderly 
(Capital Advances);
    (3) Section 811 Program of Supportive Housing for Persons with 
Disabilities (Capital Advances); and
    (4) Section 202 loan program for projects for the elderly and 
handicapped (including 202/8 projects and 202/162 projects).
    (b) Housing with mortgages insured or held by HUD, or housing that 
is receiving insurance from HUD, under the following authorities:
    (1) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et 
seq.) (Rental Housing Insurance);
    (2) Section 213 of the NHA (Cooperative Housing Insurance);
    (3) Section 220 of the NHA (Rehabilitation and Neighborhood 
Conservation Housing Insurance);
    (4) Section 221(d)(3) of the NHA (Market Interest Rate (MIR) 
Program);
    (5) Section 221(d)(3) and (5) of the NHA (Below Market Interest Rate 
(BMIR) Program);
    (6) Section 221(d)(4) of the NHA (Housing for Moderate Income and 
Displaced Families);
    (7) Section 231 of the NHA (Housing for Elderly Persons);
    (8) Section 232 of the NHA (Mortgage Insurance for Nursing Homes, 
Intermediate Care Facilities, Assisted Living Facilities, Board and Care 
Homes);
    (9) Section 234(d) of the NHA (Rental) (Mortgage Insurance for 
Condominiums);
    (10) Section 236 of the NHA (Rental and Cooperative Housing for 
Lower Income Families);
    (11) Section 241 of the NHA (Supplemental Loans for Multifamily 
Projects). (Where, however, the primary mortgage of a Section 241 
property is insured or assisted by HUD under a program covered in this 
part, the coverage by two HUD programs does not trigger two 
inspections); and
    (12) Section 542(c) of the Housing and Community Development Act of 
1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing 
Program).



Sec. 200.855  Physical condition standards and physical inspection 
requirements.

    (a) Applicable standards and requirements. The physical condition 
standards and physical inspection requirements in 24 CFR part 5, subpart 
G, are applicable to the properties assisted or insured that are listed 
in Sec. 200.853.
    (b) Entity responsible for inspection of property. The regulations 
that govern the programs listed in Sec. 200.853, or regulatory 
agreements or contracts, identify the entity responsible for conducting 
the physical inspection of the property which is HUD, the lender or the 
owner. For properties with more than one HUD insured loan, only the

[[Page 46]]

first mortgage lender is required to conduct the physical inspection. 
The second mortgage lender will be provided a copy of the physical 
inspection report by the first mortgage lender.
    (c) Timing of inspections. (1) For a property subject to an annual 
inspection under this subpart, the inspection shall be conducted no 
earlier than 9 months and no later than 15 months from the date of the 
last required inspection. In no event, however, shall the physical 
inspection be conducted after the end of the calendar year following the 
one year anniversary date of the last required inspection.
    (2) For a property subject to an inspection every two years under 
this subpart, the inspection shall be conducted no earlier than 21 
months and no later than 27 months from the date of the last required 
inspection. In no event, however, shall the physical inspection be 
conducted after the end of the calendar year following the two year 
anniversary date of the last required inspection.
    (3) For a property subject to an inspection every three years under 
this subpart, the inspection shall be conducted no earlier than 33 
months and no later than 39 months from the date of the last required 
inspection. In no event, however, shall the physical inspection be 
conducted after the end of the calendar year following the three year 
anniversary date of the last required inspection.
    (4) For a newly endorsed multifamily property, the first inspection 
required under this subpart will be conducted no earlier than 21 months 
but not later than 27 months from the date of final endorsement. In no 
event, however, shall the inspection be conducted after the end of the 
calendar year following the two year anniversary date of final 
endorsement.



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

    (a) Scoring and ranking of the physical condition of multifamily 
housing properties. (1) HUD's Real Estate Assessment Center (REAC) will 
score and rank the physical condition of certain multifamily housing 
insured properties listed in Sec. 200.853 in accordance with the 
procedures described in this section. The physical condition inspection 
of the property, upon which REAC bases its score and ranking, is 
conducted by the responsible entity in accordance with Sec. 200.855.
    (2) Depending upon the results of its physical condition inspection, 
a multifamily housing property will be assigned one of three 
designations--standard 1 performing, standard 2 performing and standard 
3 performing--in accordance with the ranking process described in 
paragraph (b) of this section.
    (b) Methodology for Ranking. (1) Multifamily housing properties will 
be ranked in accordance with the methodology provided in this paragraph 
(b). Multifamily housing properties are scored on the basis of a 100 
point scale. Because scores may include fractions, a score that includes 
a fraction below one half point will be rounded to the next lower full 
point and a score that includes a fraction of one half point or higher 
will be rounded to the next higher full point (e.g., 89.4 will be 
rounded to 89, 89.5 will be rounded to 90).
    (i) Standard 1 Performing Property. If a property receives a score 
of 90 points or higher on its physical condition inspection, the 
property will be designated a standard 1 performing property. Properties 
designated as standard 1 performing properties will be required to 
undergo a physical inspection once every three (3) years.
    (ii) Standard 2 Performing Property. If a property receives a score 
of 80 points or higher but less than 90 on its physical condition 
inspection, the property will be designated a standard 2 performing 
property. Properties designated as standard 2 performing properties will 
be required to undergo a physical inspection once every two (2) years.
    (iii) Standard 3 Performing Property. If a property receives a score 
of less than 80 points, the property will be designated a standard 3 
performing property. Properties designated as standard 3 performing 
properties will continue to undergo an annual physical inspection as 
currently required under covered HUD programs.

[[Page 47]]

    (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, 
particularly those items classified as EHS. The owner is also 
responsible for conducting its own survey of the total project based on 
the REAC's physical inspection findings. The owner must mitigate all EHS 
items immediately, and the owner must file a written report with the 
applicable Multifamily Hub Director within 3 business days of the date 
of the inspection, which is the date the owner was provided with the EHS 
notice. The report filed by the owner must provide a certification and 
reasonable evidence that the EHS items have been resolved.
    (3) If, following review of the physical inspection results and 
score, the owner reasonably believes that an objectively verifiable and 
material error (or errors) occurred in the inspection, which, if 
corrected, will result in a significant improvement in the property's 
overall score (``significant improvement'' is defined in paragraph 
(d)(4) of this section), the owner may submit a written request for a 
technical review. The technical review request must be received in 
writing no later than 30 calendar days (as established by the postmark, 
if applicable) from the date the physical inspection results are 
transmitted to the owner by REAC, whether the results and score are 
transmitted to the owner via the Internet or by hard copy via certified 
mail.
    (d) Technical review of physical inspection results. A request for a 
technical review of physical inspection results must be submitted in 
writing to REAC and must be received by REAC no later than the 30th 
calendar day, as applicable under paragraph (c)(3) of this section, 
following submission of the physical inspection report to the owner, as 
provided in paragraph (c)(1) of this section.
    (1) Request for technical review. The request must be accompanied by 
the owner's reasonable evidence that an objectively verifiable and 
material error (or errors) occurred which if corrected will result in a 
significant improvement in the overall score of the owner's property. A 
technical review of physical inspection results will not be conducted 
based on conditions that were corrected subsequent to the inspection. 
Upon receipt of this request from the owner, the REAC will review the 
physical inspection and the owner's evidence. If the REAC's review 
determines that an objectively verifiable and material error (or errors) 
has been documented and that it is likely to result in a significant 
improvement in the property's overall score, the REAC will take one or a 
combination of the

[[Page 48]]

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.
    (4) Significant improvement. Significant improvement refers to the 
correction of a material error, asserted by the owner, which causes the 
score for the owner's property to cross an administratively significant 
threshold (for example, the property would be redesignated from standard 
3 performing to standard 2 performing or from standard 2 performing to 
standard 1 performing), or to result in an increase of 10 points or 
more.
    (5) Determining whether material error occurred and what action is 
warranted. Upon receipt of the owner's request for technical review of a 
property's physical inspection results, the REAC will evaluate the 
owner's property file and the evidence provided by the owner that an 
objectively verifiable and material error occurred which, if corrected, 
would result in a significant improvement in the property's overall 
score. If the REAC's evaluation determines that an objectively 
verifiable and material error (or errors) has been reasonably documented 
by the owner and if corrected would result in a significant improvement 
in the property's overall score, then the REAC shall take one or a 
combination of the following actions:
    (i) Undertake a new inspection;
    (ii) Correct the inspection report; or
    (iii) Issue a new physical condition score.
    (6) Responsibility for the cost of a new inspection. If a new 
inspection is undertaken by the REAC and the new inspection score 
results in a significant improvement in the property's overall score, 
then HUD shall bear the expense of the new inspection. If no significant 
improvement occurs, then the owner must bear the expense of the new 
inspection. The inspection cost of a new inspection, if paid by the 
owner, is not a valid project operating expense. The new inspection 
score will be considered the final score.
    (e) Adjustment of physical condition score based on considerations 
other than technical review and reinspection. (1) Under certain 
circumstances, HUD may find it appropriate to review the results of a 
physical inspection which are anomalous or have an incorrect result due 
to facts and circumstances affecting the inspected property which are 
not reflected in the inspection or reflected inappropriately in the 
inspection. These circumstances include, but are not necessarily limited 
to, inconsistencies between local code requirements and the HUD physical 
inspection protocol; conditions which are permitted by variance or 
license or which

[[Page 49]]

are preexisting physical features non-conformities and are inconsistent 
with the HUD physical condition protocol; or cases where the owner has 
been scored for elements (e.g., roads, sidewalks, mail boxes, resident 
owned appliances, etc.) that it does not own and is not responsible for 
maintaining.
    (2) To seek a score adjustment on the basis of these circumstances 
as provided in paragraph (e) of this section, the owner must submit a 
request for an adjustment to REAC with appropriate proof of the 
circumstances that resulted in the incorrect physical conditions 
results. This process may result in a reinspection and/or rescoring of 
the inspection after review and approval of the owner's submission of 
appropriate proof of the anomalous or inappropriate application.
    (3) An owner may submit the request for this adjustment to REAC 
either prior to or after the physical inspection has been concluded. If 
the owner submits a request for adjustment after the physical inspection 
has been concluded, the owner must submit its request to REAC within 45 
days following the submission of the physical inspection report, as 
provided in paragraph (c)(1) of this section. HUD may, but is not 
required to review a request made after this period has expired.
    (4) This adjustment process, provided in this paragraph (g), may 
result in a reinspection and/or rescoring of the inspection after review 
and approval of the owner's submission of appropriate proof of the 
anomalous or inappropriate application.
    (f) Issuance of final score and publication of score. (1) The 
physical condition score of the property is the final score if the owner 
files no request for technical review, as provided in paragraph (c) of 
this section, or for other adjustment of the physical condition score, 
as provided in paragraph (e) of this section. If the owner files a 
request for technical review or score adjustments in accordance with 
paragraphs (c) and (e) of this section, the final physical condition 
score is the score issued by HUD after any adjustments are determined 
necessary and made by HUD at the conclusion of these processes.
    (2) HUD will make public the final scores of the owners through 
posting on HUD's internet site, or through Federal Register publication 
or other appropriate means.
    (g) Owner's responsibility to notify residents of inspection; and 
availability of documents to residents--(1) Notification to residents. 
An owner must notify its residents of any planned physical inspections 
of their units or the housing development generally.
    (2) Availability of documents for review. Once the technical review 
and database adjustment periods have expired, as provided in paragraphs 
(d) and (e) of this section, respectively, the owner must make its 
physical inspection report and all related documents available to its 
residents during regular business hours upon reasonable request for 
review and copying. Related documents include the owner's survey plan, 
plan of correction, certification and related correspondence.
    (i) Once the owner's final physical condition score is issued and 
published, the owner must make any additional information, such as the 
results of any reinspection, appeal requests, available for review and 
copying by its residents upon reasonable request during regular business 
hours.
    (ii) The owner must maintain the documents related to the physical 
inspection of the property, as described in this paragraph (g)(2), 
available for review by residents for a period of 60 days from the date 
of submission to the owner of the physical condition score for the 
property in which the residents reside.
    (3) The owner must post a notice to the residents in the owner's 
management office and on any bulletin boards in all common areas that 
advises residents of the availability of the materials described in 
paragraphs (g)(2) of this section. The notice should include the name, 
address and telephone number of the HUD Project Manager.
    (4) Residents are encouraged to comment on this information provided 
by the owners and submit any comments directly to the applicable Field 
Office. Should residents discover the owner provided HUD with a false 
certification during the review they are encouraged to notify the Hub or 
Program Center where appropriate inquiry and action will be taken.

[[Page 50]]

    (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.
    (3) Evaluation of the property. During the evaluation period, the 
DEC will perform an analysis of the multifamily housing property, which 
may include input from tenants, HUD multifamily officials, elected 
officials, and others as may be appropriate. Although the MFD will 
assist with the evaluation, for insured mortgages, the DEC will have 
primary responsibility for the conclusion of the evaluation of the 
property after taking into consideration the input of interested parties 
as described in this paragraph (h)(2). The DEC's evaluation may include 
a site visit to the owner's property.
    (4) Continuing responsibilities of HUD Multifamily Program Offices 
and Mortgagee. During the period of DEC evaluation, HUD's multifamily 
program offices continue to be responsible for routine asset management 
tasks on properties and all servicing actions (e.g., rent increase 
decisions, releases from reserve account approvals). In addition, during 
this period of evaluation, the mortgagee shall continue to carry out its 
duties and responsibilities with respect to the mortgage.
    (i) Enforcement action. If, at the conclusion of the evaluation 
period, the DEC determines that enforcement action is appropriate, the 
DEC will provide notification to the owner of the DEC's decision to 
formally accept the property for enforcement purposes.
    (1) DEC Owner Compliance Plan. (i) After notification to the owner 
of the DEC's decision, the DEC will produce a proposed action plan (DEC 
Compliance Plan), the purpose of which is to improve the physical 
condition of the owner's property, and correct any other known 
violations by the owner of its legal obligations. The DEC Compliance 
Plan will describe:
    (A) The actions that will be required of the owner to correct, 
mitigate or eliminate identified property deficiencies, problems, 
hazards, and/or correct any other known violations by the owner;
    (B) The period of time within which these actions must be completed; 
and
    (C) The compliance responsibilities of the owner.
    (ii) The DEC Compliance Plan will be submitted to the MFD for review 
and concurrence. If the MFD does not concur, the DEC Compliance Plan 
will be submitted to the Deputy Assistant Secretary for Housing and the 
Deputy Director of the DEC for review and concurrence. If the DEC 
Compliance Plan remains unapproved, a final decision on the plan will be 
made by HUD's Deputy Secretary in consultation with the

[[Page 51]]

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

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

Subpart R [Reserved]



                  Subpart S_Minimum Property Standards



Sec. 200.925  Applicability of minimum property standards.

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

[58 FR 60248, Nov. 15, 1993]



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

    (a) Construction standards. Multifamily or care-type properties 
shall comply with the minimum property standards contained in the 
handbook identified in Sec. 200.929(b)(2). In addition, each such 
property shall, for the Department's purposes, comply with:
    (1) The applicable State of local building code, if the property is 
located within a jurisdiction which has a building code accepted by the 
Secretary under Sec. 200.925a(d); or
    (2)(i) The applicable State or local building code, and
    (ii) Those portions of the codes identified in Sec. 200.295c which 
are designated by the HUD Field Office serving the jurisdiction in which 
the property is to be located, if the property is located in a 
jurisdiction which has a building code partially accepted by the 
Secretary; or
    (3) The appropriate codes, as identified in Sec. 200.925c(c), if 
the property is

[[Page 52]]

not located within a jurisdiction which has a building code accepted by 
the Secretary.
    (b) Conflicting standards. The minimum property standards contained 
in the handbook identified in Sec. 200.929(b)(2) do not preempt state 
or local standards, nor do they alter or affect a builder's obligation 
to comply with any state or local requirements. However, a property 
shall be eligible for benefits only if it complies with all applicable 
minimum property standards, including referenced standards.
    (c) Standard for evaluating local building codes. The Secretary 
shall compare the portions of a local or State building code applicable 
to residential or institutional occupancy, as appropriate, submitted 
under Sec. 200.925a(d) to the list of construction related areas 
contained in Sec. 200.925b.
    (1) A State or local code will be accepted if it regulates each area 
on the list.
    (2) A State or local building code will be partially accepted if it 
regulates most of the areas on the list. However, no code may be 
partially accepted if it fails to regulate the subarea for seismic 
design (see Sec. 200.925b(c)(5)), or if it fails to regulate subareas 
in more than one of the following major areas listed in Sec. 200.925b: 
fire safety, light and ventilation, structural loads and seismic design, 
foundation systems, materials standards, construction components, glass, 
mechanical, plumbing, electrical, and elevators.
    (3) For purposes of this paragraph, a state or local code regulates 
an area if it establishes a standard concerning that area. However, for 
earthquake loads (see Sec. 200.925b(c)(5)), ASCE 7-88 is mandatory.
    (d) Review process and acceptance--(1) Jurisdictions without 
previously accepted building codes. The following submission 
requirements apply to developers and other interested parties in 
jurisdictions without building codes, jurisdictions with building codes 
which have never been submitted for acceptance, and jurisdictions with 
building codes which have been submitted for acceptance and neither 
accepted nor partially accepted by the Secretary.
    (i) Developers or other interested parties must comply with one of 
the following by the time of application for insurance or other 
benefits:
    (A) The developer or other interested party may choose to comply 
with the appropriate codes as identified in Sec. 200.925c. If the 
developer or other interested party so chooses, then the multifamily or 
care-type property shall be constructed in accordance with one of the 
model codes designated in paragraph (c)(1), (2) or (3) of Sec. 200.925c 
and with any other code or codes identified in the same paragraph. In 
such instances, the developer or other interested party shall notify the 
Department of the code or group of codes with which it intends to comply 
by the time of application for insurance or other benefits; or
    (B) The developer or other interested party may choose to comply 
with the State or local building code, if such code is acceptable to the 
Secretary. To obtain the Secretary's acceptance, the developer or other 
interested party shall submit the material specified in paragraph 
(d)(1)(ii) of this section to the HUD Field Office serving the 
jurisdiction in which the property is to be constructed. Such material 
may be submitted at any time; provided, however, that it must be 
submitted no later than the time of application for mortgage insurance 
or other benefits.
    (ii) If, under paragraph (d)(1)(i)(B) of this section, the developer 
or other interested party chooses to comply with the State or local 
building code as prescribed in paragraph (a)(1) of this section, it 
shall submit the following material to the HUD field Office serving the 
jurisdiction in which the property is to be constructed:
    (A) A copy of the jurisdiction's building code, including all 
applicable service codes, appendices and referenced standards; and
    (B) A copy of the statute, ordinance, regulation, or order 
establishing the code, if such statute, ordinance, regulation or order 
is not contained in the building code itself.

However, the developer or other interested party need not submit any 
document already on file in the Field Office.
    (2) Jurisdictions with previously accepted or partially accepted 
building codes. The following submission requirements

[[Page 53]]

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

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

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



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

    HUD will review each local code submitted under this chapter to 
determine whether it regulates all of the following areas and subareas:
    (a) Fire safety. (1) Construction types permitted;
    (2) Allowable height and area;
    (3) Fire separations;
    (4) Fire resistance requirements;
    (5) Means of egress (number and distance);
    (6) Individual unit smoke detectors;
    (7) Building alarm systems;
    (8) Highrise criteria;
    (b) Light and ventilation. (1) Habitable rooms;
    (2) Bath and toilet rooms.
    (c) Structural loads and seismic design. (1) Design live loads;
    (2) Design dead loads;

[[Page 54]]

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

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



Sec. 200.925c  Model codes.

    (a) Incorporation by reference. The following publications are 
incorporated by reference under 5 U.S.C. 552(a) and 1 CFR part 51. The 
incorporation by reference of these publications has been approved by 
the Director of the Federal Register. The locations where copies of 
these publications are available are set forth below.
    (1) Model Building Codes--(i) The BOCA National Building Code, 1993 
Edition, The BOCA National Plumbing Code, 1993 Edition, and the BOCA 
National Mechanical Code, 1993 Edition, excluding Chapter I, 
Administration, for the Building, Plumbing and Mechanical Codes and the 
references to fire retardant treated wood and a distance of 4 feet (1219 
mm) from the wall in exception number 1 of paragraph 705.6 and 707.5.2 
number 2 (Chapter 7) of the Building Code, but including the Appendices 
of the Code. Available from Building Officials and Code Administrators 
International, Inc., 4051 West Flossmoor Road, Country Club Hills, 
Illinois 60478.
    (ii) Standard Building Code, 1991 Edition, including 1992/1993 
revisions. Standard Plumbing Code, 1991 Edition, Standard Mechanical 
Code, 1991 Edition, including 1992 revisions, and Standard Gas Code, 
1991 Edition, including the 1992 revisions, but excluding Chapter I--
Administration from each standard code and the phrase ``or fire 
retardant treated wood'' in reference note (a) of table 600 (Chapter 6) 
of the Standard Building Code, but including Appendices A, C, E, J, K, 
M, and R. Available from the Southern Building Code Congress 
International, Inc., 900 Montclair Road, Birmingham, Alabama 35213.
    (iii) Uniform Building Code, 1991 Edition, including the 1993 
Accumulative Supplement, but excluding Part I--Administrative, and the 
reference to fire retardant treated plywood in section 2504(c)3 and to 
fire retardant treated wood in 1-HR type III and V construction 
referenced in paragraph 4203.2., but including the Appendix of the Code. 
Uniform Plumbing Code, 1991 Edition, including the 1992 Code Changes but 
excluding Part I--Administration, but including the Appendices of the 
Code. Uniform Mechanical Code, 1991 Edition,

[[Page 55]]

including the 1993 Accumulative Supplement but excluding Part I--
Administrative, but including the Appendices of the Code. All available 
from the International Conference of Building Officials, 5360 South 
Workman Mill Road, Whittier, California 90601.
    (2) National Electrical Code, NFPA 70, 1993 Edition, including 
appendices. Available from the National Fire Protection Association, 
Batterymarch Park, Quincy, Massachusetts 02269.
    (3) National Standard Plumbing Code, 1993 Edition. Available from 
the National Association of Plumbing-Heating-Cooling Contractors, P.O. 
Box 6808, Falls Church, Virginia 22046.
    (b) Model Code Compliance Requirements. (1) When a multifamily or 
care-type property is to comply with one of the model building codes set 
forth in paragraph (a)(1) of this section, the following requirements of 
those model codes shall not apply to those properties:
    (i) Those provisions of the model codes that do not pertain to 
residential or institutional buildings;
    (ii) Those provisions of the model codes that establish energy 
requirements for multifamily or care-type structures; and
    (iii) Those provisions of the model codes that require or allow the 
issuance of permits of any sort.
    (2) Where the model codes set forth in paragraph (a)(1) of this 
section designate a building, fire, mechanical, plumbing or other 
official, the Secretary's designee in the HUD Field Office serving the 
jurisdiction in which the property is to be constructed shall act as 
such official.
    (c) Designation of Model Codes. When a multifamily or care-type 
property is to comply with a model code, it shall comply with one of the 
model codes designated in paragraphs (c)(1), (2), or (3) of this 
section, and with any other code or codes identified in the same 
paragraph. However, seismic design is a mandatory requirement. In 
addition, the property shall comply with all of the standards that are 
incorporated into the code or codes by reference. By the time of 
application for insurance or other benefits, the developer or other 
interested party shall notify the Department of the code or group of 
codes to which the developer intends to comply.
    (1) The BOCA National Building Code, The BOCA National Plumbing and 
The BOCA National Mechanical Code, 1993 Editions.
    (2) Standard Building Code, Standard Plumbing Code, Standard 
Mechanical Code and Standard Gas Code, 1991 Editions, including the 
revisions specified in paragraph (a)(1)(ii) of this section, and the 
National Electrical Code, 1993 Edition.
    (3) Uniform Building Code, Uniform Plumbing Code and Uniform 
Mechanical Code, 1991 Editions, including the 1993 Accumulative 
Supplements to the Building and Mechanical Codes, and the 1992 Code 
Changes to the Uniform Plumbing Code, and the National Electrical Code, 
NFPA 70, 1993 Edition.
    (4) The National Electrical Code, NFPA 70, 1993 Edition.

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



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

    (a) Construction standards--(1) Applicable structures. The standards 
identified or contained in this section, and in Sec. Sec. 200.926a-
200.926e, apply to single family detached homes, duplexes, three-unit 
homes, and to living units in a structure where the units are located 
side-by-side in town house fashion. Section 200.926d(c)(4) also applies 
to four-unit homes.
    (2) Applicability of standards to new construction. The standards 
referenced in paragraph (a)(1) of this section are applicable to 
structures which are:
    (i) Approved for insurance or other benefits prior to the start of 
construction, including approval under the Direct Endorsement process 
described in Sec. 203.5 of this chapter, or under the Lender Insurance 
process described in Sec. 203.6 of this chapter;
    (ii) Approved for insurance or other benefits based upon 
participation in an insured warranty program; or
    (iii) Insured as new construction based upon a Certificate of 
Reasonable Value issued by the Department of Veterans Affairs.
    (b) Conflicting standards. The requirements contained in Sec. 
200.926d do not

[[Page 56]]

preempt local or State standards, nor do they alter or affect a 
builder's obligation to comply with any local or State requirements. 
However, a property shall be eligible for benefits only if it complies 
with the requirements of this subpart, including any referenced 
standards. When any of the requirements identified in Sec. 200.926c are 
in conflict with a partially accepted local or state code, the conflict 
will be resolved by the HUD Field Office servicing the jurisdiction in 
which the property is to be located.
    (c) Standard for evaluating local or state building codes. The 
Secretary shall compare a local building code submitted under paragraph 
(d) of this section or a State code to the list of construction related 
areas contained in Sec. 200.926a.
    (1) A local or State code will be accepted if it regulates each area 
and subarea on the list.
    (2) A State or local building code will be partially accepted if it 
regulates most of the areas on the list. However, no code may be 
partially accepted if it fails to regulate the subarea for seismic 
design (see Sec. 200.926a(c)(5)), or if it fails to regulate subareas 
in more than one of the following major areas listed in Sec. 200.926a: 
fire safety, light and ventilation, structural loads and seismic design, 
foundation systems, materials standards, construction components, glass, 
mechanical, plumbing, and electrical.
    (3) For purposes of this paragraph, a local or State code regulates 
an area or subarea if it establishes a standard concerning that area or 
subarea. However, for earthquake loads (see Sec. 200.926a(c)(5)), ASCE 
7-88 is mandatory.
    (d) Code selection. Any materials required to be submitted under 
this section must be submitted by the time the lender or other 
interested party applies for mortgage insurance or other benefits.
    (1) Jurisdictions without previously accepted building codes. The 
following submission requirements apply to lenders and other interested 
parties in jurisdictions without building codes, jurisdictions with 
building codes which have never been submitted for acceptance, and 
jurisdictions with building codes which previously have been submitted 
for acceptance and have not been accepted or partially accepted by the 
Secretary.
    (i) In jurisdictions without local building codes:
    (A) If the State building code is acceptable, the lender or other 
interested party must comply with the State building code and the 
requirements of Sec. 200.926d;
    (B) If the State building code is partially acceptable, the lender 
or other interested party must comply with:
    (1) The acceptable portions of the partially acceptable code; and
    (2) Those portions of the CABO One and Two Family Dwelling Code 
designated by the HUD Field Office in accordance with Sec. 200.926c; 
and
    (3) The requirements of Sec. 200.926d.
    (C) If there is no State building code or if the State building code 
is unacceptable, the lender or other interested party must comply with:
    (1) The CABO One and Two Family Dwelling Code as identified in Sec. 
200.926b(a); and
    (2) The requirements of Sec. 200.926d.
    (ii) In jurisdictions with local building codes which have never 
been submitted for review, lenders or other interested parties must:
    (A) Comply with the requirements of paragraph (d)(1)(i) (A), (B) or 
(C) of this section, as appropriate; or
    (B) Request the Secretary's acceptance of the local building code in 
accordance with paragraph (d)(1)(iv) of this section.
    (1) If the Secretary determines that the local building code is 
unacceptable, then the lender or other interested party must comply with 
the requirements of paragraph (d)(1)(i) (A), (B) or (C) of this section 
as appropriate.
    (2) If the Secretary determines that the local code is partially 
acceptable, then the lender or other interested party must comply with:
    (i) The acceptable portions of the partially acceptable local code; 
and
    (ii) Those portions of the CABO One and Two Family Dwelling Code 
designated by the HUD Field Office in accordance with Sec. 200.926c; 
and
    (iii) The requirements of Sec. 200.926d.
    (3) If the Secretary determines that the local code is acceptable, 
then the

[[Page 57]]

lender or other interested party must comply with the local building 
code and the requirements of Sec. 200.926d.
    (iii) In jurisdictions with local building codes which previously 
have been submitted for review and which have been found unacceptable by 
the Secretary:
    (A) If the local code has not been changed since the date the code 
or changes thereto were submitted to the Secretary, the lender or other 
interested party must comply with the requirements of paragraph 
(d)(1)(i) (A), (B) or (C) of this section, as appropriate; or
    (B) If the local code has been changed since the date when the code 
or changes thereto were submitted to the Secretary, the lender or other 
interested party must submit a copy of all changes to the local building 
code, including all applicable service codes and appendices and a copy 
of the statute, ordinance, regulation or order making such changes in 
the code, which have been made since the date when the code or other 
changes thereto were last submitted to the Secretary. However, the 
lender or other interested party need not submit any part already in the 
possession of the HUD Field Office. Based upon the Secretary's 
determination concerning the acceptability of the local code as changed, 
the lender or other interested party must comply with the requirements 
of paragraph (d)(1)(ii)(B) (1), (2) or (3) of this section, as 
appropriate.
    (iv) In order to obtain the Department's approval of a local code, 
the lender or other interested party must submit the following material 
to the HUD Field Office serving the jurisdiction in which the property 
is to be constructed:
    (A) A copy of the jurisdiction's local building code, including all 
applicable service codes and appendices; and
    (B) A copy of the statute, ordinance, regulation, or order 
establishing the code, if such statute, ordinance, regulation or order 
is not contained in the building code itself.

However, the lender or other interested party need not submit any 
document already on file in the HUD Field Office.
    (2) Jurisdictions with previously accepted or partially accepted 
building codes. The following submission requirements apply to lenders 
or other interested parties in any jurisdiction with a building code 
which has been accepted or partially accepted by the Secretary:
    (i) The lender or other interested party shall submit to the HUD 
Field Office serving the jurisdiction in which the property is to be 
constructed:
    (A) A certificate stating that, since the date when the code or any 
changes thereto were last submitted to the Secretary, the jurisdiction's 
local building code has not been changed; or
    (B)(1) A copy of all changes to the jurisdiction's building code, 
including all applicable service codes and appendices, which have been 
made since the date when the code or other changes thereto were last 
submitted to the Secretary. However, the lender or other interested 
party need not submit any part already in the possession of the HUD 
Field Office; and
    (2) A copy of the statute, ordinance, regulation, or order making 
such changes in the code.
    (ii) If, based upon changes to the local building code, the 
Secretary determines that it is unacceptable, the lender or other 
interested party must comply with the requirements of paragraph (d)(1) 
(i)(A), (B) or (C) of this section, as appropriate.
    (iii) If the local building code was previously found by the 
Secretary to be partially acceptable and there have been no changes to 
it or if the local building code was previously found by the Secretary 
to be partially acceptable and if, based upon changes to it, the 
Secretary determines that it is still partially acceptable or if the 
local building code was previously found by the Secretary to be 
acceptable and if, based upon changes to it, the Secretary determines 
that it is partially acceptable, then the lender or other interested 
party must comply with paragraphs (d)(1)(ii)(B)(2) (i), (ii) and (iii) 
of this section.
    (iv) If the local building code was previously found by the 
Secretary to be partially acceptable and if, based upon changes to it, 
the Secretary determines that it is acceptable, or if the local building 
code was previously found by the Secretary to be acceptable and there 
have been no changes to the code,

[[Page 58]]

or if the local building code was previously found by the Secretary to 
be acceptable and if, based upon changes to it, the Secretary determines 
that it is still acceptable, then the lender or other interested party 
must comply with the local building code and the requirements of Sec. 
200.926d.
    (3) Notification of decision. (i) Fire retardant treated plywood, 
where approved by a State or local building code, shall not be permitted 
for use in roof construction unless a HUD technical suitability bulletin 
has been issued by the Department for that product.
    (ii) The Secretary shall review the material submitted under Sec. 
200.926(d). Following that review, the Secretary shall issue a written 
notice (except where there is a previously accepted or partially 
accepted code which has not been changed) to the submitting party 
stating whether the local building code is acceptable, partially 
acceptable, or not acceptable. Where the local building code is not 
acceptable, the notice shall also state whether the State code is 
acceptable, partially acceptable or not acceptable. The notice shall 
also contain the basis for the Secretary's decision and a notification 
of the submitting party's right to present its views concerning the 
denial of acceptance if the code is neither accepted nor partially 
accepted. The Secretary may, in his or her discretion, permit either an 
oral or written presentation of views.
    (4) Department's responsibilities. (i) Each Regional and Field 
Office will maintain a current list of jurisdictions with accepted local 
or State building codes, a current list of jurisdictions with partially 
accepted local or State building codes and a current list of 
jurisdictions with local or State building codes which have not been 
accepted. For local codes, the lists will state the most recent date 
when the code or changes thereto were submitted to the Secretary. The 
lists, which shall be prepared by the Field Offices and submitted to the 
Regional Offices, will be available to any interested party upon 
request. In addition, the list of jurisdictions whose codes have been 
partially accepted shall identify in accordance with Sec. 200.926c 
those portions of the codes listed at Sec. 200.926b(a) with which the 
property must comply.
    (ii) The Department is responsible for obtaining copies of the State 
codes and any changes thereto.

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

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



Sec. 200.926a  Residential building code comparison items.

    HUD will review each local and State code submitted under this 
subpart to determine whether it regulates all of the following areas and 
subareas:
    (a) Fire Safety. (1) Allowable height;
    (2) Fire separations;
    (3) Fire resistance requirements;
    (4) Egress doors and windows;
    (5) Unit smoke detectors;
    (6) Flame spread.
    (b) Light and ventilation. (1) Habitable rooms;
    (2) Bath and toilet rooms.
    (c) Structural loads and seismic design. (1) Design live loads;
    (2) Design dead loads;
    (3) Snow loads (for jurisdictions with snow loading conditions 
identified in Section 7 of ASCE-7-88 (formerly ANSI A58.1-82);
    (4) Wind loads;
    (5) Earthquake loads (for jurisdictions in seismic zones 3 or 4, as 
identified in Section 9 of ASCE-7-88 (formerly ANSI A58.1-82)).
    (d) Foundation systems. (1) Foundation depths;
    (2) Footings;
    (3) Foundation materials criteria.
    (e) Materials standards. (1) Materials standards.
    (f) Construction components. (1) Steel;
    (2) Masonry;
    (3) Concrete;
    (4) Lumber;
    (5) Roof construction and covering;
    (6) Chimneys and fireplaces.
    (g) Glass. (1) Thickness/area requirements;
    (2) Safety glazing.
    (h) Mechanical. (1) Heating, cooling and ventilation systems;

[[Page 59]]

    (2) Gas, liquid and solid fuel piping and equipment;
    (3) Chimneys and vents;
    (4) Ventilation (air changes).
    (i) Plumbing. (1) Materials standards;
    (2) Sizing and installing drainage systems;
    (3) Vents and venting;
    (4) Traps;
    (5) Cleanouts;
    (6) Plumbing fixtures;
    (7) Water supply and distribution;
    (8) Sewage disposal systems.
    (j) Electrical. (1) Branch circuits;
    (2) Services;
    (3) Grounding;
    (4) Wiring methods;
    (5) Cable;
    (6) Conduit;
    (7) Outlets, switches and junction boxes;
    (8) Panelboards.

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



Sec. 200.926b  Model codes.

    (a) Incorporation by reference. The following model code 
publications are incorporated by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporation by reference of these 
publications has been approved by the Director of the Federal Register. 
The locations where copies of these publications are available are set 
forth below.
    (1) CABO One and Two Family Dwelling Code, 1992 Edition, including 
the 1993 amendments, but excluding Chapter I--Administrative, and the 
phrase ``or approved fire retardant wood'' contained in the exception of 
paragraph R-218.2.2(2), but including the Appendices A, B, D, and E of 
the Code. (Available from the Council of American Building Officials, 
Suite 708, 5203 Leesburg Pike, Falls Church, VA 22041.)
    (2) Electrical Code for One and Two Family Dwellings, NFPA 70A, 1990 
Edition, including Tables and Examples. Available from the National Fire 
Protection Association, Batterymarch Park, Quincy, MA 02269.
    (b) Model code compliance requirements. (1) When a one or two family 
dwelling is to comply with the model codes set forth in Sec. 
200.926b(a), the following requirements of those model codes shall not 
apply to those properties:
    (i) Those provisions of the model codes that establish energy 
requirements for one and two family dwellings; and
    (ii) Those provisions of the model codes that require or allow the 
issuance of permits of any sort.
    (2) Where the model codes set forth in paragraph (a) of this section 
designate a building, fire, mechanical, plumbing or other official, the 
Secretary's designee in the HUD Field Office serving the jurisdiction in 
which the dwelling is to be constructed shall act as such official.
    (c) Designation of Model Codes. When a one or two family dwelling or 
townhouse is to comply with portions of the model code or the entire 
model code, the dwelling shall comply with the CABO One and Two Family 
Dwelling Code 1992 Edition, including the 1993 amendments, or portion 
thereof as modified by Sec. 200.926e of this part and designated by the 
HUD Field Office serving a jurisdiction in which a property is located. 
In addition, the property shall comply with all of the standards which 
are referenced for any designated portions of the model code, and with 
the Electrical Code for One and Two Family Dwellings, NFPA 70A/1990.

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



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

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

[[Page 60]]



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


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



Sec. 200.926d  Construction requirements.

    (a) Application--(1) General. These standards cover the agency 
requirements for accessibility to physically handicapped people, 
variations to standards, real estate entity, trespass and utilities, 
site conditions, access, site design, streets, dedication of utilities, 
drainage and flood hazard exposure, special construction and product 
acceptance, thermal requirements, and water supply systems.
    (2) Requirements for accessibility to physically handicapped people. 
The HUD Field Office will advise project sponsors as to the extent 
accessibility will be required for new construction of one- and two-
family dwellings on a project-by-project basis.
    (i) Technical standards. See HUD Handbook, 4910.1, Sections 100-1.3b 
and 100-1.3c.
    (3) Variations to standards--(i) New materials and technologies. See 
paragraph (d) of this section. Alternatives, nonconventional or 
innovative methods and materials shall be equivalent to these standards 
in the areas of structural soundness, durability, economy of maintenance 
or operation and usability.
    (ii) Variation procedures. Variations from the requirements of any 
standard with which the Department requires compliance shall be made in 
the following ways:
    (A) For a particular design or construction method to be used on a 
single case or project, the decision is the responsibility of the Field 
Office. Headquarters concurrence is not required.
    (B) Where a variation is intended to be on a repetitive basis, a 
recommendation for a Local Acceptable Standard, substantiating data, and 
background information shall be submitted by the Field Office to the 
Director, Office of Manufactured Housing and Regulatory Functions.
    (iii) Variances which require individual analysis and decision in 
each instance are not considered as repetitive variances even though one 
particular standard is repeatedly the subject of variation. Such 
variances are covered by paragraph (a)(3)(ii)(A) of this section.
    (b) General acceptability criteria--(1) Real estate entity. The 
property shall comprise a single plot except that a primary plot with a 
secondary plot for an appurtenant garage or for other use contributing 
to the marketability of the property will be acceptable provided the two 
plots are in such proximity as to comprise a readily marketable real 
estate entity.
    (2) Service and facilities--(i) Trespass. Each living unit shall be 
one that can be used and maintained individually without trespass upon 
adjoining properties, except when the windowless wall of a detached 
dwelling is located on a side lot line. A detached dwelling may be 
located on a side lot line if:
    (A) legal provision is made for permanent access for the maintenance 
of the exterior portion of the lot line wall, and
    (B) the minimum distances from the dwelling to the dwellings on the 
abutting properties are not less than the sum of the side yard distances 
computed as appropriate for the type of opposing walls. (minimum 
distance 10 ft).
    (ii) Utilities. Utility services shall be independent for each 
living unit, except that common services such as water, sewer, gas and 
electricity may be provided for living units under a single mortgage or 
ownership. Separate utility service shut-off for each unit shall be 
provided. For living units under separate ownership, common utility 
services may be provided from

[[Page 61]]

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 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

[[Page 62]]

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
    (3) A signed Elevation Certificate documenting that the lowest floor 
(including basement) of the property improvements is built at or above 
the 100-year flood elevation in compliance with National Flood Insurance 
program criteria 44 CFR 60.3 through 60.6.
    (B) Under the DE program, these mortgages are not eligible for 
insurance unless the DE mortgagee submits the LOMA, LOMR, or Elevation 
Certificate to HUD with the mortgagee's request for endorsement.
    (v) Streets. Streets must be usable during runoff equivalent to a 
10-year return frequency. Where drainage outfall is inadequate to 
prevent runoff equivalent to a 10-year return frequency from ponding 
over 6 inches deep, streets must be made passable for commonly used 
emergency vehicles during runoff equivalent to a 25-year return 
frequency, except where an alternative access street not subject to such 
ponding is available.
    (vi) Crawl spaces. Crawl spaces must not pond water or be subject to 
prolonged dampness.
    (d) Special construction and product acceptance--(1) Structural 
features of factory produced (modular or panelized) housing or 
components.
    (i) For factory fabricated systems or components, HUD Handbook 
4950.1, ``Technical Suitability of Products Program Technical and 
Processing Procedures'' shall apply.
    (ii) The requirements of this part shall apply to structural 
features, consisting of factory fabricated systems or components 
assembled either at the factory or at the construction site, if the 
total construction is covered by these standards and can be inspected 
on-site for determination of compliance.
    (2) Non-structural or non-standard features. These features include 
methods of construction, systems, sub-systems, components, materials and 
processes which are not covered by these requirements. See HUD Handbook 
4950.1 for procedures to be followed in order to obtain acceptance of 
non-structural components or materials. See HUD Handbook 4910.1, 
appendix F for a list of Use of Materials Bulletins. Products and 
methods shall conform to the appropriate Use of Materials Bulletin.
    (3) Standard Features. These features include methods of 
construction, systems, sub-systems, components, materials and processes 
which are covered by national society or industry standards. For a list 
of standards and practices to which compliance is required, see HUD 
Handbook 4910.1, Appendix C and Appendices E and F, available from

[[Page 63]]

HUD, 451 Seventh Street, SW., Attention: Mailroom B-133, Washington, DC 
20410.
    (e) Energy efficiency. All detached one- and two-family dwellings 
and one-family townhouses not more than three stories in height shall 
comply with the CABO Model Energy Code, 1992 Edition, Residential 
Buildings, except for Sections 101.3.1, 101.3.2, 104, and 105, but 
Section 101.3.2.2, Historic Buildings, shall remain, and including the 
Appendix, and HUD intermediate MPS Supplement 4930.2 Solar Heating and 
Domestic Hot Water Systems, 1989 edition.
    (f) Water supply systems--(1) General. (i) Each living unit shall be 
provided with a continuing and sufficient supply of safe water under 
adequate pressure and of appropriate quality for all household uses. 
Newly constructed residential property for which a building permit has 
been applied for on or after June 19, 1988 from the competent authority 
with jurisdiction in this matter shall have lead-free water piping. For 
purposes of these standards, water piping is ``lead free'' if it uses 
solders and flux containing not more than 0.2 percent lead and pipes and 
pipe fittings containing not more than 8.0 percent lead. This system 
shall not impair the function or durability of the plumbing system or 
attachments.
    (ii) The chemical and bacteriological standards of the local health 
authority shall apply. In the absence of such standards, those of the 
appropriate State agency shall apply. A water analysis may be required 
by either the health authority or the HUD Field Office.
    (iii) Whenever feasible, connection shall be made to a public water 
system. When a public system is not available, connection shall be made 
to a community system which complies with HUD Handbook 4940.2, if 
feasible.
    (2) Individual water systems. (i) The system should be capable of 
delivering a flow of 5 gpm over at least a 4 hour period.
    (ii) The chemical and bacteriological standards of the local health 
authority shall apply. In the absence of such standards, those of the 
appropriate State agency shall apply. A water analysis may be required 
by either the health authority or the HUD Field Office.
    (iii) After installation, the system shall be disinfected in 
accordance with the recommendations or requirements of the local health 
authority. In the absence of a health authority, system cleaning and 
disinfection shall conform to the current EPA Manual of Individual Water 
Supply Systems.
    (iv) Bacteriological or chemical examination of a water sample 
collected by a representative of the local or state health authority 
shall be made when required by that authority or the HUD Field Office.
    (3) Location of wells. (i) A well located within the foundation 
walls of a dwelling is not acceptable except in arctic or subarctic 
regions.
    (ii) Water which comes from any soil formation which may be 
polluted, contaminated, fissured, creviced or less than 20 ft. below the 
natural ground surface is not acceptable, unless acceptable to the local 
health authority.
    (iii) Individual water supply systems are not acceptable for 
individual lots in areas where chemical soil poisoning has been or is 
practiced if the overburden of soil between the ground surface and the 
water bearing strata is coarse grained sand, gravel, or porous rock, or 
is creviced in a manner which will permit the recharge water to carry 
the toxicants into the zone of saturation.
    (iv) The following table shall be used in establishing the minimum 
acceptable distances between wells and sources of pollution located on 
either the same or adjoining lots. These distances may be increased by 
either the health authority having jurisdiction or the HUD Field Office.

                    Distance From Source of Pollution
------------------------------------------------------------------------
                                                              Minimum
                                                             horizontal
                   Source of pollution                        distance
                                                               (feet)
------------------------------------------------------------------------
Property Line............................................       10
Septic Tank..............................................       50
Absorption Field.........................................  \1\ 100
Seepage Pit..............................................  \1\ 100
Absorption Bed...........................................  \1\ 100
Sewer Lines w/Permanent Watertight Joints................       10
Other Sewer Lines........................................       50
Chemically Poisoned Soil.................................   \3\ 25
Dry Well.................................................       50

[[Page 64]]

 
Other....................................................   (\2\)
------------------------------------------------------------------------
\1\ This clearance may be increased or decreased depending upon soil and
  rock penetrated by the well and aquifer conditions. The clearance may
  be increased in creviced limestone and permeable strata of gravel and
  sand. The clearance may be reduced to 50 ft. only where the ground
  surface is effectively separated from the water bearing formation by
  an extensive, continuous and impervious strata of clay, hardpan, or
  rock. The well shall be constructed so as to prevent the entrance of
  surface water and contaminants.
\2\ The recommendations or requirements of the local health authority
  shall apply.
\3\ This clearance may be reduced to 15 feet only where the ground
  surface is effectively separated from the water bearing formation by
  an extensive, continuous and impervious strata of clay, hardpan, or
  rock.

    (4) Well construction. (i) The well shall be constructed so as to 
allow the pump to be easily placed and to function properly.
    (ii)(A) All drilled wells shall be provided with a sound, durable 
and watertight casing capable of sustaining the loads imposed.
    (B) The casing shall extend from a point several feet below the 
water level at drawdown or from an impervious strata above the water 
level to 12 in. above either the ground surface or the pump room floor. 
The casing shall be sealed at the upper opening to a depth of at least 
15 feet.
    (iii) Bored wells shall be lined with concrete, vitrified clay or 
equivalent materials.
    (iv) The space between the casing or liner and the wall of the well 
hole shall be sealed with cement grout.
    (v) The well casing shall not be used to convey water except under 
positive pressure. A separate drop pipe shall be used for the suction 
line.
    (vi) When sand or silt is encountered in the water-bearing 
formation, the well shall either be compacted and gravel packed, or a 
removable strainer or screen shall be installed.
    (vii) The surface of the ground above and around the well shall be 
compacted and graded to drain surface water away from the well.
    (viii) Openings in the casing, cap, or concrete cover for the 
entrance of pipes, pumps or manholes shall be watertight.
    (ix) If a breather is provided, it shall extend above the highest 
level to which surface water may rise. The breather shall be watertight, 
and the open end shall be screened and positioned to prevent entry of 
dust, insects and foreign objects.
    (5) Pump and equipment. (i) Pumps shall be capable of delivering the 
volume of water required under normal operating pressure within the 
living unit. Pump capacity shall not exceed the output of the well.
    (ii) Pumps and equipment shall be mounted to be free of 
objectionable noises, vibrations, flooding, pollution, and freezing.
    (iii) Suction lines shall terminate below maximum drawdown of the 
water level in the well.
    (iv) Horizontal segments of suction line shall be placed below the 
frost line in a sealed casing pipe or in at least 4 in. of concrete. The 
distance from suction line to sources of pollution shall be not less 
than shown in the table at paragraph (f)(3)(iv) of this section.
    (6) Storage tanks. (i) A pressure tank having a minimum capacity of 
42 gallons shall be provided. However, prepressured tanks and other 
pressurizing devices are acceptable provided that delivery between pump 
cycles equals or exceeds that of a 42 gallon tank.
    (ii) Tanks shall be equipped with a clean-out plug at the lowest 
point, and a suitable pressure relief valve.

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

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



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

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

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

    (b) Roof snow load. The roof snow load shall be in accordance with 
section 7 of ASCE 7-88.

[[Page 65]]

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

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

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



Sec. 200.927  Incorporation by reference of minimum property standards.

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

[50 FR 39592, Sept. 29, 1985]



Sec. 200.929  Description and identification of minimum property standards.

    (a) Description. The Minimum Property Standards describe physical 
standards for housing. They are intended to provide a sound basis for 
determining the acceptability of housing built under the HUD mortgage 
insurance and low-rent public housing programs. The Minimum Property 
Standards refer to material standards developed by industry and accepted 
by HUD. In addition,

[[Page 66]]

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

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



Sec. 200.929a  Fair Housing Accessibility Guidelines.

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

[58 FR 60250, Nov. 15, 1993]



Sec. 200.931  Statement of availability.

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

[63 FR 5423, Feb. 2, 1998]



Sec. 200.933  Changes in minimum property standards.

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

[[Page 67]]

the Office of the Federal Register, Washington, DC.

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



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

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

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

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

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

    (3) Application for ALAs. Applications for or correspondence 
concerning ALAs shall be submitted to the Housing Division of the field 
office having jurisdiction over the area in which the production 
facility of the system is located, except that applications containing 
payment shall be addressed to the attention of the Collection Officer 
for deposit to Account No. 86-09-0300.
    (c) Fees. Applicants for renewal and applicants for acceptance as 
program administrators under Sec. 200.935 of this title shall include 
the entire processing fee with the application. All other applicants 
shall submit one half of the required processing fee with each 
application. The applicant shall pay the balance when the draft issuance 
is returned to HUD with the applicant's concurrence signature. The 
Department will not prepare a final document for printing and 
distribution until it has received the full processing fee. From time to 
time, as may be necessary, the Department will establish and amend the 
fee schedule by publication of a Notice in the Federal Register.
    (d) Initial application and review--(1) Content of applications. 
Each application shall include only one item. All applications will be 
promptly processed on receipt by the Department.
    (i) With respect to Mechanical Engineering Bulletins (MEBs), 
Structural Engineering Bulletins (SEBs), Truss Connector Bulletins 
(TCBs), and Area Letters of Acceptance (ALAs), each structural design 
shall constitute a different item.
    (ii) With respect to Materials Releases (MRs), each product or 
system shall constitute a different item.
    (2) Revisions. A recipient of a technical suitability document 
issued by the Department may apply for revision of that document at any 
time. The revision may be in the form of an amendment of or supplement 
to the document, for which the recipient will be charged the applicable 
revision fee. However, where the Department determines that a proposed 
revision constitutes a different item, the schedule of fees for initial 
applications shall apply.
    (3) Renewals. Each issuance shall be valid for a period of three 
years from the date of initial issuance or most recent renewal, 
whichever is later. An applicant shall submit an application for renewal 
with the entire required fee three months before the expiration of the 
three-year period. Failure to submit a timely renewal application along 
with the required fee shall constitute a basis for cancellation of the 
issuance.
    (4) Initial and revision applications requiring further study or 
additional data. In its discretion, the Department may request an 
applicant to submit additional data or to conduct further study to 
supplement or clarify an initial application or an application for 
revision of a previously issued technical suitability document. If the 
applicant fails

[[Page 68]]

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

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

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



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

    (a) General. This section establishes administrator qualifications 
and procedures for the HUD Building Products Certification Programs 
under section 521 of the National Housing Act and the HUD Minimum 
Property Standards. Under these programs organizations acceptable to HUD 
validate manufacturers' certifications that certain building products or 
materials meet applicable standards. HUD may decide to implement a 
certification program for a particular building product or material for 
a variety of reasons, such as when deemed necessary by HUD to facilitate 
the introduction of new and innovative products or materials; or in 
response to reports of fraud or misrepresentation by manufacturers in 
advertising that their product or materials comply with a standard.
    (b) Definitions--(1) Certification program (``program''). The 
procedure under which accepted administrators validate manufacturers' 
certifications that particular building products or materials meet 
applicable HUD standards. A separate program is used to validate 
certifications for each particular product or material for which HUD 
requires certifications.

[[Page 69]]

    (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.

[[Page 70]]

    (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 certification shall be withheld until a 
finding of compliance is achieved.
    (ii) Quality assurance system review. (A) Each administrator shall 
examine a participating manufacturer's facilities and quality assurance 
system procedures to determine that they are adequate to assure 
continuing production of the product that complies with the applicable 
standard. These quality assurance system procedures shall be documented 
in the administrator's and the manufacturer's files. If a manufacturer's 
quality assurance system is not satisfactory to the administrator, 
validation of the manufacturer's declaration of certification shall be 
withheld. The following American Society for Quality Control (ASQC) 
standards, which are incorporated by reference, may be used as 
guidelines in any quality assurance review:
    (1) ASQC Q9000-1-1994 Quality Management and Quality Assurance 
Standards Guidelines for Selection and Use;
    (2) ASQC Q9001-1994 Quality Systems--Model for Quality Assurance in 
Design, Development, Production, Installation, and Servicing;
    (3) ASQC Q9002-1994 Quality Systems--Model for Quality Assurance in 
Production, Installation, and Servicing;
    (4) ASQC Q9003-1994 Quality Systems--Model for Quality Assurance in 
Final Inspection and Test;
    (5) ASQC Q9004-1-1994 Quality Management and Quality System 
Elements-Guidelines.
    (B) These standards have been approved by the Director of the 
Federal Register for incorporation by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. They are available from the American 
Society for Quality Control (ASQC), 611 East Wisconsin Avenue, 
Milwaukee, WI 53202.
    (5) Notice of validation. When initial testing, quality control 
review, and evaluation of other technical data are satisfactory to the 
administrator, a Notice of Validation or Certification shall be issued 
to the manufacturer. This allows the use of the administrator's 
registered mark on the product label.
    (6) Labeling. Each administrator shall issue to the manufacturer 
labels, tags, marks containing the administrator's

[[Page 71]]

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 
manufacturer's expense, for retest of only the test requirement(s) in 
which the failure(s) occurred. If the specified number of specimens pass 
the retest, the product can continue to be validated and listed. If the 
designated number of specimens described in the UM Bulletin fail, the 
administrator shall decertify the product. The manufacturer may request 
that a new selection be made of the product after corredction or 
modifications and be subjected to the initial acceptance testing 
procedure or to a program of retesting established by the administrator. 
The administrator may decertify the product on the basis of inadequate 
quality control by the manufacturer. The administrator shall notify the 
manufacturer, HUD headquarters and the HUD Field Offices of any 
decertification within 7 days. When the product is decertified the 
magnufacturer shall remove labels, tags or marks from all production and 
inventory in his/her control determined to be in noncompliance.
    (10) Challenge response. Any person or organization may submit a 
sample of a manufacturer's certified product to the administrator in 
substantiation of a claim of noncompliance. Submission shall be made to 
the administrator that validated the manufacturer's product. The 
administrator shall notify the manufacturer that its product has been 
challenged and shall make arrangements to obtain test samples of the 
challenged product. An estimate of the cost of the special sample 
selection and testing shall be made to the complainant. The complainant 
shall pay the estimated cost of the investigation in advance of any 
testing of the challenged product, unless HUD believes the complaint to 
be in the public's interest. HUD may conduct its own investigation when 
deemed necessary based upon a complaint or a product failure. The 
administrator shall submit the sample of the challenged product to an 
approved laboratory of the administrator's choice with the request to 
test compliance of only the challenged requirement(s). If the samples 
tested prove that the product failed to meet the standard, the product 
shall be decertified immediately. The manufacturer whose product is 
decertified shall reimburse the administrator for all

[[Page 72]]

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 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.

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

[[Page 73]]

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

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



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

heaters and fireplace 
          stoves.

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

[[Page 74]]

year to assure that the initially accepted quality control procedures 
are being followed.

[48 FR 1955, Jan. 17, 1983]



Sec. 200.937  Supplementary specific procedural requirements under
HUD building product standards and certification program for plastic 

bathtub units, plastic 
          shower receptors and stalls, plastic lavatories, plastic water 
          closet bowls and tanks.

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

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

    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. They are available from 
the American National Standards Institute, Inc., 11 West 42nd Street, 
New York, NY 10036. The standards are also available for inspection at 
the National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or go 
to: http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (b) Labeling. (1) Under the procedures set forth in paragraph (d)(6) 
of Sec. 200.935, concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applicable standards are required to be on the certification label 
issued by the administrator to the manufacturer. In the case of plastic 
bathtub units, plastic shower receptors and stalls, plastic lavatories, 
and plastic water closet bowls and tanks, the following additional 
information shall be included on the certification label:
    (i) Manufacturer's statement of conformance to UM 73a;
    (ii) Manufacturer's name and code identifying the plant location.
    (2) The certification label shall be affixed to each plastic 
bathroom fixture.
    (c) Periodic tests and quality control inspections. Under the 
procedures set forth in paragraph (d)(8) of Sec. 200.935, concerning 
periodic tests and quality control inspections, the frequency of testing 
for a product shall be described in the specific building product 
certification program. In the case of plastic bathroom fixtures, testing 
and inspection shall be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified plastic 
bathtub unit, plastic shower receptor and stall, plastic water closet 
bowl and tank for testing in an approved laboratory, in accordance with 
applicable standards.
    (2) At least every twelve months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified plastic 
lavatory for testing in accordance with applicable standards.
    (3) The administrator shall also review quality control procedures 
at each visit to determine that they continue to be followed.

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



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

insulating glass units.

    (a) Applicable standards. (1) All sealed insulating glass units 
shall be designed, manufactured, and tested in compliance with the 
American Society for Testing and Materials standard: ASTM E-774-92 
Standard Specification for Sealed Insulating Glass Units.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the American Society for Testing and Materials, 1916 Race Street, 
Philadelphia, PA 19103. This standard is also available for inspection 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/

[[Page 75]]

federal--register/code--of--federal--regulations/ibr--locations.html.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are issued by the administrator to the manufacturer. Each 
sealed insulating glass unit shall be marked as conforming to UM 82a. 
The label shall be located on each sealed insulating unit so that it is 
available for inspection. The label shall include the manufacturer's 
name and plant location.
    (c) Periodic tests and quality assurance inspections. Under the 
procedures set forth in Sec. 200.935(d)(8) concerning periodic tests 
and quality assurance inspections, the frequency of testing for a 
product shall be described in the specific building product 
certification program. In the case of sealed insulating glass units, 
testing and inspection shall be conducted as follows:
    (1) At least once a year, the administrator shall visit the 
manufacturer's facility to select a sample, of the maximum size 
commercially available, for testing in a laboratory approved by the 
administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[58 FR 67674, Dec. 22, 1993]



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

carpet with attached 
          cushion.

    (a) Applicable standards. (1) Carpet and carpet with attached 
cushion certified for this program shall be designed, manufactured and 
tested in accordance with the following standards:
    (i) AATCC 20A-81--Fiber Analysis: Quantitative;
    (ii) AATCC 16E-82--Colorfastness to Light: Water-Cooled Xenon-Arc 
Lamp, Continuous Light;
    (iii) AATCC 8-85--Colorfastness to Crocking: AATCC Crockmeter 
Method;
    (iv) AATCC 24-85--Insect, Resistance to Textiles to;
    (v) ASTM D1335-67 (Reapproved 1972)--Standard Test Method for Tuft 
Bind of Pile Floor Coverings;
    (vi) ASTM D3676-78 (Reapproved 1983)--Standard Specification for 
Rubber Cellular Cushion Used for Carpet or Rug Underlay;
    (vii) ASTM E648-78--Standard Test Method for Critical Radiant Flux 
of Floor-Covering Systems Using a Radiant Heat Energy Source;
    (viii) ASTM D2646-79--Standard Methods of Testing Backing Fabrics;
    (ix) ASTM D3936-80--Standard Test Method for Delamination Strength 
of Secondary Backing of Pile Floor Coverings;
    (x) ASTM D297-81--Standard Methods for Rubber Products--Chemical 
Analysis;
    (xi) ASTM D418-82--Standard Methods of Testing Pile Yarn Floor 
Covering Construction; and
    (xii) National Bureau of Standards DOC FF 1-70. (ASTM D2859-76)--
Standard Test Method for Flammability of Finished Textile Floor Covering 
Materials.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. They are available from 
the (i) American Association of Textile Chemists and Colorists (AATCC), 
P.O. Box 12215, Research Triangle Park, NC 27709;
    (ii) American Society for Testing and Materials (ASTM), 1916 Race 
Street, Philadelphia, PA 19103; and
    (iii) U.S. Department of Commerce, National Bureau of Standards, 
Washington, DC 20234.

The standards are also available for inspection at the National Archives 
and Records Administration (NARA). For information on the availability 
of this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html.
    (b) Labeling. (1) Under the procedures set forth in Sec. 
202.935(d)(6), concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applied standard is required to be on the certification label issued 
by the administrator to the manufacturer. In

[[Page 76]]

the case of carpet and carpet with attached cushion, the following 
additional information shall be included on the certification label, 
mark or stamp:
    (i) Manufacturer's name or code identifying the manufacturing plant 
location; and
    (ii) Manufacturer's statement of compliance with UM 44d.
    (2) The certification mark shall be applied to each carpet at 
intervals of at least every six feet, not less than one foot from the 
edge.
    (c) Periodic tests and quality control inspections. (1) Five samples 
of carpet and carpet with attached cushion shall be tested annually by 
the administrator or by an administrator-approved laboratory. Three 
samples of each certified quality shall be taken from the plant 
annually. Of these, two shall be interim samples (taken every six 
months) and one an annual sample. In addition, two samples of each 
certified quality shall be taken annually from sources other than the 
manufacturer, i.e., brought in the market place from distributors or 
stores, not from the factory. The administrator shall select samples for 
testing, and testing shall be conducted, in accordance with the 
applicable standards in a laboratory accredited by the National 
Voluntary Laboratory Accreditation Program (NVLAP) of the National 
Bureau of Standards, U.S. Department of Commerce.
    (2) The administrator shall visit the manufacturer's facility at 
least once every six months to assure that the initially accepted 
quality control procedures continue to be followed.

[51 FR 17928, May 16, 1986]



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

grademarking of lumber.

    (a) Applicable standard. (1) In accordance with UM 38j, lumber shall 
be grademarked in compliance with the U.S. Department of Commerce 
Voluntary Product Standard PS 20-94 American Softwood Lumber Standard.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. It is available from the U.S. Department of 
Commerce, NIST, Office of Voluntary Product Standards, Gaithersburg, MD 
20899.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required on the certification label issued by the 
administrator to the manufacturer. However, in the case of grademarking 
of lumber, the following information shall be included on the 
certification label or mark:
    (1) The registered symbol which identifies the grading agency;
    (2) Species or species combination;
    (3) Grade;
    (4) Identification of the applicable grading rules when not 
indicated by the species identification or agency symbol;
    (5) Mill or grader;
    (6) For members which are less than 5 inches in nominal thickness, 
indication that the lumber was green or dry at the time of dressing;
    (7) Indication that the lumber was finger jointed; and
    (8) The certification mark shall be affixed to each piece of lumber.
    (c) Periodic tests and quality assurance. Periodic tests and quality 
assurance inspections shall be carried out by the American Lumber 
Standard Committee as defined in PS 20-94.

[63 FR 5423, Feb. 2, 1998]



Sec. 200.944  Supplementary specific requirements under the HUD 
building product standards and certification program for plywood 

and other performance rated 
          wood-based structural-use panels.

    (a)(1) All plywood made to specifications of Voluntary Product 
Standard, PS 1-83, ``Construction and Industrial Plywood'' (published by 
the U.S. Department of Commerce, National Bureau of Standards (May 
1984)) and grade marked as PS 1-83 shall conform to the requirements of 
PS 1-83, except that all veneers may be D-grade. A copy of PS

[[Page 77]]

1-83 may be obtained from the U.S. Department of Commerce, National 
Institute for Standards and Technology, Office of Product Standards, 
Gaithersburg, MD 20899.
    (2) All plywood panels not meeting the veneer grade requirements of 
PS 1-83, and all performance rated composite and nonveneer structural-
use panels shall comply with the requirements described in the APA PRP-
108, ``Performance Standards and Policies for Structural-Use panels'' 
(published by the American Plywood Association, June 1988). However, in 
ASTM D-3043-87, ``Standard Methods of Testing Structural Panels in 
Flexure'' (published by the American Society for Testing and Materials, 
August 28, 1987), Method B may be used in lieu of Method C for measuring 
the mechanical properties of the panel, provided that the test specimen 
has a width of at least 12 inches. The impact load shall be 150 ft. lbs. 
for single-layer floor panels excluding any floor finishes. Copies of 
the APA Standard may be obtained from the American Plywood Association, 
P.O. Box 11700, Tacoma, WA 98411-0770. Copies of the ASTM Standard may 
be obtained from the American Society of Testing and Materials, 1916 
Race Street, Philadelphia, PA 19103.
    (3) Structural-use panels shall be installed in accordance with the 
manufacturer's installation instructions and Form No. E30K, ``APA 
Design/Construction Guide-Residential and Commercial'' (published by the 
American Plywood Association, January 1989).
    (4) These standards have been approved by the Director of the 
Federal Register for incorporation by reference in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies of the standards are available 
for inspection at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal--register/
code--of--federal--regulations/ibr--locations.html.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Panels that conform to the 
Performance Standards and Policy for Structural-Use Panels shall be 
marked as conforming to UM 40c. All panels complying with APA PRP-108 
shall be marked with a label formatted in the manner similar to the 
trademark examples shown in APA PRP-108. All panels will be marked with 
the mill number. The certification mark shall be stamped on each panel 
and be located so that it is available for inspection.
    (c) Periodic tests and qualify control inspections. Under the 
procedures set forth in Sec. 200.935(d)(8) concerning periodic tests 
and quality control inspections, the frequency of testing for a product 
shall be described in the specific building product certification 
program. In the case of plywood and wood-based structural-use panels, 
testing and inspection shall be conducted as follows:
    (1) Testing shall be done in an Administrator's laboratory or an 
Administrator-approved laboratory every three months. All plywood 
qualified for conformance with PS 1-83 shall be tested in accordance 
with PS 1-83.
    (2) All thickness and lay-ups of structural-use panels in production 
made in conformance with the Performance Standards shall be tested in 
accordance with procedures set forth in APA PRP-108 Performance 
Standards and Policies for Structural-Use Panels (published by the 
American Plywood Association Standard June 1988).
    (3) The Administrator shall examine each manufacturer's quality 
control procedures to assure they are the same as or equivalent to those 
set forth under the Quality Assurance Policy section 4.2.3 of the 
publication referenced in paragraph (2) above or PS 1-83 section 
3.8.6.6, Reexamination.
    (4) The Administrator shall inspect the manufacturer's procedures at 
the plant at least every three months to assure that the initially 
accepted quality control procedures are being followed.

[55 FR 38785, Sept. 20, 1990]

[[Page 78]]



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

    (a) Applicable standards. (1) All carpet shall be designed, 
manufactured, and tested in compliance with the following standards from 
the American Society for Testing and Materials and the American 
Association of Textile Chemists and Colorists:
    (i) ASTM D418-92--Standard Test Methods for Tuft and Yarn Length of 
Uncoated Floor Coverings;
    (ii) ASTM D1335-67--(Reapproved 1972) Standard Test Method for Tuft 
Bind of Pile Floor Coverings;
    (iii) ASTM D 2646-87--Standard Test Methods for Backing Fabrics;
    (iv) ASTM D 3936-80--Standard Test Method for Delamination Strength 
of Secondary Backing of Pile Floor Coverings;
    (v) AATCC Test Method 16e-82--Colorfastness to Light: Water-Cooled 
Xenon-Arc Lamp, Continuous Light;
    (vi) AATCC Test Method 165-86--Colorfastness to Crocking: Carpets--
AATCC Crock Meter Method;
    (vii) ASTM D 3676-78--(Reapproved 1989) Standard Specification for 
Rubber Cellular Cushion Used for Carpet or Rug Underlay;
    (viii) ASTM D 3574-91--Standard Test Methods for Flexible Cellular 
Materials--Slab, Bonded and Molded Urethane Foams.
    (2) These standards have been approved by the Director of the 
Federal Register for incorporation by reference. The standards are 
available from the American Society for Testing and Materials, 1916 Race 
Street, Philadelphia, PA 19103 and the American Association of Textile 
Chemists and Colorists, P.O. Box 12215, Research Triangle Park, NC 
27709. These standards are also available for inspection at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with UM 44d are 
required to be on the certification label issued by the Administrator to 
the manufacturer. The label shall be placed on each carpet every six 
feet not less than one foot from the edge.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec. 200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) Every six months, three samples and one annual field sample of 
carpet shall be submitted to the Administrator for testing in a 
laboratory accredited by the National Voluntary Laboratory Accreditation 
Program of the U.S. Department of Commerce.
    (2) The administrator also shall review the quality assurance 
procedures every six months to assure that they are being followed by 
the manufacturer.

[58 FR 67674, Dec. 22, 1993]



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

Bulletin UM 101.

    (a) Applicable standards: (1) All Exterior Finish and Insulation 
Systems shall be designed, manufactured, and tested in compliance with 
the following standards:
    (i) ASCE 7-93, American Society of Civil Engineers--Minimum Design 
Loads for Buildings and Other Structures.
    (ii) ASTM C 150-94 Standard Specification for Portland Cement.
    (iii) ASTM C 920-87 Standard Specification for Elastomeric Joint 
Sealants.
    (iv) ASTM C-1186-91 Standard Specification for Flat Non-Asbestos 
Fiber-Cement Sheets.
    (v) ASTM D 579-90 Standard Specification for Greige Woven Glass 
Fabrics.
    (vi) ASTM D 3273-86--(Reapproved 1991) Standard Test Method for 
Resistance to Growth of Mold on the Surface of Interior Coatings in an 
Environmental Chamber.
    (vii) ASTM E 330-90 Standard Test Method for Structural Performance 
of Exterior Windows, Curtain Walls, and Doors by Uniform Static Air 
Pressure Difference.

[[Page 79]]

    (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 Marne-LA-Valee Cedex 2, Paris, France.
    (v) Exterior Insulation Manufacturers Association (EIMA), 2759 State 
Road 580, Suite 112, Clearwater, Florida 34621-3350.
    (3) The standards are available also for inspection at the Office of 
Manufactured Housing and Regulatory Functions, Standards and Products 
Branch, Department of Housing and Urban Development, room 3214, L'Enfant 
Plaza, 490E, Mail Room B-133, Washington, DC 20410-8000, and at the 
National Archives and Records Administration (NARA). For information on 
the availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    (b) Labeling. Under the procedures as set forth in Sec. 
200.935(d)(6), concerning labeling of a product, the administrator's 
validation mark and the manufacturer's certification of compliance with 
the applied standard is required to be on the certification label issued 
by the administrator to the manufacturers. In the case of exterior wall 
insulation and finish systems, the certification label containing the 
administrator's mark shall be permanently affixed on the package or 
container of base and finish coating materials. Further, additional 
information shall be included on the certification label or mark:
    (1) Manufacturer's name.
    (2) Manufacturer's statement of conformance with UM 101.
    (c) The Administrator shall visit the manufacturer's or sponsor's 
facility every 6 months, to assure that the initially accepted quality 
assurance procedures are being followed. At least every four years, the 
Administrator also shall have the exterior wall insulation and finish 
systems tested in an approved laboratory to assure that the original 
performance is maintained.
    (d) The administrator's (or administration-accepted inspection 
agency) inspection of EFIS system installation of 5000 sq. ft. or more, 
shall be made during and upon completion of the construction. Reports of 
the inspection shall be made to the owner. These reports shall state:
    (1) The coverage of the finish coat per square foot for a given 
volume of finish.
    (2) The minimum thickness of the base and finish coatings.

[[Page 80]]

    (3) The fiberglass mesh is installed properly around joints and 
insulation. All penetrations, including windows, flashing, etc., are 
sealed; and there is a caulk and sealant continuity evaluation; and
    (4) There is a caulk and sealant continuity evaluation with special 
concerns on maintenance.
    (e) The manufacturer shall warrant their exterior wall insulation 
and finish system, including any caulks and sealants, for twenty years 
against faulty performance. The warranty shall include correction of 
delamination, chipping, denting, peeling, blistering, flaking, bulging, 
unsightly discoloration, or other serious deterioration of the system 
such as the intrusion of water through the wall or structural failure of 
the system's surface materials. Should any of these defects occur, the 
manufacturer shall make a pro-rata allowance for replacement or pay the 
owner the amount of the allowance. The manufacturer shall not be liable 
for damages or defects resulting from misuse, natural catastrophes, or 
other causes beyond the control of the manufacturer. The contractor 
shall provide a statement to the owner that the product has been 
installed in compliance with HUD requirements and that the 
manufacturer's warranty does not relieve the builder, in any way, of 
responsibility under the terms of the Builder's Warranty required by the 
National Housing Act, or under any other housing program.

[60 FR 47841, Sept. 14, 1995]



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

    (a) Applicable standards. (1) All polystyrene foam insulation board 
shall be designed, manufactured, and tested in compliance with the 
American Society for Testing and Materials (ASTM) standard C-578-92, 
Standard Specification for Rigid, Cellular Polystyrene Thermal 
Insulation.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the American Society for Testing and Materials, 1916 Race Street, 
Philadelphia, PA 19103. This standard is also available for inspection 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal--register/code--of--
federal--regulations/ibr--locations.html.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's certification of 
compliance with the applicable standards and the type of board are 
required to be on the certification label issued by the administrator to 
the manufacturer.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec. 200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample of each certified polystyrene 
foam insulation board for testing by a laboratory approved by the 
administrator.
    (2) The administrator also shall review the quality assurance 
procedures every six months to assure that they are being followed by 
the manufacturer.

[58 FR 67675, Dec. 22, 1993]



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

    (a) Applicable standards. (1) All carpet cushion shall be designed, 
manufactured, and tested in compliance with the following standards from 
the American Society for Testing and Materials:
    (i) ASTM D 1667-76--(Reapproved 1990) Standard Specification for 
Flexible Cellular Materials--Vinyl Chloride Polymers and Copolymers 
(Closed-Cell Foam);
    (ii) ASTM D2646-87--Standard Test Methods for Backing Fabrics;
    (iii) ASTM D629-88--Standard Test Methods for Quantitative Analysis 
of Textiles;
    (iv) ASTM D3574-91--Standard Test Methods for Flexible Cellular 
Materials--Slab, Bonded, and Molded Urethane Foams;
    (v) ASTM D3676-78--Standard Specification for Rubber Cellular 
Cushion Used for Carpet or Rug Underlay.

[[Page 81]]

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

[58 FR 67675, Dec. 22, 1993]



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

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

[[Page 82]]

    (2) The administrator also shall review the quality assurance 
procedures every year to assure that they are being followed by the 
manufacturer.

[58 FR 67675, Dec. 22, 1993]



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

    (a) Applicable standards. (1) All solar water heating systems shall 
be designed, manufactured, and tested in compliance with Solar Rating 
and Certification Corporation (SRCC) Document OG-300-93, Operating 
Guidelines and Minimum Standards for Certifying Solar Water Heating 
Systems: An Optional SWH System Certification and Rating Program. 
Section 10 of the SRCC standard has been omitted because it was 
considered proprietary, since it describes an administrative program 
specifically carried out by SRCC.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference. The standard is available from 
the Solar Rating and Certification Corporation, 777 North Capitol 
Street, NE., suite 805, Washington, DC 20002. This standard is also 
available for inspection at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Each solar water heating system shall 
be marked as conforming to UM 100. The label shall include the 
manufacturer's name and plant location.
    (c) Periodic tests and quality assurance inspection. Under the 
procedure set forth in Sec. 200.935(d)(8), testing and inspection shall 
be conducted as follows:
    (1) The Administrator shall visit the manufacturer's factory every 
two years to assure that the initially accepted quality assurance 
procedures are being followed.
    (2) At least every four years, the administrator shall visit the 
manufacturer's facility to select a sample of each certified solar water 
heating system for testing by a laboratory approved by the 
administrator.
    (d) Warranty. The manufacturer shall provide, at no cost, a full 
five-year warranty against defects in material or workmanship, on the 
absorber plate, cooling passages, and the collector (excluding any 
glass), running from the date of installation of the solar water heating 
system. The warranty also shall include the full costs of field 
inspection, parts, and labor required to remedy the defects, and will 
include the cost of replacement at the site if required. This warranty 
is not required to cover defects resulting from exposure to harmful 
materials, fire, flood, lightning, hurricane, tornado, hailstorms, 
earthquakes, or other acts of God, vandalism, explosions, harmful 
chemicals or other fluids, fumes or vapors. This exclusion will apply to 
the operation of the collector under excessive pressures or excessive 
flow rates, misuse, abuse, negligence, accidents, alterations, falling 
objects or other causes beyond the control of the manufacturer. 
Following the initial five years, the manufacturer shall provide a 
limited no-cost five-year warranty for collector parts on a prorata 
allowance basis.

[58 FR 67676, Dec. 22, 1993]



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

interior stair treads.

    (a) Applicable standards. (1) All interior particleboard stair 
treads shall be designed, manufactured, and tested in compliance with 
ANSI A208.1-1993 Particleboard, Grade M-3.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51, and is available from the American National 
Standards Institute, Inc., 11 West 42nd Street, New York, NY 10036.

[[Page 83]]

    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required to be on the certification label issued by the 
administrator to the manufacturer. Each interior particleboard stair 
tread shall include the manufacturer's statement of conformance to UM 
70b, a statement that this product is for interior use only, and the 
manufacturer's name and plant location.
    (c) Periodic tests and quality assurance. Under the procedures set 
forth in Sec. 200.935(d)(8) concerning periodic tests and quality 
assurance inspections, the frequency of testing for a product shall be 
described in the specific building product certification program. In the 
case of interior particleboard stair treads, testing and inspection 
shall be conducted as follows:
    (1) At least once every three months, the administrator shall visit 
the manufacturer's facility to select a sample for testing in a 
laboratory approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



Sec. 200.954  Supplementary specific requirements under the
HUD building product standard and certification program for

construction adhesives for wood floor 
          systems.

    (a) Applicable standards. (1) All construction adhesives for field 
glued wood floor systems shall be designed, manufactured, and tested in 
compliance with the following American Society for Testing and Materials 
(ASTM) standard: D 3498-93 Standard Specification for Adhesives for 
Field-Gluing Plywood to Lumber Framing for Floor Systems except that the 
mold and bacteria resistance tests shall not be included.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51, and is available from the American Society for 
Testing & Materials Inc., 100 Barr Harbor Drive, West Conshohocken, PA. 
19428.
    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standard are required to be on the certification label issued by the 
administrator to the manufacturer. Each container shall be marked as 
being in compliance with UM 60a. The label shall also include the 
manufacturer's name, plant location, and shelf life.
    (c) Periodic tests and quality assurance. Under the procedures set 
forth in Sec. 200.935(d)(8) concerning periodic tests and quality 
assurance inspections, the frequency of testing for a product shall be 
described in the specific building product certification program. In the 
case of construction adhesives for field glued wood floor systems, 
testing and inspection shall be conducted as follows:
    (1) At least every six months, the administrator shall visit the 
manufacturer's facility to select a sample for testing in a laboratory 
approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



Sec. 200.955  Supplementary specific requirements under the HUD
building product standard and certification program for fenestration 

products (windows and 
          doors).

    (a) Applicable standards. (1) All windows and doors shall be 
designed, manufactured, and tested in compliance with American 
Architectural Manufacturers Association (AAMA) standard, AAMA/NWWDA 101/
I.S.2-97 Voluntary Specifications for Aluminum, Vinyl (PVC) and Wood 
Windows and Glass Doors.
    (2) This standard has been approved by the Director of the Federal 
Register for incorporation by reference in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51, and is available from the American 
Architectural Manufacturers Association, 1827 Walden Office Square, 
Suite 104, Schaumburg, IL 60173.

[[Page 84]]

    (b) Labeling. Under the procedures set forth in Sec. 200.935(d)(6) 
concerning labeling of a product, the administrator's validation mark 
and the manufacturer's certification of compliance with the applicable 
standards are required to be on the certification label issued by the 
administrator to the manufacturer. Each window or glass door shall 
include the manufacturer's name, plant location, and statement of 
compliance with UM 111.
    (c) Periodic tests and quality assurance inspections. Under the 
procedures set forth in Sec. 200.935(d)(8) concerning periodic tests 
and quality assurance inspections, the frequency of testing for a 
product shall be described in the specific building product 
certification program. In the case of windows and glass doors, testing 
and inspection shall be conducted as follows:
    (1) At least once every four years, the administrator shall visit 
the manufacturer's facility to select a commercial sample for testing in 
a laboratory approved by the administrator.
    (2) The administrator shall also review the quality assurance 
procedures twice a year to assure that they are being followed by the 
manufacturer.

[63 FR 5424, Feb. 2, 1998]



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



Sec. 200.1001  Cross-reference.

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

[61 FR 11118, Mar. 18, 1996]



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



Sec. 200.1101  Cross-reference.

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

[61 FR 11118, Mar. 18, 1996]



  Subpart V_Income Information; Assistance Applicants and Participants



Sec. 200.1201  Cross-reference.

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

[61 FR 11118, Mar. 18, 1996]



                    Subpart W_Administrative Matters



Sec. 200.1301  Expiring Programs--Savings Clause.

    No new loan assistance, additional participation, or new loans are 
being insured under the programs listed below. Any existing loan 
assistance, ongoing participation, or insured loans under these programs 
will continue to be governed by the regulations in effect as they 
existed immediately before October 11, 1995:

Part 205 Mortgage Insurance for Land Development [Title X]
Part 209 Individual Homes; War Housing Mortgage Insurance [Sec. 603]
Part 224 Armed Services Housing--Military Personnel [Sec. 803]
Part 225 Military Housing Insurance [Sec. 803]
Part 226 Armed Services Housing--Civilian Employees [Sec. 809]
Part 227 Armed Services Housing--Impacted Areas [Sec. 810]
Part 228 Individual Residences; National Defense Housing Mortgage 
Insurance [Sec. 903]
Part 240 Mortgage Insurance on Loans for Fee Title Purchase
Part 277 Loans for Housing for the Elderly or Handicapped
Part 278 Mandatory Meals Program in Multifamily Rental or Cooperative 
Projects for the Elderly or Handicapped

[60 FR 47262, Sept. 11, 1995]



Sec. 200.1302  Additional expiring programs--savings clause.

    No new loan assistance, additional participation, or new loans are 
being insured under the programs listed in this section.

[[Page 85]]

    (a) Any existing loan assistance, ongoing participation, or insured 
loans under the following programs will continue to be governed by the 
regulations in effect as they existed immediately before May 1, 1996:

Part 215 Rent Supplement Payments Program
Part 222 Serviceperson's Mortgage Insurance Program
Part 237 Special Mortgage Insurance for Low and Moderate Income Families

    (b) Any existing loan assistance, ongoing participation, or insured 
loans under the following program will continue to be governed by the 
regulations in effect as they existed immediately before December 26, 
1996:

Part 233 Experimental Housing Mortgage Insurance Program

[61 FR 60160, Nov. 26, 1996]



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

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

[66 FR 6224, Jan. 19, 2001]



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

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



Sec. 200.1500  Sanctions against a MAP lender.

    (a) In addition to any other legal remedy available to HUD, HUD may 
take the following actions with respect to a MAP lender:
    (1) Warning letter;
    (2) Probation;
    (3) Suspension;
    (4) Termination;
    (5) Limited Denial of Participation (LDP);
    (6) Referral to the Mortgagee Review Board; and
    (7) Referral to the Office of Inspector General.
    (b) The actions listed in paragraphs (a)(1) through (a)(4) of this 
section are carried out in accordance with the requirements of this 
subpart. An LDP is a sanction applied in accordance with subpart J of 2 
CFR part 2424 to participants in loan transactions other than FHA-
insured lenders. The Mortgagee Review Board procedures are found at 24 
CFR part 25.

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



Sec. 200.1505  Warning letter.

    (a) In general. HUD may issue a warning letter, which specifies 
problems or violations identified by HUD, to a MAP lender.
    (b) Effect of warning letter. The warning letter:
    (1) Does not suspend a lender's MAP privileges;
    (2) May impose a higher level of review of the lender's underwriting 
by HUD;
    (3) May direct the taking of a corrective action; and
    (4) May require a meeting in a designated HUD office with the 
principal owners or officers, or both, of the MAP lender to discuss the 
specified problems and violations, and possible corrective actions.

[[Page 86]]

    (c) Relationship to other sanctions. The issuance of a warning 
letter is not subject to the MAP Lender Review Board procedures in 
accordance with Sec. 200.1535, and is not a prerequisite to the 
probation, or suspension, or termination of MAP privileges.



Sec. 200.1510  Probation.

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



Sec. 200.1515  Suspension of MAP privileges.

    (a) In general. Only the MAP Lender Review Board may suspend a 
lender's eligibility for MAP, in accordance with the procedures of Sec. 
200.1535.
    (b) Effect of suspension. (1) A suspension may impose any conditions 
that may be imposed by probation.
    (2) During the suspension period a MAP lender:
    (i) Shall be removed from the MAP-approved lender list posted on 
HUD's Web site;
    (ii) May not submit, and the HUD field office may not accept, 
materials after the close of business of the date of the suspension 
letter for a new application for multifamily mortgage insurance from 
HUD; and
    (iii) May continue to process any existing application for 
multifamily mortgage insurance submitted to a Multifamily Hub or Program 
Center before the date of the suspension letter.
    (3) The MAP Lender Review Board may impose a higher level of review 
of the lender's underwriting by HUD;
    (4) Suspension is nationwide in effect.
    (c) Duration of suspension. (1) Suspension may not exceed 12 months, 
except where conditions are imposed. If both a time period and 
conditions are imposed, a suspension shall terminate only when:
    (i) The time period of the suspension has expired;
    (ii) The MAP lender has submitted a certification of compliance with 
those conditions to the Board; and
    (iii) The Board has notified the MAP lender it has received the 
certification of compliance and is satisfied that the corrective actions 
have occurred.

[[Page 87]]

    (2) When suspension is lifted, the lender's name shall be promptly 
reinstated on the MAP-Approved Lender list posted on HUD's Web site.



Sec. 200.1520  Termination of MAP privileges.

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



Sec. 200.1525  Settlement agreements.

    (a) HUD staff, as authorized, may negotiate a settlement agreement 
with a MAP lender before or after the issuance of a warning letter or 
referral to the MAP Lender Review Board. Once a matter has been referred 
to the MAP Lender Review Board, only the Board may approve a settlement 
agreement.
    (b) Settlement agreements may provide for:
    (1) Cessation of any violation;
    (2) Correction or mitigation of the effects of any violation;

[[Page 88]]

    (3) Removal of lender staff from positions involving origination, 
underwriting, and/or construction loan administration;
    (4) Actions to collect sums of money wrongfully or incorrectly paid 
by the MAP lender to a third party;
    (5) Implementation or revision of a quality control plan or other 
corrective measure acceptable to HUD; and
    (6) Modification of the duration or provisions of any administrative 
sanction deemed to be appropriate by HUD.
    (c) A MAP lender's compliance with a settlement agreement is 
evidenced by the lender certifying its compliance with the conditions of 
the agreement, and HUD's determination that the lender is in compliance 
with the conditions of the agreement.
    (d) Failure by a MAP lender to comply with a settlement agreement 
may result in a probation, or suspension, or termination of MAP 
privileges, or referral to the Mortgagee Review Board.



Sec. 200.1530  Bases for sanctioning a MAP lender.

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

[[Page 89]]

    (8) Failure to comply with any agreement, certification, 
undertaking, or condition of approval listed in a MAP lender's 
application for approval;
    (9) Noncompliance with any requirement or directive of the MAP 
Lender Review Board;
    (10) Violation of the requirements of any contract with HUD, or 
violation of the requirements in any statute or regulation;
    (11) Submission of false information, or a false certification, to 
HUD in connection with any MAP mortgage transaction;
    (12) Failure of a MAP lender to respond in a timely manner to 
inquiries from the MAP Lender Review Board in accordance with this 
subpart;
    (13) Indictment or conviction of a MAP lender or any of its 
officers, directors, principals, or employees for an offense that 
reflects on the responsibility, integrity, or ability of the lender to 
participate in the MAP initiative;
    (14) Employing or retaining an officer, partner, director, or 
principal at the time when the person was suspended, debarred, 
ineligible, or subject to an LDP under 2 CFR part 2424, or otherwise 
prohibited from participation in HUD programs, when the MAP lender knew 
or should have known of the prohibition;
    (15) Employing or retaining an employee who is not an officer, 
partner, director, or principal, and who is or will be working on HUD-
FHA program matters, at a time when that person was suspended, debarred, 
ineligible, or subject to an LDP under 2 CFR part 2424, or otherwise 
prohibited from participation in HUD programs, when the MAP lender knew 
or should have known of the prohibition;
    (16) Failure to cooperate with an audit or investigation by the HUD 
Office of Inspector General or an inquiry by HUD into the conduct of the 
MAP lender's FHA-insured loans; and
    (17) Failure to fund MAP mortgage loans or any misuse of mortgage 
loan proceeds.

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



Sec. 200.1535  MAP Lender Review Board.

    (a) Authority--(1) Sanctions. The MAP Lender Review Board (or Board) 
is authorized to impose appropriate sanctions on a MAP lender after:
    (i) Conducting an impartial review of all information and 
documentation submitted to the Board; and
    (ii) Making factual determinations that there has been a violation 
of MAP requirements.
    (2) Settlement agreements. The Board is authorized to approve 
settlement agreements in accordance with Sec. 200.1525 of any matter 
pending before the Board.
    (3) Extensions. The Board is authorized to extend, on its own 
initiative or for good cause at the written request of a MAP lender, any 
time limit otherwise applicable under this section. Notice of any such 
extension shall be timely provided to a MAP lender.
    (b) Notice of violation. Before the Board reviews a matter for 
consideration of a sanction, the Board's Chairman will issue written 
notice of violation to the MAP lender's contact person as listed on the 
Multifamily MAP Web site. The notice is sent by overnight delivery and 
must be signed for by an employee of the MAP lender upon receipt. The 
notice:
    (1) Informs the lender that the Board is considering a specific 
violation;
    (2) States the specific facts alleged concerning the violation, with 
citation to the HUD requirements that have been violated;
    (3) Includes as attachments copies of all documents evidencing the 
violation and upon which the Board will rely in reaching a decision;
    (4) Provides the lender with the opportunity to request in writing, 
within 15 business days after the date of the issuance of the notice, 
to:
    (i) Meet for an informal conference with the Board in person or by 
video conference using HUD facilities at Headquarters or one of HUD's 
field offices; and
    (ii) Present written evidence and any other relevant information at 
the conference;
    (5) Requires a written response to be submitted to the Board by a 
date specified within the notice;
    (6) Provides the street address, email address, or facsimile (FAX) 
number for

[[Page 90]]

purposes of receiving the lender's request for an informal conference 
and written response; and
    (7) Is made part of the administrative record of the Board's 
decision of the matter.
    (c) Response to notice. (1) The MAP lender's written response 
required by the notice of violation may not exceed 15 double-spaced 
typewritten pages and must include an executive summary, a statement of 
the facts, an argument, and a conclusion. The response and supporting 
documentation must be submitted in triplicate.
    (2) Failure to respond by the dates specified within the notice may 
result in a determination by the Board without conducting an informal 
conference with the MAP lender and without consideration of any written 
response submitted by the MAP lender.
    (d) Informal conference. (1) The Board will schedule an informal 
conference and notify the lender of the time and place of the 
conference, if one is requested.
    (2) At the conference, the Board will meet with the lender or its 
designees and HUD staff to review documentary evidence and presentations 
by both sides.
    (3) Oral statements made at the informal meeting will not be 
considered as part of the administrative record of the Board's 
determination, except:
    (i) The Board may note for the record and consider voluntary 
admissions, made by the lender or a representative of the lender, of any 
element of the violation charged;
    (ii) Statements substantiated by any additional documents or 
evidence submitted in accordance with paragraphs (e)(1) or (e)(3) of 
this section; and
    (iii) Transcripts prepared and submitted in accordance with 
paragraph (e)(2) of this section.
    (e) Post-conference submissions. (1) Any additional documents, 
evidence, or written arguments relevant to the notice of violation and 
the informal conference that the lender or HUD staff wish to present to 
the Board, must be presented within five business days after date of the 
informal conference.
    (2) No transcript of the informal conference will be made, unless 
the lender elects to have a transcript made by a certified court 
reporter at its own expense. If the lender elects to have a transcript 
made, the lender must provide three copies of the transcript to HUD 
within five business days after the date of the informal conference. The 
transcript will not become a part of the administrative record of the 
Board's decision unless it is submitted within the required five-day 
period frame.
    (3) Following the receipt of any post-conference submissions, the 
Board may request or permit additional documents or evidence to be 
submitted within a period set by the Board for inclusion in the 
administrative record.
    (f) Board action. (1) The Board will confer to consider the evidence 
included in the administrative record and make a final decision 
concerning the matter. Any record of confidential communications between 
and among Board members at this stage of the proceedings is privileged 
from disclosure and will not be regarded as a part of the administrative 
record of any matter.
    (2) In determining what action is appropriate concerning the matter, 
the Board considers, among other factors:
    (i) The seriousness and the extent of the violation;
    (ii) Any history of prior offenses;
    (iii) Deterrence of future violations;
    (iv) Any inappropriate benefits received by the MAP lender;
    (v) Potential inappropriate benefit to other persons; and
    (vi) Any mitigating factors.
    (3) Board decisions will be determined by majority vote.
    (g) Notice of action. (1) The Board will issue its final decision 
within 10 business days after the date of the informal conference or the 
expiration of any period allowed for the submission of documents and 
evidence, whichever is later.
    (2) The Board will notify the MAP lender of its final decision by 
overnight delivery of a written notice of the final decision to the MAP 
lender's contact person as listed on the Multifamily MAP Web site. The 
Board will also notify HUD field offices of its final decision.
    (3) The final decision finds that a violation either does, or does 
not, exist. If

[[Page 91]]

a violation is found to exist, the final decision:
    (i) States the violation and any factual findings of the Board;
    (ii) States the nature and duration of the sanction;
    (iii) Informs the MAP lender of its right to an appeal conference 
and identifies the appeals official to be contacted; and
    (iv) May add to or modify the violation as stated in the initial 
notice of violation.



Sec. 200.1540  Imminent harm notice of action.

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



Sec. 200.1545  Appeals of MAP Lender Review Board decisions.

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

[[Page 92]]

a MAP lender and the written determination to overturn will be posted on 
HUD's MAP Web site.



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

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

[[Page 93]]

    ANSI/AHA A135.4-1982 Basic Hardboard (Reaffirmed 1988)
    ANSI/AHA A135.6-1990 Hardboard Siding
    ANSI/AHA A194.1-1985 Cellulosic Fiber Board
    ANSI/APA 1-1984 Mosaic-Parquet Hardboard Slat Flooring
    ANSI/NSPI-1-91 Standard for Public Swimming Pools
    ANSI Z34.1-1987 American National Standard for Certification, Third-
Party Certification Program
    ANSI Z124.5-1989 American National Standard for Plastic Toilet Seats 
(Water Closet Seats)
American Society of Civil Engineers, 345 East 47th Street, New York, NY 
          10017.
    ASCE 7-88 Minimum Design Loads for Buildings and Other Structures 
(Formerly ANSI A58.1)
American Society of Mechanical Engineers, 345 E 47th Street, New York, 
          NY 10017.
    ASME/ANSI A17.1-87 Safety Code for Elevators and Escalators 
Including the A17.1b-89 Addenda
    ASME A 112.18.1M89 Plumbing Fixture Fittings
American Society for Testing and Materials, 1916 Race Street, 
          Philadelphia, PA 19103, Telephone (215) 299-5400.

    ASTM C 12-91 Standard Practice for Installing Vitrified Clay Pipe 
Lines
    ASTM C 208-72 Insulating Board (Cellulosic Fiber), Structural and 
Decorative (Reapproved 1982)
    ASTM C 209-84 Standard Methods of Testing Insulating Board 
(Cellulosic Fiber), Structural and Decorative
    ASTM C 216-91c Standard Specification for Facing Brick (Solid 
Masonry Units Made from Clay or Shale)
    ASTM C 220-91 Standard Specification for Flat Asbestos-Cement Sheets
    ASTM C 221-91 Standard Specification for Corrugated Asbestos-Cement 
Sheets
    ASTM C 223-91 Standard Specification for Asbestos-Cement Siding
    ASTM C 509-91 Standard Specification for Elastomeric Cellular 
Preformed Gasket and Sealing Material
    ASTM C 516-80 Standard Specification for Vermiculite Loose Fill 
Thermal Insulation (Reapproved 1985)
    ASTM C 549-81 Standard Specification for Perlite Loose Fill 
Insulation (Reapproved 1986)
    ASTM C 578-92 Standard Specification for Rigid, Cellular Polystyrene 
Thermal Insulation
    ASTM C 640-83 Standard Specification for Insulation Board, Thermal 
(Cork)
    ASTM C 726-88 Standard Specification for Mineral Fiber and Roof 
Insulation Board
    ASTM C 739-91 Standard Specification for Cellulosic Fiber (Wood-
Based) Loose-Fill Thermal Insulation
    ASTM C 754-88 Standard Specification for Installation of Steel 
Framing Members to Receive Screw-Attached Gypsum
    ASTM C 834-91 Standard Specification for Latex Sealants
    ASTM C 841-90 Standard Specification for Installation of Interior 
Lathing and Furring
    ASTM C 842-85 Standard Specification for Application of Interior 
Gypsum Plaster (Reapproved 1990)
    ASTM C 843-92 Standard Specification for Application of Gypsum 
Veneer Plaster
    ASTM C 844-85 Standard Specification for Application of Gypsum Base 
to Receive Gypsum Veneer Plaster
    ASTM C 846-76 Standard Practice for Application of Structural 
Insulating Board (Fiberboard) Sheathing (Reapproved 1982)
    ASTM C 864-90 Standard Specification for Dense Elastomeric 
Compression Seal Gaskets, Setting Blocks and Spacers.
    ASTM C 926-90 Standard Specification for Application of Portland 
Cement-Based Plaster
    ASTM C 1036-91 Standard Specification for Flat Glass
    ASTM D 1037-89 Standard Test Methods for Evaluating the Properties 
of Wood-Base Fiber and Particle Panel Materials
    ASTM C 1048-91 Standard Specification for Heat-Treated Flat Glass-
Kind HS, Kind FT Coated and Uncoated Glass
    ASTM D 1557-91 Test Method for Laboratory Compaction Characteristics 
of Soil Using the Modified Method (56,000 ft-lbf/ft3 (2,700 
kN-m/m3))
    ASTM D 2316-75 Standard Recommended Practice for Installing 
Bituminized Fiber Drain and Sewer Pipe (Reapproved 1984)
    ASTM D 2321-89 Standard Practice for Underground Installation of 
Thermoplastic Pipe for Sewers and Other Gravity-Flow Applications
    ASTM D 3656-89 Standard Specifications for Insect Screening and 
Louver Cloth Woven From Vinyl-Coated Glass Yarns
    ASTM D 3679-92 Standard Specification for Rigid Poly (Vinyl 
Chloride) (PVC) Siding
    ASTM E 72-80 Standard Methods of Conducting Strength Tests of Panels 
for Building Construction
    ASTM E 283-91 Standard Test Method for Determining the Rate of Air 
Leakage Through Exterior Windows, Curtain Walls, and Doors Under 
Specified Pressure Differences Across the Spectrum
    ASTM E 330-90 Standard Test Method for Structural Performance of 
Exterior Windows, Curtain Walls, and Doors by Uniform Static Air 
Pressure Difference
    ASTM E 331-86 Standard Test Method for Water Penetration of Exterior 
Windows, Curtain Walls, and Doors by Uniform Static Air Pressure 
Difference

[[Page 94]]

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

[[Page 95]]

    4930.2-1989 HUD Intermediate MPS Supplement, Solar Heating & 
Domestic Hot Water Systems
    Use of Materials Bulletins:
    25d Power Driven, Mechanically Driven and Manually Driven 
Fasteners--9/5/73
    38h Grademarking of Lumber--7/31/79
    44c HUD/FHA Standard for Carpet and Carpet Certification Program--2/
22/78 (Plus Addendum 1 & 2)
    48 Labels of Independent Programs for Certifying Pressure-Treated 
Lumber and Plywood (Plus 5 Supplements--11/15/67)
    52a Quality Certification and Labeling for Wood Flush Doors--10/7/
75)
    58a Acrylic Plastic Sheets for Glazing--9/2/75
    60 Field Glued Plywood & Wood Frame Structural Floor Systems--12/9/
70
    62a Factory-Applied Laminated Roofing Systems Based on 
Chlorosulfonated Polyethylene (CPSE)--11/16/72
    65 Controlled Density Cellular Concrete Floor Fill--10/11/73
    67 Polycarbonate Plastic Sheets for Glazing--9/3/75
    70a Particleboard Interior Stair Treads and Certification Program--
5/19/82
    71 Polystyrene Foam Insulation Sheathing Board--1/10/77
    72 HUD Standard for Carpet Cushion--2/6/80
    76 Chlorinated Poly (Vinyl Chloride) CPVC and Polybutylene (PB) Hot 
and Cold Water Distribution--4/25/78
    77a Cast Iron Sanitary Drainage System with Hubless Pipe and 
Fittings--3/28/80
    78 Polyethylene (PE), Acrylonitrile-Butadiene-Styrene (ABS), Poly 
Vinyl Chloride (PVC) and Polybutylene (PB) Plastic Piping for Domestic 
Cold Water Service--4/25/78
    79a Acrylonitrile-Butadiene-Styrene (ABS) and Poly (Vinyl Chloride) 
(PVC) Plastic Drain, Waste and Vent Pipe and Fittings--3/7/82
    80 Spray Applied Cellulosic Thermal Insulation--10/31/79
    101 HUD Building Product Standards and Certification Program for 
Exterior Wall Insulation and Finish Systems, July 26, 1993
Environmental Protection Agency, Office of Drinking Water, 401 M Street, 
          SW., Washington, DC 20460, Telephone (202) 382-5533.
    EPA 570/9-82-004 Manual of Individual Water Supply (NTIS-PB 
85242279) Systems (October 1982)
Flat Glass Marketing Association, White Lakes Professional, Building 
          3310 Harrison Street, Topeka, KS 66611, Telephone (913) 266-
          7013. FGMA Glazing Manual--1986. FGMA Sealant Manual--1990.
Hardwood Plywood Manufacturers Association, P.O. Box 2789, 1825 Michael 
          Faraday Drive, Reston, VA 22090, Telephone (703) 435-2900. 
          ANSI/HPMA LHF-1987 Laminated Hardwood Flooring.
Insect Screening Weavers Assn., 2000 Maple Hill Street, P.O. Box 309, 
          Yorktown Heights, NY 10598. IWS-089 Insect Wire Screening 
          (Wire Fabric).
National Academy of Sciences, 2101 Constitution Avenue, NW., Washington, 
          DC 20418. Publication 1571 Criteria for Selection and Design 
          of Residential Slabs-on-Ground, Report 33, Building 
          Research Advisory Board (BRAB), 1968.
National Association of Home Builders, Research Center, 400 Prince 
          Georges Boulevard, Upper Marlboro, MD 20772, Telephone (301) 
          249-4000. Insulation Manual, Homes and Apartments--1979.
National Association of Plumbing-Heating-Cooling Contractors, P.O. Box 
          6808, Falls Church, VA 22046, Telephone (703) 237-8100. 
          National Standard Plumbing Code--1993.
National Fire Protection Association, Batterymarch Park, Quincy, MA 
          02269, Telephone 1-800-344-3555.
    ANSI/NFPA 58-89 Standard for the Storage and Handling of Liquefied 
Petroleum Gases
    NFPA 54-88 National Fuel Gas Code (ANSI Z223.1-1988) NFPA 70-93 
National Electrical Code
National Institute of Building Sciences, 1201 L Street, NW., Washington, 
          DC 20005. Metric Guide for Federal Construction--1992.
National Oak Flooring Manufacturers Association, 22 North Front Street, 
          Memphis, TN 38103. Official Grading Rules, Oak, Beech, Birch, 
          Hard Maple, Pecan (OFGR/Vol. 1, No. 1/1986 and the 1989 
          Addendum). Hardwood Flooring Finishing/Refinishing Manual, 
          1986. Hardwood Flooring Installation Manual, 1986.
National Roofing Contractors Association, One O'Hare Centre, 6250 River 
          Road, Rosemont, IL 60018, Telephone (708) 318-6722. NRCA 
          Roofing and Waterproofing Manual, 1989.
National Terrazzo and Mosaic Association, 3166 Des Plaines Avenue, Suite 
          132, Des Plaines, IL 60018, Telephone (708) 635-7744. NTMA 
          Specifications, Details and Technical Data, ``Terrazzo Ideas & 
          Design Guide'', 1990.
National Wood Window and Door Association, 205 West Touhy Avenue, Park 
          Ridge, IL 60018, Telephone (708) 299-5200.
    ANSI/NWWDA IS 1-87 Industry Standard for Wood Flush Doors
    ANSI/NWWDA IS 2-87 Industry Standard for Wood Windows
    NWWDA IS 3-88 Industry Standard for Wood Sliding Patio Doors
    ANSI/NWWDA IS 6-86 Industry Standard for Wood Stile and Rail Doors
Post-tensioning Institute, 301 West Osborn, Suite 3500, Phoenix, AZ 
          85013, Telephone

[[Page 96]]

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

[58 FR 60250, Nov. 15, 1993]

[[Page 97]]



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





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




                            Subpart A_General

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

                   Subpart B_Loan and Note Provisions

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

           Subpart C_Eligibility and Disbursement Requirements

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

                      Subpart D_Insurance of Loans

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

                      Subpart E_Loan Administration

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

               Subpart F_Default Under the Loan Obligation

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

         Subpart G_Debts Owed to the United States Under Title I

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

    Authority: 12 U.S.C. 1703 and 3535(d).

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



                            Subpart A_General



Sec. 201.1  Purpose.

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

[[Page 98]]

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

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



Sec. 201.2  Definitions.

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

[[Page 99]]

distinctive functional use prior to an application for a Title I loan. 
However, these occupancy and completion requirements shall not apply to:
    (1) Loans having a principal obligation of $1000 or less; or
    (2) Residential structures which have been damaged by conditions 
determined by the President to warrant relief under the provisions of 
title 42, chapter 68, of the United States Code.
    Fire safety equipment loan means a loan made to finance the purchase 
and installation of any device or construction feature which is 
recognized in the latest edition of the Department of Housing and Urban 
Development's Minimum Property Standards for Care Type Housing (HUD 
Handbook 4920.1) or the Fire Safety Code of the National Fire Protection 
Association, and which is designed to reduce the risk of death, personal 
injury, or property damage resulting from a fire in a health care 
facility.
    Furniture means movable articles of personal property relating to a 
home or dwelling, such as beds, chairs, sofas, lamps, tables, rugs, 
etc.; however, furniture does not include:
    (1) Items built into the home or dwelling such as wall-to-wall 
carpeting or heating or cooling equipment; or
    (2) Large appliances such as refrigerators, ovens, ranges, 
dishwashers, clothes washers or clothes dryers.
    Health care facility means a proprietary facility or facility of a 
private nonprofit corporation or association, licensed or regulated by 
the State or by the municipality or other political subdivision in which 
the facility is located, and operated as one or more of the following:
    (1) A nursing home for the accommodation of convalescents or other 
persons who are not acutely ill and not in need of hospital care, but 
who require skilled nursing care and related medical services performed 
under the general direction of persons licensed by the law of the State 
where the facility is located to provide such care or services;
    (2) An intermediate health care facility for the accommodation of 
persons who, because of incapacitating infirmities, require minimum but 
continuous care, but not continuous medical care or nursing services;
    (3) An extended health care facility for inpatient care for 
convalescents or chronic disease patients who require skilled nursing 
care and related medical services; or
    (4) Other comparable health care facility.
    Historic preservation loan means a loan to finance the preservation 
(restoration or rehabilitation) of an historic residential structure 
which is listed on the National Register of Historic Places or which is 
certified by the Secretary of the Interior as conforming with National 
Register criteria.
    Lender means a financial institution that:
    (1) Holds a valid Title I contract of insurance and is approved by 
the Secretary under 24 CFR part 202 to originate, purchase, hold, 
service, and/or sell loans insured under this part; or
    (2) Is under suspension or holds a Title I contract of insurance 
that has been terminated, but that remains responsible for servicing or 
selling Title I loans that it holds and is authorized to file insurance 
claims on such loans. For purposes of loan origination under subparts A, 
B, and C of this part, the term ``lender'' also includes a ``loan 
correspondent'' as defined in this section.
    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.
    Loan correspondent means a financial institution approved by the 
Secretary to originate Title I direct loans for sale or transfer to a 
sponsoring lending institution which holds a valid Title I contract of 
insurance and is not under suspension.
    Manufacturer's invoice means a document issued by a manufacturer and 
provided with a manufactured home to

[[Page 100]]

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

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

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

[[Page 101]]

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

[[Page 102]]

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

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



Sec. 201.3  Applicability of the regulations.

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

[61 FR 19796, May 2, 1996]



Sec. 201.4  Rules of construction.

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

[[Page 103]]

words in the plural include the singular.

[56 FR 52429, Oct. 18, 1991]



Sec. 201.5  Waivers.

    Waiver of lender's noncompliance. The Secretary may waive a lender's 
noncompliance with any provision of this part, subject to statutory 
limitations, when it is determined that enforcement of the regulations 
would impose an injustice upon a lender which has substantially complied 
with the regulations in good faith and refunded or credited any excess 
charge made, and when such waiver does not involve an increase in the 
Secretary's obligation beyond that which would have been involved if the 
lender was in full compliance with the regulations.

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



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

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

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

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



                   Subpart B_Loan and Note Provisions



Sec. 201.10  Loan amounts.

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

[[Page 104]]

lesser of the following amounts, up to a maximum of $48,600:
    (i) 95 percent of the appraised value of the home as equipped and 
furnished (as determined by a HUD-approved appraisal) and 95 percent of 
any itemized amounts allowed under paragraphs (b)(1)(iii) through (vii) 
of this section, if incurred; or
    (ii) 95 percent of the purchase price of the home.
    (3) The purchase price of a manufactured home financed with a 
manufactured home purchase loan shall include the retail cost to the 
borrower of all items set forth in the purchase contract, including any 
applicable charges authorized under Sec. 201.25(b).
    (c) Manufactured home lot loans. The total principal obligation for 
a loan to purchase and, if necessary, develop a lot suitable for a 
manufactured home, including on-site water and utility connections, 
sanitary facilities, site improvements and landscaping, shall not exceed 
95 percent of either the appraised value of the developed lot (as 
determined by a HUD-approved appraisal) or the total of the purchase 
price and development costs, whichever is less, up to a maximum of 
$16,200.
    (d) Combination loans. (1) The total principal obligation for a loan 
to purchase a new manufactured home and a lot on which to place the home 
shall not exceed the sum of the following itemized amounts, up to a 
maximum of $64,800:
    (i) 130 percent of the sum of the wholesale (base) prices of the 
home and any itemized options and the charge for freight, as detailed in 
the manufacturer's invoice;
    (ii) The charge for any sales taxes to be paid by the dealer, as 
detailed in the manufacturer's invoice;
    (iii) The actual dealer's cost of transportation to the homesite, 
set-up and anchoring, including the rental of wheels and axles (if not 
included in the freight charge);
    (iv) The actual dealer's cost of purchasing and installing a central 
air conditioning system or heat pump, if not installed by the 
manufacturer;
    (v) The appraised value of the developed manufactured home lot (as 
determined by a HUD-approved appraisal, including on-site water and 
utility connections, sanitary facilities, site improvements and 
landscaping) or the purchase price, whichever is less;
    (vi) The actual dealer's cost of appurtenances to the home such as a 
permanent foundation, garage, carport or patio; and
    (vii) Any applicable charges authorized at Sec. 201.25(b).
    (2) The total principal obligation for a loan to purchase an 
existing manufactured home and lot shall not exceed the lesser of the 
following amounts, up to a maximum of $64,800:
    (i) 95 percent of the total appraised value of the home, the lot, 
and any appurtenances (as determined by a HUD-approved appraisal), plus 
95 percent of any applicable charges authorized at Sec. 201.25(b); or
    (ii) 95 percent of the purchase price of the home, the lot, and any 
appurtenances.
    (3) The purchase price of a manufactured home and a lot financed 
with a combination loan shall include the retail cost to the borrower of 
all items set forth in the purchase contract or contracts, including any 
applicable charges authorized under Sec. 201.25(b).
    (e) Manufactured home loan limits in high-cost areas. (1) The 
maximum loan amounts otherwise applicable under paragraphs (b), (c) and 
(d) of this section may be increased by an amount not to exceed 40 
percent where the manufactured home and/or lot is purchased and located 
in Alaska, Guam or Hawaii.
    (2) The maximum loan amounts otherwise applicable under paragraphs 
(c) and (d) of this section may be increased for any geographical area 
except Alaska, Guam or Hawaii to the extent deemed necessary by the 
Secretary; however, any increased loan amount may not exceed the lesser 
of (i) 185 percent of the dollar amounts specified in paragraphs (c) and 
(d) of this section; or (ii) the dollar amounts specified in paragraphs 
(c) and (d) of this section, as increased by the same percentage by 
which 95 percent of the median 1-family house price in the area (as 
determined by the Secretary for purposes of Sec. 203.18) exceeds 
$67,500.
    (f) Loan refinancing. (1) The total principal obligation of a loan 
made to refinance a borrower's existing insured

[[Page 105]]

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

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



Sec. 201.11  Loan maturities.

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

[[Page 106]]

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

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



Sec. 201.12  Requirements for the note.

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

[61 FR 19797, May 2, 1996]



Sec. 201.13  Interest and discount points.

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

[61 FR 19797, May 2, 1996]



Sec. 201.14  Payments on the loan.

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



Sec. 201.15  Late charges to borrowers.

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

[[Page 107]]

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

[54 FR 36264, Aug. 31, 1989]



Sec. 201.16  Default provision.

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



Sec. 201.17  Prepayment provision.

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

[61 FR 19797, May 2, 1996]



Sec. 201.18  Modification agreement or repayment plan.

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

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



Sec. 201.19  Refinanced and assumed loans.

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

[[Page 108]]

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

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



           Subpart C_Eligibility and Disbursement Requirements



Sec. 201.20  Property improvement loan eligibility.

    (a) Borrower eligibility. (1) To be eligible for a property 
improvement loan (other than a manufactured home improvement loan), the 
borrower shall

[[Page 109]]

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

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



Sec. 201.21  Manufactured home loan eligibility.

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

[[Page 110]]

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

[[Page 111]]

of the warranty shall be the date of delivery of the manufactured home 
to the borrower, regardless of when the warranty was executed by the 
manufacturer or was delivered to the borrower.
    (2) The warranty shall obligate the home manufacturer to take 
appropriate action to correct any nonconformity with the standards 
prescribed in paragraph (c)(1) of this section or any defects in 
materials or workmanship which become evident within one year after the 
date of delivery. This warranty shall be in addition to, and not in 
derogation of, all other rights and privileges which the borrower may 
have under any other law or instrument during such period or thereafter. 
A copy of the warranty shall be retained in the lender's loan file.
    (3) Prior to making a loan involving a new manufactured home, the 
lender shall investigate whether the home manufacturer is substantially 
complying with its warranty obligations on other homes financed by the 
lender under any program. If the lender knows, because of consumer 
complaints, dealer comments or other information concerning the 
manufacturer received in the course of business, that consumers have 
complained about warranty performance, the lender shall ascertain 
whether such complaints have been resolved. The lender's findings shall 
be documented in the loan file. Such documentation may reference 
information or materials contained in other files of the lender, 
provided that the file contains a written certification signed by a 
responsible loan officer under applicable criminal and civil penalties 
for fraud and misrepresentation that the lender's findings are supported 
by such other information or materials.
    (4) If the lender concludes under paragraph (d)(3) of this section 
that a manufacturer may not be honoring its warranties, the lender shall 
immediately notify the Secretary in writing, with documentation of the 
facts and circumstances.
    (e) Manufactured homesite standards. (1) To assure the suitability 
of the homesite, the manufactured home shall be placed on a leased site 
in a manufactured home park or on an individual manufactured home lot or 
other site owned or leased by the borrower that meets the following 
standards. A manufactured home may be placed on a site within Indian 
trust or otherwise restricted lands if the borrower owns or leases the 
site, or if the borrower obtains written permission acceptable to the 
Secretary from the trustee or the tribal authority who controls the use 
of the site.
    (2) The manufactured homesite shall be served by adequate public or 
community water and sewerage systems, unless appropriate local officials 
certify that either or both such systems are unavailable to provide an 
adequate level of service to the manufactured homesite. If either or 
both such systems are not available, the manufactured homesite shall 
comply with local or State minimum lot area requirements for the 
provision of onsite water supply and/or sewage disposal.
    (3) When the manufactured home is to be placed on a leased site in a 
manufactured home park, the lender shall obtain certifications from the 
appropriate State or local government officials that the park complies 
with minimum standards relating to vehicular access, water supply, 
sewage disposal, utility connections, and other aspects of park 
development. Where minimum State and local standards for park 
development are not established or enforced, the lender shall obtain a 
certification from a registered civil engineer that the park meets 
minimum standards for park development prescribed by the Secretary.
    (4) When the manufactured home is to be placed on an individual 
manufactured home lot or other site owned or leased by the borrower (or 
on an Indian land site under paragraph (e)(1) of this section), the 
lender shall obtain certifications from the appropriate local government 
officials that:
    (i) The site complies with local zoning ordinances and regulations, 
if any;
    (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

[[Page 112]]

standards for water supply and sewage disposal are not established or 
enforced, the lender shall obtain a certification from a registered 
civil engineer that the site meets minimum standards for water supply 
and sewage disposal prescribed by the Secretary.

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

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



Sec. 201.22  Credit requirements for borrowers.

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

[[Page 113]]

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

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

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



Sec. 201.23  Borrower's initial payment.

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

[[Page 114]]

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

[61 FR 19798, May 2, 1996]



Sec. 201.24  Security requirements.

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

[[Page 115]]



Sec. 201.25  Charges to borrower to obtain loan.

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

[61 FR 19798, May 2, 1996]



Sec. 201.26  Conditions for loan disbursement.

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

[[Page 116]]

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

[[Page 117]]

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

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

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



Sec. 201.27  Requirements for dealer loans.

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

[[Page 118]]

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

[[Page 119]]

against the dealer, to reduce or eliminate the lender's loss in the 
event of foreclosure or repossession. Such recourse provision shall 
specify that, for a default occurring within a period of not more than 
three years from the date of the loan, the dealer shall reimburse the 
lender for a fixed percentage of the unpaid amount of the loan 
obligation, after deducting the proceeds from the sale of the property 
and any amounts received or retained by the lender after the date of 
default. However, the extent of the dealer's liability may not exceed 
100 percent of the unpaid amount of the loan obligation prior to such 
deductions. When a claim is filed, the lender shall notify the Secretary 
if the loan was subject to a recourse agreement and whether the recourse 
agreement has been honored. If without the lender's approval a dealer 
has failed to honor its recourse obligation, the lender shall notify the 
Secretary and shall assign the recourse obligation to the Secretary in 
filing an insurance claim.

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

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



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

    (a) Flood insurance. No property improvement loan or manufactured 
home loan shall be eligible for insurance under this part if the 
property securing repayment of the loan is located in a special flood 
hazard area identified by the Federal Emergency Management Agency 
(FEMA), unless flood insurance on the property is obtained by the 
borrower in compliance with section 102 of the Flood Disaster Protection 
Act of 1973 (42 U.S.C. 4012a). Such insurance shall be obtained at any 
time during the term of the loan that the lender determines that the 
secured property is located in a special flood hazard area identified by 
FEMA, and shall be maintained by the borrower for the remaining term of 
the loan, or until the lender determines that the property is no longer 
in a special flood hazard area, or until the property is repossessed or 
foreclosed upon by the lender. The amount of such insurance shall be at 
least equal to the unpaid balance of the Title I loan, and the lender 
shall be named as the loss payee for flood insurance benefits.
    (b) Hazard insurance. No manufactured home purchase loan or 
combination loan shall be eligible for insurance under this part unless 
hazard insurance on the manufactured home is obtained by the borrower 
and the lender is named as a loss payee of insurance benefits. Such 
insurance shall be maintained by the borrower for the full term of the 
loan or until the property is repossessed or foreclosed by the lender, 
and in an amount at least equal to the unpaid balance of the loan, 
except that the amount of insurance coverage shall be not less that the 
actual cash value of the home where State law precludes a higher amount. 
If the borrower fails to maintain such insurance, the lender shall 
obtain it at the borrower's expense. If the home is not insured against 
hazards and sustains damage which would normally be covered by such 
insurance during the borrower's ownership, the appraised value of the 
home for claim purposes will be adjusted in accordance with Sec. 
201.51(b)(3). Upon acquiring title to the property through repossession 
or foreclosure, the lender shall maintain hazard insurance upon the 
property in the amount prescribed above until its disposition and sale.
    (c) Coastal barriers properties. No title I insurance shall be made 
available under this part for any property improvement loan or 
manufactured home loan except pursuant to a loan application approved 
before October 18, 1982, with respect to any property within the Coastal 
Barriers Resources System established by the Coastal Barriers Resources 
Act (16 U.S.C. 3501).

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



Sec. 201.29  Ineligible participants.

    No loan may be insured under this part where the lender has been 
advised in writing by HUD or otherwise knows that any participant in the 
transaction as a dealer, home manufacturer, contractor, supplier, or 
broker, or as its

[[Page 120]]

agent or representative, has been suspended or debarred, or has 
otherwise been determined by HUD to be ineligible to participate in the 
title I program.



                      Subpart D_Insurance of Loans



Sec. 201.30  Reporting of loans for insurance.

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

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

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



Sec. 201.31  Insurance charge.

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

[[Page 121]]

    (d) Adjustment on notes transferred. Where there is a transfer of 
loan obligations between lenders and the insurance charges on such 
obligations have already been paid, any adjustment of such charges shall 
be made by the lenders involved. Any unpaid installments of the 
insurance charge shall be paid by the purchasing lender.
    (e) Refund or abatement of insurance charges. A lender shall be 
entitled to a refund or abatement of insurance charges only in the 
following instances:
    (1) Where the loan obligation has been refinanced, the unearned 
portion of the charge on the original obligation shall be credited to 
the charge on the refinanced loan.
    (2) Where the loan obligation is prepaid in full or an insurance 
claim is filed, charges falling due after such prepayment or claim shall 
be abated.
    (3) When a loan (or portion thereof) is found to be ineligible for 
insurance, charges paid on the ineligible portion shall be refunded, 
except where the Secretary determines that there was fraud or 
misrepresentation by the lender in the loan transaction. Such refund 
shall be made only if a claim is denied by the Secretary or the 
ineligibility is reported by the lender promptly upon discovery and 
confirmed by the Secretary. In no event shall a charge be refunded on 
the basis of loan ineligibility where the application for refund is made 
after the loan is paid in full. If a loan or claim has been denied and 
is subsequently resubmitted, the refunded amount of the insurance charge 
plus any accrued insurance charge shall be repaid.
    (f) Lender passing insurance charge on to borrower. The insurance 
charge may be passed on to the borrower, provided that such charge is 
fully disclosed to the borrower.

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



Sec. 201.32  Insurance coverage reserve account.

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

[[Page 122]]

    (3) An existing insured property improvement loan or manufactured 
home loan may not be refinanced by a lender different from the 
originating or purchasing lender of record, unless the loan has been 
sold, assigned, or transferred to the new lender under paragraph (c) of 
this section and the Secretary has transferred insurance coverage for 
the loan under the applicable requirements of this paragraph.
    (d) Recovery shall not affect insurance coverage reserve account. 
Amounts which may be recovered by the Secretary after payment of an 
insurance claim shall not be added to the amount of insurance coverage 
remaining in a lender's reserve account.

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



                      Subpart E_Loan Administration



Sec. 201.40  Post-disbursement loan requirements.

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

[[Page 123]]

    (d) Inspection requirement on dealer manufactured home loans. For 
any manufactured home purchase loan or combination loan involving the 
sale of a manufactured home by a dealer, the lender (or an agent of the 
lender that is not a manufactured home dealer) shall conduct a site-of-
placement inspection within 60 days after the date of disbursement to 
verify that:
    (1) The terms and conditions of the purchase contract have been met;
    (2) The manufactured home and any itemized options and appurtenances 
included in the purchase price of the home or financed with the loan 
proceeds have been delivered and installed; and
    (3) The placement certificate executed by the borrower and the 
dealer is in order.

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

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



Sec. 201.41  Loan servicing.

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



Sec. 201.42  Bankruptcy, insolvency or death of borrower.

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

[54 FR 36266, Aug. 31, 1989]



Sec. 201.43  Administrative reports and examinations.

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

[[Page 124]]



               Subpart F_Default Under the Loan Obligation



Sec. 201.50  Lender efforts to cure the default.

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

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

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



Sec. 201.51  Proceeding against the loan security.

    (a) Property improvement loans. (1) After acceleration of maturity 
on a secured property improvement loan, the lender may either proceed 
against the loan security under its title I security instrument or make 
claim under its contract of insurance. If the lender proceeds against 
the loan security, it may submit an insurance claim only if it complies 
with the requirements of paragraph (a)(2) of this section.
    (2) The lender may proceed against the secured property under its 
Title I security instrument and later submit a claim under its contract 
of insurance only with the prior approval of the Secretary. The 
Secretary's decision will be based upon all relevant factors, including 
but not limited to the appraised

[[Page 125]]

value and the amount of all outstanding loan obligations on the 
property, the estimated costs of foreclosure and disposition, and the 
anticipated time to dispose of the property. In proceeding against the 
secured property, the lender shall comply with all applicable State and 
local laws, and shall take all actions necessary to preserve its rights, 
if any, to obtain a valid and enforceable deficiency judgment against 
the borrower.
    (3) After acceleration of maturity on a defaulted unsecured property 
improvement loan, the lender may submit a claim under its contract of 
insurance.
    (b) Manufactured home loans. (1) After acceleration of maturity on a 
defaulted manufactured home loan, the lender shall proceed against the 
loan security by foreclosure or repossession, as appropriate, in 
compliance with all applicable State and local laws, and shall acquire 
good, marketable title to the property securing the loan. The lender 
shall also take all actions necessary under State and local law to 
preserve its rights, if any, to obtain a valid and enforceable 
deficiency judgment against the borrower.
    (2) Prior to foreclosure or repossession, the lender or its agent 
shall make a visual inspection of the property and prepare a report on 
its condition for placement in the loan file. If the lender determines 
that the property has been abandoned, the lender shall take such steps 
as are permitted under State or local law to repossess or foreclose upon 
the property, without waiting for the notice period under Sec. 
201.50(b) to run.
    (3) The lender shall obtain a HUD-approved appraisal of the property 
as soon after repossession as possible, or earlier with the permission 
of the borrower. This appraisal shall be performed on the homesite, 
unless the site owner requires that the home be removed before the 
appraisal can be performed, and it should reflect the retail value of 
comparable manufactured homes in similar condition and in the same 
geographic area where the repossession occurred. When the manufactured 
home is without hazard insurance and has sustained, at any time prior to 
the sale or disposition of the home, damage which would normally be 
covered by such insurance, the lender shall report this situation in 
submitting an insurance claim, and the appraised value shall be based 
upon the retail value of comparable homes in good condition and in the 
same geographic area, without any deduction for such damage.

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

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



Sec. 201.52  Acquisition by voluntary conveyance or surrender.

    The lender may accept a voluntary conveyance of title to or 
ownership of the property securing a manufactured home loan which is in 
default, provided that (a) the lender accepts the conveyance in full 
satisfaction of the borrower's obligation, and (b) no claim is submitted 
under its contract of insurance. The lender may accept voluntary 
surrender of the property without satisfaction of the borrower's 
obligation, provided that if the lender intends thereafter to submit a 
claim under its contract of insurance, the lender shall acquire title to 
or ownership of the property and then dispose of and sell the property 
in compliance with State and local law, so as to assure that it can 
assign a valid and enforceable obligation, including any deficiency 
against the borrower, to the Secretary when submitting its claim. If the 
lender accepts a voluntary conveyance of title or a voluntary surrender 
of the property, the notice of default and acceleration under Sec. 
201.50(b) shall not be required.

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



Sec. 201.53  Disposition of manufactured home loan property.

    Where the lender obtains title to property securing a manufactured 
home loan by repossession or foreclosure, the property shall be sold for 
the best price obtainable before making an insurance claim. In the case 
of a combination loan, the manufactured home and lot shall be sold in a 
single transaction and the manufactured home may not be removed from the 
lot,

[[Page 126]]

unless the prior approval of the Secretary is obtained for a different 
procedure. The best price obtainable shall be the greater of:
    (a) The actual sales price of the property, after deducting the cost 
of repairs, furnishings, and equipment needed to make the property 
marketable, and after deducting the cost of transportation, set-up, and 
anchoring if the manufactured home is moved to a new homesite; or
    (b) The appraised value of the property before repairs (as 
determined by a HUD-approved appraisal obtained in accordance with Sec. 
201.51(b)(3)).

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



Sec. 201.54  Insurance claim procedure.

    (a) Claim application. A claim for reimbursement for loss on any 
eligible loan shall be made on a HUD-approved form, executed by a duly 
qualified officer of the lender under applicable criminal and civil 
penalties for fraud and misrepresentation. The insurance claim shall be 
fully documented and itemized, and shall be accompanied by all documents 
and materials required by the Secretary for claim review. The claim 
submission shall contain original copies of all notes, security 
instruments, assumption agreements, releases of liability for repayment 
of the loan, judgments obtained by the lender against the borrower, and 
any related documents and forms, except where State or local law 
requires their retention by the lender or a governmental body such as a 
court. As appropriate, the claim application shall be supported by the 
following:
    (1) Documentation of the lender's efforts to effect recourse against 
any dealer in accordance with any recourse agreement under Sec. 
201.27(b) between the lender and the dealer and contained in the loan 
documents;
    (2) Certification under applicable criminal and civil penalties for 
fraud and misrepresentation that the lender has complied with all 
applicable State and local laws in carrying out any foreclosure or 
repossession, including copies of all notices served upon the borrower 
or published in connection with such foreclosure or repossession; and
    (3) Where a borrower has declared bankruptcy or insolvency or is 
deceased, copies of the documentation required to be retained in the 
loan file under Sec. 201.42.
    (b) Maximum claim period. (1) An insurance claim shall be filed not 
later than the following dates:
    (i) For property improvement loans--nine months after the date of 
default.
    (ii) For manufactured home loans--three months after the date of 
sale of the property securing the loan, but not to exceed 18 months 
after the date of default.
    (2) The Secretary may extend the claim filing period in a particular 
case, but only if the lender shows clear evidence that the delay in 
claim filing was in the interest of the Secretary or was caused by one 
of the following:
    (i) Litigation related to the loan;
    (ii) Management control of the lender or the Title I loan portfolio 
was assumed by a Federal or State agency; or
    (iii) The borrower had experienced a loss of income or other 
financial difficulties directly attributable to a major disaster 
declared by the President, and additional time was needed to provide 
forbearance on a property improvement loan.
    (3) If a borrower is a ``person in military service'' as that term 
is defined in the Soldiers' and Sailors' Civil Relief Act of 1940 and is 
in default on a loan insured under this part, any period of military 
service after the date of default shall be excluded in computing the 
maximum time period for filing an insurance claim.
    (c) Resubmitted and supplemental claims. (1) Any insurance claim 
which is resubmitted with an appeal of a claim denial or a request for a 
waiver of the regulations in accordance with Sec. 201.5(b) shall be 
filed within six months after the date of the claim denial.
    (2) Any supplemental insurance claim shall be filed within six 
months after the date of payment on the initial claim. A reprocessing 
fee, in an amount prescribed by the Secretary, will be charged for any 
supplemental claim.
    (d) Assignment of lender's rights to the United States. Upon the 
filing of the insurance claim, the lender shall assign its entire 
interest in the loan note (or

[[Page 127]]

in a judgment in lieu of the note), in any security held, and in any 
claim filed in probate, bankruptcy or insolvency proceedings, to the 
United States of America. The assignment shall be made in the form 
provided in paragraph (f) of this section, provided that if this form is 
not valid or generally acceptable in the jurisdiction involved, a form 
which is valid and generally acceptable in the jurisdiction where the 
judgment or security was taken shall be used. If the security interest 
has been assigned to the United States, the assignment shall be recorded 
in that jurisdiction prior to filing the insurance claim, unless the 
Secretary determines that recordation by the lender in that jurisdiction 
is impractical.
    (e) Valid and enforceable obligation when assigned. The loan 
obligation evidenced by the note must be both valid and enforceable 
against the debtor at the time the note is assigned to the United States 
of America. If the Secretary has reason to believe that the obligation 
may not be either valid or enforceable against the borrower, the 
Secretary may either deny the claim and reassign the loan note to the 
lender, or require the lender to repurchase the paid claim and accept 
reassignment of the note. The lender will be notified of the reasons for 
the claim denial or repurchase. If the lender subsequently obtains a 
valid and enforceable judgment against the borrower for the unpaid 
balance of the loan, the lender may resubmit the claim with an 
assignment of the judgment.
    (f) Form of assignment. A lender shall use the following form of 
assignment, or one generally acceptable in the jurisdiction involved, 
properly dated, to assign the lender's entire interest in a loan note, 
judgment, real estate mortgage, deed of trust, conditional sales 
contract, chattel mortgage, mechanic's lien, or any security, in making 
an insurance claim:

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

(Financial Institution)_________________________________________________

By:_____________________________________________________________________
Title:__________________________________________________________________
Date:___________________________________________________________________

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

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

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



Sec. 201.55  Calculation of insurance claim payment.

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

[[Page 128]]

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

[[Page 129]]

    (6) The amount of uncollected court costs, including fees paid for 
issuing, serving, and filing a summons.
    (7) The amount of attorney's fees on an hourly or other basis for 
time actually expended and billed, not to exceed $1,000.
    (8) The amount of expenses for recording the assignment of the 
security to the United States, and for costs of repossession or 
foreclosure other than attorney's fees and those incurred under 
paragraph (b)(3), but not to exceed costs which are customary and 
reasonable in the jurisdiction where the repossession or foreclosure 
takes place, as determined by the Secretary.

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



         Subpart G_Debts Owed to the United States Under Title I

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



Sec. 201.60  General.

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



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

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



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

    (a) Interest. In addition to the principal amount of the debt, the 
debtor is liable for the payment of interest. Interest accrues on the 
principal amount of the debt as of the date of default, as defined in 
Sec. 201.2(h) of this part, as follows:
    (1) In the case of a debt based upon the assignment of a defaulted 
note, interest is assessed at the lesser of the rate specified in the 
note or the United States Treasury's current value of funds rate in 
effect on the date the Title I insurance claim was paid.
    (2) In the case of a debt based upon the assignment of a judgment, 
interest is assessed at the lesser of the rate specified in the judgment 
or the United States Treasury's current value of funds rate in effect on 
the date the Title I insurance claim was paid.
    (b) Penalties and administrative costs. The Secretary shall assess 
reasonable administrative costs and penalties as authorized in 31 U.S.C. 
3717, unless there is no provision in the note providing for such 
charges and the debtor has not otherwise consented to liability for such 
charges.



Sec. 201.63  Claims against lenders.

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

[[Page 130]]



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




                     Subpart A_General Requirements

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

               Subpart B_Classes of Lenders and Mortgagees

202.6 Supervised lenders and mortgagees.
202.7 Nonsupervised lenders and mortgagees.
202.8 Loan correspondent lenders and mortgagees.
202.9 Investing lenders and mortgagees.
202.10 Governmental institutions, Government-sponsored enterprises, 
          public housing agencies and State housing agencies.

          Subpart C_Title I and Title II Specific Requirements

202.11 Title I.
202.12 Title II.

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

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



                     Subpart A_General Requirements



Sec. 202.1  Purpose.

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



Sec. 202.2  Definitions.

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



Sec. 202.3  Approval status for lenders and mortgagees.

    (a) Initial approval. A lender or mortgagee may be approved for 
participation in the Title I or Title II programs

[[Page 131]]

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

[[Page 132]]

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

[[Page 133]]

not establish any new branch in the location or locations cited in the 
proposed termination notice until either:
    (A) The proposed termination notice is withdrawn or
    (B) The Secretary reinstates the mortgagee's origination approval 
agreement, in accordance with paragraph (e) of this section.
    (vi) Effects of termination. (A) Termination of origination approval 
agreement. If a mortgagee's origination approval agreement is 
terminated, it may not originate single family insured mortgages unless 
the origination approval agreement is reinstated by the Secretary in 
accordance with paragraph (e) of this section, notwithstanding any other 
provision of this part except Sec. 202.3(c)(2)(vii)(A).
    (B) Termination of direct endorsement approval. If a mortgagee's 
direct endorsement approval is terminated, it may not underwrite single 
family insured mortgages for the area(s) identified in the termination 
notice, unless the direct endorsement approval is reinstated by the 
Secretary in accordance with paragraph (e) of this section, 
notwithstanding any other provision of this part except Sec. 
202.3(c)(2)(vii)(A).
    (vii) Rights and obligations in the event of termination. 
Termination of the origination approval agreement and/or direct 
endorsement approval shall not affect:
    (A) The eligibility of the mortgage for insurance, absent fraud or 
misrepresentation, if the mortgagor and all terms and conditions of the 
mortgage had been approved before the termination by the Direct 
Endorsement or Lender Insurance mortgagee or were covered by a firm 
commitment issued by the Secretary; however, no other mortgages 
originated or underwritten after the date of termination by the 
mortgagee shall be insured unless the mortgagee's origination approval 
agreement and/or direct endorsement approval is reinstated by the 
Secretary;
    (B) The right of a mortgagee whose direct endorsement approval has 
been terminated to transfer cases to another mortgagee with direct 
endorsement approval for the area covered by the termination.
    (C) A mortgagee's obligation to continue to pay insurance premiums 
and meet all other obligations, including servicing, associated with 
insured mortgages;
    (D) A mortgagee's right to apply for reinstatement of the 
origination approval agreement and/or direct endorsement approval in 
accordance with paragraph (e) of this section; or
    (E) A mortgagee's right to purchase insured mortgages or to service 
its own portfolio or the portfolios of other mortgagees with which it 
has a servicing contract.
    (d) Withdrawal and suspension of approval. Lender or mortgagee 
approval may be suspended or withdrawn by the Mortgagee Review Board as 
provided in part 25 of this title.
    (e) Reinstatement--(1) General. A mortgagee whose origination 
approval agreement and/or direct endorsement approval has been 
terminated under paragraph (c) of this section may apply for 
reinstatement if:
    (i) The origination approval agreement and/or direct endorsement 
approval for the affected branch or branches has been terminated for at 
least six months; and
    (ii) The mortgagee continues to be an approved mortgagee meeting the 
general standards of Sec. 202.5 and the specific requirements of 
Sec. Sec. 202.6, 202.7, 202.8 or 202.10, and 202.12.
    (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

[[Page 134]]

(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]



Sec. 202.4  Request for determination of compliance.

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



Sec. 202.5  General approval standards.

    To be approved for participation in the Title I or Title II 
programs, and to maintain approval, a lender or mortgagee shall meet and 
continue to meet the general requirements of paragraphs (a)-(n) of this 
Sec. 202.5 (except as provided in Sec. 202.10(b)) and the requirements 
for one of the eligible classes of lenders or mortgagees in Sec. Sec. 
202.6 through 202.10.
    (a) Business form. 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) through (4) of this section.
    (1) Each general partner must be a corporation or other chartered 
institution consisting of two or more persons.
    (2) 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.
    (3) 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.
    (4) The Secretary must be notified immediately of any amendments to 
the partnership agreement which would affect the partnership's actions 
under the Title I or Title II programs.
    (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.

[[Page 135]]

    (c) Officers. All employees who will sign applications for mortgage 
insurance on behalf of the mortgagee or report loans for insurance shall 
be corporate officers or shall otherwise be authorized to bind the 
lender or mortgagee in the origination transaction. The lender or 
mortgagee shall ensure that an authorized person reports all 
originations, purchases, and sales of Title I loans or Title II 
mortgages to the Secretary for the purpose of obtaining or transferring 
insurance coverage.
    (d) Escrows. The lender or mortgagee shall not use escrow funds for 
any purpose other than that for which they were received. It shall 
segregate escrow commitment deposits, work completion deposits, and all 
periodic payments received under loans or insured mortgages on account 
of ground rents, taxes, assessments, and insurance charges or premiums, 
and shall deposit such funds with one or more financial institutions in 
a special account or accounts that are fully insured by the Federal 
Deposit Insurance Corporation or the National Credit Union 
Administration, except as otherwise provided in writing by the 
Secretary.
    (e) Servicing. A lender shall service or arrange for servicing of 
the loan in accordance with the requirements of part 201 of this 
chapter. A mortgagee shall service or arrange for servicing of the 
mortgage in accordance with the servicing responsibilities contained in 
subpart C of part 203 and in part 207 of this chapter, 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 of all changes in its legal structure, 
including, but not limited to, mergers, terminations, name, location, 
control of ownership, and character of business.
    (g) Financial statements. The lender or mortgagee shall, upon 
request by the Secretary, furnish a copy of its latest financial 
statement, furnish such other information as the Secretary may request, 
and submit to an examination of that portion of its records which 
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 loan or mortgage origination and servicing.
    (i) Fees. The lender or mortgagee, unless approved under Sec. 
202.10, shall pay an application fee and annual fees, including 
additional fees for each branch office authorized to originate Title I 
loans or submit applications for mortgage insurance, at such times and 
in such amounts as the Secretary may require. The Secretary may identify 
additional classes or groups of lenders or mortgagees that may be exempt 
from one or more of these fees.
    (j) Ineligibility. Neither the lender or mortgagee, nor any officer, 
partner, director, principal or employee of the lender or mortgagee 
shall:
    (1) Be suspended, debarred, or otherwise restricted under 2 CFR part 
2424 or part 25 of this title, or under similar procedures of any other 
federal agency;
    (2) Be indicted for, or have been convicted of, an offense which 
reflects upon the responsibility, integrity or ability 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 audits or investigations; or
    (4) Be engaged in business practices that do not conform to 
generally accepted practices of prudent mortgagees or that demonstrate 
irresponsibility.
    (k) Branch offices. A lender may, upon approval by the Secretary, 
maintain branch offices for the origination of Title I 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. 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

[[Page 136]]

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 a yearly 
verification report 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 two 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) Each supervised or nonsupervised lender or 
mortgagee approved under Sec. Sec. 202.6 and 202.7 shall have a net 
worth of not less than $250,000 in assets acceptable to the Secretary. 
Each Title II supervised or nonsupervised mortgagee, except a 
multifamily mortgagee, shall have additional net worth in excess of 
$250,000 of not less than one percent of the mortgage volume exceeding 
$25,000,000 in value, but total net worth is not required to exceed 
$1,000,000. Mortgage volume is calculated as of the end of the fiscal 
year being audited and equals the sum of:
    (i) The aggregate original amount of insured mortgages that the 
mortgagee originated and that were insured during the fiscal year, or 
that the mortgagee purchased as a sponsor from its loan correspondent(s) 
during the fiscal year; and
    (ii) The aggregate principal amount, as of the end of the fiscal 
year, of all mortgages that are serviced by the mortgagee at the end of 
the fiscal year but were not counted as mortgages originated by the 
mortgagee or purchased from its loan correspondent(s).
    (2) Net worth requirements for loan correspondent lenders or 
mortgagees approved under Sec. 202.8 are described in that section.

[62 FR 20082, Apr. 24, 1997, as amended at 62 FR 65181, Dec. 10, 1997; 
63 FR 9742, Feb. 26, 1998; 67 FR 53451, Aug. 15, 2002; 72 FR 73495, Dec. 
27, 2007]



               Subpart B_Classes of Lenders and Mortgagees



Sec. 202.6  Supervised lenders and mortgagees.

    (a) Definition. A supervised lender or mortgagee is a financial 
institution which is a member of the Federal Reserve System or an 
institution whose accounts are insured by the Federal Deposit Insurance 
Corporation or the National Credit Union Administration. A supervised 
mortgagee may submit applications for mortgage insurance. A supervised 
lender or mortgagee may originate, purchase, hold, service or sell loans 
or insured mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a supervised lender or mortgagee shall meet 
the following requirements:
    (1) Net worth. The net worth requirements appear in Sec. 202.5(n).
    (2) Liquid assets. A Title II mortgagee shall have liquid assets 
consisting of cash or its equivalent acceptable to the Secretary in the 
amount of 20 percent of its net worth, up to a maximum liquidity 
requirement of $100,000.
    (3) Notification. A lender or mortgagee shall promptly notify the 
Secretary in the event of termination of its supervision by its 
supervising agency.
    (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

[[Page 137]]

the Secretary, that assures the faithful performance of the 
responsibilities of the mortgagee.



Sec. 202.7  Nonsupervised lenders and mortgagees.

    (a) Definition. A nonsupervised lender or mortgagee is a lending 
institution which has as its principal activity the lending or investing 
of funds in real estate mortgages, consumer installment notes, or 
similar advances of credit, or the purchase of consumer installment 
contracts, and which is not approved under any other section of this 
part. A nonsupervised mortgagee may submit applications for mortgage 
insurance. A nonsupervised lender or mortgagee may originate, purchase, 
hold, service or sell insured loans or mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a nonsupervised lender or mortgagee shall 
meet the following requirements:
    (1) Net worth. The net worth requirements appear in Sec. 202.5(n).
    (2) Liquid assets. The mortgagee shall have liquid assets consisting 
of cash or its equivalent acceptable to the Secretary in the amount of 
20 percent of its net worth, up to a maximum liquidity requirement of 
$100,000.
    (3) 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.
    (4) 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 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.
    (5) 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]



Sec. 202.8  Loan correspondent lenders and mortgagees.

    (a) Definitions.
    Loan correspondent. (1) A loan correspondent lender does not hold a 
Title I Contract of Insurance and may not purchase or hold loans but may 
be approved to originate Title I direct loans for sale or transfer to a 
sponsor or sponsors which holds a valid Title I Contract of Insurance 
and is not under suspension.
    (2) A loan correspondent mortgagee is a mortgagee that has as its 
principal activity the origination of mortgages for sale or transfer to 
its sponsor or sponsors or that meets the definition of a supervised 
mortgagee in Sec. 202.6(a) but applies for approval as a loan 
correspondent mortgagee. A loan correspondent mortgagee may originate 
mortgages and submit applications for mortgage insurance but it may not 
hold, purchase or service insured mortgages, except that a loan 
correspondent mortgagee meeting the definition of a supervised mortgagee 
in Sec. 202.6(a) may

[[Page 138]]

service insured mortgages in its own portfolio.
    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 
which 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.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a loan correspondent lender or mortgagee 
shall meet the following requirements:
    (1) Net worth. A loan correspondent lender or mortgagee shall have a 
net worth of not less than $63,000 in assets acceptable to the 
Secretary, plus an additional $25,000 for each branch office authorized 
by the Secretary, up to a maximum requirement of $250,000, except that a 
multifamily mortgagee shall have a net worth of not less than $250,000 
in assets acceptable to the Secretary.
    (2) Notification. A loan correspondent lender or mortgagee and each 
of its sponsors shall provide prompt notification to the Secretary if 
their loan correspondent agreement is terminated.
    (3) Audit report. A loan correspondent lender or mortgagee must 
comply with the financial reporting requirements in 24 CFR part 5, 
subpart H except that a loan correspondent mortgagee meeting the 
definition of a supervised lender or mortgagee in Sec. 202.6(a) need 
not file annual audit reports. 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:
    (i) A financial statement in a form acceptable to the Secretary, 
including a balance sheet, statement of operations and retained 
earnings, a statement of cash flows, an analysis of the net worth 
adjusted to reflect only assets acceptable to the Secretary and an 
analysis of escrow funds; and
    (ii) Such other financial information as the Secretary may require 
to determine the accuracy and validity of the audit report.
    (4) Liquid assets. A loan correspondent mortgagee shall maintain 
liquid assets consisting of cash or its equivalent acceptable to the 
Secretary in the amount of 20 percent of its net worth, up to a maximum 
liquidity requirement of $100,000.
    (5) A loan correspondent lender or mortgagee may sell or transfer 
loans or mortgages only to its sponsors, although a loan correspondent 
mortgagee may sell to a mortgagee that is not a sponsor with the 
Secretary's approval. There is no limitation on the number of sponsors 
that a loan correspondent lender or mortgagee may have and no limitation 
on the number of loan correspondents that a lender or mortgagee may 
sponsor.
    (6) Each sponsor must obtain approval of its loan correspondent 
lenders or mortgagees from the Secretary.
    (7) Each sponsor shall be responsible to the Secretary for the 
actions of its loan correspondent lenders 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 loan correspondent lenders 
or mortgagees in originating loans or mortgages and the sponsor is 
responsible for those actions unless it can rebut the presumption with 
affirmative evidence.
    (8) A loan correspondent mortgagee shall comply with the warehouse 
line of credit requirements of Sec. 202.7(b)(3)(ii), unless there is a 
written agreement by its sponsor to fund all mortgages originated by the 
loan correspondent mortgagee.
    (9) For mortgages processed through Direct Endorsement under 
Sec. Sec. 203.5 and 203.255(b) of this chapter, or through Lender 
Insurance under Sec. Sec. 203.6 and 203.255(f) of this chapter, 
underwriting shall be the responsibility of the Direct Endorsement 
sponsor or Lender Insurance sponsor (respectively), and the mortgage 
shall be closed in the loan correspondent mortgagee's own name or the 
name of the sponsor that will

[[Page 139]]

purchase the loan. For mortgages not processed through Direct 
Endorsement or through Lender Insurance, the mortgage must be both 
underwritten and closed in the loan correspondent's own name.
    (10) A loan correspondent lender shall close all loans in its own 
name prior to sale or transfer of the loans to its sponsor.

[62 FR 20082, Apr. 24, 1997, as amended at 62 FR 30225, June 2, 1997; 67 
FR 56420, Nov. 7, 2002; 67 FR 53451, Aug. 15, 2002]



Sec. 202.9  Investing lenders and mortgagees.

    (a) Definition. An investing lender or mortgagee is an organization 
that is not approved under any other section of this part. An investing 
lender or mortgagee may purchase, hold or sell Title I loans or Title II 
mortgages, respectively, but may not originate Title I loans or Title II 
mortgages in its own name or submit applications for the insurance of 
mortgages. An investing lender or mortgagee may not service Title I 
loans or Title II mortgages without prior approval of the Secretary. An 
investing lender or mortgagee is not required to meet a net worth 
requirement.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, an investing lender or mortgagee shall meet 
the following requirements:
    (1) Funding arrangements. An investing lender or mortgagee shall 
have, or have made arrangements for, funds sufficient to support a 
projected investment of at least $1,000,000 in property improvement, 
manufactured home or real estate loans or mortgages.
    (2) Officers and staff. In lieu of the staffing and facilities 
requirements in Sec. 202.5(b), an investing lender or mortgagee shall 
have officers or employees who are capable of managing its activities in 
purchasing, holding, and selling Title I loans or Title II mortgages.
    (3) Fidelity bond. An investing mortgagee shall maintain fidelity 
bond coverage and errors and omissions insurance acceptable to the 
Secretary and in an amount required by the Secretary, or alternative 
insurance coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.

[62 FR 20082, Apr. 24, 1997, as amended at 63 FR 9742, Feb. 26, 1998]



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

    (a) Definition. A Federal, State or municipal governmental agency, a 
Federal Reserve Bank, a Federal Home Loan Bank, the Federal Home Loan 
Mortgage Corporation, or the Federal National Mortgage Association may 
be an approved lender or mortgagee. A mortgagee approved under this 
section may submit applications for Title II mortgage insurance. A 
lender or mortgagee approved under this section may originate, purchase, 
service or sell Title I loans and insured mortgages, respectively. A 
mortgagee or lender approved under this section is not required to meet 
a net worth requirement. A mortgagee shall maintain fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or alternative insurance 
coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee. There are no 
additional requirements beyond the general approval requirements in 
Sec. 202.5 or as provided under paragraph (b) of this section.
    (b) Public housing agencies and State housing agencies. Under such 
terms and conditions as the Secretary may prescribe and notwithstanding 
the general requirements of Sec. 202.5 or the requirements of paragraph 
(a) of this section, a public housing agency or its instrumentality or a 
State housing agency may be approved as a mortgagee for the purpose of 
originating and holding multifamily mortgages funded by issuance of tax 
exempt obligations by the agency.
    (c) Audit requirements. The insuring of loans and mortgages under 
the Act constitutes ``financial assistance'' for purposes of audit 
requirements set out in part 44 of this title. State and local 
governments (as defined in 24 CFR 44.2) that receive insurance as 
lenders and

[[Page 140]]

mortgagees shall conduct audits in accordance with HUD audit 
requirements at part 44 of this title.



          Subpart C_Title I and Title II Specific Requirements



Sec. 202.11  Title I.

    (a) Administrative actions--(1) Types of 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 25.5. Civil money penalties may be 
imposed against Title I lenders and mortgagees pursuant to Sec. 25.12 
and part 30 of this title.
    (2) Grounds for action. Administrative actions shall be based upon 
both the grounds set forth in Sec. 25.9 and as follows:
    (i) Failure to properly supervise and monitor dealers under the 
provisions of part 201 of this title;
    (ii) Exhaustion of the general insurance reserve established under 
part 201 of this title;
    (iii) Maintenance of a Title I claims/loan ratio representing an 
unacceptable risk to the Department; or
    (iv) Transfer of a Title I loan to a party that does not have a 
valid Title I Contract of Insurance.
    (b) [Reserved]



Sec. 202.12  Title II.

    (a) Tiered pricing--(1) General requirements--(i) Prohibition 
against excess variation. The customary lending practices of a mortgagee 
for its single family insured mortgages shall not provide for a 
variation in mortgage charge rates that exceeds two 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 those funded by the mortgagee or purchased from 
the originator if requirements of the mortgagee have the effect of 
leading to violation of this section by the originator. The 
responsibility of sponsors of loan correspondent mortgagees is also 
governed by Sec. 202.8(b)(7).
    (iii) Basis for permissible variations. Any variations in the 
mortgage charge rate up to two percentage points under the mortgagee's 
customary lending practices must be based on actual variations in fees 
or cost to the mortgagee to make the mortgage loan, which shall be 
determined after accounting for the value of servicing rights generated 
by making the loan and other income to the mortgagee related to the 
loan. Fees or costs must be fully documented for each specific loan.
    (2) Area. For purposes of this section, an area is:
    (i) An area used by HUD for purposes of Sec. 203.18(a) of this 
chapter to determine the median 1-family house price for an area; or
    (ii) The area served by a HUD field office but excluding any area 
included in paragraph (a)(2)(i) of this section.
    (3) Mortgage charges. Mortgage charges include any charges under the 
mortgagee's control and not collected for the benefit of third parties. 
Examples are interest, discount points and origination fees.
    (4) Interest rate. Whenever a mortgagee offers a particular interest 
rate for a mortgage type in an area, it may not restrict the 
availability of the rate in the area on the basis of the principal 
amount of the mortgage. A mortgagee may not direct mortgage applicants 
to any specific interest rate category on the basis of mortgage size.
    (5) Mortgage charge rate. The mortgage charge rate is defined as the 
amount of mortgage charges for a mortgage expressed as a percentage of 
the initial principal amount of the mortgage.
    (6) Determining excess variations. Variation in mortgage charge 
rates for a mortgage type is determined by comparing all mortgage charge 
rates offered by the mortgagee within an area for the mortgage type for 
a designated day or other time period, including mortgage charge rates 
for all actual mortgage applications.
    (7) Mortgage type. A mortgage type for purposes of paragraph (a)(6) 
of this section will include those mortgages that are closely parallel 
in important characteristics affecting pricing and

[[Page 141]]

charges, such as level of risk or processing expenses. The Secretary may 
develop standards and definitions regarding mortgage types.
    (8) Recordkeeping. Mortgagees are required to maintain records on 
pricing information, satisfactory to the Secretary, that would allow for 
reasonable inspection by HUD for a period of at least 2 years. 
Additionally, many mortgagees are required to maintain racial, ethnic, 
and gender data under the regulations implementing the Home Mortgage 
Disclosure Act (12 U.S.C. 2801-2810).
    (b) Servicing. Any mortgagee that services mortgages must be 
approved by the Secretary under Sec. 202.6, Sec. 202.7 or Sec. 
202.10, or be specifically approved for servicing under Sec. 202.9(a).
    (c) Report and corrective plan requirements. If a mortgagee approved 
for participation in Title II programs is notified by the Secretary that 
it had a rate of defaults and claims on HUD-insured mortgages during the 
preceding year, or during recent years, which was higher than the normal 
rate, it shall submit a report, within 60 days, containing an 
explanation for the above-normal rate of defaults and claims, and, if 
required by the Secretary, a plan for corrective action with regard to 
mortgages in default and its mortgage processing system in general.



PART 203_SINGLE FAMILY MORTGAGE INSURANCE--Table of Contents




     Subpart A_Eligibility Requirements and Underwriting Procedures

          Direct Endorsement, Lender Insurance, and Commitments

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

                        Miscellaneous Regulations

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

                           Eligible Mortgages

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

                           Eligible Mortgagors

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

                           Eligible Properties

203.37 Nature of title to realty.
203.37a Sale of property.
203.38 Location of dwelling.
203.39 Standards for buildings.
203.40 Location of property.
203.41 Free assumability; exceptions.
203.42 Rental properties.
203.43 Eligibility of miscellaneous type mortgages.
203.43a Eligibility of mortgages covering housing in certain 
          neighborhoods.
203.43b [Reserved]
203.43c Eligibility of mortgages involving a dwelling unit in a 
          cooperative housing development.
203.43d Eligibility of mortgages in certain communities.

[[Page 142]]

203.43e Eligibility of mortgages covering houses in federally impacted 
          areas.
203.43f Eligibility of mortgages covering manufactured homes.
203.43g Eligibility of mortgages in certain communities.
203.43h Eligibility of mortgages on Indian land insured pursuant to 
          section 248 of the National Housing Act.
203.43i Eligibility of mortgages on Hawaiian Home Lands insured pursuant 
          to section 247 of the National Housing Act.
203.43j Eligibility of mortgages on Allegany Reservation of Seneca 
          Nation of Indians.
203.44 Eligibility of advances.
203.45 Eligibility of graduated payment mortgages.
203.47 Eligibility of growing equity mortgages.
203.49 Eligibility of adjustable rate mortgages.
203.50 Eligibility of rehabilitation loans.
203.51 Applicability.
203.52 Acceptance of individual residential water purification 
          equipment.

                Insured Ten-Year Protection Plans (Plan)

203.200 Definitions.
203.201 Scope.
203.202 Plan acceptability and acceptance renewal criteria--general.
203.203 Issuance and nature of insured 10-year protection plans.
203.204 Requirements and limitations of a plan.
203.205 Plan coverage.
203.206 Housing performance standards or criteria.
203.207 Designated area.
203.208 Insurance backing criteria.
203.209 Payments under a plan.

                             Effective Date

203.249 Effect of amendments.

                Subpart B_Contract Rights and Obligations

                               Definitions

203.251 Definitions.

                  Endorsement and Contract of Insurance

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

                 Mortgage Insurance Premiums--In General

203.259 Method of payment of MIP.
203.259a Scope.

              Mortgage Insurance Premiums--Periodic Payment

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

                Open-end Insurance Charges--All Mortgages

203.270 Open-end insurance charges.

              Mortgage Insurance Premiums--One-Time Payment

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

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

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

                   Adjusted Mortgage Insurance Premium

203.288 Discontinuance of adjusted premium charge.

                          Voluntary Termination

203.295 Voluntary termination.

                    Termination of Insurance Contract

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

                         Default Under Mortgage

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

[[Page 143]]

                        Continuation of Insurance

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

               Forebearance Relief For Military Personnel

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

                         Assignment of Mortgage

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

                             Claim Procedure

203.355 Acquisition of property.
203.356 Notice of foreclosure and pre-foreclosure sale; reasonable 
          diligence requirements.
203.357 Deed in lieu of foreclosure.
203.358 Direct conveyance of property.
203.359 Time of conveyance to the Secretary.
203.360 Notice of property transfer or pre-foreclosure sale and 
          application for insurance benefits.
203.361 Acceptance of property by Commissioner.
203.362 Conditions for withdrawal of application for insurance benefits.
203.363 Effect of noncompliance with regulations.
203.364 Mortgagee's liability for property expenditures.
203.365 Documents and information to be furnished the Secretary; claims 
          review.
203.366 Conveyance of marketable title.
203.367 Contents of deed and supporting documents.
203.368 Claims without conveyance procedure.
203.369 Deficiency judgments.
203.370 Pre-foreclosure sales.
203.371 Partial claim.

                          Condition of Property

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

               Property Title Transfers and Title Waivers

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

                      Payment of Insurance Benefits

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

                          Certificate of Claim

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

         Mutual Mortgage Insurance Fund and Distributive Shares

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

             Sale, Assignment and Pledge of Insured Mortgage

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

[[Page 144]]

203.435 Transfers of partial interests.

                       Graduated Payment Mortgages

203.436 Claim procedure--graduated payment mortgages.

                       Cooperative Unit Mortgages

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

              Mortgages on Property Located on Indian Land

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

          Mortgages on Property Located on Hawaiian Home Lands

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

     Mortgages on Property in Allegany Reservation of Seneca Indians

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

                          Rehabilitation Loans

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

                            Extension of Time

203.496 Actions to be taken by mortgagee or lender.

                               Amendments

203.499 Effect of amendments.

                  Subpart C_Servicing Responsibilities

                          General Requirements

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

                     Payments, Charges and Accounts

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

                    Mortgagee Action and Forbearance

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

     Mortgages in Default on Property Located on Indian Reservations

203.664 Processing defaulted mortgages on property located on Indian 
          land.

     Mortgages in Default on Property Located on Hawaiian Home Lands

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

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

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

[[Page 145]]

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

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



     Subpart A_Eligibility Requirements and Underwriting Procedures

          Direct Endorsement, Lender Insurance, and Commitments



Sec. 203.1  Underwriting procedures.

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

[62 FR 30225, June 2, 1997]



Sec. 203.3  Approval of mortgagees for Direct Endorsement.

    (a) Direct Endorsement approval. To be approved for the Direct 
Endorsement program set forth in Sec. 203.5, a mortgagee must be an 
approved mortgagee meeting the requirements of Sec. Sec. 202.13, 202.14 
or 202.17 and this section.
    (b) Special requirements. The mortgagee must establish that it meets 
the following qualifications.
    (1) The mortgagee has five years of experience in the origination of 
single family mortgages. The Secretary will approve a mortgagee with 
less than five years experience in the origination of single family 
mortgages if a principal officer has had a minimum of five years of 
managerial experience in the origination of single family mortgages.
    (2) The mortgagee has on its permanent staff an underwriter that is 
authorized by the mortgagee to bind the mortgagee on matters involving 
the origination of mortgages through the Direct Endorsement procedure 
and that is registered with the Secretary and such registration is 
maintained with the Secretary. The technical staff may be employees of 
the mortgagee or may be hired on a fee basis from a roster maintained by 
the Secretary. The mortgagee shall use appraisers permitted by Sec. 
203.5(e).
    (3) [Reserved]
    (4) The mortgagee must submit initially 15 mortgages processed in 
accordance with Sec. Sec. 203.5 and 203.255. Separate approval is 
required to originate mortgages under part 206 of this chapter through 
the Direct Endorsement program unless at least 50 mortgages closed by 
the mortgagee have been insured under part 206 of this chapter prior to 
September 15, 1995. Other mortgagees who have not closed at least 50 
mortgages under part 206 of this chapter must submit five (5) Home 
Equity Conversion Mortgages, processed in accordance with Sec. Sec. 
203.3 and 203.255. The documents required by Sec. 203.255 will be 
reviewed by the Secretary and, if acceptable, commitments will be issued 
prior to endorsement of the mortgages for insurance. If the underwriting 
and processing of these 15 mortgages (or the 5 Home Equity Conversion 
Mortgages) is satisfactory, then the mortgagee may be approved to close 
subsequent mortgages and submit them directly for endorsement for 
insurance in accordance with the process set forth in Sec. 203.255. 
Unsatisfactory performance by the mortgagee at this

[[Page 146]]

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

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

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



Sec. 203.4  Approval of mortgagees for Lender Insurance.

    Each mortgagee that chooses to participate in the Lender Insurance 
program must use the Lender Insurance process to insure all of the 
mortgages that it underwrites, unless the mortgages are ineligible for 
the Direct Endorsement program as provided in Sec. 203.5(b), or unless 
HUD determines that the mortgages are ineligible for the Lender 
Insurance program.
    (a) Direct Endorsement approval. To be approved for the Lender 
Insurance program described in Sec. 203.6, a mortgagee

[[Page 147]]

must be unconditionally approved for the Direct Endorsement program as 
provided in Sec. 203.5.
    (b) Performance: Claim and default rates. In addition to being 
unconditionally approved for the Direct Endorsement program, a mortgagee 
must have had an acceptable claim and default record for at least 2 
years prior to its application for participation in the Lender Insurance 
program. HUD determines acceptable claim and default record as follows:
    (1) A mortgagee is eligible for the Lender Insurance program if its 
claim and default rate is at or below 150 percent of the national 
average rate for all insured mortgages.
    (2) A mortgagee that operates in a single State (Single State 
mortgagee) may choose to have its claim and default rate compared with 
the average rate in the State in which it operates, in which case the 
Single State mortgagee is eligible for the Lender Insurance program if 
its claim and default rate is at or below 150 percent of the State 
average rate for insured mortgages.
    (c) Annual review. HUD will monitor a mortgagee's eligibility to 
participate in the Lender Insurance program on a yearly basis.
    (d) Termination of approval. If a mortgagee that has been approved 
by HUD for the Lender Insurance program violates the requirements and 
procedures established by the Secretary for such program, or if HUD 
determines that other good cause exists (including, but not limited to, 
HUD's determination that the mortgagee is not using prudent review 
techniques), 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)). 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. The conference will be conducted within 30 days 
after HUD receives a timely request for the conference. After the 
conference, the Deputy Assistant Secretary 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 and will be deemed a final agency action. Termination of an 
origination approval agreement under part 202 of this chapter or 
termination of Direct Endorsement approval under Sec. 203.3(d)(2) for a 
mortgagee or one or more branch offices automatically terminates Lender 
Insurance approval for the mortgagee or the branch office or offices 
without any further requirement to comply with this paragraph.

[62 FR 30226, June 2, 1997, as amended at 62 FR 65182, Dec. 10, 1997]



Sec. 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 Sec. 203.3(b)(4), Sec. 203.3(d)(1), or as 
determined by the Secretary. Under this program, the mortgagee 
determines that the proposed mortgage is eligible for insurance under 
the applicable program regulations, and submits the required documents 
to the Secretary in accordance with the procedures set forth in Sec. 
203.255. This subpart provides that certain functions shall be performed 
by the Secretary (or Commissioner), but the Secretary may specify that a 
Direct Endorsement mortgagee shall perform such an action without 
specific involvement or approval by the Secretary, subject to statutory 
limitations. In each case, the Direct Endorsement mortgagee's 
performance is subject to pre-endorsement and post-endorsement review by 
the Secretary under Sec. 203.255 (c) and (e).
    (b) Eligible programs. (1) All single family mortgages authorized 
for insurance under the National Housing Act must be originated through 
the Direct Endorsement program, except the following:
    (i) Mortgages underwritten for insurance by mortgagees that have 
applied for participation in, and have been approved for, the Lender 
Insurance program;
    (ii) Mortgages authorized under sections 203(n), 203(p), 213(d), 
221(h), 221(i), 225, 233, 237, 809, or 810 of the National Housing Act, 
or any other insurance

[[Page 148]]

programs announced by Federal Register notice; or
    (iii) As provided in Sec. 203.1.
    (2) The provision contained in Sec. 221.55 of this chapter 
regarding deferred sales to displaced families is not available in the 
Direct Endorsement program.
    (c) Underwriter due diligence. A Direct Endorsement mortgagee shall 
exercise the same level of care which it would exercise in obtaining and 
verifying information for a loan in which the mortgagee would be 
entirely dependent on the property as security to protect its 
investment. Mortgagee procedures that evidence such due diligence shall 
be incorporated as part of the quality control plan required under Sec. 
202.5(h) of this chapter. The Secretary shall publish guidelines for 
Direct Endorsement underwriting procedures in a handbook, which shall be 
provided to all mortgagees approved for the Direct Endorsement 
procedure. Compliance with these guidelines is deemed to be the minimum 
standard of due diligence in underwriting mortgages.
    (d) Mortgagor's income. The mortgagee shall evaluate the mortgagor's 
credit characteristics, adequacy and stability of income to meet the 
periodic payments under the mortgage and all other obligations, and the 
adequacy of the mortgagor's available assets to close the transaction, 
and render an underwriting decision in accordance with applicable 
regulations, policies and procedures.
    (e) Appraisal. (1) A mortgagee shall have the property appraised in 
accordance with such standards and requirements as the Secretary may 
prescribe. A mortgagee must select an appraiser whose name is on the FHA 
Appraiser Roster, in accordance with 24 CFR part 200, subpart G.
    (2) The mortgagee shall not discriminate on the basis of race, 
color, religion, national origin, sex, age, or disability in the 
selection of an appraiser.
    (3) A mortgagee and an appraiser must ensure that an appraisal and 
related documentation satisfy FHA appraisal requirements and both bear 
responsibility for the quality of the appraisal in satisfying such 
requirements. A Direct Endorsement Mortgagee (and any of its loan 
correspondent lenders) 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 24 CFR part 25 and part 30.

[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]



Sec. 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 Sec. 203.255(f).

[62 FR 30226, June 2, 1997]



Sec. 203.7  Commitment process.

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

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

                        Miscellaneous Regulations



Sec. 203.9  Disclosure regarding interest due upon mortgage prepayment.

    Each mortgagee with respect to a mortgage under this part shall at 
or before closing with respect to any such mortgage, provide the 
mortgagor with written notice in a form prescribed by

[[Page 149]]

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.

[56 FR 18947, Apr. 24, 1991]



Sec. 203.10  Informed consumer choice for prospective FHA mortgagors.

    (a) Mortgagee to provide disclosure notice. A mortgagee must provide 
a prospective FHA mortgagor with an informed consumer choice disclosure 
notice if, in the mortgagees's judgment, the prospective FHA mortgagor 
may qualify for similar conventional mortgage products offered by the 
mortgagee. The mortgagee should base this judgment on the mortgagee's 
initial assessment of the prospective FHA mortgagor's eligibility for a 
conventional mortgage product. If a mortgagee is unsure about a 
prospective FHA mortgagor's eligibility for a conventional mortgage 
product, the mortgagee should provide the prospective FHA mortgagor with 
an informed consumer choice disclosure notice.
    (b) Informed consumer choice disclosure notice--(1) Contents of 
notice. The informed consumer choice disclosure notice must:
    (i) Provide a one page generic analysis comparing the mortgage costs 
of an FHA-insured mortgage with the mortgage costs of similar 
conventional mortgage products offered by the mortgagee that the 
prospective FHA mortgagor may qualify for;
    (ii) Provide information about when the requirement to pay FHA 
mortgage insurance premiums terminates; and
    (iii) Meet the requirements of section 203(b)(2) of the National 
Housing Act (12 U.S.C. 1709(b)(2)).
    (2) Format of disclosure notice. The informed consumer choice 
disclosure notice must be provided in a format prescribed by the 
Commissioner. HUD has prepared a model informed consumer choice 
disclosure notice that represents this format and that meets the 
requirements of section 203(b)(2) of the National Housing Act (12 U.S.C. 
1709(b)(2)). The model informed consumer choice disclosure notice 
contains the minimum elements of an informed consumer choice disclosure 
notice. These elements must be included in a mortgagee's informed 
consumer choice disclosure notice. A mortgagee, however, may include 
additional elements in an informed consumer choice disclosure notice to 
better reflect the mortgagee's products or to provide information that 
the mortgagee believes is meaningful and helpful to the mortgagee's 
customers.
    (3) Availability of model disclosure notice. HUD's model informed 
consumer choice disclosure notice is made available to FHA-approved 
mortgagees through Mortgagee Letter and is available to the public 
through the internet at HUD's web site at http://www.hud.gov or by 
contacting: Home Mortgage Insurance Division, Office of Insured Single 
Family Housing, U.S. Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410-8000; telephone (202) 708-2700 
(this is not a toll-free number), or the nearest HUD Homeownership 
Center (Atlanta, GA (888) 696-4687; Denver, CO (800) 543-9378; 
Philadelphia, PA (800) 440-8647; or Santa Ana, CA (888) 827-5605). 
Hearing- or speech-impaired individuals may access these numbers via TTY 
by calling the toll-free Federal Information Relay Service at (800) 877-
8339.
    (c) Timing. When required under paragraph (a) of this section, a 
mortgagee must provide an informed consumer choice disclosure notice to 
a prospective FHA mortgagor not later than three business days after the 
mortgagee receives the prospective FHA mortgagor's application.
    (d) Revision of notice. A mortgagee should revise its informed 
consumer choice disclosure notice periodically to reflect prevailing 
market conditions. To ensure that the informed consumer choice 
disclosure notice reflects prevailing market conditions, a mortgagee 
must revise its informed consumer choice disclosure notice at least once 
annually.
    (e) Applicability. This section applies to any application for 
mortgage insurance authorized under section 203(b) of the National 
Housing Act (12 U.S.C.

[[Page 150]]

1709) that the mortgagee receives on or after September 2, 1999.
    (f) Definitions. As used in this section:
    Application means the submission of financial information in 
anticipation of a credit decision.
    Conventional mortgage means conventional mortgage as used in section 
305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 
1454(a)(2)) or section 302(b)(2) of the Federal National Mortgage 
Association Charter Act (12 U.S.C. 1717(b)(2)), as applicable.
    Mortgagee means mortgagee as defined in Sec. 202.2 of this chapter.
    Prospective FHA mortgagor means a person who submits an application 
to a mortgagee to obtain mortgage insurance authorized under section 
203(b) of the National Housing Act (12 U.S.C. 1709).

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



Sec. 203.12  Mortgage insurance on proposed or new construction.

    (a) Applicability. This section applies to an application for 
insurance of a mortgage on a one-to four-family dwelling, unless the 
mortgage will be secured by a dwelling that:
    (1) Was completed more than one year before the date of the 
application for insurance or, under the Direct Endorsement Program, was 
completed more than one year before the date of the appraisal; or
    (2) Is being sold to a second or subsequent purchaser.
    (b) Procedures. (1) Applications for insurance to which this section 
applies will be processed in accordance with procedures prescribed by 
the Secretary. These procedures may only provide for endorsement for 
insurance of a mortgage covering a dwelling that is:
    (i) Approved under the Direct Endorsement Program or the Lender 
Insurance Program; or
    (ii) Located in a subdivision approved by the Rural Housing Service.
    (2) The mortgagee must submit a signed Builder's Certification of 
Plans, Specifications and Site (Builder's Certification). The Builder's 
Certification must be in a form prescribed by the Secretary and must 
cover:
    (i) Flood hazards;
    (ii) Noise;
    (iii) Explosive and flammable materials storage hazards;
    (iv) Runway clear zones/clear zones;
    (v) Toxic waste hazards;
    (vi) Other foreseeable hazards or adverse conditions (i.e., rock 
formations, unstable soils or slopes, high ground water levels, 
inadequate surface drainage, springs, etc.) that may affect the health 
and safety of the occupants or the structural soundness of the 
improvements. The Builder's Certification must be provided to the 
appraiser for reference before the performance of an appraisal on the 
property.
    (3) If a builder (or developer) intends to sell five or more 
properties in a subdivision, an Affirmative Fair Housing Marketing Plan 
(AFHMP) that meets the requirements of 24 CFR part 200, subpart M must 
be submitted and approved by HUD no later than the date of the first 
application for mortgage insurance in that subdivision. Thereafter, 
applications for insurance on other properties sold by the same builder 
(or developer) in the same subdivision may make reference to the 
existing previously approved AFHMP.

[64 FR 56110, Oct. 15, 1999]



Sec. 203.14  Builders' warranty.

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

[[Page 151]]

the seller, builder or such other person will promptly furnish the 
Secretary with a conformed copy of the warranty establishing by the 
purchaser's receipt thereon that the original warranty has been 
delivered to the purchaser in accordance with this section.

[57 FR 58346, Dec. 9, 1992]



Sec. 203.15  Certification of appraisal amount.

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

[58 FR 41001, July 30, 1993]



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

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



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

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

[64 FR 56111, Oct. 15, 1999]

                           Eligible Mortgages



Sec. 203.17  Mortgage provisions.

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

[[Page 152]]

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

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



Sec. 203.18  Maximum mortgage amounts.

    (a) Mortgagors of principal or secondary residences. The principal 
amount of the mortgage must not exceed the lesser of the following 
amounts that apply:
    (1) The dollar amount limitation that applies for the area under 
section 203(b)(2)(A) of the National Housing Act including any increase 
in the dollar limitation under Sec. 203.29, as announced in accordance 
with Sec. 203.18(h);
    (2)(i) The amount based on appraised value that is permitted by 
section 203(b)(10) of the National Housing Act, if that provision is in 
effect and applies to the mortgage; or
    (ii) If section 203(b)(10) is not in effect or otherwise does not 
apply to the mortgage, the lesser of the amounts based on appraised 
value that are permitted by section 203(b)(2)(B) of the National Housing 
Act and paragraph (g) of this section;
    (3) An amount equal to 90 percent of the appraised value, if the 
dwelling is a new home that was completed 1 year or less from the date 
of the mortgage insurance application and the dwelling is neither 
approved before the beginning of construction or covered by an 
acceptable consumer protection or warranty plan as provided in section 
203(b)(2)(B) of the National Housing Act; or
    (4) An amount equal to 85 percent of the appraised value if the 
mortgage covers a dwelling that is to be occupied as a secondary 
residence (as defined in paragraph (f)(2) of this section).
    (b) Veteran qualifications. The special veteran terms provided in 
section 203(b)(2) of the National Housing Act shall apply only if the 
mortgagor submits one of the following certifications:
    (1) A certification issued by the Secretary of Defense establishing 
that the

[[Page 153]]

veteran performed extra hazardous service while serving in the armed 
forces for a period of less than 90 days; or
    (2) A Certificate of Eligibility from the Department of Veterans 
Affairs establishing that the person served 90 days or more on active 
duty in the armed forces (U.S. Army, Navy, Marine Corps, Air Force, 
Coast Guard, the Army Reserve, the Naval Reserve, the Marine Corps 
Reserve, the Air Force Reserve, the Coast Guard Reserve, the National 
Guard of the United States, or the Air National Guard of the United 
States); that he or she enlisted before September 8, 1980; and that he 
or she was discharged or released under conditions other than 
dishonorable (a copy of the veteran's discharge papers or Form DD-214 
shall be submitted with the certificate); or
    (3) A Certificate of Eligibility from the Department of Veterans 
Affairs establishing that the person:
    (i)(A) Originally enlisted in a regular component of the armed 
forces after September 7, 1980; or entered on active duty after October 
16, 1981, and he or she had not previously completed a period of active 
duty of at least 24 months or been discharged or released from active 
duty under 10 U.S.C. 1171; and
    (B) Has completed, since enlistment or entering on active duty, 
either:
    (1) Twenty-four months of continuous active duty, or the full period 
for which he or she was called or ordered to active duty, whichever is 
shorter; or
    (2) Any other period of active duty if he or she was discharged or 
released from duty under 10 U.S.C. 1171 or 1173; was discharged or 
released from duty for disability incurred or aggravated in the line of 
duty; or has a disability which the Department of Veterans Affairs has 
determined to be compensable under 38 U.S.C. chap. 11; and
    (ii) Was discharged or released under conditions other than 
dishonorable (a copy of the veteran's discharge papers or Form DD-214 
shall be submitted with the certification).
    (c) Eligible non-occupant mortgagors. A mortgage may be executed by 
an eligible non-occupant mortgagor (as that term is defined in paragraph 
(f)(3) of this section) for up to an amount authorized for the 
appropriate loan type in paragraph (a) of this section except where a 
lesser amount is expressly provided for in this part.
    (d) Outlying area properties. A mortgage covering a single family 
residence located in an area in which the Commissioner finds that it is 
not practicable to obtain conformity with many of the requirements 
essential to the insurance of mortgages in built-up, urban areas; or a 
mortgage covering a single family dwelling that is to be used as a farm 
home on a plot of land that is two and one-half or more acres in size 
and adjacent to an all-weather public road, may not exceed:
    (1) In the case of a mortgagor who is to occupy the dwelling as a 
principal residence (as defined in paragraph (f)(1) of this section):
    (i) 75 percent of the dollar limitation under (a)(1).
    (ii) 97 percent of the appraised value of the property as of the 
date the mortgage is accepted for insurance, if:
    (A) The Commissioner approved the dwelling for insurance before the 
beginning of construction; or
    (B) Construction was completed more than one year before the date of 
the application for insurance; or
    (C) The Secretary of Veterans Affairs approved the dwelling for 
guaranty, insurance, or direct loan before the beginning of 
construction.
    (iii) If the property does not meet the requirements of paragraph 
(d)(1)(ii) of this section, 90 percent of the appraised value of the 
property as of the date the mortgage is accepted for insurance.
    (2) In the case of a mortgagor who is to occupy the dwelling as a 
secondary residence (as defined in paragraph (f)(2) of this section):
    (i) The amount permitted in paragraph (d)(1)(i) of this section, or
    (ii) 85 percent of the appraised value of the property as of the 
date the mortgage is accepted for insurance.
    (e) Disaster victims. A mortgage covering a single family dwelling, 
in an amount not in excess of the maximum dollar limitation specified in 
paragraph (a)(1) of this section (unless a higher maximum mortgage 
amount is authorized under Sec. 203.29), and not in excess of the 
lesser of 100 percent of the appraised value of the property or the

[[Page 154]]

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 Sec. 203.43(c) of this part, is 
refinancing an existing mortgage insured under the National Housing Act 
for not more than the outstanding balance of the existing mortgage, if 
the amount of the monthly payment due under the refinancing mortgage is 
less than the amount due under the existing mortgage for the month in 
which the refinancing mortgage is executed.
    (4) Appraised value means the sum of:
    (i) The lesser of sales price (with any adjustments required by the 
Secretary) or the amount set forth in the written statement required 
under Sec. 203.15; and
    (ii) Borrower-paid closing costs allowed under Sec. 203.27(a)(1)-
(3), except that closing costs do not apply if section 203(b)(10) of the 
National Housing Act is in effect and neither sales price nor closing 
costs apply for purposes of paragraph (g) of this section.
    (5) Undue hardship means that affordable housing which meets the 
needs of the mortgagor is not available for lease, or within reasonable 
commuting distance from the mortgagor's home to his or her work place.
    (6) Vacation home means a dwelling that is used primarily for 
recreational purposes and enjoyment, and that is not a primary or 
secondary residence.
    (g) Maximum principal obligation. Except for mortgages meeting the 
requirements of Sec. 203.18(b), Sec. 203.18(e) or Sec. 203.50(f), and 
notwithstanding any other provision of this section, a mortgage may not 
involve a principal obligation in excess of 98.75 percent of the 
appraised value of the property (97.75

[[Page 155]]

percent, in the case of a mortgage with an appraised value in excess of 
$50,000), plus the amount of the mortgage insurance premium paid at the 
time the mortgage is insured.
    (h) Notice of maximum mortgage amount. A maximum mortgage amount 
based on the 1-family median house price for an area under paragraph 
(a)(1) of this section may be made effective by:
    (1) Providing direct notice to affected mortgagees through an 
administrative issuance; or
    (2) Publishing a notice in the Federal Register.
    (i) Energy efficient mortgages. The principal amount of energy 
efficient mortgages may exceed the maximum amounts determined under 
paragraph (a)(1) of this section under conditions prescribed by the 
Secretary in accordance with section 106 of the Energy Policy Act of 
1992.

[36 FR 24508, Dec. 22, 1971]

    Editorial Note: For Federal Register citations affecting Sec. 
203.18, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.



Sec. 203.18a  Solar energy system.

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

[45 FR 51770, Aug. 5, 1980]



Sec. 203.18b  Increased mortgage amount.

    (a) If any party believes that a mortgage limit established by the 
Secretary under Sec. 203.18(a)(1) does not accurately reflect the 
median house prices in an area, the party may submit documentation in 
support of an alternative mortgage limit. For purposes of this section, 
an area (1) must be at least the size of a county, whether or not the 
area is located within a metropolitan statistical area, as established 
by the Office of Management and Budget; and (2) may be an area for which 
the mortgage limits established under Sec. 203.18(b)(1) apply.
    (b)(1) The documentation referred to in paragraph (a) of this 
section must consist of sufficient housing sales price data for the 
entire geographic area for which the request is made to justify an 
alternative mortgage limit. The documentation should include a listing 
of actual sales prices in the area for all or nearly all new and 
existing 1-family homes and condominiums, over a period of time varies 
with sales volume, as follows:
    (i) For 500 or more sales per month, a one-month reporting period;
    (ii) For 250 through 499 sales per month, a two-month reporting 
period.
    (iii) For less than 250 sales per month, a three-month reporting 
period.

The listing should contain a brief address for each property, its county 
location, its sale price, the month and year of its sale, and whether it 
is new or existing. In areas where the ratio of existing sales to new 
sales is three-to-one or greater, an increase in the mortgage limit may 
be based on 95 percent of the average of the new and the existing median 
sales prices. In these areas, the documentation referred to in this 
paragraph may also include separate median sales prices for both the new 
and existing homes.
    (2) Requests for an increased mortgage limit based upon 
documentation of median house prices for the area should be sent to the 
appropriate HUD field office.
    (c) In the case of an area where the Commissioner determines that 
the median one-family house price does not reasonably reflect the sales 
prices of newly constructed homes because of an existing stock whose 
value is static or declining, the Commissioner may give greater weight 
to the sales prices of new homes in determining median

[[Page 156]]

house price in such area. Without limiting the discretion of the 
Commissioner in fashioning appropriate methods of implementing the 
foregoing authority in particular circumstances based upon a 
demonstration of good cause satisfactory to the Commissioner, in areas 
where evidence satisfactory to the Commissioner indicates that existing 
home sales outnumber new home sales by three-to-one or better, the 
median sales price will be calculated as the greater of (1) the average 
of the median sales price for new and existing homes, and (2) the 
composite median price of all sales.

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

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



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

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

[57 FR 15211, Apr. 24, 1992]



Sec. 203.18d  Minimum principal loan amount.

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

[53 FR 8880, Mar. 18, 1988]



Sec. 203.19  [Reserved]



Sec. 203.20  Agreed interest rate.

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

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



Sec. 203.21  Amortization provisions.

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



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

    (a) Payment of periodic insurance premiums or charges. Except with 
respect to mortgages for which a one-time mortgage insurance premium is 
paid pursuant to Sec. 203.280, the mortgage may provide for monthly 
payments by the mortgagor to the mortgagee of an amount equal to one-
twelfth of the annual mortgage insurance premium payable by the 
mortgagee to the Commissioner. Such payments continue only so long as 
the contract of insurance shall remain in effect or for such shorter 
period as mortgage insurance premiums are payable by the mortgagee to 
the Commissioner.
    (b) Prepayment privilege. The mortgage shall contain a provision 
permitting the mortgagor to prepay the mortgage in whole or in part on 
any installment due date, but 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]



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

    (a) The mortgage shall provide for such equal monthly payments by 
the mortgagor to the mortgagee as will amortize:
    (1) The ground rents, if any;
    (2) The estimated amount of all taxes;
    (3) Special assessments, if any;

[[Page 157]]

    (4) Flood insurance premiums, if flood insurance is required by the 
Commissioner; and
    (5) Fire and other hazard insurance premiums, if any. The mortgage 
shall further provide that such payments shall be held by the mortgagee 
in a manner satisfactory to the Commissioner for the purpose of paying 
such ground rents, taxes, assessments, and insurance premiums before the 
same become delinquent, for the benefit and account of the mortgagor. 
The mortgage must also make provisions for adjustments in case the 
estimated amount of such taxes, assessments, and insurance premiums 
shall prove to be more, or less, than the actual amount thereof so paid 
by the mortgagor. Such payments shall be held in an escrow subject to 
Sec. 203.550.
    (b) The mortgagor shall not be required to pay premiums for fire or 
other hazard insurance which protects only the interests of the 
mortgagee, or for life or disability income insurance, or fees charged 
for obtaining information necessary for the payment of property taxes. 
The foregoing does not apply to charges made or penalties exacted by the 
taxing authority, except that a penalty assessed or interest charged by 
a taxing authority for failure to timely pay taxes or assessments shall 
not be charged by the mortgagee to the mortgagor if the mortgagee had 
sufficient funds in escrow for the account of the mortgagor to pay such 
taxes or assessments prior to the date on which penalty or interest 
charges are imposed.
    (c) Mortgages involving a principal obligation not in excess of 
$9,000 may contain a provision requiring the mortgagor to pay to the 
mortgagee an annual service charge at such rate as may be agreed upon 
between the mortgagee and the mortgagor, but in no case shall such 
service charge exceed one-half of one percent per annum. Any such 
service charge shall be payable in monthly installments on the principal 
then outstanding. The provisions of this paragraph shall not apply to 
mortgages endorsed for insurance pursuant to applications received by 
the Commissioner on or after July 17, 1961.

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



Sec. 203.24  Application of payments.

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

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



Sec. 203.25  Late charge.

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

[41 FR 49734, Nov. 10, 1976]



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

    (a) The mortgagor must pay to the mortgagee, upon execution of the 
mortgage, a sum that will be sufficient

[[Page 158]]

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

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



Sec. 203.27  Charges, fees or discounts.

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

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



Sec. 203.28  Economic soundness of projects.

    The mortgage must be executed with respect to a project which, in 
the opinion of the Commissioner, is economically sound, except that this 
section shall not apply in each of the following instances:
    (a) To a mortgage of the character described in Sec. 203.18(d) and 
with respect to such a mortgage, the Commissioner shall determine that 
the mortgage is an acceptable risk giving consideration to the need for 
providing adequate

[[Page 159]]

housing for families of low and moderate income, particularly in 
suburban and outlying areas or small communities.
    (b) To a mortgage of the character described in Sec. 203.18 (e).
    (c) To a mortgage of the character described in Sec. 203.43a.
    (d) To a mortgage in a federally impacted area described in Sec. 
203.43e.
    (e) To a rehabilitation loan of the character described in Sec. 
203.50.

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



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

    (a) When is an increased mortgage limit permitted for these areas? 
For Alaska, Guam, Hawaii or the Virgin Islands, the Commissioner may 
increase the maximum mortgage amount permitted by section 203(b)(2)(A) 
of the National Housing Act when authorized by section 214 of that Act, 
through the procedures described in Sec. 203.18(h).
    (b) If a party believes that the otherwise applicable mortgage limit 
needs to be increased to reflect the extent to which high costs make it 
infeasible to construct dwellings without sacrificing sound standards of 
construction, design or livability, the party may submit documentation 
in support of an alternative mortgage limit. This documentation should 
include actual or estimated costs of such items as design, construction, 
materials, and labor. In addition, actual sales prices of new homes may 
be submitted, together with any other documentation requested by the 
Commissioner. Requests for alternative mortgage limits, together with 
supporting documentation should be sent to the appropriate HUD field 
office. The field office will forward the request and supporting 
material, with the field office's recommendation, to the Commissioner 
for determination.
    (c) If the Alaska Housing Authority, or the Government of Guam, 
Hawaii, or the Virgin Islands or any agency or instrumentality of those 
entities, is the mortgagor or the mortgagee, or the mortgagor is 
regulated or restricted as to rents or sales, charges, capital 
structure, rate of return, and methods of operation to such an extent 
and in such manner as the Commissioner determines advisable to provide 
reasonable rental and sales prices and a reasonable return on the 
investment, any mortgage otherwise eligible for insurance under this 
subpart may be insured:
    (1) In any case where the Alaska Housing Authority, or the 
government of Guam, Hawaii, the Virgin Islands, or any agency or 
instrumentality of those entities, is the mortgagor, without regard to 
any requirement that the mortgagor occupy the dwelling as a principal 
residence or a secondary residence (as these terms are defined in Sec. 
203.18(f)), or meet loan-to-value or comparable limitations based on the 
failure of the mortgagor to meet this occupancy requirement;
    (2) Without regard to any requirement that the mortgagor has paid on 
account of the property a prescribed percentage of the appraised value 
of the property; or
    (3) Without regard to any requirement that the mortgagor certify 
that the mortgaged property is free and clear of all liens other than 
the mortgage offered for insurance and that there will not be any unpaid 
obligations contracted in connection with the mortgage transaction or 
the purchase of the mortgaged property.
    (d) The provisions of Sec. 203.28 requiring economic soundness 
shall not be applicable to mortgages covering property located in 
Alaska, in Guam, in Hawaii, or in the Virgin Islands, but the 
Commissioner shall find that the property or project is an acceptable 
risk, giving consideration to the acute housing shortage in Alaska, 
Guam, Hawaii, or the Virgin Islands.

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

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



Sec. 203.30  Certificate of nondiscrimination by the mortgagor.

    The mortgagor shall certify to the Commissioner as to each of the 
following points:

[[Page 160]]

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

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



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

    (a) A mortgage that is otherwise eligible for insurance under any of 
the provisions of this part may be insured without regard to any 
requirement contained in this part that the mortgagor occupy the 
dwelling as a principal residence (as defined in Sec. 203.18(f)(1)) at 
the time of insurance, or that the mortgagor meet loan-to-value or 
comparable limitations based on the failure of the mortgagor to meet an 
occupancy requirement, if:
    (1) The Commissioner is satisfied that the inability of the 
mortgagor to meet the occupancy requirement is by reason of his or her 
entry into military service after the filing of an application for 
insurance; and
    (2) The mortgagor expresses an intent (in such form as the 
Commissioner may prescribe), to meet the occupancy requirement upon his 
or her discharge from the service.
    (b) A serviceperson will also be considered to meet the occupancy 
requirement referred to in paragraph (a) of this section for mortgage 
insurance purposes, if the following conditions are satisfied:
    (1) The serviceperson and his or her family expect to meet the 
occupancy requirement referred to in paragraph (a) of this section for 
two or more years. The Commissioner may shorten this period to one year, 
if (i) the serviceperson's family will occupy the property for at least 
one year and (ii) the serviceperson is assigned to a combat zone or 
other hazardous duty area where the family cannot accompany him or her; 
and
    (2) The property is located in an area in which the prospects of 
resale are reasonable.

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

[55 FR 34804, Aug. 24, 1990]

                           Eligible Mortgagors



Sec. 203.32  Mortgage lien.

    (a) Except as otherwise provided in this section, a mortgagor must 
establish that, after the mortgage offered for insurance has been 
recorded, the mortgaged property will be free and clear of all liens 
other than such mortgage, and that there will not be outstanding any 
other unpaid obligations contracted in connection with the mortgage 
transaction or the purchase of the mortgaged property, except 
obligations that are secured by property or collateral owned by the 
mortgagor independently of the mortgaged property.
    (b) With prior approval of the Secretary, the mortgaged property may 
be subject to a secondary mortgage or loan made or insured, or other 
secondary lien held, by a Federal, State, or local government agency or 
instrumentality, or an entity designated in the homeownership plan 
submitted by an applicant for an implementation grant under the 
Homeownership and Opportunity for People Everywhere (HOPE) program, or 
an eligible nonprofit organization as defined in Sec. 203.41(a)(5) of 
this part, provided that the required monthly payments under

[[Page 161]]

the insured mortgage and the secondary mortgage or lien shall not exceed 
the mortgagor's reasonable ability to pay as determined by the 
Secretary.
    (c) With the prior approval of the Secretary, the mortgaged property 
may be subject to a second mortgage held by a mortgagee not described in 
paragraph (b) of this section. Unless the mortgage is for the purpose 
described in paragraph (d) of this section, it shall meet the following 
requirements:
    (1) The required monthly payments under the insured mortgage and the 
second mortgage shall not exceed the mortgagor's reasonable ability to 
pay, as determined by the Commissioner;
    (2) Periodic payments, if any, shall be collected monthly and be 
substantially the same;
    (3) The sum of the principal amount of the insured mortgage and the 
second mortgage shall not exceed the loan-to-value limitation applicable 
to the insured mortgage, and shall not exceed the maximum mortgage limit 
for the area;
    (4) The repayment terms shall not provide for a balloon payment 
before ten years, or for such other term as the Commissioner may 
approve, except that the mortgage may become due and payable on sale or 
refinancing of the secured property covered by the insured mortgage; and
    (5) The mortgage shall contain a provision permitting the mortgagor 
to prepay the mortgage in whole or in part at any time, and shall not 
provide for the payment of any charge on account of such prepayment.
    (d)(1) With the prior approval of the Commissioner, the mortgaged 
property may be subject to a junior (second or third) mortgage securing 
the repayment of funds advanced to reduce the mortgagor's monthly 
payments on the insured mortgage following the date it is insured, if 
the junior mortgage meets the following requirements:
    (i) The junior mortgage shall not provide for any payment of 
principal or interest until the property securing the junior mortgage is 
sold or the insured mortgage is refinanced, at which time the junior 
mortgage shall become due and payable;
    (ii) The total amount of repayments under the junior mortgage shall 
not exceed the least of:
    (A) One-half of the mortgagor's equity interest in the property at 
the time of sale or refinancing;
    (B) Three times the amount of funds advanced to effect the interest 
rate buy-down; or
    (C) The sum of the original loan amount plus the total accrued 
interest on the junior mortgage at the time of repayment; and
    (iii) The junior mortgage shall contain a provision permitting the 
mortgagor to prepay the mortgage in whole or in part at any time, and 
shall not provide for the payment of any charge on account of such 
prepayment. Any full or partial prepayment will not be recoverable by 
the mortgagor if, by application of paragraph (d)(1)(ii) on sale or 
refinancing of the property, a lesser amount than the amount prepaid 
would have been due.
    (2) The sum of the principal amount of the insured mortgage, any 
second mortgage made under paragraph (b) or (c) of this section, and the 
mortgage securing the repayment of funds advanced to reduce the 
borrower's monthly payments (whether a second or third mortgage) may 
exceed the loan-to-value limitation applicable to the insured mortgage, 
but such sum may not exceed the maximum mortgage limit for the area.

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



Sec. 203.33  Relationship of income to mortgage payments.

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

[[Page 162]]

handicap, marital status, 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]



Sec. 203.34  Credit standing.

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



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

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

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

[54 FR 39693, Sept. 27, 1989]



Sec. 203.36  [Reserved]

                           Eligible Properties



Sec. 203.37  Nature of title to realty.

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

[49 FR 21319, May 21, 1984]



Sec. 203.37a  Sale of property.

    (a) Sale by owner of record--(1) Owner of record requirement. To be 
eligible for a mortgage insured by FHA, the property must be purchased 
from the owner of record and the transaction may not involve any sale or 
assignment of the sales contract.
    (2) Supporting documentation. The mortgagee shall obtain 
documentation verifying that the seller is the owner of record and must 
submit this documentation to HUD as part of the application for mortgage 
insurance, in accordance with Sec. 203.255(b)(12). This documentation 
may include, but is not limited to, a property sales history report, a 
copy of the recorded deed from the seller, or other documentation (such 
as a copy of a property tax bill, title commitment, or binder) 
demonstrating the seller's ownership.
    (b) Time restrictions on re-sales--(1) General. The eligibility of a 
property for a mortgage insured by FHA is dependent on the time that has 
elapsed between the date the seller acquired the property (based upon 
the date of settlement) and the date of execution of the sales contract 
that will result in the FHA mortgage insurance (the re-sale date). The 
mortgagee shall obtain documentation verifying compliance with the time 
restrictions described in this paragraph and must submit this 
documentation to HUD as part of the application for mortgage insurance, 
in accordance with Sec. 203.255(b).
    (2) Re-sales occurring 90 days or less following acquisition. If the 
re-sale date is 90 days or less following the date of acquisition by the 
seller, the property is not eligible for a mortgage to be insured by 
FHA.
    (3) Re-sales occurring between 91 days and 180 days following 
acquisition. (i) If the re-sale date is between 91 days and 180 days 
following acquisition by the seller, the property is generally eligible 
for a mortgage insured by FHA.
    (ii) However, HUD will require that the mortgagee obtain additional 
documentation if the re-sale price is 100 percent over the purchase 
price. Such documentation must include an appraisal from another 
appraiser. The mortgagee may also document its loan file to support the 
increased value by establishing that the increased value results from 
the rehabilitation of the property.
    (iii) HUD may revise the level at which additional documentation is 
required under Sec. 203.37a(b)(3) at 50 to 150 percent over the 
original purchase price. HUD will revise this level by Federal Register 
notice with a 30 day delayed effective date.
    (4) Authority to address property flipping for re-sales occurring 
between 91 days and 12 months following acquisition. (i) If the re-sale 
date is more than 90 days after the date of acquisition by the seller, 
but before the end of the

[[Page 163]]

twelfth month after the date of acquisition, the property is eligible 
for a mortgage to be insured by FHA.
    (ii) However, HUD may require that the lender provide additional 
documentation to support the re-sale value of the property if the re-
sale price is 5 percent or greater than the lowest sales price of the 
property during the preceding 12 months (as evidenced by the contract of 
sale). At HUD's discretion, such documentation must include, but is not 
limited to, an appraisal from another appraiser. HUD may exclude re-
sales of less than a specific dollar amount from the additional value 
documentation requirements.
    (iii) If the additional value documentation supports a value of the 
property that is more than 5 percent lower than the value supported by 
the first appraisal, the lower value will be used to calculate the 
maximum mortgage amount under Sec. 203.18. Otherwise, the value 
supported by the first appraisal will be used to calculate the maximum 
mortgage amount.
    (iv) HUD will announce its determination to require additional value 
documentation through issuance of a Federal Register notice. The 
requirement for additional value documentation may be established either 
on a nationwide or regional basis. Further, the Federal Register notice 
will specify the percentage increase in the re-sale price that will 
trigger the need for additional documentation, and will specify the 
acceptable types of documentation. The Federal Register notice may also 
exclude re-sales of less than a specific dollar amount from the 
additional value documentation requirements. Any such Federal Register 
notice, and any subsequent revisions, will be issued at least thirty 
days before taking effect.
    (v) The level at which additional documentation is required under 
Sec. 203.37a(b)(4) shall supersede that under Sec. 203.37a(b)(3).
    (5) Re-sales occurring more than 12 months following acquisition. If 
the re-sale date is more than 12 months following the date of 
acquisition by the seller, the property is eligible for a mortgage 
insured by FHA.
    (c) Exceptions to the time restrictions on sales. The time 
restrictions on sales described in paragraph (b) of this section do not 
apply to:
    (1) Sales by HUD of Real Estate-Owned (REO) properties under 24 CFR 
part 291 and of single family assets in revitalization areas pursuant to 
section 204 of the National Housing Act (12 U.S.C. 1710);
    (2) Sales by another agency of the United States Government of REO 
single family properties pursuant to programs operated by these 
agencies;
    (3) Sales of properties by nonprofit organizations approved to 
purchase HUD REO single family properties at a discount with resale 
restrictions;
    (4) Sales of properties that were acquired by the sellers by 
inheritance;
    (5) Sales of properties purchased by an employer or relocation 
agency in connection with the relocation of an employee;
    (6) Sales of properties by state- and federally-chartered financial 
institutions and government-sponsored enterprises (GSEs);
    (7) Sales of properties by local and state government agencies; and
    (8) Only upon announcement by HUD through issuance of a notice, 
sales of properties located in areas designated by the President as 
federal disaster areas. The notice will specify how long the exception 
will be in effect.
    (d) Sanctions and indemnification. Failure of a mortgagee to comply 
with the requirements of this section may result in HUD requesting 
indemnification of the mortgage loan, or seeking other appropriate 
remedies under 24 CFR part 25.

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



Sec. 203.38  Location of dwelling.

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

[61 FR 36264, July 9, 1996]



Sec. 203.39  Standards for buildings.

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

[[Page 164]]



Sec. 203.40  Location of property.

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

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



Sec. 203.41  Free assumability; exceptions.

    (a) Definitions. As used in this section:
    (1) Low- or moderate-income housing means housing which is designed 
to be affordable, taking into account available financing, to 
individuals or families whose household income does not exceed 115 
percent of the median income for the area, as determined by the 
Secretary with adjustments for smaller and larger families. The 
Secretary may approve a higher percentage up to 140 percent.
    (2) Eligible governmental or nonprofit program means a program 
operated pursuant to a program established by Federal law, operated by a 
State or local government, or operated by an eligible nonprofit 
organization, if the program is designed to assist the purchase of low-
or moderate-income housing including rental housing.
    (3) Legal restrictions on conveyance means any provision in any 
legal instrument, law or regulation applicable to the mortgagor or the 
mortgaged property, including but not limited to a lease, deed, sales 
contract, declaration of covenants, declaration of condominium, option, 
right of first refusal, will, or trust agreement, that attempts to cause 
a conveyance (including a lease) made by the mortgagor to:
    (i) Be void or voidable by a third party;
    (ii) Be the basis of contractual liability of the mortgagor for 
breach of an agreement not to convey, including rights of first refusal, 
pre-emptive rights or options related to mortgagor efforts to convey;
    (iii) Terminate or subject to termination all or a part of the 
interest held by the mortgagor in the mortgaged property if a conveyance 
is attempted;
    (iv) Be subject to the consent of a third party;
    (v) Be subject to limits on the amount of sales proceeds retainable 
by the seller; or
    (vi) Be grounds for acceleration of the insured mortgage or increase 
in the interest rate.
    (4) Tax-exempt bond financing means financing which is funded in 
whole or in part by the proceeds of qualified mortgage bonds described 
in section 143 of the Internal Revenue code of 1986, or any successor 
section, on which the interest is exempt from Federal income tax. The 
term does not include financing by qualified veterans' mortgage bonds as 
defined in section 143(b) of the Code.
    (5) Eligible nonprofit organization means an organization of the 
type described in section 501(c)(3) of the Internal Revenue Code of 1986 
as an organization exempt under section 501(a) of the Code, which has:
    (i) Two years experience as a provider of low- or moderate-income 
housing;
    (ii) A voluntary board; and
    (iii) No part of its net earnings inuring to the benefit of any 
member, founder, contributor or individual.
    (b) Policy of free assumability with no restrictions. A mortgage 
shall not be eligible for insurance if the mortgaged property is subject 
to legal restrictions on conveyance, except as permitted by this part.
    (c) Exception for eligible governmental or nonprofit programs. Legal 
restrictions on conveyance are acceptable if:
    (1) The restrictions are part of an eligible governmental or 
nonprofit program and are permitted by paragraph (d) of this section; 
and
    (2) The restrictions will automatically terminate if title to the 
mortgaged property is transferred by foreclosure or deed-in-lieu of 
foreclosure, or if the mortgage is assigned to the Secretary.
    (d) Exception for eligible governmental or nonprofit programs--
specific policies. For purposes of paragraph (c) of this section, 
restrictions of the following types are permitted for eligible 
governmental or nonprofit programs, provided that a violation of legal 
restrictions on

[[Page 165]]

conveyance may not be grounds for acceleration of the insured mortgaged 
or for an increase in the interest rate, or for voiding a conveyance of 
the mortgagor's interest in the property, terminating the mortgagor's 
interest in the property, or subjecting the mortgagor to contractual 
liability other than requiring repayment (at a reasonable rate of 
interest) of assistance provided to make the property affordable as low- 
or moderate-income housing:
    (1) Except as otherwise provided in the HOME Investment Partnerships 
(HOME) and the Homeownership and Opportunity for People Everywhere 
(HOPE) programs, the mortgagor may be prohibited from selling the 
property at a price greater than the price permitted under the program, 
or the mortgagor may be required to pay a portion of the sales proceeds 
to a governmental body or an eligible nonprofit organization, as long as 
the mortgagor is not prohibited from recovering:
    (i) The sum of the mortgagor's original purchase price, the 
mortgagor's reasonable costs of sale, the reasonable costs of 
improvements made by the mortgagor, and any negative amortization on a 
graduated payment mortgage insured under Sec. 203.45 of this part; and
    (ii) A reasonable share, as determined by the Secretary, of the 
appreciation in value which shall be the sales price reduced by the sum 
determined under paragraph (d)(1)(i) of this section.
    (2) Legal restrictions on conveyance may extend beyond the term of 
the mortgage, subject to paragraph (c)(2) of this section and any 
limitations applicable in the jurisdiction.
    (3) Except as otherwise required by the HOME and HOPE programs, 
rights under an option to purchase, pre-emptive rights to purchase or 
rights of first refusal shall only be held by a governmental body or 
eligible nonprofit organization, or another individual or organization 
approved by the Secretary, and shall be exercised by them (or an 
assignee who will purchase and occupy the property) only within a 
reasonable time after the event permitting exercise of the rights 
occurs, not to exceed a period of time determined by the Secretary. The 
Secretary may approve another individual or organization under the 
preceding sentence even if the restriction is not part of an eligible 
governmental or nonprofit program.
    (4) In addition to the restrictions stated in paragraph (d)(3) of 
this section, the purchase price under an option may not be less than 
the sum of the mortgagor's original purchase price, the mortgagor's 
reasonable costs of sale, the reasonable costs of improvements made by 
seller, and a reasonable share, as determined by the Secretary, of the 
appreciation in value.
    (5) The mortgagor may be required to continue to be an owner-
occupant.
    (6) The mortgagor may be limited in his or her ability to choose a 
purchaser for the property, but only to the extent necessary to ensure 
that the property is preserved as low- or moderate-income housing.
    (7) The mortgagor for a rehabilitation loan insured under Sec. 
203.50 of this part may hold title subject to a condition subsequent, 
provided that the holder of the right of entry for condition broken also 
executes the mortgage, and that the right is exercisable only for 
failure by the mortgagor to complete the rehabilitation or occupy the 
property as agreed by the mortgagor.
    (8) Property may be subject to a legal restriction on conveyance to 
the extent approved in writing by an authorized representative of the 
Secretary prior to September 10, 1993.
    (e) Exception for tax-exempt bond financing. A mortgage may be 
funded through tax-exempt bond financing and may include a due-on-sale 
provision in a form approved by the Secretary which permits the 
mortgagee to accelerate a mortgage that no longer meets Federal 
requirements for tax-exempt bond financing or for other reasons 
acceptable to the Secretary. Except as provided in this paragraph (e), a 
mortgage funded through tax-exempt bond financing shall comply with all 
form requirements prescribed under Sec. 203.17(a) of this part and 
shall contain no other provisions designed to enforce compliance with 
Federal or State requirements for tax-exempt bond financing. Other legal 
restrictions on conveyance are permitted as provided in other paragraphs 
of this section.

[[Page 166]]

    (f) Exception for protective covenants excluding non-elderly. 
Mortgaged property may be subject to protective covenants which prohibit 
or restrict occupancy by, or transfer to, persons who are not elderly 
if:
    (1) The restrictions do not have an undue effect on marketability; 
and
    (2) The restrictions do not constitute illegal discrimination and 
are consistent with the Fair Housing Act and all other applicable 
nondiscrimination laws.
    (g) Exceptions for specific jurisdictions. Notwithstanding the 
provisions of paragraph (b) of this section, mortgages insured on 
certain Indian land or Hawaiian home lands under sections 247 and 248 of 
the National Housing Act and Sec. Sec. 203.43h and 203.43i of this 
part, or on property in the Northern Mariana Islands or American Samoa, 
shall not be ineligible for insurance under this section solely because 
applicable law does not permit free alienability of title to all 
persons.

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



Sec. 203.42  Rental properties.

    (a) A mortgage on property upon which there is a dwelling to be 
rented by the mortgagor shall not be eligible for insurance if the 
property is a part of, or adjacent or contiguous to, a project, or group 
of similar rental properties, in which the mortgagor has a financial 
interest in eight or more dwelling units.
    (b) Paragraph (a) of this section shall not apply where:
    (1) A mortgage qualifies as a rehabilitation loan under Sec. 203.50 
of this part;
    (2) The mortgage is to be used for the rehabilitation of property 
located in a specific area or neighborhood that has been targeted by a 
State or local government for redevelopment, in accordance with a 
specific program that involves substantial public or private commitments 
in support of neighborhood improvement or redevelopment; and
    (3) The State or local government has approved, and has submitted to 
the Commissioner a plan describing the program of neighborhood 
redevelopment and revitalization, including the geographic area targeted 
for redevelopment, and the nature and proportion of public or private 
commitments that have been made in support of the redevelopment program.
    (c) No two-, three-, or four-family dwelling, and no single-family 
dwelling, if it is part of a group of five or more single-family 
dwellings held by the same mortgagor, or any part or unit thereof, shall 
be rented or offered for rent for transient or hotel purposes, as 
defined in Sec. 203.16, so long as the dwelling is subject to any 
insured mortgage.

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



Sec. 203.43  Eligibility of miscellaneous type mortgages.

    (a) A mortgage which meets the requirements of this subpart, except 
as modified by this section, shall be eligible for insurance under this 
subpart subject to compliance with the additional requirements of this 
section.
    (b) The mortgage may be accepted for insurance if:
    (1) Executed in connection with the sale by the Government, or any 
agency or official thereof, of any housing acquired or constructed under 
Public Law 849, Seventy-sixth Congress, as amended; Public Law 781, 
Seventy-sixth Congress, as amended; or Public Law 9, 73 or 353, Seventy-
seventh Congress, as amended (including any property acquired, held or 
constructed in connection with such housing or to serve the inhabitants 
thereof); or
    (2) Executed in connection with the sale by the Public Housing 
Administration, or by any public housing agency with the approval of the 
said Administration, or any housing (including any property acquired, 
held or constructed in connection with such housing or to serve the 
inhabitants thereof) owned or financially assisted pursuant to the 
provisions of Public Law 671, Seventy-sixth Congress; or
    (3) Executed in connection with the sale by the Government, or any 
agency or official thereof, or any of the so-called Greenbelt towns, or 
parts thereof, including projects, or parts thereof, known as 
Greenhills, OH; Greenbelt, MD; and Greendale, WI, developed under the 
Emergency Relief Appropriation Act of 1935; or of any of the village

[[Page 167]]

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 amount that does not exceed the 
least of (A) the original principal amount of the existing mortgage; (B) 
the sum of the outstanding principal balance of the existing mortgage, 
plus loan closing charges approved by the Commissioner; or (C) in the 
case of an eligible non-occupant mortgagor (as defined in Sec. 
203.18(f)), the outstanding balance of the existing mortgage.
    (ii) In the case of graduated payment mortgages insured under 
section 203 of the Act pursuant to section 245 (a) or (b) of the Act 
(Sec. 203.45 or Sec. 203.46 [as in effect immediately before its 
removal at 52 FR 32754, published August 28, 1987]), the refinancing 
mortgage must have a principal amount that does not exceed the 
outstanding balance of the existing mortgage.
    (iii) If a one-time mortgage insurance premium (MIP) was financed as 
part of the existing mortgage referred to in paragraphs (c)(1) (i) and 
(ii) of this section, the amount of the premium refund to which the 
mortgagor is entitled must be deducted in determining the original 
principal amount and the unpaid principal balance of the existing 
mortgage under paragraph (c)(1)(i) of this section and the outstanding 
balance of the existing mortgage under paragraph (c)(1)(ii) of this 
section. However, the maximum amount of the refinancing mortgage 
computed in accordance with this paragraph (c)(1) may be increased by 
the amount of the one-time MIP (if any) associated with the refinancing 
mortgage;
    (2) It must have a term which does not exceed the unexpired term of 
the existing mortgage, except that in any case where the Commissioner 
determines that an extension of the term of the mortgage will inure to 
the benefit of the applicable insurance fund, taking into consideration 
the outstanding

[[Page 168]]

insurance liability under the existing insured mortgage, the term may be 
extended to the lesser of (i) 30 years or (ii) the unexpired term of the 
existing mortgage, plus 12 years;
    (3) The mortgage must result in a reduction in regular monthly 
payments by the mortgagor, except:
    (i) When a fixed rate mortgage is given to refinance an adjustable 
rate mortgage held by a mortgagor who is to occupy the dwelling as a 
principal residence or secondary residence, as these terms are defined 
in Sec. 203.18(f); or
    (ii) When refinancing a mortgage for a shorter term will result in 
an increase in the mortgagor's regular monthly payments of no more than 
$50. In the case of a graduated payment mortgage, the reduction in 
regular monthly payments means a reduction from the payment due under 
the existing mortgage for the month in which the refinancing mortgage is 
executed.
    (4) It must be made by a mortgagor whose record of payment on the 
existing mortgage meets standards established by the Commissioner; and
    (5) The mortgagee may not require a minimum principal amount to be 
outstanding on the loan secured by the existing mortgage.
    (d)-(f) [Reserved]
    (g) The provisions of Sec. 203.28 shall not apply to mortgages 
insured under this section.
    (h) The provisions of Sec. 203.38 shall not apply to mortgages of 
the character described in paragraph (b) of this section and at the time 
any such mortgage is insured there must be located on the mortgaged 
property a dwelling unit designed principally for residential use for 
not more than eight families.
    (i)-(j) [Reserved]
    (k) The Commissioner may insure under this part, without regard to 
any limitation upon eligibility contained in this subpart, any mortgage 
assigned to the Commissioner in connection with payment under a contract 
of mortgage insurance, or executed in connection with a sale by the 
Commissioner of any property acquired in the settlement of an insurance 
claim under any section or title of the National Housing Act.

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



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

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

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



Sec. 203.43b  [Reserved]



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

    A mortgage involving a dwelling unit in a cooperative housing 
development which meets the requirements of this subpart, except as 
modified by this section, shall be eligible for insurance

[[Page 169]]

under section 203(n) of the National Housing Act.
    (a) The provisions of Sec. Sec. 203.16a, 203.17, 203.18, 203.18a, 
203.23, 203.24, 203.26, 203.37, 203.38, 203.43h, 203.43i, 203.43j, 
203.44, 203.49, and 203.50 of this part do not apply to mortgages 
insured under section 203(n) of the National Housing Act.
    (b) As used in connection with the insurance of mortgages under this 
section and Sec. 203.437 of this part: (1) The term mortgage shall mean 
a first lien given to secure a loan made to finance the unpaid purchase 
price of a Corporate Certificate together with the applicable Occupancy 
Certificate of a cooperative ownership housing corporation in which the 
permanent occupancy of the dwelling units is restricted to members of 
such corporation, and may refer both to a security instrument creating a 
lien, whether called a mortgage, deed of trust, security deed or another 
term used in a particular jurisdiction, as well as the credit 
instrument, or note, secured thereby.
    (2) Corporation shall mean an organization which holds title to a 
cooperative housing development which is covered by a blanket mortgage 
or mortgages insured by FHA under the National Housing Act.
    (3) Corporate Certificate shall mean such stock certificates, 
membership certificates, or other instruments which the laws of the 
jurisdictions in which the cooperative housing development is located 
require to evidence ownership of a specified interest in the 
corporation.
    (4) Occupancy Certificate shall mean a written instrument provided 
by the corporation to each holder of a Corporate Certificate which 
grants an exclusive right of possession of a specific dwelling unit in 
the cooperative housing development.
    (5) References in this subpart to a dwelling, residence or property 
which is sold, conveyed, covered by a mortgage or subject to a lien 
shall be construed to mean the Corporate Certificate together with the 
Occupancy Certificate, except that where such references when 
interpreted in light of section 203(n) of the National Housing Act 
clearly indicate the intent to be the dwelling unit, such reference 
shall mean the dwelling unit identified in the Occupancy Certificate.
    (c) The organizational documents of the cooperative corporation must 
provide that: (1) Either the Secretary or a mortgagee under a mortgage 
insured under this section shall be a member of the cooperative 
corporation for so long as either owns a Corporate Certificate;
    (2) A mortgage insured under this section shall be a first lien upon 
the property covered by the mortgage;
    (3) The Secretary may exercise the voting rights which are 
attributable to each Corporate Certificate owned by the Secretary;
    (4) The Secretary may designate as her proxy an agent for the 
purpose of exercising the voting rights of the Secretary which are 
attributable to the corporate Certificate or Certificates owned by the 
Secretary;
    (5) The Secretary may cease making monthly payments attributable to 
any dwelling unit for which the Secretary owns a Corporate Certificate 
six months after the Secretary notifies the corporation to sell the 
Corporate Certificate or upon default by the corporation on the blanket 
mortgage covering the dwelling unit;
    (6) The Secretary or a mortgagee shall not be obligated to make 
payments to the corporation for any amounts unpaid by a mortgagor under 
a mortgage insured under this section prior to the date the Secretary or 
the mortgagee becomes the owner of the Corporate Certificate.
    (d) The corporation shall have entered into an agreement with the 
Secretary and the mortgagee which: (1) Requires that the corporation 
shall furnish the Secretary with the most recent annual financial report 
certified to have been based on generally accepted accounting principles 
and the most recent monthly or quarterly financial report;
    (2) Waives any option or right of first refusal the corporation may 
have to purchase any Corporate Certificate covered by a mortgage insured 
under section 203(n) of the National Housing Act, unless the corporation 
pays the full amount due under such mortgage or pays the full amount of 
the Secretary's investment if the Secretary is

[[Page 170]]

the owner of the Corporate Certificate, whichever is greater.
    (3) Except with the approval of the Secretary, waives all authority 
the corporation may have to approve or reject the buyer of a Corporate 
Certificate owned by the Secretary or the buyer of a Corporate 
Certificate covered by a mortgage insured under Section 203(n) of the 
National Housing Act.
    (4) Requires the corporation on notice by the Secretary to act as 
her agent for a fee to be determined by the Secretary for the limited 
purposes of:
    (i) Selling all Corporate Certificates of the corporation owned by 
the Secretary;
    (ii) Renting and collecting rents on any dwelling unit for which the 
Secretary owns the Corporate Certificate.
    (5) Provides that the Secretary shall not be obligated to make 
payments to the corporation for outstanding debts of the mortgagor;
    (6) Requires the corporation to furnish to a mortgagee or to the 
Secretary, on request:
    (i) A statement, certified by the officer charged with maintenance 
of the Corporate Certificate Transfer Book, that such book currently 
shows that the mortgagee or the Secretary is the owner of any Corporate 
Certificate transferred to the mortgagee or the Secretary; and
    (ii) The Occupancy Certificate in the name of the mortgagee or the 
Secretary.
    (7) Requires the corporation to notify the mortgagee, whose name and 
address has been provided, of any default in corporation fee payments by 
the mortgagor within 15 days of such default;
    (8) Requires the mortgagee to notify the corporation of any default 
in mortgage payments by the mortgagor within 15 days of such default;
    (9) Requires the corporation upon notice by the Secretary or the 
mortgagee, when the Secretary or the mortgagee is the owner of the 
Corporate Certificate, and for a fee to be determined by the Secretary 
to evict any person or persons from a dwelling unit identified in the 
Occupancy Certificate.
    (10) Contains such other provisions as the Secretary may require.
    (e) The mortgagee shall obtain such security and other undertakings 
as may be required to establish a first lien on the Corporate 
Certificate and the Occupancy Certificate under the laws of the State 
where the Cooperative Housing Development is located.
    (f) The mortgage involves a one-family dwelling unit in a 
cooperative housing development which is covered by a blanket mortgage 
or mortgages insured under the National Housing Act.
    (g) The mortgage shall not exceed the balance remaining after 
subtracting, from the amount determined under Sec. Sec. 203.18(a), 
203.18(g) and 203.18a of this part, an amount equal to the portion of 
the unpaid balance of the blanket mortgage covering the cooperative 
development which is attributable to the dwelling unit the mortgagor is 
entitled to occupy as of the date the mortgage is accepted for 
insurance.
    (h) The mortgage shall be executed upon a form conforming to the 
applicable provisions of this part and shall:
    (1) Involve a principal obligation in multiples of $50.
    (2) Come due on the first of the month.
    (3) Contain complete amortization provisions satisfactory to the 
Secretary and an amortization period not in excess of the term of the 
mortgage.
    (4) Be for a term not to exceed 30 years or the remaining term of 
the blanket mortgage covering the cooperative development or three-
quarters of the remaining economic life of the building improvements, 
whichever is less.
    (5) Provide for payments to principal and interest to begin not 
later than the first day of the month following 60 days from the date 
the mortgagee's certificate on the commitment was executed.
    (6) Contain a provision stating that the failure of the mortgagor to 
pay the mortgagor's share of the common expenses or assessments and 
charges imposed by the corporation as provided in the instruments 
establishing the cooperative shall be considered a default.
    (i) The entire principal amount of the mortgage must have been 
disbursed to the mortgagor or to his creditors for his account and with 
his consent.

[[Page 171]]

    (j) The mortgage must be executed by a mortgagor who intends to be 
an occupant of the unit.
    (k) The mortgagee shall collect from the mortgagor upon the 
execution of the mortgage: (1) A sum that will be sufficient to pay the 
mortgage insurance premium for the period beginning on the date of the 
closing of the loan and ending on the date of the first monthly payment 
under the mortgage or (2), where applicable, the one-time mortgage 
insurance premium payable pursuant to Sec. 203.280.
    (l) The mortgagee shall upon application for a mortgage insurance 
commitment provide true copies of the following organizational documents 
of the cooperative corporation for examination and approval by the 
appropriate HUD Field Office:
    (1) Certificate of Incorporation;
    (2) Regulatory Agreement;
    (3) By-Laws as amended;
    (4) The financial statements required in paragraph (d)(1) of this 
section;
    (5) Proposed Occupancy Certificate;
    (6) Proposed Corporate Certificate;

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

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



Sec. 203.43d  Eligibility of mortgages in certain communities.

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

[[Page 172]]

section 203(o) of the National Housing Act. Such mortgages shall be 
insured under and be the obligation of the Special Risk Insurance Fund.
    (g) The mortgage was executed and filed for record on or before 
October 12, 1977.

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



Sec. 203.43e  Eligibility of mortgages covering houses in federally 
impacted areas.

    (a) A mortgage executed in connection with the construction, repair, 
rehabilitation or purchase of property located near any installation of 
the Armed Forces of the United States in federally impacted areas shall 
be eligible for insurance pursuant to this part if the Secretary finds 
the following additional requirements are met;
    (1) The benefits to be derived from such use outweigh the risk of 
probable cost to the Government; and
    (2) The Secretary of Defense certifies that there is no intention to 
curtail substantially the personnel assigned or to be assigned to such 
installation.
    (b) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 238(c) of the National 
Housing Act. Such mortgages shall be insured under and be the obligation 
of the Special Risk Insurance Fund.

[42 FR 57434, Nov. 2, 1977]



Sec. 203.43f  Eligibility of mortgages covering manufactured homes.

    A mortgage covering a one-family manufactured home (as defined in 24 
CFR 3280.2(a)(16)) that meets the requirements of this subpart, except 
as modified by this section, shall be eligible for insurance pursuant to 
this subpart.
    (a) The manufactured home, when erected on site, shall have floor 
space area of not less than four hundred square feet and shall have been 
constructed in conformance with the National Manufactured Home 
Construction and Safety Standards as evidenced by a certification label 
affixed thereto in accordance with 24 CFR 3280.8.
    (b) The mortgage shall cover the manufactured home and site, shall 
constitute a mortgage on a property classified and taxed as real estate, 
and shall have a term of not more than 30 years from the date of the 
beginning of amortization.
    (c) In the case of a manufactured home which has not been 
permanently erected on a site for more than one year prior to the date 
of the application for mortgage insurance:
    (i) The manufactured home shall be erected on a site-built permanent 
foundation that meets or exceeds applicable requirements of the Minimum 
Property Standards for One- and Two-Family Dwellings, 4900.1 (see 24 CFR 
200.929(b)(1)) (MPS) and shall be permanently attached thereto by 
anchoring devices adequate for all loads identified in the MPS. The 
towing hitch or running gear, which includes axles, brakes, wheels and 
other parts of the chassis that operate only during transportation, 
shall have been removed. The finished grade level beneath the 
manufactured home shall be at or above the 100-year return frequency 
flood elevation. The site, site improvements, and all other features of 
the mortgaged property not addressed by the Manufactured Home 
Construction and Safety Standards shall meet or exceed applicable 
requirements of the MPS.
    (ii) The space beneath the manufactured home shall be enclosed by 
continuous foundation-type construction designed to resist all forces to 
which it is subject without transmitting forces to the building 
superstructure. The enclosure shall be adequately secured to the 
perimeter of the manufactured home and be constructed of materials that 
conform to MPS requirements for foundations.
    (iii) The manufactured home shall have an overall coefficient of 
heat transmission (``Uo'' value) calculated in accordance 
with the procedures of NFPA 501 BM-1976 (``Mobile Home Heating, Cooling 
Load Calculations'') that does not exceed the following for all 
locations within the following climatic zones:

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


[[Page 173]]

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

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

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

    (iv) The manufactured home shall be braced and stiffened before it 
leaves the factory to resist racking and potential damage during 
transportation.
    (v) The conditions of Sec. 203.18(a)(2) (i) and (ii) of this 
subpart shall not apply to construction of the manufactured home but 
shall be applicable to improvement of the site, including construction 
of the site-built foundation.
    (vi) Section 203.14 of this subpart is modified to the extent 
provided in this paragraph. Applications relating to insurance of 
mortgages under this paragraph (c) must be accompanied by an agreement 
in form satisfactory to the Commissioner executed by the seller or 
builder or such other person as the Commissioner may require agreeing 
that in the event of any sale or conveyance of the dwelling within a 
period of one year beginning with the date of initial occupancy, the 
seller, builder, or such other person will at the time of such sale or 
conveyance deliver to the purchaser or owner of such property the 
manufacturer's warranty on a form prescribed by the Commissioner, which 
shall provide that the manufacturer's warranty is in addition to and not 
in derogation of all other rights and remedies the purchaser or owner 
may have, and a warranty in form satisfactory to the Commissioner 
warranting that the manufactured home, the foundation, positioning and 
anchoring of the manufactured home to its permanent foundation, and all 
site improvements are constructed in substantial conformity with the 
plans and specifications (including amendments thereof or changes and 
variations therein which have been approved in writing by the 
Commissioner) on which the Commissioner has based his valuation of the 
dwelling. The warranty shall also include provisions that the 
manufactured home sustained no hidden damage during transportation, and 
if the manufactured home is a double-wide, that the sections were 
properly joined and sealed. Such agreement must provide that upon the 
sale or conveyance of the dwelling and delivery of the warranty, the 
seller, builder or such other person will promptly furnish the 
Commissioner with a conformed copy of the warranty establishing by the 
purchaser's receipt thereon that the original warranty has been 
delivered to the purchaser in accordance with this section.
    (d) In the case of a manufactured home which has been permanently 
erected on a site for more than one year prior to the dae of the 
application for mortgage insurance:
    (i) The manufactured home shall be permanently anchored to and 
supported by permanent footings and shall have permanently installed 
utilities that are protected from freezing. The space beneath the 
manufactured home shall be a properly enclosed crawl space.
    (ii) The site, site improvements, and all other features of the 
mortgaged property not addressed by the Manufactured Home Construction 
and Safety Standards shall meet or exceed applicable requirements of the 
Requirements for Existing Housing--One to Four Family Living Units 
(Handbook 4905.1). The finished grade level beneath the manufactured 
home shall be at or above the 100-year return frequency flood elevation.
    (iii) The manufactured home shall have been occupied only at the 
location subject to the mortgage sought to be insured.

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



Sec. 203.43g  Eligibility of mortgages in certain communities.

    (a) A mortgage which meets the requirements of this subpart shall be 
eligible for insurance without regard to the limitation in this part 
relating to marketability of title under the following conditions:
    (1) The mortgagor is to occupy the dwelling as a principal residence 
(as defined in Sec. 203.18(f)(1)).
    (2) The defect or potential defect in title is a direct and primary 
result of outstanding claims to ownership of

[[Page 174]]

land in the community by an American Indian tribe, band, group or 
Nation.
    (3) Fifty or more individual owners were joined as parties defendant 
or were members of a defendant class before April 1, 1980 in litigation 
involving claims to ownership of land in the community in which the 
property is located by an American Indian tribe, band, group or Nation 
pursuant to a dispute involving the Articles of Confederation, the Trade 
and Intercourse Act of 1790 or any similar State or Federal law.
    (4) Such ownership claims are reasonably likely to be settled by 
court action or otherwise.
    (5) Temporary adverse economic conditions exist throughout the 
community as a direct and primary result of such claims.
    (b) Mortgages complying with the requirements of this subpart as 
modified by this section shall be the obligation of the Special Risk 
Insurance Fund.

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



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

    A mortgage covering a one- to four-family residence located on 
Indian land shall be eligible for insurance pursuant to section 248 of 
the National Housing Act (12 U.S.C. 1715z-13), notwithstanding otherwise 
applicable requirements related to marketability of title, if the 
mortgage meets the requirements of this subpart as modified by this 
section and is made by an Indian Tribe or on a leasehold estate, by an 
Indian who will occupy it as a principal residence. Mortgage insurance 
on cooperative shares is not authorized under this section.
    (a) Exemptions. (1) The provisions of subparts I, J, and M of part 
200, and Sec. 203.30, shall not apply to approval of mortgagors for 
mortgages insured under this section if the Indian tribe to which the 
prospective mortgagor belongs is subject to the Indian Civil Rights Act.
    (2) In the case of an Indian tribe which is not subject to the 
Indian Civil Rights Act, the authorities cited in paragraph (a)(1) of 
this section shall apply, but any preference in the tribe's approval of 
the sale or assumption of a lease and mortgage under this section in 
favor of an eligible Indian over a non-Indian shall not be considered to 
be a violation of subpart I, J or M.
    (b) Eviction procedures. Before HUD will insure a mortgage on Indian 
land, the tribe having jurisdiction over such property must certify to 
the HUD Field Office that it has adopted and will enforce procedures for 
eviction of defaulted mortgagors where the insured mortgage has been 
foreclosed.
    (c) Approval of lease and mortgage. The lease must be on a form 
prescribed by HUD.
    The mortgage must be on a form which meets the requirements of Sec. 
203.17(a)(2). Before HUD will insure any mortgage under this section, 
the mortgagee must demonstrate that the Bureau of Indian Affairs, U.S. 
Department of Interior, has approved both the lease and mortgage.
    (d) Construction advances. The Commissioner may issue a commitment 
for the insurance of advances made during construction and a Direct 
Endorsement mortgagee may request insurance of a mortgage that will 
involve the insurance of advances made during construction. The 
Commissioner will insure advances made by the mortgagee during 
construction if all of the following conditions are satisfied:
    (1) The mortgage shall be a first lien on the leasehold;
    (2) The mortgagor and the mortgagee execute a building loan 
agreement, approved by the Commissioner, setting forth the terms and 
conditions under which advances will be made;
    (3) The advances are made only as provided in the commitment or the 
approval by the Direct Endorsement underwriter;
    (4) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement;
    (5) The mortgage shall bear interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor; and

[[Page 175]]

    (6) The Secretary had determined that no feasible financing 
alternative is available.
    (e) Assumption or sale of leasehold. The form of lease must contain 
a provision requiring tribal consent before any assumption of an 
existing lease, except where title to the leasehold interest is obtained 
by the Secretary through foreclosure of the insured mortgage. A 
mortgagee other than the Secretary must obtain tribal consent before 
obtaining title through a foreclosure sale. Tribal consent must be 
obtained on any subsequent transfer from the purchaser, including the 
Secretary, at foreclosure sale. The lease may not be terminated by the 
lessor without HUD's approval while the mortgage is insured or held by 
the Secretary.
    (f) First lien. The first lien requirement under this part is 
implemented where the mortgage is filed in the State recording system 
and is a first lien under that system, even though the leasehold 
interest securing the mortgage is located on Indian land and filed with 
Bureau of Indian Affairs, U.S. Department of the Interior. Any tribal 
government whose courts have jurisdiction to hear foreclosures must 
also:
    (1) Enact a law satisfactory to the Commissioner providing for the 
satisfaction of FHA-insured and Secretary-held mortgages before other 
obligations (other than tribal leasehold taxes against the property 
assessed after the property is mortgaged) are satisfied; or
    (2) Enact a law providing that State law shall determine the 
priority of liens against the property.
    (g) Definitions. As used in this section and elsewhere in this part, 
the term:
    (1) Indian means and individual member of any Indian tribe and that 
member's family.
    (2) Indian land means trust or otherwise restricted land (i) as 
defined by the Secretary of the Interior, over which an Indian tribe is 
recognized by the United States as having governmental jurisdiction; 
(ii) held in trust for the benefit of any Indian tribe or individual or 
held by any Indian tribe or individual subject to a restriction by the 
United States against alienation; or (iii) acquired by Alaska natives 
under the Alaska Native Claims Settlement Act or any other land acquired 
by Alaska natives pursuant to statute by virtue of their unique status 
as Alaska natives.
    (3) Indian tribe means any Indian or Alaska native tribe, band, 
nation, or other organized group or community of Indians or Alaskan 
natives recognized as eligible for the services provided to Indians or 
Alaska natives by the Secretary of the Interior because of its status as 
such an entity, or that is an eligible recipient under chapter 67 of 
title 31, United States Code. For purposes of engaging in section 248 
insured mortgage transactions under this section, an Indian tribe may 
act through its duly authorized representative.

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

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



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

    (a) Eligibility. A mortgage on a homestead lease granted by the 
Department of Hawaiian Home Lands covering a one- to four-family 
residence located on Hawaiian home lands is eligible for insurance 
pursuant to section 247 of the National Housing Act (12 U.S.C. 1715z-12) 
if the mortgagor is a native Hawaiian who will occupy it as a principal 
residence, and if the mortgage meets the requirements of this subpart as 
modified by this section. Mortgage insurance on cooperative shares under 
Sec. 203.43c on homes in federally impacted areas under Sec. 203.43e 
is not authorized under this section.
    (b) Exemptions from other regulations. The provisions of subparts I, 
J, and M of part 200, and Sec. 203.30, to the extent that these 
provisions would otherwise prohibit preferences in favor of Native 
Hawaiians in the leasing, sale or other disposition of Hawaiian home 
lands, do not apply to mortgages insured pursuant to section 247 of the 
National Housing Act. The first lien requirement contained in Sec. 
203.17 also does not apply to mortgages insured pursuant to section 247 
of the National Housing Act.

[[Page 176]]

    (c) Definitions. (1) Department of Hawaiian Home Lands (DHHL) is a 
Department of the State of Hawaii responsible for management of Hawaiian 
home lands for the benefit of native Hawaiians.
    (2) Hawaiian home lands means all lands given the status of Hawaiian 
home lands under section 204 of the Hawaiian Homes Commission Act of 
1920 (42 Stat. 110), or under the corresponding provision of the 
Constitution of the State of Hawaii adopted under section 4 of the Act 
entitled ``An Act to provide for the admission of the State of Hawaii 
into the Union,'' approved March 18, 1959 (73 Stat. 5).
    (3) Native Hawaiian means any descendant of not less than one-half 
part of the blood of the races inhabiting the Hawaiian islands before 
January 1, 1778, or, in the case of an individual who is awarded an 
interest in a lease of Hawaiian home lands through transfer or 
succession, such lower percentage as may be established for such 
transfer or succession under section 208 or 209 of the Hawaiian Homes 
Commission Act of 1920 (42 Stat.111), or under the corresponding 
provision of the Constitution of the State of Hawaii adopted under 
section 4 of the Act entitled ``An Act to provide for the admission of 
the State of Hawaii into the Union,'' approved March 18, 1959 (73 Stat. 
5).
    (d) Conditions for insurance. Mortgages will be eligible for 
insurance under this section, according to the procedures in Sec. Sec. 
203.5, 203.6, or 203.7 (as applicable), only where the Department of 
Hawaiian Home Lands:
    (1) Will be a comortgagor;
    (2) Guarantees or reimburse the Secretary for any mortgage insurance 
claim paid in connection with a property on Hawaiian home lands; or
    (3) Offers other security acceptable to the Secretary.
    (e) Acceptable security. Any agreement by the Secretary to accept 
alternative security under paragraph (d)(3) of this section must contain 
provisions designed to ensure that the insurance of mortgages under this 
section has a neutral impact on the appropriate insurance funds. These 
provisions may require the Department of Hawaiian Home Lands to make an 
initial deposit of funds with HUD and to maintain additional funds in 
reserve for subsequent deposits with HUD. The initial and subsequent 
deposits shall be used to pay obligations incurred by HUD in connection 
with the insurance of mortgages under this section and any associated 
costs, including refunds of insurance premiums to mortgagors. If the 
Department of Hawaiian Home Lands agrees to make deposits in amounts 
acceptable to HUD, then the Secretary may agree to use a portion of the 
premiums received for insurance of mortgages under this section solely 
for payment of such obligations and associated costs.
    (f) Recordation. The mortgagee must certify that the mortgage has 
been recorded with the Department of Hawaiian Home Lands.
    (g) Construction advances. Advances made by the mortgagee during 
construction are eligible for insurance, according to the procedures in 
Sec. Sec. 203.5, 203.6, or 203.7 (as applicable), if the Secretary 
determines that no feasible financing alternative is available and if:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by the Secretary, setting forth the terms and 
conditions under which advances will be made;
    (2) The advances are made only as provided in the commitment or the 
approval by the Direct Endorsement or Lender Insurance underwriter;
    (3) The principal amount of the mortgage is held by the mortgagee in 
an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement; and
    (4) The mortgage bears interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor.
    (h) Form of lease. The form of lease must be approved by both HUD 
and the Department of Hawaiian Home Lands (DHHL). The lease may not be 
terminated by DHHL without the approval of the Secretary while the 
mortgage is insured or held by the Secretary.
    (i) Eligibility of mortgagor. In addition to the eligibility 
requirements contained in this subpart, possession of a lease of 
Hawaiian home lands issued

[[Page 177]]

under section 207(a) of the Hawaiian Homes Commission Act of 1920 (42 
Stat.110) that has been certified by the Department of Hawaiian Home 
Lands as being valid, current, and not in default, shall be sufficient 
to certify eligibility to receive a mortgage to be insured under this 
section.

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

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



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

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

A mortgage may not be on a leasehold created by a lease which is 
executed after the effective date of this section as a renewal or 
replacement of a lease described in paragraph (a)(2) of this section. A 
mortgage may not be secured by any other right of occupancy created in 
lieu of a leasehold after the effective date of this section by 
agreement of the Seneca Nation, court order, law or any other means.
    (b) Provisions of mortgage. The Secretary will prescribe special 
mortgage provisions in the form of a mortgage rider in order better to 
secure the mortgagee, including:
    (1) Authorization for the mortgagee to exercise the option of lease 
renewal if the mortgagor fails to do so, and to recover from the 
mortgagor authorized expenses incurred to obtain lease renewal; and
    (2) Making a mortgagor failure to take steps necessary for less 
renewal an event of default under the mortgage.
    (c) Secretary agreement with mortgagor. The mortgagor must enter 
into an agreement with the Secretary and such other parties as the 
Secretary may require regarding actions to be taken to obtain either a 
renewal of the lease or a new lease.
    (d) Certification. The borrower must certify that it has received 
disclosures, in a form prescribed by the Secretary, explaining the 
status of the lease and the consequences of nonrenewal. The disclosure 
shall include a discussion of the fact that a mortgagor who does not 
obtain a lease renewal and loses the right of occupancy will remain 
liable for the outstanding balance of the mortgage.
    (e) Purchase for principal residence. The mortgagor must be a 
purchaser who intends to occupy the property as a principal residence 
(as defined in Sec. 203.18(f)(1)), or a current owner-occupant 
refinancing a mortgage which is now due or which will become due before 
the lease termination date in February 1991.
    (f) Relationship of income to housing expense. For purposes of Sec. 
203.33(a), the total prospective housing expense shall include the 
Secretary's estimate of future lease payments during the term of the 
mortgage rather than lease payments in effect at the time of 
application.
    (g) Suspension of commitments. The Secretary may suspend the 
issuance of commitments to insure mortgages under this section, for the 
entire period during which commitments could otherwise be issued for 
insurance under this section (i.e., through February 18, 1991) or for 
such lesser period as the Secretary may specify, by providing thirty 
days notice of suspension in the Federal Register. Regardless of its 
duration, a suspension to be imposed prior to February 19, 1990, will be 
based on a determination by the Secretary that, for mortgages insured 
during a specified period, the rate of monetary defaults (as measured by 
90 day delinquencies) for mortgages insured under this section exceeds 
the rate of such

[[Page 178]]

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 32970-32971, Aug. 11, 1989; 55 FR 34805, Aug. 24, 1990]



Sec. 203.44  Eligibility of advances.

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

[61 FR 36264, July 9, 1996]



Sec. 203.45  Eligibility of graduated payment mortgages.

    A mortgage containing provisions for varying rates of amortization 
corresponding to anticipated variations in family income shall be 
eligible for insurance under this subpart subject to compliance with the 
additional requirements of this section.
    (a) The mortgage may provide that any interest which accrues and 
which is unpaid pursuant to a financing plan approved by the Secretary, 
shall be added to the principal obligation of the mortgage.
    (b) The mortgage shall bear interest at the rate agreed upon by the 
mortgagee and the mortgagor.
    (c) The mortgage amount shall not exceed the lesser of:
    (1) The limits prescribed by Sec. Sec. 203.18, 203.18a, and 203.29; 
or,
    (2) An amount which, when added to all accrued mortgage interest 
which will be unpaid under a financing plan approved by the Secretary, 
shall not exceed 97 percent of the appraised value of the property 
covered by the mortgage as of the date the mortgage is accepted for 
insurance. However, if the mortgagor is a veteran, the mortgage amount, 
when added to all accrued mortgage interest which will be unpaid under a 
financing plan approved by the Secretary, shall not exceed the 
applicable limits prescribed for veterans in Sec. 203.18(a).
    (d) The mortgage must contain complete amortization provisions 
satisfactory to the Secretary requiring monthly payments by the 
mortgagor not in excess of his reasonable ability to pay as determined 
by the Secretary. The sum of the payments to principal and/or interest 
may increase annually for a period of five years at a rate of 2\1/2\ 
percent, 5 percent or 7\1/2\ percent or for a period of ten years at a 
rate of 2 percent or 3 percent. Any required increase in payments shall 
occur on the anniversary date of the beginning of amortization. On the 
termination of the period of annual increases of payments, the sum of 
the payments to principal and interest in each month shall be 
substantially the same.
    (e) The mortgagee shall fully explain to the mortgagor the nature of 
the obligation undertaken and the mortgagor shall certify that he or she 
fully understands the obligation.
    (f) Sections 203.21 and 203.44 shall not apply to this section.
    (g) This section applies only to mortgagors who are to occupy the 
dwelling as a principal residence (as defined in Sec. 203.18(f)(1)). It 
does not apply to a mortgage that meets the requirements of Sec. Sec. 
203.18(a)(4), 203.18 (c) through (e), 203.43, 203.43a, 203.43j, or 
203.49.
    (h) Mortgages complying with the requirements of this section shall 
be insured under this subpart pursuant to section 245 of the National 
Housing Act.

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

[[Page 179]]



Sec. 203.47  Eligibility of growing equity mortgages.

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

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



Sec. 203.49  Eligibility of adjustable rate mortgages.

    A mortgage containing the provisions for periodic adjustments by the 
mortgagee in the effective rate of interest charged shall be eligible 
for insurance under this subpart subject to compliance with the 
additional requirements of this section. This section shall apply only 
to mortgage loans described under sections 203(b), 203(h) and 203(k) of 
the National Housing Act.
    (a) Types of mortgages insurable. The types of adjustable rate 
mortgages that are insurable are those for which the interest rate may 
be adjusted annually by the mortgagee, beginning after one, three, five, 
seven, or ten years from the date of the mortgagor's first debt service 
payment.
    (b) Interest-rate index. Changes in the interest rate charged on an 
adjustable rate mortgage must correspond either to changes in the one-
year London Interbank Offered Rate (LIBOR) or to changes in the weekly 
average yield on U.S. Treasury securities, adjusted to a constant 
maturity of one year. Except as otherwise provided in this section, each 
change in the mortgage interest rate must correspond to the upward and 
downward change in the index.
    (c) Amortization provisions. The mortgage must contain amortization 
provisions satisfactory to the Secretary, allowing for periodic 
adjustments in the rate of interest charged corresponding to changes in 
the interest rate index.
    (d) Frequency of interest rate changes. (1) The interest rate 
adjustments must occur annually, calculated from the date of the 
mortgagor's first debt service payment, except that, for these types of 
mortgages, the first adjustment shall be no sooner or later than the 
following:
    (i) One-year adjustable rate mortgages--no sooner than 12 months or 
later than 18 months;
    (ii) Three-year adjustable rate mortgages--no sooner than 36 months 
or later than 42 months;
    (iii) Five-year adjustable rate mortgages--no sooner than 60 months 
or later than 66 months;
    (iv) Seven-year adjustable rate mortgages--no sooner than 84 months 
or later than 90 months; and

[[Page 180]]

    (v) Ten-year adjustable rate mortgages--no sooner than 120 months or 
later than 126 months.
    (2) To set the new interest rate, the mortgagee will determine the 
change between the initial (i.e., base) index figure and the current 
index figure, or will add a specific margin to the current index figure. 
The initial index figure shall be the most recent figure available 
before the date of mortgage loan origination. The current index figure 
shall be the most recent index figure available 30 days before the date 
of each interest rate adjustment.
    (e) Method of rate changes. Interest rate changes may only be 
implemented through adjustments to the mortgagor's monthly payments.
    (f) Magnitude of changes. The adjustable rate mortgage initial 
contract interest rate shall be agreed upon by the mortgagee and the 
mortgagor. The first adjustment to the contract interest rate shall take 
place in accordance with the schedule set forth under paragraph (d) of 
this section. Thereafter, for all adjustable rate mortgages, the 
adjustment shall be made annually and shall occur on the anniversary 
date of the first adjustment, subject to the following conditions and 
limitations:
    (1) For one- and three-year adjustable rate mortgages, no single 
adjustment to the interest rate shall result in a change in either 
direction of more than one percentage point from the interest rate in 
effect for the period immediately preceding that adjustment. Index 
changes in excess of one percentage point may not be carried over for 
inclusion in an adjustment for a subsequent year. Adjustments in the 
effective rate of interest over the entire term of the mortgage may not 
result in a change in either direction of more than five percentage 
points from the initial contract interest rate.
    (2) For five-, seven-, and ten-year adjustable rate mortgages, no 
single adjustment to the interest rate shall result in a change in 
either direction of more than two percentage points from the interest 
rate in effect for the period immediately preceding that adjustment. 
Index changes in excess of two percentage points may not be carried over 
for inclusion in an adjustment in a subsequent year. Adjustments in the 
effective rate of interest over the entire term of the mortgage may not 
result in a change in either direction of more than six percentage 
points from the initial contract rate.
    (3) At each adjustment date, changes in the index interest rate, 
whether increases or decreases, must be translated into the adjusted 
mortgage interest rate, except that the mortgage may provide for minimum 
interest rate change limitations and for minimum increments of interest 
rate changes.
    (g) Pre-Loan Disclosure. The mortgagee is required to make available 
to the mortgagor, at the time of loan application, a written explanation 
of the features of an adjustable rate mortgage consistent with the 
disclosure requirements applicable to variable rate mortgages secured by 
a principal dwelling under the Truth in Lending Act, 15 U.S.C. 1601 et 
seq.
    (h) Annual disclosure. At least 25 days before any adjustment to a 
mortgagor's monthly payment may occur, the mortgagee must advise the 
mortgagor of the new mortgage interest rate, the amount of the new 
monthly payment, the current index interest rate value, and how the 
payment adjustment was calculated.
    (i) Cross-reference. Sections 203.21 (level payment amortization 
provisions) and 203.44 (open-end advances) do not apply to this section. 
This section does not apply to a mortgage that meets the requirements of 
Sec. Sec. 203.18(a)(4) (mortgagors of secondary residences), 203.18(c) 
(eligible non-occupant mortgagors), 203.18(d) (outlying area 
properties), 203.43 (miscellaneous type mortgages), 203.43c (mortgages 
involving a dwelling unit in a cooperative housing development), 203.43d 
(mortgages in certain communities), 203.43e (mortgages covering houses 
in federally impacted areas), 203.45 (graduated payment mortgages), or 
203.47 (growing equity mortgages).
    (j) Aggregate amount of mortgages insured. The aggregate number of 
adjustable rate mortgages insured pursuant to this section and 24 CFR 
part 234 in any fiscal year may not exceed 30 percent of the aggregate 
number of mortgages and loans insured by the Secretary under Title II of 
the National

[[Page 181]]

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]



Sec. 203.50  Eligibility of rehabilitation loans.

    A rehabilitation loan which meets the requirements of this subpart, 
except as modified by this section, shall be eligible for insurance 
under section 203(k) of the National Housing Act.
    (a) For the purpose of this section:
    (1) The term rehabilitation loan means a loan, advance of credit, or 
purchase of an obligation representing a loan or advancement of credit, 
made for the purpose of financing:
    (i) The rehabilitation of an existing one-to-four unit structure 
which will be used primarily for residential purposes;
    (ii) The rehabilitation of such a structure and refinancing of the 
outstanding indebtedness on such structure and the real property on 
which the structure is located; or
    (iii) The rehabilitation of such a structure and the purchase of the 
structure and the real property on which it is located; and
    (2) The term rehabilitation means the improvement (including 
improvements designed to meet cost-effective energy conservation 
standards prescribed by the Secretary and improvements for accessibility 
to the handicapped) or repair of a structure, or facilities in 
connection with a structure, and may include the provision of such 
sanitary or other facilities as are required by applicable codes, a 
community development plan, or a statewide property insurance plan to be 
provided by the owner or tenant of the project.
    (b) The provisions of Sec. 203.18 (except as otherwise provided in 
paragraphs (f) (1) and (2) of this section) and Sec. 203.43c shall not 
apply to loans insured under this section.
    (c) The loan shall cover a dwelling which was completed more than 
one year preceding the date of the application for mortgage insurance 
and which was approved for mortgage insurance prior to the beginning of 
rehabilitation.
    (d)(1) The buildings on the mortgaged property must, upon completion 
of rehabilitation, conform with standards prescribed by the Secretary.
    (2) Improvements or repairs made under this section must be designed 
to meet cost-effective energy conservation standards prescribed by the 
Secretary.
    (e) The loan transaction shall be an acceptable risk as determined 
by the Commissioner.
    (f) The loan may not exceed an amount which, when added to any 
outstanding indebtedness of the borrower that is secured by the 
property, creates an outstanding indebtedness in excess of the lesser 
of:
    (1)(i) The limits prescribed in Sec. Sec. 203.18(a) (1) and (3) (in 
the case of a dwelling to be occupied as a principal residence, as 
defined in Sec. 203.18(f)(1)); (ii) the limits prescribed in Sec. Sec. 
203.18(a) (1) and (4) (in the case of a dwelling to be occupied as a 
secondary residence, as defined in Sec. 203.18(f)(2)); (iii) 85 percent 
of the limits prescribed in Sec. 203.18(c), or such higher limit, not 
to exceed the limits set forth in Sec. Sec. 203.18(a) (1) and (3), as 
the Secretary may prescribe (in the case of an eligible non-occupant 
mortgagor as defined in Sec. 203.18(f)(3)); (iv) the limits prescribed 
in Sec. 203.18a, based upon the sum of the estimated cost of 
rehabilitation and the Commissioner's estimate of the value of the 
property before rehabilitation; or
    (2) The limits prescribed in the authorities listed in this 
paragraph (f), based upon 110 percent of the Commissioner's estimate of 
the value of the property after rehabilitation.
    (g) The loan limitation prescribed by paragraph (f)(2) of this 
section shall not be applicable where a unit of local government 
demonstrates to the satisfaction of the Commissioner that:
    (1) The property is located within an area which is subject to a 
community sponsored program of concentrated redevelopment or 
revitalization, and,

[[Page 182]]

    (2) The loan limitation prescribed by paragraph (f)(2) of this 
section, prevents the utilization of the program to accomplish 
rehabilitation in the subject area, and,
    (3) The interests of the mortgagor and the Commissioner are 
adequately protected.
    (h) Insurance may be available for advances made during 
rehabilitation or upon completion of rehabilitation, according to the 
procedures in Sec. 203.5, 203.6, or 203.7 (as applicable).
    (i) Rehabilitation loans which do not involve the insurance of 
advances, the refinancing of outstanding indebtedness or the purchase of 
the property need not be a first lien on the property but shall not be 
junior to any lien other than a first mortgage. The provisions of 
Sec. Sec. 203.15, 203.19, 203.23, 203.24, 203.26, and 203.43j shall not 
be applicable to such loans.
    (j) The Commissioner may insure advances made by the mortgagee 
during rehabilitation if the following conditions are satisfied:
    (1) The mortgage shall be a first lien on the property.
    (2) The mortgagor and the mortgagee shall execute a rehabilitation 
loan agreement, approved by the Commissioner, setting forth the terms 
and conditions under which advances will be made.
    (3) The advances shall be made as provided in the reliabilitation 
loan agreement.
    (4) The principal amount of the mortgage shall be held by the 
mortgagee in an interest bearing account, trust, or escrow for the 
benefit of the mortgagor pending advancement to the mortgagor or his 
creditors as provided in the rehabilitation loan agreement.
    (5) The loan shall bear interest at the rate prescribed in Sec. 
203.20 on the amount advanced to the mortgagor or its creditors, and the 
amount held in an account or trust for the benefit of the mortgagor.
    (6) If paragraph (k) of this section applies, the rehabilitation 
loan agreement shall restrict advancement to the mortgagor, or to 
creditors other than the mortgagee, so that any loan proceeds in excess 
of the 85 percent set forth in paragraph (f)(1)(iii) of this section 
shall not be advanced until the property is sold to a purchaser 
described in paragraph (k)(2) of this section.
    (k) In the case of a dwelling (1) to be occupied neither as a 
principal residence nor as a secondary residence and (2) where the loan 
is approved for a limit higher than the 85 percent set forth in 
paragraph (f)(1)(iii) of this section, the eligible non-occupant 
mortgagor (as defined in Sec. 203.18(f)(3)) shall certify to the 
Commissioner that:
    (1) The mortgagor will not rent (except for a rental term of not 
less than 30 days and not more than 60 days), sell (except where the 
insured mortgage is paid in full as an incident of the sale), or occupy 
the property before a due date approved by the Commissioner, except with 
the prior written approval of the Commissioner;
    (2) The mortgagor agrees that, if the property is not sold before a 
due date approved by the Commissioner to a purchaser, acceptable to the 
Commissioner, who will occupy the property, assume personal liability, 
and agree to pay the mortgage indebtedness, any amount held in escrow, 
trust, or special account under paragraph (j) of this section will be 
applied in reduction of the outstanding principal amount of the mortgage 
as of the due date approved by the Commissioner;
    (3) The mortgagee agrees that any portion of the fund held in 
escrow, trust, or special account, not applied to the mortgage in 
accordance with the provisions of this paragraph (k), shall be deducted 
from the amount of the insurance benefits to which the mortgagee would 
otherwise be entitled if a claim for insurance benefits is filed.
    (l) Rehabilitation loan consultants. HUD maintains a list of 
qualified consultants, in accordance with Sec. Sec. 200.190 through 
200.193 of this title. When the borrower elects to use the services of a 
consultant, the lender must select a consultant on the list to perform 
one or more of the following tasks:
    (1) Conduct a preliminary feasibility analysis before or after the 
submission of a sales contract;
    (2) Prepare the cost estimate, work write-up, and architectural 
exhibits required for the rehabilitation of the property;
    (3) Conduct a plan review; and

[[Page 183]]

    (4) Conduct the draw inspections for the release of funds during the 
construction phase of the project.
    (m) With regard to loans under this section executed on or after 
December 27, 2005, the Commissioner shall charge an up-front and annual 
MIP in accordance with 24 CFR 203.284 or 203.285, whichever is 
applicable.

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



Sec. 203.51  Applicability.

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

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



Sec. 203.52  Acceptance of individual residential water purification equipment.

    If a property otherwise eligible for insurance under this part does 
not have access to a continuing supply of safe and potable water without 
the use of a water purification system, the requirements of this section 
must be complied with as a condition to acceptance of the mortgage for 
insurance. The mortgagee must provide appropriate documentation with the 
submission for insurance endorsement to address each of the requirements 
of this section.
    (a) Equipment. Water purification equipment must be approved by a 
nationally recognized testing laboratory acceptable to the local or 
state health authority.
    (b) Certification by local (or state) health authority. A local (or 
state) health authority certification must be submitted to HUD which 
certifies that:
    (1) A point-of-entry or point-of-use water purification system is 
currently in operation on the property. If the system in operation 
employs point-of-use equipment, the purification system must be employed 
on each water supply source (faucet) serving the property. Where point-
of-entry systems are used, separate water supply systems carrying 
untreated water for flushing toilets may be constructed.
    (2) The system is sufficient to assure an uninterrupted supply of 
safe and potable water adequate to meet household needs.
    (3) The water supply, when treated by the equipment, meets the 
requirements of the local (or state) health authority, and has been 
determined to meet local or state quality standards for drinking water. 
If neither state nor local standards are applicable, then quality shall 
be determined in accordance with standards set by the Environmental 
Protection Agency (EPA) pursuant to the Safe Drinking Water Act. (EPA 
standards are prescribed in the National Primary Drinking Water 
requirements, 40 CFR parts 141 and 142.)
    (4) There exists a Plan providing for the monitoring, servicing, 
maintenance, and replacement of the water equipment, which Plan meets 
the requirements of paragaph (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

[[Page 184]]

from the presence of those contaminants.
    (2) The mortgagor must have received, with the notification 
described in paragraph (c)(1) of this section, a written good faith 
estimate of the maintenance and replacement costs of the equipment 
necessary to assure continuing safe drinking water.
    (3) A copy of the notification statement (including cost estimates), 
dated before the date of the sales contract, and signed by the 
prospective mortgagor to acknowledge its receipt, must accompany the 
submission for insurance endorsement. If a sales contract is signed in 
advance of the disclosure required by this paragraph, another sales 
contract must be executed after the information is provided to the 
prospective mortgagor and he or she has acknowledged receipt of the 
disclosure.
    (4) The prospective mortgagor must sign a certification, 
substantially in the form set out in this paragraph (c)(4), at the time 
the application for mortgage credit approval is signed. This 
certification must be submitted to HUD:

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

    (d) Service contract. Before mortgage closing, the mortgagor must 
enter into a service contract with an organization or individual 
specifically approved by the local (or state) health authority to carry 
out the provisions of the required Plan for servicing, maintenance, 
repair and replacement of the water purification equipment. A copy of 
the signed service contract must be provided to HUD.
    (e) Escrow for maintenance and replacement. The mortgagee must 
establish and maintain an escrow account which provides for the 
accumulation of funds paid with the mortgagor's monthly mortgage payment 
adequate to assure proper servicing, maintenance, repair and replacement 
of the water purification equipment. The amount to be collected and 
escrowed by the mortgagee shall be based upon information provided by 
the manufacturer for the maintenance and replacement of the water 
purification equipment and for other charges anticipated by the service 
contractor. The initial monthly escrow amount shall be stated in the 
Plan. Disbursements from the account will be limited to costs associated 
with the normal servicing, maintenance, repair or replacement of the 
water purification equipment. Disbursements may only be made to the 
service contractor or its successor, to equipment suppliers, to the 
local (or state) health authority for the performance of testing or 
other required services, or to another entity approved by the health 
authority. So long as water purification remains necessary and the 
mortgage is insured by HUD, the mortgagee must maintain the escrow 
account.
    (f) Approved Plan. A Plan, in the form of a contract entered into by 
the mortgagor and mortgagee and approved by the local (or state) health 
authority, must set out conditions that must be met by the parties as a 
condition to insurance of the mortgage by HUD. To be approved by the 
health authority:
    (1) The Plan must set forth the respective responsibilities to be 
assumed by the mortgagor and the mortgagee, as well as the other 
entities who will implement the Plan, i.e., the health authority and the 
service contractor. In particular:
    (i) The Plan must set out the responsibilities of the health 
authority for monitoring and enforcing performance of the service 
contractor, including any successor contractor that the health authority 
may later have occasion to name. By its approval of the Plan, the

[[Page 185]]

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

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

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

                Insured Ten-Year Protection Plans (Plan)

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



Sec. 203.200  Definitions.

    As used in Sec. 203.201 through Sec. 203.209, the following terms 
shall have the meaning indicated:
    Coverage contract means a warranty certificate, insurance policy, or 
other document of similar purpose (including any endorsements), 
delivered to the homeowner at the time of closing or settlement which is 
issued by a State, a builder, a warranty company, or an insurance 
company and which defines the terms and conditions under which a Plan 
will provide warranty coverage of the covered property.
    Construction deficiencies are defects (not of a structural nature) 
in a dwelling covered by an insured ten-year protection plan that are 
attributable to poor workmanship or to the use of inferior materials 
which result in the impaired functioning of the dwelling or some part 
thereof. Defects resulting from homeowner abuse or from normal wear and 
tear are not considered construction deficiencies.

[[Page 186]]

    Insurance backing (or insurance backer) means the direct insurance 
or reinsurance of potential Plan obligations by one or more insurance 
companies.
    Insured ten-year protection plan or Plan means an agreement between 
a homeowner and a Plan issuer which, among other things, contains 
warranties regarding the construction and structural integrity of the 
homeowner's one- to four-family dwelling covered by an FHA-insured 
mortgage. A Plan issuer may be a State, an insurance company, a warranty 
company, a Risk Retention Group as defined in 15 U.S.C. 3901a(4)(A)-(H) 
(Supp. IV 1986), a builder, or by any other HUD-approved entity with the 
required insurance backing. A Plan must specify in its coverage contract 
the obligations and duties of the Plan issuer to the homeowner (or to 
the homeowner's successor in interest) with respect to the warranties 
covering the dwelling.
    Plumbing means all components of piped on-site gas, fluid, or fluid-
based systems that are not separately covered by manufacturers' 
warranties, and includes any on-site water supply or sewage disposal 
systems.
    State includes the several States, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, American 
Samoa, and the Virgin Islands.
    Structural defect is actual physical damage to the designated load-
bearing portions of a home caused by failure of such load-bearing 
portions that affects their load-bearing functions to the extent that 
the home becomes unsafe, unsanitary, or otherwise unlivable. Load-
bearing components for the purpose of defining structural defects are 
defined as follows: Footing and foundation systems; beams; girders; 
lintels; columns; load-bearing walls and partitions; roof framing 
systems; and floor systems, including basement slabs in homes 
constructed in designated areas (see Sec. 203.207) containing expansive 
or collapsible soils. Damage to the following nonload-bearing portions 
of the home is not considered a structural defect: Roofing; drywall and 
plaster; exterior siding; brick, stone, or stucco veneer; floor covering 
material; wall tile and other wall coverings; nonload-bearing walls and 
partitions; concrete floors in attached garages; electrical; plumbing, 
heating, cooling and ventilation systems; appliances, fixtures and items 
of equipment; paint; doors and windows; trim, cabinets, hardware, and 
insulation. Repair of a structural defect is limited to:
    (1) The repair of damage to designated load-bearing portions of the 
home which is necessary to restore their load-bearing ability;
    (2) The repair of designated non-load-bearing portions, items or 
systems of the home, damaged by the structural defect, which make the 
home unsafe, unsanitary or otherwise unlivable (such as the repair of 
inoperable windows, doors and the restoration of functionality of 
damaged electrical, plumbing, heating, cooling, and ventilating 
systems); and
    (3) The repair and cosmetic correction of only those surfaces, 
finishes and coverings, original with the home, damaged by the 
structural defect, or which require removal and replacement attendant to 
repair of the structural defect, or to repair other damage directly 
attributable to the structural defect. It is the intent of this section 
to ensure the repair of a covered home to a condition approximately the 
condition just prior to the defect, not to a like new condition. It does 
not require refinishing of all interior or exterior surfaces if only one 
or two surfaces are damaged. It does not cover personal property items, 
not a part of the structure, which are damaged by the defect or as a 
result of the defect. It excludes damage covered by a homeowner's 
casualty insurance policy.
    Warranty company is an insurance company or other entity that 
provides insurance backing for an insured ten-year protection plan 
which, if the Plan issuer fails to meet its obligations to a covered 
homeowner, will assume the obligations and perform in accordance with 
the Plan's coverage contract with the homeowner.



Sec. 203.201  Scope.

    Effective August 6, 1991, the provisions and requirements set forth 
in Sec. 203.202 through Sec. 203.209 apply to one- to four-family 
dwellings covered by HUD mortgage insurance (including family units in a 
condominium where

[[Page 187]]

the units are insured under subpart A of part 234 of this chapter).



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

    (a) For a Plan to be acceptable to HUD, it must assure that:
    (1) If a builder, for any reason, fails to correct structural 
defects or construction deficiencies in a property covered by an insured 
10-year protection Plan during the term of any warranty offered by the 
builder on the property, the Plan issuer will effect the corrections in 
accordance with the terms of the Plan; and
    (2) If a Plan issuer, for any reason, fails to effect correction of 
these deficiencies or defects, or otherwise fails to honor the terms of 
its coverage, its insurance backer or, if the Plan issuer is an 
insurance company, the insurance company itself, will effect the 
corrections or otherwise honor the terms of the Plan.
    (b) In evaluating applications for renewal of Plan acceptance, HUD 
will take into consideration such reliable evidence, as is made 
available to the Department, of a Plan issuer's failure to fulfill its 
obligations. Where HUD has credible evidence of a Plan issuer's failure 
to correct covered homeowner problems, or there are justifiable 
homeowner complaints about untimely problem resolution by a Plan issuer, 
HUD will consider this as cause for termination of a Plan's acceptance 
and as grounds for initiation of sanctions against a Plan issuer or 
insurance backer, in accordance with 2 CFR part 2424. If HUD proposes to 
terminate a Plan's acceptance, the issuer of the Plan will be advised of 
the reason therefore, and the procedural safeguards of 2 CFR part 2424 
will apply.
    (c) Unless renewed, Plan acceptance by HUD expires automatically on 
the second anniversary date of acceptance. The Plan issuer must apply 
for acceptance renewal at least two months, but no more than three 
months, in advance of expiration to avoid automatic acceptance 
termination. Prior acceptance of a Plan will be continued beyond the 
date of automatic acceptance termination only by a written notification 
to the Plan issuer and only if the delay is caused by a lack of timely 
HUD processing of a renewal application. HUD will not extend the 
expiration date of a prior Plan acceptance if the Plan issuer has 
negligently provided incomplete information with its renewal 
application.
    (d) After a Plan has been accepted by HUD, there shall be no change 
in, or modification to, its provisions, or in its insurance backers or 
insurance contract(s), without prior written HUD acceptance of such 
change or modification, except that changes mandated by other applicable 
laws may not require HUD's prior approval. A violation of this condition 
may be cause for termination of a Plan's acceptance, and may be grounds 
for initiation of sanctions against the Plan issuer, in accordance with 
2 CFR part 2424. Insofar as practicable, HUD will respond to a Plan 
issuer's request for acceptance of a change within 30 days of receipt of 
the request. Plan acceptance by HUD will be for a two-year period.
    (e) Requests for initial HUD acceptance or renewal of acceptance of 
a Plan should be made to the Deputy Assistant Secretary for Single 
Family Housing, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 20410. Requests must be accompanied by 
information and documentation evidencing Plan compliance with Sec. 
203.204. Acceptability of Plans will be determined by the Deputy 
Assistant Secretary for Single Family Housing who will notify applicants 
of his or her determination. If a Plan is rejected, the applicant will 
be advised of the reason for rejection. The applicant may appeal the 
rejection to the Assistant Secretary for Housing, at the above address, 
stating specifically why the Plan should be approved. The Assistant 
Secretary (whose decision is final) will, within a reasonable time, 
advise the applicant whether the rejection will be upheld or reversed. 
Each HUD field office will be advised of Plans determined to be 
acceptable, or Plans that have been rejected.
    (f) Existing Plans will be allowed a grace period of 9 months 
commencing from November 6, 1990 to make the necessary adjustments to 
comply with the provisions and requirements of Sec. 203.200 to Sec. 
203.209.

[[Page 188]]

    (g) Each Plan issuer must submit a written certification addressed 
to the Deputy Assistant Secretary for Single Family Housing, 451 Seventh 
Street, SW., Washington, DC 20410, no later than three weeks before the 
anniversary date of the Plan's acceptance by HUD, that the insurance 
company backing its Plan is still an insurance carrier approved by the 
State insurance commission (or the equivalent entity) in each 
jurisdiction in which the Plan is offered, or is still a Risk Retention 
Group meeting the criteria of Sec. 203.208 of this part.

(Approved by the Office of Management and Budget under control number 
2502-0343)

[55 FR 41021, Oct. 5, 1990, as amended at 72 FR 73495, Dec. 27, 2007]



Sec. 203.203  Issuance and nature of insured 10-year protection plans.

    (a) Plans may be issued:
    (1) By a builder, warranty company, insurance company, or Risk 
Retention Group (see 15 U.S.C. 3901a(4)(A)-(H) (Supp. IV 1986); or
    (2) By a State that guarantees the builder's performance and the 
State's continuing financial backing throughout the Plan's coverage 
period.
    (b) All Plans must have insurance backing unless backed by the full 
faith and credit of a State.
    (c)(1) Plans backed by the full faith and credit of a State must be 
in compliance with Sec. 203.200 through Sec. 203.202, Sec. 203.204 
through Sec. 203.206, and Sec. 203.209 to be acceptable to HUD. HUD 
will evaluate these Plans to ensure their compliance with these 
sections.
    (2) HUD will not accept Plans backed by a State agency or a State 
insurance guaranty fund unless HUD is assured that the full faith and 
credit of the State is pledged to satisfy any and all obligations of the 
State agency or guaranty fund that may arise in connection with its 
financial backing of a Plan.
    (d) The functions of a Plan issuer and an insurance backer may be 
performed by a single corporate entity.



Sec. 203.204  Requirements and limitations of a plan.

    In addition to complying with the criteria set out in Sec. 203.202 
and Sec. 203.205, for a Plan to be acceptable to HUD, it must meet the 
following requirements:
    (a) A Plan must assure timely resolution of homeowners' complaints 
or claims covered under Sec. 203.205. Warranties set forth in a Plan 
must comply with section 2301(a)(1)-(13) of the Magnuson-Mass Warranty-
Federal Trade Commission Improvement Act (15 U.S.C. 2301-2312) along 
with the requirements and criteria set out in this section.
    (b) The entire cost to the homeowner for Plan coverage must be 
prepaid by the builder, or the Plan issuer must give irrevocable 
coverage, at the time of settlement. In the case of optional coverage 
beyond the coverage required under Sec. 203.205, the cost for the 
optional coverage may be paid by either the builder or the homeowner.
    (c) Unexpired Plan coverage must be automatically transferred, 
without additional cost, to subsequent homeowners.
    (d) Issued Plan coverage must be noncancellable by a Plan issuer or 
by its insurance backer(s).
    (e) Exclusions from Plan coverage must not defeat coverage 
objectives stated in Sec. 203.202 and Sec. 203.205 and must permit 
normal homeowner use of the covered property, including normal 
maintenance and emergency property protection measures.
    (f) Unless prohibited by applicable law, Plans must, at a minimum, 
stipulate that all homeowner complaints covered by a Plan, including 
those regarding construction deficiencies and structural defects claims, 
will be settled in the amount of their actual cost to correct or for the 
original sales price of the property, whichever is the lesser, subject 
to a deductible not to exceed a total of $250 for all claims filed by a 
homeowner during the first two years of coverage and not to exceed a 
maximum of $250 per claim during the third through the tenth year of 
coverage.
    (1) In the case of claims filed by a condominium association, the 
deductible is limited to $250.00 per claim for each affected unit in the 
structure, not to exceed a maximum of $5,000.00 where the claim relates 
to the same event that affected several units. Recurrent

[[Page 189]]

claims for structural defects occasioned by a common cause shall be 
subject to the payment of no more than one deductible. In addition, a 
Plan covering a condominium must provide the condominium association 
with an additional warranty that allows for claims by homeowners 
involving the common elements of the building.
    (2) A homeowner shall be liable for a deductible only if a builder 
defaults on warranty performance and the Plan issuer has to make the 
covered corrections. When the builder performs corrections under the 
builder's warranty, no deductible that may be included in the Plan is 
applicable.
    (g) In the event of any dispute regarding a homeowner complaint or 
structural defect claim, Plans must, unless prohibited by applicable 
law, provide for binding arbitration proceedings arranged through a 
nationally recognized dispute settlement organization. The sharing of 
arbitration charges shall be as determined by the Plan. A Plan must 
contain pre-arbitration conciliation provisions at no cost to the 
homeowner, and provision for judicial resolution of disputes, but 
arbitration, which must be available to a homeowner during the entire 
term of the coverage contract, must be an assured recourse for a 
dissatisfied homeowner.
    (h) Where a State has a home protection act or other statutes or 
regulations that require its approval of Plans, a Plan issuer must 
demonstrate such approval to HUD as an additional prerequisite to HUD 
acceptance.
    (i) A Plan issuer must provide homeowners an executed coverage 
contract clearly describing--
    (1) The identity of the property covered;
    (2) The time at which coverage begins;
    (3) The maximum amount of Plan liability;
    (4) Noncancellability of the coverage contract by the Plan or its 
insurance backers;
    (5) No-cost transferability of unexpired coverage to successors in 
title;
    (6) The property coverage provided;
    (7) Any exclusions from coverage;
    (8) Performance standards for resolving homeowner complaints and 
claims (if standards for complaint and claim adjustment are promulgated 
as part of a Plan);
    (9) Dispute settlement procedures;
    (10) The names, addresses, and telephone numbers of the Plan issuer 
and its insurance backers; and
    (11) When, to whom, under what conditions, and to what address 
homeowners should submit any construction deficiency complaints or 
structural defects claims.
    (j) Plans will not be required to warrant that a covered property 
complies with:
    (1) Original dwelling plans and specifications;
    (2) Applicable building codes; or
    (3) Specific terms of a homeowner's contract to purchase a property.

[55 FR 41021, Oct. 5, 1990, as amended at 61 FR 36264, July 9, 1996]



Sec. 203.205  Plan coverage.

    (a) Plan coverage must take effect at closing or settlement 
following the initial sale of the property to the homeowner.
    (b) During the first year of coverage, a Plan must provide for a 
warranty against defects in workmanship and materials resulting from the 
failure of the covered property to comply with standards of quality as 
measured by acceptable trade practices, as well as correct the problems 
with, or restore the reliable function of, appliances and equipment 
damaged during installation or improperly installed by the builder. The 
plan must also cover structural defects as defined in Sec. 203.200.
    (c) During the first and second year of coverage, a Plan must 
provide a warranty against defects in the wiring, piping and ductwork in 
the electrical, plumbing, heating, cooling, ventilating, and mechanical 
systems.
    (d) Basement slabs in designated areas must be covered by a warranty 
in the Plan against damage from the first through the fourth year.
    (e) From the first through the tenth year, structural defect (as 
defined in Sec. 203.200), except as provided in paragraph (d) of this 
section, must be covered by a warranty in the Plan.
    (f) A Plan must provide insurance coverage for builder default on 
any warranty obligation.

[[Page 190]]


The coverage described in paragraph (b) through (f) of this section is 
the minimum level of coverage that HUD will find acceptable in a Plan.



Sec. 203.206  Housing performance standards or criteria.

    A Plan may contain housing performance standards or criteria for 
resolution of homeowner claims or complaints that are fair, reasonable, 
and consistent with the intent of the Plan, including Plan coverage 
under Sec. 203.205. If a Plan contains such criteria or standards, they 
must be acceptable to the Secretary.



Sec. 203.207  Designated area.

    The Secretary may designate any part of the country as a ``high risk 
area'' where construction practices allow basement slabs to be placed on 
expansive or collapsible soil. By virtue of this authority, the 
Secretary has designated the State of Colorado as a ``high risk area.''



Sec. 203.208  Insurance backing criteria.

    An insurance company backing or operating a Plan must be duly 
licensed or approved (and with the Plan filed and approved where 
appropriate) to market such insurance coverage by the proper regulatory 
agency in each State in which the Plan will operate. Any company 
operating under the Product Liability Risk Retention Act of 1981, as 
amended, will be regarded as having met licensing, filing, and approval 
requirements of all States, but must first demonstrate that it--
    (1) Meets licensing, filing and approval requirements in its 
domiciliary State; and
    (2) Meets each of the requirements of paragraphs (A) through (H) of 
section (a)(4) of the Liability Risk Retention Act of 1986 (15 U.S.C. 
3901(a)(4) (A) through (H), (Supp. IV 1986).

(Approved by the Office of Management and Budget under control number 
2502-0343)



Sec. 203.209  Payments under a plan.

    (a) If a Plan issuer or insurance backer elects to compensate a 
homeowner for damage suffered by the homeowner's property that is 
covered under a Plan in lieu of the Plan issuer's making repairs such 
compensation must be made jointly to the mortgagee and the homeowner.
    (b) If payment is to be made to the mortgagee and homeowner, the 
Plan issuer first must receive the mortgagee's assurance in witing that 
the mortgagee is satisfied, based on a showing by the homeowner, that 
the homeowner has made a binding commitment to have the necessary 
repairs made to restore the damaged property. It a homeowner elects not 
to repair his or her damaged property, then the mortgagee must apply the 
compensation in reduction of the outstanding indebtedness of the 
mortgage.

                             Effective Date



Sec. 203.249  Effect of amendments.

    The regulations in this subpart may be amended by the Secretary at 
any time and from time to time, in whole or in part, but such amendment 
will not adversely affect the interests of a mortgagee under the 
contract of insurance on any mortgage or loan already insured, and will 
not adversely affect the interest of a mortgagee on any mortgage or loan 
to be insured for which either the Direct Endorsement or Lender 
Insurance mortgagee has approved the mortgagor and all terms and 
conditions of the mortgage or loan, or the Secretary has issued a firm 
commitment. In addition, such amendment will not adversely affect the 
eligibility of specific property if such property is covered by a 
conditional commitment issued by the Secretary, a certificate of 
reasonable value issued by the Secretary of Veterans Affairs, or an 
appraisal report approved by a Direct Endorsement or Lender Insurance 
underwriter.

[62 FR 30226, June 2, 1997]



                Subpart B_Contract Rights and Obligations

                               Definitions



Sec. 203.251  Definitions.

    As used in this subpart, the following terms shall have the meaning 
indicated:
    (a) Commissioner means the Federal Housing Commissioner or his 
authorized representative.

[[Page 191]]

    (b) Act means the National Housing Act, as amended.
    (c) FHA means the Federal Housing Administration.
    (d) Mortgage is defined at Sec. 203.17(a)(1).
    (e) Mortgagor means the original borrower under a mortgage and his 
heirs, executors, administrators and assigns.
    (f) Mortgagee means the original lender under a mortgage and its 
successors and such of its assigns as are approved by the Commissioner.
    (g)-(h) [Reserved]
    (i) Insured mortgage means a mortgage which has been insured as 
evidenced by the issuance of a Mortgage Insurance Certificate or by the 
endorsement of the credit instrument for insurance by the Commissioner.
    (j) Contract of Insurance means the agreement evidenced by the 
issuance of a Mortgage Insurance Certificate or by the endorsement of 
the Commissioner upon the credit instrument given in connection with an 
insured mortgage, incorporating by reference the regulations in this 
subpart and the applicable provisions of the Act.
    (k) MIP means the mortgage insurance premium paid by the mortgagee 
to the Commissioner in consideration of the contract of insurance.
    (l)-(m) [Reserved]
    (n) Open-end advance means an insured advance made by an approved 
mortgagee in connection with a previously insured mortgage, pursuant to 
an open-end provision in the mortgage.
    (o) Open-end insurance charge means the charge paid by the mortgagee 
to the Commissioner in consideration of the insurance of an open-end 
advance.
    (p) Beginning of amortization means the date one month prior to the 
date of the first monthly payment to principal and interest.
    (q) Maturity means the date on which the mortgage indebtedness would 
be extinguished if paid in accordance with periodic payments provided 
for in the mortgage.
    (r) Debentures means registered, transferable securities in 
certificated or book entry form which are valid and binding obligations, 
issued in the name of the Mutual Mortgage Insurance Fund in accordance 
with the provisions of this part; such debentures are the primary 
liability of the Mutual Mortgage Insurance Fund and are unconditionally 
guaranteed as to principal and interest by the United States.
    (s) State includes the several States, Puerto Rico, the District of 
Columbia, Guam, the Commonwealth of the Northern Mariana Islands, 
American Samoa, and the Virgin Islands.
    (t) TOTAL is an acronym that stands for ``Technology Open to 
Approved Lenders.'' TOTAL is a mortgage scorecard based on a 
mathematical equation that is to be used within an automated 
underwriting system (AUS). TOTAL is a tool to assist the mortgagee in 
managing its workflow and expediting the endorsement process, and is not 
a substitute for the mortgagee's reasonable consideration of risk and 
credit worthiness. Direct Endorsement mortgagees using TOTAL remain 
solely responsible for the underwriting decision.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 8661, Apr. 29, 1972; 41 
FR 49734, Nov. 10, 1976; 49 FR 12697, Mar. 30, 1984; 53 FR 34282, Sept. 
6, 1988; 59 FR 49815, Sept. 30, 1994; 61 FR 36265, July 9, 1996; 68 FR 
65826, Nov. 21, 2003]

                  Endorsement and Contract of Insurance



Sec. 203.255  Insurance of mortgage.

    (a) Mortgages with firm commitments. For applications for insurance 
involving mortgages not eligible to be originated under the Direct 
Endorsement program under Sec. 203.5, or under the Lender Insurance 
program under Sec. 203.6, the Secretary will either endorse the 
mortgage for insurance by issuing a Mortgage Insurance Certificate, 
provided that the mortgagee is in compliance with the firm commitment, 
or will electronically acknowledge that the mortgage has been insured.
    (b) Endorsement with Direct Endorsement processing. For applications 
for insurance involving mortgages originated under the Direct 
Endorsement program under Sec. 203.5, the mortgagee shall submit to the 
Secretary, within 60 days after the date of closing of the loan or such 
additional time as permitted by the Secretary, properly completed 
documentation and certifications as listed in this paragraph (b):

[[Page 192]]

    (1) Property appraisal upon a form meeting the requirements of the 
Secretary (including, if required, any additional documentation 
supporting the appraised value of the property under Sec. 203.37a), or 
a HUD conditional commitment (for proposed construction only), or a 
Department of Veterans Affairs certificate of reasonable value, and all 
accompanying documents required by the Secretary;
    (2) An application for insurance of the mortgage in a form 
prescribed by the Secretary;
    (3) A certified copy of the mortgage and note executed upon forms 
which meet the requirements of the Secretary;
    (4) A warranty of completion, on a form prescribed by the Secretary, 
for proposed construction cases;
    (5) An underwriter certification, on a form prescribed by the 
Secretary, stating that the underwriter has personally reviewed the 
appraisal report and credit application (including the analysis 
performed on the worksheets) and that the proposed mortgage complies 
with HUD underwriting requirements, and incorporates each of the 
underwriter certification items that apply to the mortgage submitted for 
endorsement, as set forth in the applicable handbook or similar 
publication that is distributed to all Direct Endorsement mortgagees, 
except that where the TOTAL Mortgage Scorecard is used by the mortgagee, 
and the TOTAL Mortgage Scorecard has determined that the application 
represents an acceptable risk under terms and conditions agreed to by 
the FHA, a Direct Endorsement underwriter shall not be required to 
certify that the underwriter has personally reviewed the credit 
application (including the analysis performed on any worksheets). The 
following requirements are also applicable to the use of the TOTAL 
Mortgage Scorecard:
    (i) Mortgagees and vendors must certify to compliance with these 
requirements:
    (A) Permissible users. Only automatic underwriting systems (AUSs) 
developed, operated, owned, or used by FHA-approved Direct Endorsement 
mortgagees, Fannie Mae, or Freddie Mac, may access TOTAL, and only FHA-
approved mortgagees will be able to obtain risk-assessments using TOTAL;
    (B) Limitation on use. Results from TOTAL must not be used as the 
basis for rejecting any mortgage applicant. Mortgagees must provide full 
manual underwriting for mortgage applicants when TOTAL returns a 
``refer'' risk score.
    (C) Vendor and mortgagee requirements. Both mortgagees and vendors 
must:
    (1) Use TOTAL to process FHA and other loan products specified by 
the FHA Commissioner only and for no other purpose;
    (2) Implement quality control procedures for TOTAL usage and 
provide, at FHA's request, reports and loan samples that enable FHA to 
evaluate program operation;
    (3) Not use TOTAL to direct mortgagors into other non-FHA product 
offerings (this requirement does not relieve a mortgagee from its 
obligations under Sec. 203.10 concerning informed consumer choice for 
prospective FHA mortgagors);
    (4) Not disassemble, decompile, reverse engineer, derive or 
otherwise reproduce any part of the source code or algorithm in TOTAL;
    (5) Not provide feedback messages that conflict with the Equal 
Credit Opportunity Act; and
    (6) Comply with any additional HUD/FHA requirements or procedures 
that are applicable to the Scorecard and may be issued through 
handbooks, mortgagee letters, TOTAL User Guides, or TOTAL Developers 
Guide following appropriate advance notification, where applicable.
    (ii) Loss of privilege to use TOTAL. Mortgagees and AUS vendors 
found to violate the requirements applicable to the use of TOTAL may 
have their access to TOTAL and all associated privileges terminated upon 
appropriate notice in accordance with the following procedure:
    (A) Notice. HUD will provide a mortgagee or vendor with a 30-day 
notice of a violation and loss of privilege. The notice will state the 
nature of the violation, the effective date of the loss of the 
privilege, and the duration of the loss of the privilege. The notice 
will become effective on the date provided in the notice, unless the 
mortgagee or

[[Page 193]]

vendor appeals the violation and loss of privilege in accordance with 
paragraph (b)(5)(ii)(B) of this section.
    (B) Appeal. A party receiving a notice of violation may appeal to 
the Deputy Assistant Secretary for Single Family Housing (DAS-SFH), or 
his or her designee, before the effective date of the notice by 
providing evidence to refute the violation. The loss of privilege is 
stayed until the DAS-SFH, or designee, notifies the party that the loss 
of privilege has been affirmed, rescinded, or modified.
    (6) Where applicable, a certificate under oath and contract 
regarding use of the dwelling for transient or hotel purposes;
    (7) Where applicable, a certificate of intent to occupy by military 
personnel;
    (8) Where a mortgage for an existing property is to be insured under 
section 221(d)(2) of the National Housing Act, a letter from the 
appropriate local government official that the property meets applicable 
code requirements;
    (9) Where an individual water or sewer system is being used, an 
approval letter from the local health authority indicating approval of 
the system in accordance with Sec. 200.926d(f) of this chapter;
    (10) For proposed construction if the mortgage (excluding financed 
mortgage insurance premium) exceeds a 90 percent loan to value ratio, 
evidence that the mortgagee qualifies for a higher ratio loan under one 
of the applicable provisions in the appropriate regulations;
    (11) A mortgagee certification on a form prescribed by the 
Secretary, stating that the authorized representative of the mortgagee 
(or loan correspondent sponsored by 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 this paragraph (b). The certification 
shall incorporate each of the mortgagee certification items which apply 
to the mortgage loan submitted for endorsement, as set forth in the 
applicable handbook or similar publication that is distributed to all 
Direct Endorsement mortgagees;
    (12) For a Home Equity Conversion Mortgage under part 206 of this 
chapter, the additional documents required by Sec. 206.15 of this 
chapter; and
    (13) The documentation required under Sec. 203.37a providing that:
    (i) The seller is the owner of record; and
    (ii) That more than 90 days elapsed between the date the seller 
acquired the property (based upon the date of settlement) and the date 
of execution of the sales contract that will result in the FHA mortgage 
insurance.
    (14) Such other documents as the Secretary may require.
    (c) Pre-endorsement review for Direct Endorsement. Upon submission 
by an approved mortgagee of the documents required by paragraph (b) of 
this section, the Secretary will review the documents and determine 
that:
    (1) The mortgage is executed on a form which meets the requirements 
of the Secretary;
    (2) The mortgage maturity meets the requirements of the applicable 
program;
    (3) The stated mortgage amount does not exceed the maximum mortgage 
amount for the area as most recently announced by the Secretary, except 
for mortgages under 24 CFR part 206;
    (4) All documents required by paragraph (b) of this section are 
submitted;
    (5) All necessary certifications are made in accordance with 
paragraph (b) of this section;
    (6) There is no mortgage insurance premium, late charge or interest 
due to the Secretary; and
    (7) The mortgage was not in default when submitted for insurance or, 
if submitted for insurance more than 60 days after closing whether the 
mortgage shows an acceptable payment history.

In addition, the Secretary is authorized to determine if there is any 
information indicating that any certification or required document is 
false, misleading, or constitutes fraud or misrepresentation on the part 
of any party, or that the mortgage fails to meet a statutory or 
regulatory requirement. If, following this review, the mortgage is 
determined to be eligible, the Secretary will endorse the mortgage for 
insurance by issuance of a

[[Page 194]]

Mortgage Insurance Certificate. If the mortgage is determined to be 
ineligible, the Secretary will inform the mortgagee in writing of this 
determination, and include the reasons for the determination and any 
corrective actions that may be taken.
    (d) Submission by mortgagee other than originating mortgagee. If the 
originating mortgagee assigns the mortgage to another approved mortgagee 
before pre-endorsement review under paragraph (c) of this section, the 
assignee may submit the required documents for pre-endorsement review in 
the name of the originating mortgagee. All certifications must be 
executed by the originating mortgagee (or its underwriter, if 
appropriate). The purchasing mortgagee may pay any required mortgage 
insurance premium, late charge and interest.
    (e) Post-Endorsement review for Direct Endorsement. Following 
endorsement for insurance, the Secretary may review all documents 
required by paragraph (b) of this section. If, following this review, 
the Secretary determines that the mortgage does not satisfy the 
requirements of the Direct Endorsement program, the Secretary may place 
the mortgagee on Direct Endorsement probation, or terminate the 
authority of the mortgagee to participate in the Direct Endorsement 
program pursuant to Sec. 203.3(d), or refer the matter to the Mortgagee 
Review Board for action pursuant to part 25 of this title.
    (f) Lender Insurance--(1) Pre-insurance review. For applications for 
insurance involving mortgages originated under the Lender Insurance 
program under Sec. 203.6, the mortgagee is responsible for performing a 
pre-insurance review that meets HUD's requirements. HUD will directly 
inform participating mortgagees of its minimum requirements for pre-
insurance review. 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.
    (4) Indemnification. By insuring the mortgage, the mortgagee agrees 
to indemnify HUD under the conditions of section 256(c) of the National 
Housing Act (12 U.S.C. 1717z-21(c)).

[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]



Sec. 203.256  Insurance of open-end advance.

    Insurance on an open-end advance will be evidenced by delivery of a 
certificate stating the amount of the advance, the date of insurance, 
and the regulations under which the advance is insured.



Sec. 203.257  Creation of the contract.

    The mortgage shall be an insured mortgage from the date of the 
issuance of a Mortgage Insurance Certificate, from the date of the 
endorsement of the credit instrument, or from the date of HUD's 
electronic acknowledgement to the mortgagee that the mortgage is 
insured, as applicable. The Commissioner and the mortgagee are 
thereafter bound by the regulations in this subpart with the same force 
and to the same extent as if a separate contract had been executed 
relating to the insured mortgage, including the provisions of the 
regulations in this subpart and of the Act.

[62 FR 30227, June 2, 1997]



Sec. 203.258  Substitute mortgagors.

    (a) Selling mortgagor. Except as provided in paragraph (d) of this 
section, the mortgagee may effect the release

[[Page 195]]

of a mortgagor from personal liability on the mortgage note, only if it 
obtains the Commissioner's approval of a substitute mortgagor, as 
provided by this section.
    (b) Purchasing mortgagor. (1) The Commissioner may approve a 
substitute mortgagor with respect to any mortgage insured under Sec. 
203.43h or Sec. 203.43i only if the mortgagor is to occupy the dwelling 
as a principal residence (as defined in Sec. 203.18(f)(1)).
    (2) The Commissioner may approve a substitute mortgagor with respect 
to any mortgage insured under this part (except a mortgage referred to 
in paragraph (b)(1) of this section), only if the substitute mortgagor 
is to occupy the dwelling as a principal residence or as a secondary 
residence (as these terms are defined in Sec. 203.18(f)) or if the 
substitute mortgagor is an eligible non-occupant mortgagor (as defined 
in Sec. 203.18(f)).
    (3) With respect to any mortgage covering a dwelling to be occupied 
as a secondary residence, the loan to value ratio may not exceed 85 
percent of the greater of:
    (i) The appraised value of the property at the time the mortgage is 
accepted for insurance; or
    (ii) The appraised value of the property at the time approval of a 
substitute mortgagor is requested.
    (c) Applicability-current mortgages. Paragraph (b) of this section 
applies to the Commissioner's approval of a substitute mortgagor only if 
the mortgage executed by the original mortgagor was insured:
    (1) Pursuant to a conditional commitment or master conditional 
commitment issued on or after December 15, 1989; or
    (2) In accordance with the Direct Endorsement program, where the 
underwriter of the mortgagee signed the appraisal report or master 
appraisal report for the property on or after December 15, 1989;
    (3) Pursuant to a certificate of reasonable value or master 
certificate of reasonable value issued by the Department of Veterans 
Affairs on or after December 15, 1989.
    (d) Applicability--earlier mortgages. If the mortgage was insured:
    (1) Pursuant to a conditional commitment or master conditional 
commitment issued on or after February 5, 1988, but before December 15, 
1989; or
    (2) In accordance with the Direct Endorsement program, where the 
approved underwriter of the mortgagee signed the appraisal report or 
master appraisal report for the property on or after February 5, 1988, 
but before December 15, 1989, or
    (3) Pursuant to a certificate of reasonable value or master 
certificate of reasonable value issued by the Department of Veterans 
Affairs on or after February 5, 1988, but before December 15, 1989, the 
Commissioner may approve a substitute mortgagor with respect to the 
mortgage only if the substitute mortgagor is to occupy the dwelling as a 
principal residence or a secondary residence (as these terms are defined 
in Sec. 203.18(f)), or is an eligible non-occupant mortgagor (as 
defined in the following sentence), or if the mortgage has a principal 
balance that is not more than 75 percent of the greater of (i) the 
appraised value of the property at the time the mortgage is accepted for 
insurance, or (ii) the appraised value of the property at the time 
approval of a substitute mortgagor is requested. For purposes of this 
paragraph (d), the term eligible non-occupant mortgagor has the meaning 
given in Sec. 203.18(f), except that paragraph (d)(3)(ii)(A) and (B) of 
this section apply in place of Sec. 203.18(f)(3) (i) and (ii).
    (A) A public entity, as provided in section 214 or 247 of the 
National Housing Act; and
    (B) A private nonprofit or public entity, as provided in section 
221(h) or 235(j) of the National Housing Act.

If neither paragraph (b) nor the preceding portion of this paragraph (d) 
applies, the Commissioner may approve a substitute mortgagor without 
regard to whether the mortgagor is to occupy the dwelling.
    (e) Direct endorsement. Mortgagees approved for participation in the 
Direct Endorsement program under Sec. 203.3 may, subject to limitations 
established by the Commissioner, themselves approve an appropriate 
substitute mortgagor under this section for mortgages which they own or 
service, and need

[[Page 196]]

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



Sec. 203.259  Method of payment of MIP.

    The payment of any MIP under this subpart shall be made to the 
Commissioner by the mortgagee either in cash or debentures at par plus 
accrued interest.

[48 FR 28805, June 23, 1983]



Sec. 203.259a  Scope.

    (a) The Commissioner shall charge a one-time MIP pursuant to Sec. 
203.280 for mortgages that:
    (1) Are insured pursuant to Sec. 203.43(c) (if the mortgage to be 
refinanced was executed prior to July 1, 1991 and the new mortgage is 
executed on or after April 24, 1992); or insured pursuant to Sec. 
203.43i; or
    (2)(i) Are obligations of the Mutual Mortgage Insurance Fund under 
this part (except insured open-end advances as provided by Sec. 
203.270);
    (ii) Are insured pursuant to: (A) An application for a conditional 
commitment received on or after September 1, 1983; or
    (B) An application for mortgage insurance endorsement under the 
single family Direct Endorsement program as provided in Sec. 203.255, 
where the property appraisal report is signed by the mortgagee's 
underwriter on or after September 1, 1983; and
    (iii) Are executed before July 1, 1991.
    (b) Except as provided in Sec. 203.284(h) or Sec. 203.285(d), the 
Commissioner shall charge an up-front MIP pursuant to Sec. 203.284 or 
Sec. 203.285 for mortgages executed on or after July 1, 1991 that are 
obligations of the Mutual Mortgage Insurance Fund. In the cases that the 
Commissioner deems appropriate, the Commissioner may require, by means 
of instructions communicated to all affected mortgages, that up-front 
MIP be remitted electronically.
    (c) The periodic MIP provision of Sec. Sec. 203.260 through 203.268 
shall not apply to mortgages referred to in paragraph (a) of this 
section, nor shall they apply to mortgages to which the provision of 
Sec. 203.284 or Sec. 203.285 apply.

[57 FR 15211, Apr. 24, 1992, as amended at 57 FR 46983, Oct. 14, 1992; 
58 FR 12902, Mar. 8, 1993; 58 FR 41003, July 30, 1993; 59 FR 13882, Mar. 
24, 1994; 60 FR 34138, June 30, 1995; 61 FR 36453, July 10, 1996]

              Mortgage Insurance Premiums--Periodic Payment



Sec. 203.260  Amount of mortgage insurance premium (periodic MIP).

    The mortgagee shall pay to the Commissioner an initial MIP in an 
amount equal to one-half of one percent of the average outstanding 
principal obligation of the mortgage for the first year of amortization. 
After payment of the initial MIP, the mortgagee shall pay to the 
Commissioner an amount equal to one-half of one percent of the average 
outstanding principal obligation of the mortgage for the 12-month period 
preceding each subsequent anniversary date of the beginning of 
amortization.

[48 FR 28805, June 23, 1983]



Sec. 203.261  Calculation of periodic MIP.

    The amount of any periodic MIP shall be calculated in accordance 
with the original amortization provisions of the mortgage, without 
taking into account delinquent payments, prepayments, agreements to 
postpone payments, or agreements to recast the mortgage.

[48 FR 28805, June 23, 1983]



Sec. 203.262  Due date of periodic MIP.

    The full initial and each annual MIP shall be due and payable to the 
Commissioner no later than the 10th day after the amortization 
anniversary date.

[61 FR 37801, July 19, 1996]

[[Page 197]]



Sec. 203.264  Payment of periodic MIP.

    The mortgagee shall pay each MIP in twelve equal monthly 
installments. Each monthly installment shall be due and payable to the 
Commissioner no later than the tenth day of each month, beginning in the 
month in which the mortgagor is required to make the first monthly 
mortgage payment. This will be effective for amortization beginning on 
or after September 1, 1996.

[61 FR 42787, Aug. 19, 1996]



Sec. 203.265  Mortgagee's late charge and interest.

    (a) Periodic MIP which are received by the Commissioner after the 
payment dates prescribed by Sec. Sec. 203.262 and 203.264 shall include 
a late charge of four percent of the amount paid.
    (b) In addition to the late charge provided in paragraph (a) of this 
section, the mortgagee shall pay interest on any periodic MIP which are 
remitted to the Commissioner more than 20 days after the payment dates 
prescribed in Sec. 203.264. Such interest rate shall be paid at a rate 
set in conformity with the Treasury Financial Manual.

[48 FR 28805, June 23, 1983, as amended at 61 FR 36265, July 9, 1996; 61 
FR 37801, July 19, 1996]



Sec. 203.266  Period covered by periodic MIP.

    The initial MIP shall cover the period beginning with the date of 
the issuance of a Mortgage Insurance Certificate and ending on the next 
anniversary of the beginning of amortization. Subsequent premium 
payments shall cover the twelve-month period preceding each subsequent 
anniversary date.

[48 FR 28805, June 23, 1983]



Sec. 203.267  Duration of periodic MIP.

    The mortgagee shall pay the MIP to the Commissioner until the deed 
to the Commissioner is filed for record or the contract of insurance is 
terminated.

[48 FR 28805, June 23, 1983]



Sec. 203.268  Pro rata payment of periodic MIP.

    (a) If the insurance contract is terminated before the due date of 
the initial MIP, the mortgagee shall pay a portion of the MIP prorated 
from the beginning of amortization, as defined in Sec. 203.251, to the 
date of termination.
    (b) If the insurance contract is terminated after the due date of 
the initial MIP, the mortgagee shall pay a portion of the current annual 
MIP prorated from the due date of the last annual MIP to the date of 
termination.
    (c) A pro rata MIP shall not be due or payable where the mortgagee 
notifies the Commissioner that foreclosure or other action to acquire 
the property has been completed and that the property will not be 
conveyed to the Commissioner in exchange for insurance benefits. Any MIP 
due and paid after the institution of foreclosure or the date the 
property was otherwise acquired by the mortgagee will be refunded to the 
mortgagee upon receipt by the Commissioner of the notice from the 
mortgagee that the property will not be conveyed to the Commissioner.

[48 FR 28805, June 23, 1983, as amended at 61 FR 37801, July 19, 1996]



Sec. 203.269  Method of payment of periodic MIP.

    In cases that the Commissioner deems appropriate, the Commissioner 
may require, by means of instructions communicated to all affected 
mortgagees, that periodic MIP be remitted electronically.

[60 FR 34138, June 30, 1995]

                Open-end Insurance Charges--All Mortgages



Sec. 203.270  Open-end insurance charges.

    (a) Required charge. In the case of an insured open-end advance the 
mortgagee shall pay to the Commissioner an open-end insurance charge.
    (b) Payment of charge for mortgages with periodic MIP. The amount of 
any insured open-end advance shall be added to the average outstanding 
principal obligation of the mortgage for the purpose of determining the 
amount of periodic MIP as provided in Sec. Sec. 203.260

[[Page 198]]

through 203.268, except that the initial additional charge shall be 
prorated to cover the period beginning with the first day of the month 
following the issuance of a certificate evidencing the insurance of the 
open-end advance and ending on the due date of the next MIP.
    (c) Payment of charge for mortgages with one-time or up-front MIP. 
In the case of a mortgage with a one-time or up-front MIP pursuant to 
Sec. 203.280, Sec. 203.284, or Sec. 203.285 of this part, the 
insurance charge shall be in an amount equal to \1/2\ percent per annum 
of the outstanding principal obligation of the open-end advance. 
Sections 203.260 through 203.268 shall apply to the open-end charge on a 
mortgage with a one-time or up-front MIP, except that all references to 
amortization dates shall refer to amortization dates of the open-end 
advance, references to MIP shall refer to the open-end insurance charge, 
and references to outstanding principal obligation of the mortgage shall 
refer to outstanding principal obligation of the open-end advance.
    (d) Method of payment--all mortgages. The payment of any open-end 
insurance charge under this subpart shall be made to the Commissioner by 
the mortgagee either in cash or debentures issued by the Mutual Mortgage 
Insurance Fund at par plus accrued interest.

[48 FR 28806, June 23, 1983, as amended at 56 FR 24624, May 30, 1991; 57 
FR 15211, Apr. 24, 1992; 57 FR 46983, Oct. 14, 1992; 58 FR 41003, July 
30, 1993]

              Mortgage Insurance Premiums--One-Time Payment



Sec. 203.280  One-time or Up-front MIP.

    For mortgages for which a one-time or up-front MIP is to be charged 
in accordance with Sec. Sec. 203.259a, 203.284, or 203.285, the 
mortgagee shall, as a condition to the endorsement of the mortgage for 
insurance, pay to the Commissioner for the account of the mortgagor, in 
a manner prescribed by the Commissioner, a premium representing the 
total obligation for the insuring of the mortgage by the Commissioner or 
the up-front portion of the total obligation, as applicable, within 10 
calendar days after the date of loan closing or within 10 calendar days 
after the date of disbursement of the mortgage proceeds, whichever is 
later.

[70 FR 19669, Apr. 13, 2005]



Sec. 203.281  Calculation of one-time MIP.

    (a) The applicable premium percentage determined under paragraph (b) 
of this section assumes, for purposes of calculation, that the entire 
amount of the one-time MIP is added to the loan amount. The amount of 
the one-time MIP shall be determined by multiplying the loan amount 
otherwise insurable under this part by the applicable premium 
percentage, subject to adjustment for the portion of the MIP, if any, 
that is not to be included in the insured mortgage.
    (b)(1) The Commissioner shall determine the applicable premium 
percentage in accordance with sound financial and actuarial practice.
    (2) Application of the premium percentage determined under paragraph 
(b)(1) of this section shall not result in a MIP in excess of an amount 
equivalent to 1 per centum per annum of the amount of the principal 
obligation of the mortgage outstanding at any time, without taking into 
account delinquent payments or prepayments.
    (c) The applicable premium percentage will be published by notice at 
least annually in the Federal Register.

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



Sec. 203.282  Mortgagee's late charge and interest.

    (a) Payment of a one-time or up-front MIP is late if not received by 
HUD within 10 calendar days after the date of loan closing or within 10 
calendar days after the date of disbursement of the mortgage proceeds, 
whichever is later. Late payments shall include a late charge of four 
percent of the amount of the MIP.
    (b) If payment of the MIP is not received by HUD within 30 days 
after the date of loan closing or within 30 calendar days after the date 
of disbursement of the mortgage proceeds, whichever is later, the 
mortgagee will be charged additional late fees until payment is received 
at an interest rate set

[[Page 199]]

in conformity with the Treasury Fiscal Requirements Manual.

[70 FR 19669, Apr. 13, 2005]



Sec. 203.283  Refund of one-time MIP.

    (a) The Commissioner shall provide for the refund to the mortgagor 
of a portion of the unearned MIP paid pursuant to Sec. 203.280 if the 
contract of insurance covering the mortgage is terminated:
    (1) By coveyance to one other than the Commissioner and a claim for 
the insurance benefits is not presented for payment (Sec. 203.315),
    (2) By prepayment of the mortgage (Sec. 203.316), or
    (3) By voluntary agreement with the approval of the Commissioner 
(Sec. 203.317).
    (b) The Commissioner shall determine the amount of the premium 
refund by multiplying the amount the premium paid at the time the 
mortgage was insured by the applicable premium refund percentage for 
mortgages insured in the year the mortgage was endorsed for insurance. 
The Commissioner shall determine the applicable premium refund 
percentage for each year in an equitable manner and in accordance with 
sound financial and actuarial practice, taking into account: (1) 
Projected salaries and expenses, (2) prospective losses generated by 
insurance claims, and (3) expected future payments of premium refunds.

[48 FR 28806, June 23, 1983, as amended at 52 FR 1327, Jan. 13, 1987]

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



Sec. 203.284  Calculation of up-front and annual MIP on or after July 1, 1991.

    Except for insured mortgages with a term of 15 or fewer years 
executed on or after December 26, 1992, (see Sec. 203.285 of this 
part), up-front and annual MIP will be calculated in accordance with 
this section.
    (a) Permanent provisions. Any mortgage executed on or after October 
1, 1994, that is an obligation of the Mutual Mortgage Insurance Fund, as 
well as any mortgage executed after December 27, 2005, which is insured 
under sections 203(k) or 234(c) of the National Housing Act (12 U.S.C. 
1709(k) and 12 U.S.C. 1715y(c)) shall be subject to the following 
requirements:
    (1) Up-Front. The Commissioner shall establish and collect a single 
premium payment in an amount not exceeding 2.25 percent of the amount of 
the original insured principal obligation of the mortgage.
    (2) Annual. In addition to the premium under paragraph (a)(1) of 
this section, the Commissioner shall establish and collect annual 
premium payments in an amount not exceeding .50 percent of the remaining 
insured principal balance (excluding the portion of the remaining 
balance attributable to the premium collected under paragraph (a)(1) of 
this section) for the following periods:
    (i) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a)(1) of this section) 
that is less than 90 percent of the appraised value of the property (as 
of the date of the mortgage is accepted for insurance), for the first 11 
years of the mortgage term.
    (ii) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a)(1) of this section) 
that is greater than or equal to 90 percent of the appraised value of 
the property (as of the date the mortgage is accepted for insurance), 
for the lesser of the mortgage term or the first 30 years of the 
mortgage term; except that, for any mortgage involving an original 
principal obligation (excluding any premium collected under paragraph 
(a)(1) of this section) that is greater than 95 percent of the appraised 
value, the annual premium collected during the period determined under 
this clause shall be in an amount not exceeding 0.55 percent of the 
remaining insured principal balance (excluding the portion of the 
remaining balance attributable to the premium collected under paragraph 
(a)(1) of this section).
    (b) Transition provisions; savings provision. Mortgages that are 
obligations of the Mutual Mortgage Insurance Fund and that were insured 
during Fiscal Years 1991-1994, are governed by 24 CFR 203.284(b) as in 
effect on April 1, 2003, (see 24 CFR parts 200-499 revised as of April 
1, 2003).

[[Page 200]]

    (c) Refunds. With respect to any mortgage subject to premiums under 
this section, the Commissioner shall refund all of the unearned premium 
charges paid on a mortgage upon termination of insurance by voluntary 
agreement or upon payment in full of the principal obligation of the 
mortgage before the maturity date.
    (d)-(e) [Reserved]
    (f) Applicability of other sections. The provisions of Sec. Sec. 
203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268, 203.269, 
203.280, and 203.282 are applicable to mortgages subject to premiums 
under this section.
    (g) Definition. As used in this section the term remaining insured 
principal balance means the average outstanding principal obligation of 
the mortgage for the first year of amortization, or for a 12-month 
period preceding a subsequent anniversary date of the beginning of 
amortization.
    (h) Exception for streamline refinance. This section shall not apply 
to any mortgage insured pursuant to Sec. 203.43(c) if the mortgage to 
be refinanced was executed before July 1, 1991 and the new mortgage is 
executed on or after April 24, 1992. This exception does not have the 
effect of exempting streamline refinancing mortgages from the 
requirement that a one-time MIP be paid in accordance with Sec. 
203.259a(a).

[57 FR 15211, Apr. 24, 1992, as amended at 57 FR 46983, Oct. 14, 1992; 
58 FR 41003, July 30, 1993; 60 FR 34138, June 30, 1995; 61 FR 36265, 
July 9, 1996; 61 FR 37801, July 19, 1996; 70 FR 37156, June 28, 2005]



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

    (a) Up-front. Any mortgage for a term of 15 or fewer years executed 
on or after December 26, 1992, that is an obligation of the Mutual 
Mortgage Insurance Fund, and any mortgage executed on or after December 
27, 2005, to be insured under sections 203(k) and 234(c) of the National 
Housing Act, shall be subject to a single up-front premium payment 
established and collected by the Commissioner in an amount not exceeding 
2.0 percent of the amount of the original insured principal obligation 
of the mortgage. Upon termination of insurance by voluntary agreement, 
or upon payment in full of the principal obligation of the mortgage 
before the maturity date, the Commissioner shall refund all of the 
unearned premium charges paid on the mortgage pursuant to this paragraph 
(a).
    (b) Annual. In addition to the premium under paragraph (a) of this 
section, the Commissioner shall establish and collect annual premium 
payments in amounts not exceeding the following percentages of the 
remaining insured principal balance (excluding the portion of the 
remaining balance attributable to the premium collected under paragraph 
(a) of this section) for the following periods:
    (1) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is less than 90 percent of the appraised value of the property (as 
of the date the mortgage is accepted for insurance), no annual premium 
will be charged.
    (2) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is greater than or equal to 90 percent of such value, but less than 
or equal to 95 percent of such value, an annual premium not exceeding 
.25 percent shall be collected for the first four years of the mortgage 
term.
    (3) For any mortgage involving an original principal obligation 
(excluding any premium collected under paragraph (a) of this section) 
that is greater than 95 percent of such value, an annual premium not 
exceeding .25 percent shall be collected for the first eight years of 
the mortgage term.
    (c) Applicability of certain provisions. The provisions of 
Sec. Sec. 203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 
203.268, 203.269, 203.280, 203.282, 203.284(c), and 203.284(g) are 
applicable to mortgages subject to premiums under this section.
    (d) Exception for streamline refinance. This section shall not apply 
to any mortgage insured pursuant to Sec. 203.43(c) if the mortgage to 
be refinanced was executed before July 1, 1991 and the

[[Page 201]]

new mortgage is executed on or after December 26, 1992.

[58 FR 41004, July 30, 1993, as amended at 60 FR 34138, June 30, 1995; 
61 FR 37801, July 19, 1996; 70 FR 37156, June 28, 2005]

                   Adjusted Mortgage Insurance Premium



Sec. 203.288  Discontinuance of adjusted premium charge.

    Notwithstanding any provision in the mortgage instrument, there 
shall be no adjusted mortgage insurance premium due the Commissioner on 
account of the prepayment of any mortgage on or after May 1, 1972.

[37 FR 8662, Apr. 29, 1972]

                          Voluntary Termination



Sec. 203.295  Voluntary termination.

    Upon request by the mortgagor and mortgagee the Commissioner may 
terminate the insurance contract on any mortgage under this part 
covering a 1-to-4 family residence. The mortgagee shall cancel the 
insurance endorsement on the mortgage insurance certificate or note upon 
receipt of notice from the Commissioner that the contract of insurance 
is terminated. Notwithstanding any provision in a mortgage instrument, 
there shall be no voluntary termination charge due the Commissioner on 
account of the voluntary termination of any mortgage insurance contract 
where the request for termination is received by the Commissioner on or 
after May 1, 1972.

[37 FR 8662, Apr. 29, 1972]

                    Termination of Insurance Contract



Sec. 203.315  Termination by conveyance to other than Commissioner.

    (a) For those mortgages to which the provisions of Sec. 203.368 
apply, the contract of insurance shall be terminated under the following 
circumstances:
    (1) The mortgagee notifies the Commissioner that it will not convey 
title to the Commissioner and will not file a claim for the insurance 
benefits when:
    (i) The mortgagee either acquires the property by any means, or
    (ii) Acquires the property and gives such notice during the 
redemption period; or
    (2) The mortgagee notifies the Commissioner that it will not file a 
claim for the insurance benefits when:
    (i) The property is bid in and acquired at foreclosure by a party 
other than the mortgagee, or
    (ii) After foreclosure of the mortgaged property by the mortgagee 
the property is redeemed.
    (b) For those mortgages to which the provisions as set forth in 
Sec. 203.368 do not apply, the contract of insurance shall be 
terminated under the following circumstances:
    (1) The mortgagee acquires the mortgaged property but does not 
convey it to the Commissioner;
    (2) The property is bid in and acquired at a foreclosure sale by a 
party other than the mortgagee;
    (3) After foreclosure the property is redeemed;
    (4) After foreclosure and during the redemption period the mortgagee 
gives notice that it will not tender the property to the Commissioner.

[52 FR 1327, Jan. 13, 1987]



Sec. 203.316  Termination by prepayment of mortgage.

    The contract of insurance shall be terminated if the mortgage is 
paid in full prior to its maturity.



Sec. 203.317  Termination by voluntary agreement.

    The contract of insurance shall be terminated if the mortgagor and 
mortgagee jointly request termination.



Sec. 203.318  Notice of termination by mortgagee.

    No contract of insurance shall be terminated until the mortgagee has 
given written notice thereof to the Commissioner within 15 calendar days 
from the occurrence of one of the approved methods of termination set 
forth in this subpart.

[45 FR 31716, May 14, 1980]



Sec. 203.319  Pro rata payment of premiums and charges.

    No contract of insurance shall be terminated until the mortgagee has 
paid to the Commissioner the pro rata portion of the current annual MIP 
or

[[Page 202]]

open-end insurance charge as set forth in this subpart.

[37 FR 8662, Apr. 29, 1972]



Sec. 203.320  Notice and date of termination by Commissioner.

    The Commissioner shall notify the mortgagee that the contract of 
insurance has been terminated and the effective termination date. The 
termination date shall be the last day of the month in which one of the 
following events has occurred:
    (a)(1) For those mortgages to which the provisions of Sec. 203.368 
apply, the date foreclosure proceedings were instituted by the 
mortgagee, or the property was otherwise acquired by the mortgagee or a 
party other than the mortgagee (including the mortgagor or other party 
as redemptor) if the mortgagee notifies the Commissioner that title will 
not be conveyed to the Commissioner and a claim for the insurance 
benefits will not be presented for payment.
    (2) For those mortgages to which the provisions of Sec. 203.368 do 
not apply, the date foreclosure proceedings were instituted, or the 
property was otherwise acquired by the mortgagee, if the mortgagee 
notifies the Commissioner that title will not be conveyed to the 
Commissioner.
    (b) The date the mortgage was prepaid in full.
    (c) The date a voluntary termination request is received by the 
Commissioner.

[36 FR 24508, Dec. 22, 1971, as amended at 52 FR 1327, Jan. 13, 1987]



Sec. 203.321  Effect of termination.

    Upon termination of the contract of insurance, the obligation to pay 
any subsequent periodic MIP or open-end insurance charge shall cease and 
all rights of the mortgagor and mortgagee shall be terminated, except as 
otherwise provided in this part.

[48 FR 28807, June 23, 1983]

                         Default Under Mortgage



Sec. 203.330  Definition of delinquency and requirement for notice 
of delinquency to HUD.

    (a) A mortgage account is delinquent any time a payment is due and 
not paid.
    (b) Once each month on a day prescribed by HUD, the mortgagee shall 
report to HUD all mortgages insured under this part that were delinquent 
on the last day of the month, or that were reported as delinquent the 
previous month. The report shall be made in a manner prescribed by HUD.

[71 FR 16234, Mar. 31, 2006]



Sec. 203.331  Definition of default, date of default, and requirement
of notice of default to HUD.

    (a) Default. If the mortgagor fails to make any payment or to 
perform any other obligation under the mortgage, and such failure 
continues for a period of 30 days, the mortgage shall be considered in 
default for the purposes of this subpart.
    (b) Date of default. For the purposes of this subpart, the date of 
default shall be considered as 30 days after:
    (1) The first uncorrected failure to perform any obligation under 
the mortgage; or
    (2) The first failure to make a monthly payment that subsequent 
payments by the mortgagor are insufficient to cover when applied to the 
overdue monthly payments in the order in which they became due.
    (c) Notice of default. Once each month, on a day prescribed by HUD, 
the mortgagee shall report to HUD all mortgages that were in default on 
the last day of the month, or that were reported as in default the 
previous month. The report shall be made in a manner prescribed by HUD.
    (d) Number of days in month. For the purposes of this section, each 
month shall be considered to have 30 days.

[71 FR 16234, Mar. 31, 2006]



Sec. 203.332  [Reserved]



Sec. 203.333  Reinstatement of defaulted mortgage.

    If after default and prior to the completion of foreclosure 
proceedings the

[[Page 203]]

mortgagor shall cure the default, the insurance shall continue as if a 
default had not occurred, provided the mortgagor pays to the mortgagee 
such expenses as the mortgagee has incurred in connection with the 
foreclosure proceedings and the mortgagee gives written notice of 
reinstatement to the Commissioner.

                        Continuation of Insurance



Sec. 203.340  Special forbearance.

    (a) If the conditions of Sec. 203.614 are met and special 
forbearance relief is granted pursuant to that section, the contract of 
insurance shall continue in force except as otherwise provided in this 
subpart.
    (b) The contract of insurance shall continue in force, except as 
otherwise provided in this subpart, when the conditions of this section 
which were effective prior to January 1, 1977, have been met and special 
forbearance relief is granted pursuant thereto prior to January 1, 1977.

[41 FR 49735, Nov. 10, 1976]



Sec. 203.341  Partial claim.

    If the conditions of Sec. 203.371 are met and a partial claim is 
paid pursuant to that section, the contract of insurance shall continue 
in force, except as otherwise provided in this subpart.

[62 FR 60129, Nov. 6, 1997]



Sec. 203.342  Mortgage modification.

    If a mortgage is recast pursuant to Sec. 203.616, the principal 
amount of the mortgage, as modified, shall be considered to be the 
``original principal balance of the mortgage'' as that term is used in 
Sec. 203.401.

[62 FR 60129, Nov. 6, 1997]



Sec. 203.343  Partial release, addition or substitution of security.

    (a) Except as provided in Sec. 203.389(n), a mortgagee shall not 
release the security or any part thereof, while the mortgage is insured, 
without the prior consent of the Commissioner.
    (b) A mortgagee may, with the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot under the following conditions:
    (1) The mortgagee obtains a good and valid first lien on the 
property to which the dwelling is removed.
    (2) All damages to the structure are repaired without cost to HUD.
    (3) The property to which the dwelling is removed is in an area 
known to be reasonably free from natural hazards or, if in a flood zone, 
the mortgagor will insure or reinsure under the Federal Flood Insurance 
Program.
    (c) A mortgagee may, without the prior consent of the Commissioner, 
accept an addition to, or substitution of, security for the purpose of 
removing the dwelling to a new lot under the following conditions.
    (1) The dwelling has survived an earthquake or other disaster with 
little damage, but continued location on the property might be 
hazardous.
    (2) The conditions stated in paragraph (b) of this section exist.
    (3) Immediately following the emergency removal the mortgagee 
notifies the Commissioner of the reasons for removal.

[41 FR 49735, Nov. 10, 1976]

                Forbearance Relief for Military Personnel



Sec. 203.345  Postponement of principal payments--mortgagors in
military service.

    In addition to the special forbearance relief afforded by Sec. Sec. 
203.340 through 203.342, if the mortgagor is a person in the military 
service (as defined in the Soldiers' and Sailors' Civil Relief Act of 
1940), the mortgagee may, by written agreement with the mortgagor, 
postpone for the period of military service and three months thereafter 
any part of the monthly payment which represents amortization of 
principal. The agreement shall contain a provision for the resumption of 
monthly payments after such period in amounts which will completely 
amortize the mortgage debt within the maturity as provided in the 
original mortgage. The agreement shall in no way affect the amount of 
the annual MIP which will continue to be calculated in accordance with 
the original amortization provisions of the mortgage.

[[Page 204]]



Sec. 203.346  Postponement of foreclosure--mortgagors in military service.

    If at any time during default the mortgagor is a ``Person in 
military service,'' as such term is defined in the Soldiers' and 
Sailors' Civil Relief Act of 1940, the period during which the mortgagor 
is in such service shall be excluded in computing the period within 
which the mortgagee shall commence foreclosure or acquire the property 
by other means as provided in Sec. 203.355 of this subpart. No 
postponement or delay in the prosecution of foreclosure proceedings 
during the period the mortgagor is in such military service shall be 
construed as failure on the part of the mortgagee to exercise reasonable 
diligence in prosecuting such proceedings to completion as required by 
this subpart.

[36 FR 24508, Dec. 22, 1971, as amended at 61 FR 36265, July 9, 1996]

                         Assignment of Mortgage



Sec. 203.350  Assignment of mortgage.

    (a) Assignment of modified mortgages pursuant to section 230, 
National Housing Act. HUD may accept an assignment of any mortgage 
covering a one-to-four family residence if the following requirements 
are met:
    (1) The mortgage was in default;
    (2) The mortgagee has modified the mortgage under Sec. 203.616 to 
cure the default and to provide for mortgage payments within the 
reasonable ability of the mortgagor to pay, at an interest rate not 
exceeding current market interest rates; and
    (3) Such other conditions that HUD may prescribe, which may include 
the requirement that the mortgagee continue to be responsible for 
servicing the mortgage.
    (b) Assignments pursuant to section 248, National Housing Act. 
Notwithstanding the provisions of paragraph (a), the Commissioner shall, 
upon application by the mortgagee, approve the assignment to the 
Commissioner of any mortgage insured pursuant to section 248 of the 
National Housing Act (see Sec. 203.43h) where the mortgagor has been in 
default for more than 90 days. The mortgagee may not request the 
Commissioner to accept an assignment until the mortgagee has submitted 
documents to the Commissioner showing that the requirements of Sec. 
203.604 have been met. HUD shall then notify the mortgagee of its 
approval of the mortgagee's actions under Sec. 203.604 and that the 
mortgagee may assign the mortgage to the Secretary, or HUD will specify 
what further action the mortgagee must take to meet the requirements of 
Sec. 203.604.
    (c) Assignment of mortgages insured pursuant to section 247, 
National Housing Act. Notwithstanding the provisions of paragraph (a) of 
this section, the Secretary will, upon application by the mortgagee, 
agree to accept an assignment of any mortgage insured pursuant to 
section 247 of the National Housing Act (Sec. 203.43i of this part) 
where the mortgagor has been in default for more than 180 days, provided 
that the requirements of Sec. 203.665 are satisfied.
    (d) Assignment of mortgages authorized by section 203(q), National 
Housing Act. Notwithstanding the provisions of paragraph (a) of this 
section, the Secretary will, upon application by the mortgagee, agree to 
accept assignment of any mortgage authorized by section 203(q) of the 
National Housing Act (Sec. 203.43j of this part) if
    (1) The mortgagor has been in default for more than 90 days for 
failure to make a monthly payment,
    (2) The requirements of Sec. 203.666 are satisfied, and
    (3) The date of default occurs before the mortgagor and the lessor 
execute a lease renewal or a new lease with a term of not less than five 
years beyond the maturity date of the mortgage, or with a term 
established by an arbitration award.

If the default is non-monetary, the date of default occurs prior to an 
action described in paragraph (d)(3) of this section, the requirements 
of Sec. 203.666 are satisfied, and the mortgagor has been in default 
for more than 30 days, the Secretary may in his or her discretion, upon 
application by the mortgagee, agree to accept an assignment of the 
mortgage. If the leasehold estate has terminated before the mortgage has 
been assigned, or title to the property conveyed, to the Secretary, and 
the mortgage is in default for any

[[Page 205]]

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]



Sec. 203.351  Application for insurance benefits and fiscal data.

    On the date the assignment of the mortgage is filed for record, the 
mortgagee shall forward to the Commissioner the prescribed application 
for insurance benefits and fiscal data pertaining to the mortgage 
transaction, together with the receipts covering all disbursements, as 
required by the fiscal data form. In addition, the following 
requirements shall be met:
    (a) Items to be included with application. The following items shall 
be forwarded to the Commissioner with the application:
    (1) Credit and security instrument. The original credit and security 
instruments assigned without recourse or warranty, except that no act or 
omission of the mortgagee shall have impaired the validity and priority 
of the mortgage.
    (2) Recorded assignment instrument. The original of the recorded 
assignment of mortgage. If the original of the assignment is not 
available, a copy shall be furnished and the original forwarded as soon 
as possible.
    (3) Hazard insurance. All hazard insurance policies held in 
connection with the mortgaged property, together with a copy of the 
mortgagee's notification to the carrier authorizing the amendment of the 
loss payable clause substituting the Commissioner as the mortgagee.
    (4) Rights and interests. An assignment of all rights and interests 
arising under the mortgage, and all claims of the mortgagee against the 
mortgagor or others arising out of the mortgage transaction.
    (5) Property. All property of the mortgagor held by the mortgagee or 
to which it is entitled (other than the cash items which are to be 
retained by the mortgagee).
    (6) Records and accounts. All records, ledger cards, documents, 
books, papers and accounts relating to the mortgage transaction.
    (7) Additional information. Any additional information or data which 
the Commissioner may require.
    (8) Title evidence. All title evidence held by the mortgagee. It 
need not be extended to include the recordation of the assignment. If a 
mortgagee's title policy is furnished, the Commissioner shall be a named 
insured under such policy.
    (b) Items to be retained by mortgagee. The mortgagee shall retain 
all cash amounts held or deposited for the account of the mortgagor or 
to which it is entitled under the mortgage transaction that have not 
been applied in reduction of the principal mortgage indebtedness.
    (c) Title evidence for mortgages insured under Sec. 203.43d as set 
forth in Sec. 203.385 shall accompany the application for insurance 
benefits.

[36 FR 24508, Dec. 22, 1971, as amended at 37 FR 7693, Apr. 10, 1972; 42 
FR 57435, Nov. 2, 1977]



Sec. 203.353  Certification by mortgagee.

    At the time of assignment of the mortgage, the mortgagee shall 
certify to the Commissioner that:
    (a) Priority of mortgage to liens. The mortgage is prior to all 
mechanics' and materialmen's liens filed of record, regardless of when 
such liens attach, and prior to all liens and encumbrances, or defects 
which may arise except such liens or other matters as may have been 
approved by the Commissioner;
    (b) Amount due. The amount stated in the instrument of assignment is 
actually due and owing under the mortgage;
    (c) Offsets or counterclaims. There are no offsets or counterclaims 
thereto and the mortgagee has a good right to assign.

[[Page 206]]

                             Claim Procedure



Sec. 203.355  Acquisition of property.

    (a) In general. Upon default of a mortgage, except as provided in 
paragraphs (b) through (i) of this section, the mortgagee shall take one 
of the following actions within nine months from the date of default, or 
within any additional time approved by the Secretary or authorized by 
Sec. Sec. 203.345 or 203.346. For mortgages where the date of default 
is on or after February 1, 1998, the mortgagee shall take one or a 
combination of the following actions within six months of the date of 
default or within such additional time approved by HUD or authorized by 
Sec. Sec. 203.345 or 203.346:
    (1) Obtain a deed-in-lieu of foreclosure (see Sec. Sec. 203.357, 
203.389 and 203.402(f) of this part) with title being taken in the name 
of the mortgagee or the Secretary;
    (2) Commence foreclosure;
    (3) Enter into a special forbearance agreement under Sec. 203.614;
    (4) Complete a modification of the mortgage under Sec. 203.616;
    (5) Complete a refinance of the mortgage under Sec. 203.43(c);
    (6) Complete an assumption under Sec. 203.512;
    (7) File a partial claim under Sec. 203.371; or
    (8) Initiate a pre-foreclosure sale under Sec. 203.370.
    (b) Vacant or abandoned property. With respect to defaulted 
mortgages on vacant or abandoned property, if the mortgagee discovers, 
or should have discovered, that the property is vacant or abandoned, the 
mortgagee must commence foreclosure within the later of 120 days after 
the date the property became vacant, or 60 days after the date the 
property is discovered, or should have been discovered, to be vacant or 
abandoned; but no later than the number of months from the date of 
default as provided in paragraph (a) of this section. The mortgagee must 
not delay foreclosure on vacant or abandoned property because of the 
requirements of Sec. 203.606.
    (c) Prohibition of foreclosure within time limits. If the laws of 
the State in which the mortgaged property is located, or Federal 
bankruptcy law:
    (1) Do not permit the commencement of foreclosure within the time 
limits described in paragraphs (a), (b), (g), (h) and (i) of this 
section, the mortgagee must commence foreclosure within 90 days after 
the expiration of the time during which foreclosure is prohibited; or
    (2) Require the prosecution of a foreclosure to be discontinued, the 
mortgagee must recommence the foreclosure within 90 days after the 
expiration of the time during which foreclosure is prohibited.
    (d) Property located on Indian land. Upon default of a mortgage on 
property located on Indian land insured pursuant to section 248 of the 
National Housing Act (see Sec. 203.43h of this part), the mortgagee 
must comply with Sec. Sec. 203.350(b) and 204.664 of this part.
    (e) Property located on Hawaiian home lands. Upon default of a 
mortgage on property located on Hawaiian home lands insured pursuant to 
section 247 of the National Housing Act (see Sec. 203.43i of this 
part), the mortgagee must comply with Sec. Sec. 203.350(c) and 203.665 
of this part.
    (f) Property located on the Allegany Reservation of the Seneca 
Nation of Indians. Upon default of a mortgage on property located on the 
Allegany Reservation of the Seneca Nation of Indians authorized by 
section 203(q) of the National Housing Act (see Sec. 203.43j of this 
part), the mortgagee must comply with Sec. Sec. 203.350(d) and 203.666 
of this part, unless the mortgagor and the lessor have executed a lease 
renewal or a new lease either with a term of not less than five years 
beyond the maturity date of the mortgage, or with a term established by 
arbitration award. If a lease renewal or new lease has been executed, 
the mortgagee must comply with paragraph (a) of this section.
    (g) Pre-foreclosure sale procedure. Within 90 days of the end of a 
mortgagor's participation in the pre-foreclosure sale procedure, or 
within the time limit described in paragraph (a) of this section, 
whichever is later, if no closing of an approved pre-foreclosure sale 
has occurred, the mortgagee must obtain a deed in lieu of foreclosure, 
with title being taken in the name of the mortgagee or the Secretary, or 
undertake one of the actions listed at

[[Page 207]]

Sec. 203.355(a). The end-of-participation date is defined as:
    (1) Four months after the date of commencement of participation, if 
there is no signed Contract of Sale at that time, unless extended by the 
Commissioner;
    (2) Six months after the date of commencement of participation, if 
there is a signed contract but settlement has not occurred by that date, 
unless extended by the Commissioner;
    (3) The date the mortgagee is notified of the mortgagor's withdrawal 
from the Pre-foreclosure Sale procedure; or
    (4) The date of the letter sent by the mortgagee to the mortgagor 
prior to the expiration of the customary participation period, 
terminating the mortgagor's opportunity to participate in the Pre-
foreclosure Sale procedure.
    (h) Special forbearance. If the mortgagor fails to meet the 
requirements of a special forbearance under Sec. 203.614 and the 
failure continues for 60 days, the mortgagee must undertake one of the 
actions listed at Sec. 203.355(a) within the time limit described in 
paragraph (a) of this section or 90 days after the mortgagor's failure 
to meet the special forbearance requirements, whichever is later.
    (i) Modification under Sec. 203.616, refinance under Sec. 
203.43(c), or assumption under Sec. 203.512. Provided that the 
mortgagee has established the mortgagor's eligibility within the time 
frame provided in Sec. 203.355(a), if a mortgagee enters into a loss 
mitigation relief measure (i.e., modification under Sec. 203.616, 
refinance under Sec. 203.43(c), or assumption under Sec. 203.512) and 
it fails, the six-month period provided in Sec. 203.355(a) is extended 
by an additional 90 days to allow the mortgagee to try another loss 
mitigation tool or go to foreclosure.

[57 FR 47970, Oct. 20, 1992, as amended at 59 FR 50143, Sept. 30, 1994; 
60 FR 57678, Nov. 16, 1995; 61 FR 35018, July 3, 1996; 62 FR 60129, Nov. 
6, 1997]



Sec. 203.356  Notice of foreclosure and pre-foreclosure sale; 
reasonable diligence requirements.

    (a) Notice of foreclosure and pre-foreclosure sale. The mortgagee 
must give notice to the Secretary, in a format prescribed by the 
Secretary, within 30 days after the institution of foreclosure 
proceedings. The mortgagee must give notice to the Secretary, in a 
format prescribed by the Secretary, within the time-frame prescribed by 
the Secretary, of the acceptance of any mortgagor into the pre-
foreclosure sale procedure.
    (b) Reasonable diligence. The mortgagee must exercise reasonable 
diligence in prosecuting the foreclosure proceedings to completion and 
in acquiring title to and possession of the property. A time frame that 
is determined by the Secretary to constitute ``reasonable diligence'' 
for each State is made available to mortgagees.

[61 FR 36265, July 9, 1996]



Sec. 203.357  Deed in lieu of foreclosure.

    (a) Mortgagors owning one property. In lieu of instituting or 
completing a foreclosure, the mortgagee may acquire property from one 
other than a corporate mortgagor by voluntary conveyance from the 
mortgagor who certifies that he does not own any other property subject 
to a mortgage insured or held by FHA. Conveyance of the property by deed 
in lieu of foreclosure is approved subject to the following 
requirements:
    (1) The mortgage is in default at the time the deed is executed and 
delivered;
    (2) The credit instrument is cancelled and surrendered to the 
mortgagor;
    (3) The mortgage is satisfied of record as a part of the 
consideration for such conveyance;
    (4) The deed from the mortgagor contains a covenant which warrants 
against the acts of the grantor and all claiming by, through, or under 
him and conveys good marketable title;
    (5) The mortgagee transfers to the Commissioner good marketable 
title accompanied by satisfactory title evidence.
    (b) Corporate mortgagors. A mortgagee may accept a deed in lieu of 
foreclosure from a corporate mortgagor in compliance with the 
requirements of paragraph (a) of this section, if the mortgagee obtains 
the prior written consent of the Commissioner.
    (c) Mortgagors owning more than one property. The mortgagee may 
accept a

[[Page 208]]

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.



Sec. 203.358  Direct conveyance of property.

    In acquiring the property or conveying the property to the 
Commissioner the mortgagee may arrange for the deed to be made directly 
to the Commissioner from the mortgagor or other grantor. The mortgagee 
shall be responsible for determining that such conveyance will comply 
with all of the provisions of this part conveying good marketable title 
and satisfactory title evidence.



Sec. 203.359  Time of conveyance to the Secretary.

    (a) For mortgages insured under firm commitments issued prior to 
November 19, 1992 or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's approved underwriter 
prior to November 19, 1992. After acquiring good marketable title to and 
possession of the property the mortgagee must transfer the property to 
the Secretary:
    (1) Within 30 days after acquiring possession of the mortgaged 
property by foreclosure or other means; or
    (2) Within such further time as may be necessary to complete the 
title examination and perfect the title.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992--(1) Conveyance by the mortgagee. The mortgagee must 
acquire good marketable title and transfer the property to the Secretary 
within 30 days of the later of:
    (i) Filing for record the foreclosure deed;
    (ii) Recording date of deed in lieu of foreclosure;
    (iii) Acquiring possession of the property;
    (iv) Expiration of the redemption period; or
    (v) Such further time as the Secretary may approve in writing.
    (2) Direct conveyance. In cases where the mortgagee arranges for a 
direct conveyance of the property to the Secretary, the mortgagee must 
ensure that the property is transferred to the Secretary within 30 days 
of the reasonable diligence time frame specified in Sec. 203.356 of 
this part.

[57 FR 47971, Oct. 20, 1992, as amended at 61 FR 36453, July 10, 1996]



Sec. 203.360  Notice of property transfer or pre-foreclosure sale 
and application for insurance benefits.

    (a) On the date the deed is filed for record the mortgagee shall 
notify the Commissioner on a form prescribed by him of the filing of 
such conveyance and shall assign, without recourse or warranty any or 
all claims which the mortgagee has acquired in connection with the 
mortgage transaction, and as a result of the foreclosure proceedings or 
other means by which the mortgagee acquired or conveyed such property, 
except such claims as may have been released with the approval of the 
Commissioner.
    (b) Within 30 days of the closing of an approved pre-foreclosure 
sale, the mortgagee shall notify the Commissioner on a form prescribed 
by him of the pre-foreclosure sale.

[36 FR 24508, Dec. 22, 1971, as amended at 59 FR 50144, Sept. 30, 1994]



Sec. 203.361  Acceptance of property by Commissioner.

    Upon receipt of notice of property transfer the Commissioner shall 
accept title to and possession of the property as of the date of the 
filing for record of the deed to the Commissioner, subject to compliance 
with the regulations in this part.



Sec. 203.362  Conditions for withdrawal of application for insurance benefits.

    With the consent of the Commissioner, a mortgagee may withdraw an 
application for insurance benefits if the mortgagee agrees that it will:
    (a) Accept a reconveyance of the property under a deed which 
warrants against the acts of the Commissioner and all claiming by, 
through, or under him; and

[[Page 209]]

    (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 Sec. 203.364.



Sec. 203.363  Effect of noncompliance with regulations.

    (a) For mortgages insured under firm commitments issued prior to 
November 19, 1992 or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's approved underwriter 
prior to November 19, 1992. If, for any reason, the mortgagee fails to 
comply with the regulations in this subpart, the Secretary may hold 
processing of the application for insurance benefits in abeyance for a 
reasonable time in order to permit the mortgagee to comply, or, in the 
alternative, the Secretary may reconvey title to the property to the 
mortgagee, in which event the application for insurance benefits shall 
be considered as cancelled without prejudice to the rights of the 
mortgagee to reapply for insurance benefits at a subsequent date.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992. If, for any reason, the mortgagee fails to comply 
with the regulations in this subpart, the Secretary may hold processing 
of the application for insurance benefits in abeyance for a reasonable 
time in order to permit the mortgagee to comply. In the alternative to 
holding processing in abeyance, the Secretary may reconvey title to the 
property to the mortgagee, in which event the application for insurance 
benefits shall be considered as cancelled and the mortgagee shall refund 
the insurance benefits to the Secretary as well as other funds required 
by Sec. 203.364 of this part. The mortgagee may reapply for insurance 
benefits at a subsequent date; provided, however, that the mortgagee may 
not be reimbursed for any expenses incurred in connection with the 
property after it has been reconveyed by the Secretary, or paid any 
debenture interest accrued after the date of initial conveyance or after 
the date conveyance was required by Sec. 203.359 of this part, 
whichever is earlier, and there will be deducted from the insurance 
benefits any reduction in the Secretary's estimate of the value of the 
property occurring from the time of reconveyance to the time of 
reapplication.

[57 FR 47971, Oct. 20, 1992, as amended at 61 FR 36453, July 10, 1996]



Sec. 203.364  Mortgagee's liability for property expenditures.

    Where the Secretary acquires a property and thereafter it becomes 
necessary for the Secretary to reconvey the property to the mortgagee 
due to the mortgagee's noncompliance with these regulations or the 
application for insurance benefits is withdrawn with the consent of the 
Secretary, the mortgagee shall reimburse the Secretary for all expenses 
incurred in connection with such acquisition and reconveyance. The 
reimbursement shall include interest on the amount of insurance benefits 
refunded by the mortgagee from the date the insurance benefits were paid 
to the date of refund at an interest rate set in conformity with the 
Treasury Fiscal Requirements Manual, and the Secretary's cost of holding 
the property, accruing on a daily basis, from the date the deed to the 
Secretary was filed for record to the date of reconveyance. These costs 
are based on the Secretary's estimate of the taxes, maintenance and 
operating expenses of the property, and administrative expenses. 
Appropriate adjustments shall be made by the Secretary on account of any 
income received from the property.

[57 FR 47971, Oct. 20, 1992]



Sec. 203.365  Documents and information to be furnished the 
Secretary; claims review.

    (a) Items to be furnished the Secretary. Within 45 days after the 
deed is filed for record, in the case of a conveyance claim; or, in the 
case of a claim arising from a pre-foreclosure sale, within 30 days 
after the closing of the pre-foreclosure sale, unless extended by the 
Commissioner, the mortgagee must forward to the Secretary:

[[Page 210]]

    (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 of the claim or after payment by periodic reviews of the 
mortgagee's records. Mortgagees must reimburse the Secretary for any 
claim and interest overpaid because of incorrect, unsupported, or 
inappropriate information provided by the mortgagee, or because of 
failure to provide correct information.
    (2) Mortgagees must maintain a claim file containing documentation 
supporting all information submitted for claim payment for at least 
three years after a claim has been paid. All claim files for claims paid 
during a period relating to an unresolved or ongoing claim review must 
be maintained until final resolution of such review. Information to be 
maintained in the claim file includes receipts covering all 
disbursements as required by the fiscal data form, ledger cards covering 
the mortgage transaction, and any additional information or data 
relevant to the mortgage transaction or insurance claim.
    (3) The Secretary may review any claim file at any time during the 
three-year period after the claim has been paid. Denial of access to any 
files will be grounds for withdrawal of the mortgagee's approved lender 
status, debarment by the Secretary, or immediate suspension of all claim 
payments.
    (4) Within 24 hours of a request by the Secretary, a mortgagee must 
make available for review, or forward to the Secretary, hard copies of 
identified claim files.
    (d) Statistical sampling. HUD may use statistical sampling in 
selecting claims to be reviewed and in determining the amount due the 
Secretary because of overpayment.

[57 FR 47972, Oct. 20, 1992, as amended at 59 FR 50144, Sept. 30, 1994]



Sec. 203.366  Conveyance of marketable title.

    (a) Satisfactory conveyance of title and transfer of possession. The 
mortgagee shall tender to the Commissioner a satisfactory conveyance of 
title and transfer of possession of the property. The deed or other 
instrument of conveyance shall convey good marketable title to the 
property, which shall be accompanied by title evidence satisfactory to 
the Commissioner.
    (b) Conveyance of property without good marketable title. (1) For 
mortgages insured under firm commitments issued on or after November 19, 
1992, or under direct endorsement processing where the credit worksheet 
was signed by the mortgagee's underwriter on or after November 19, 1992, 
if the title to the property conveyed by the mortgagee to the Secretary 
is not good and marketable, the mortgagee must correct any title defect 
within 60 days after receiving notice from the Secretary, or within such 
further time as the Secretary may approve in writing.
    (2) If the defect is not corrected within 60 days, or such further 
time as the Secretary approves in writing, the mortgagee must reimburse 
the Secretary for HUD's costs of holding the property, accruing on a 
daily basis, and interest on the amount of insurance benefits paid to 
the mortgagee at an interest rate set in conformity with the Treasury 
Fiscal Requirements Manual from the date of such notice to the date the 
defect is corrected or until the Secretary reconveys the property to the 
mortgagee, as described in paragraph (b)(3) of this section. The daily 
holding costs to be charged a mortgagee shall include the costs 
specified in Sec. 203.364 of this part.
    (3) If the title defect is not corrected within a reasonable time, 
as determined by HUD, the Secretary will,

[[Page 211]]

after notice, reconvey the property to the mortgagee and the mortgagee 
must reimburse the Secretary in accordance with Sec. Sec. 203.363 and 
203.364 of this part.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 47972, Oct. 20, 1992; 
61 FR 36453, July 10, 1996]



Sec. 203.367  Contents of deed and supporting documents.

    The deed and supporting accompanying documents shall be as follows:
    (a) Deed. A deed conveying the property to the Federal Housing 
Commissioner. The deed shall:
    (1) Contain covenants which warrant title against acts of the 
grantor, and all claiming by, through, or under said grantor, if the 
grantor is the mortgagee or mortgagor; if the grantor is a party other 
than the mortgagee or mortgagor, the special warranty covenants may be 
limited or amended to accord with the law of the particular 
jurisdiction.
    (2) Recite nominal consideration, if such recital is adequate under 
the laws of the State in which the property is located or such other 
consideration as may be necessary to support the deed.
    (b) Maps or survey. A map or diagram showing property location with 
reference to public streets or roads or a survey, if available. When a 
part of the property has been taken by condemnation proceedings or 
conveyance in lieu of condemnation, a map or diagram showing the part 
taken and the property remaining is required.
    (c) Credit documents. The original credit and security instruments, 
if available or a deficiency judgment, if any, duly assigned or endorsed 
by the mortgagee, without recourse, to the Commissioner.



Sec. 203.368  Claims without conveyance procedure.

    (a)(1) The requirements of this section apply to any insured 
mortgage subject to this subpart which was either insured pursuant to:
    (i) A conditional commitment issued on or after November 30, 1983 
or, as appropriate,
    (ii) An application for mortgage insurance endorsement under the 
Single Family Direct Endorsement Program, as provided in Sec. 
203.255(b), where the property appraisal report was signed by the 
mortgagee's underwriter on or after November 30, 1983.
    (2) The requirements of this section shall also apply to any other 
mortgages subject to this subpart where the mortgagee elects to provide 
the notice to HUD required by paragraph (d) of this section.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
the requirements of this section do not apply if the mortgaged property 
has been damaged as set out in Sec. 203.378.
    (c) Nothing in this section shall affect any rights or obligations 
arising under the procedures set forth in subpart C of this part.
    (d) After initiating proceedings to foreclose an insured mortgage 
within the coverage of paragraph (a)(1) of this section by judicial, 
statutory, or other means authorized by the mortgage instrument, the 
mortgagee shall furnish notice of the foreclosure to the Commissioner, 
containing such information as shall be prescribed by the Commissioner, 
together with a copy of the notice of sale, on or before the date of 
first publication, posting, or other notice. The mortgagee foreclosing 
an insured mortgage subject to this subpart and within the coverage of 
paragraph (a)(2) of this section may elect to become subject to this 
section by providing such notices to the Commissioner in accordance with 
the preceding sentence.
    (e) Where notice of the foreclosure sale is provided pursuant to 
paragraph (d) of this section, the Commissioner may elect to cause the 
mortgaged property to be appraised and to give written notice to the 
mortgagee, not less than five days prior to the date of the foreclosure 
sale, of the Commissioner's estimate of the fair market value of the 
mortgaged property, less adjustments as the Commissioner may deem 
appropriate (which may include, without limitation, the Commissioner's 
estimate of holding costs and resale costs that would be incurred if 
title to the mortgaged property were conveyed to the Commissioner). Such 
amount is referred to hereafter as the ``Commissioner's adjusted fair 
market value.''

[[Page 212]]

    (f) If the Commissioner fails to provide notice of the 
Commissioner's adjusted fair market value to the mortgagee not less than 
five days prior to the scheduled date of foreclosure sale, this section 
shall have no further application and Sec. Sec. 203.355 through 203.367 
shall apply: Provided, that a mortgagee which receives the 
Commissioner's notice at any time prior to the foreclosure sale may 
waive late receipt by so notifying the Commissioner, in which case this 
section shall apply.
    (g) If the Commissioner provides notice of the Commissioner's 
adjusted fair market value in accordance with paragraph (e) of this 
section the following shall be applicable:
    (1) The mortgagee shall tender a bid at the foreclosure sale in the 
amount of the Commissioner's adjusted fair market value.
    (2) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid at foreclosure sale in an amount equal to the 
Commissioner's adjusted fair market value, the mortgagee may elect to 
retain title to the property and to file a claim for the insurance 
benefits computed as provided in Sec. 203.401(b).
    (3) If a party other than the mortgagee acquires title to the 
mortgaged property either pursuant to a bid at foreclosure sale or 
through the redemption of the property in an amount not less than the 
Commissioner's adjusted fair market value, the mortgagee may file a 
claim for the insurance benefits computed as provided in Sec. 
203.401(b).
    (4) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid at foreclosure sale in an amount in excess of the 
Commissioner's adjusted fair market value, the mortgagee is deemed to 
have elected to retain title to the property and is limited to filing a 
claim for the insurance benefits computed as provided in Sec. 
203.401(b). In the event the mortgagee can show good cause for having 
bid an amount in excess of the Commissioner's adjusted fair market 
value, the Commissioner may, at his discretion, waive the provisions of 
this subparagraph and allow the mortgagee to convey title to the 
Commissioner and file a claim for the insurance benefits computed as 
provided in Sec. 203.401(a). A mortgagee which has elected to follow 
the provisions of this section pursuant to paragraph (a)(2) of this 
section and bids an amount in excess of the Commissioner's adjusted fair 
market value shall not be subject to the provisions of this 
subparagraph, and may elect to retain or convey title in filing a claim 
for the insurance benefits.
    (5) In any other case, the mortgagee may file a claim for insurance 
benefits only upon conveyance of title to the mortgaged property to the 
Commissioner.
    (h) If the Commissioner provides timely notice of the Commissioner's 
adjusted fair market value in accordance with paragraph (e), the 
Commissioner may require the mortgagee to advertise the upcoming sale in 
addition to the standard legal notices which may be required by state 
law.
    (i) Where a mortgagee files a claim for the insurance benefits 
without conveying title to the property to the Commissioner, as 
authorized by this section:
    (1) Sections 203.358 through 203.367 shall not be applicable.
    (2) The mortgagee shall assign to the Commissioner, without recourse 
or warranty, any or all claims which the mortgagee has acquired in 
connection with the mortgage transaction and as a result of the 
foreclosure proceedings or other means by which the mortgagee or party 
other than the mortgagee acquired such property, except such claims as 
may have been released with the approval of the Commissioner.
    (3) The mortgagee shall forward to the Commissioner:
    (i) Fiscal data pertaining to the mortgage transaction;
    (ii) The original credit and security instruments, if available, or 
a deficiency judgment, if any, duly assigned or endorsed by the 
mortgagee, without recourse, to the Commissioner; and
    (iii) Any additional information or data which the Commissioner may 
require.
    (4) The mortgagee shall retain all cash amounts held or deposited 
for the account of the mortgagor or to which the mortgagee is entitled 
under the mortgage transaction that have not been applied in reduction 
of the principal mortgage indebtedness. Cash

[[Page 213]]

amounts shall be itemized and deducted from the claim pursuant to Sec. 
203.403. Receipts for disbursements are to be retained by the mortgagee 
and are to be made available upon request by the Commissioner.
    (5) The mortgagee shall file its claim:
    (i) Within 30 days after the mortgagee acquired good marketable 
title to the property; or
    (ii) Within 30 days after a party other than the mortgagee acquired 
good marketable title to the property; or
    (iii) In redemption States, within 30 days after the mortgagor or 
another party redeemed the property or the redemption period has 
expired; or
    (iv) Within such other time as may be determined by the 
Commissioner.
    (6) In any case in which the insurance benefits paid include, 
pursuant to Sec. 203.402(c), hazard insurance premiums paid by the 
mortgagee, the portion of the hazard insurance premium allocable to the 
period after acquisition of title by the mortgagee or a third party 
shall be deducted from the mortgage insurance benefits otherwise 
payable.

(Approved by the Office of Management and Budget under control number 
2502-0347)

[52 FR 1327, Jan. 13, 1987, as amended at 61 FR 36453, July 10, 1996]



Sec. 203.369  Deficiency judgments.

    (a) Mortgages insured on or after March 28, 1988. (1) For mortgages 
insured pursuant to firm commitments issued on or after March 28, 1988, 
or pursuant to direct endorsement processing where the credit worksheet 
was signed by the mortgagee's underwriter on or after March 28, 1988, 
the Secretary may require the mortgagee diligently to pursue a 
deficiency judgment in connection with any foreclosure. With respect to 
claims filed for insurance benefits on such mortgages, any judgment 
obtained by the mortgagee must be assigned to the Secretary.
    (2) In cases where the Secretary requires the pursuit of a 
deficiency judgment and provides the mortgagee with the Secretary's 
estimate of the fair market value of the property, less adjustments, in 
accordance with Sec. 203.368(e) of this part, the mortgagee must tender 
a bid at the foreclosure sale in that amount, and must take all other 
appropriate steps in accordance with State law to obtain a deficiency 
judgment.
    (b) Mortgages insured before March 28, 1988. For mortgages insured 
pursuant to firm commitments issued before March 28, 1988, or pursuant 
to direct endorsement processing where the credit worksheet was signed 
by the mortgagee's underwriter before March 28, 1988, the Secretary may 
request that the mortgage diligently pursue a deficiency judgment in 
connection with the foreclosure. With respect to claims filed for 
insurance benefits on such mortgages, any judgment obtained by the 
mortgagee must be assigned to the Secretary.
    (c) In cases where pursuit of a deficiency judgment is requested or 
required under this section, the Commissioner, where the Commissioner 
determines it appropriate under State law requirements, may extend the 
otherwise applicable period of time within which a deficiency judgment 
(and other claims against the mortgagor) and related credit documents 
must be assigned to the Commissioner under Sec. 203.360, Sec. 203.367 
or Sec. 203.368 of this subpart.
    (d) In addition to meeting the requirements of Sec. 203.356, in 
cases where the Commissioner determines it necessary because of State 
law requirements, the Commissioner may also require (or request, as the 
Commissioner may determine) the mortgagee to provide the Commissioner 
with notice of the mortgagee's intent to institute foreclosure 
proceedings a reasonable amount of time before proceedings are 
instituted, in order that the Commissioner may be able effectively to 
require or request the mortgagee, in appropriate cases, to seek a 
deficiency judgment.

(The information collection requirements contained in this section have 
been approved by the Office of Management and Budget under control 
number 2535-0093)

[53 FR 4387, Feb. 16, 1988, as amended at 57 FR 47972, Oct. 20, 1992; 61 
FR 36453, July 10, 1996]



Sec. 203.370  Pre-foreclosure sales.

    (a) General. HUD will pay FHA insurance benefits to mortgagees in 
cases where, in accordance with all regulations and procedures 
applicable to pre-

[[Page 214]]

foreclosure sales, the mortgaged property is sold by the mortgagor, 
after default and prior to foreclosure, at its current fair market value 
(less adjustments as the Commissioner may deem appropriate) but for less 
than the mortgage loan amount currently outstanding.
    (b) Notification of mortgagor. The mortgagee shall give notice, 
according to prescribed procedures, of the opportunity to be considered 
for the pre-foreclosure sale procedure to each mortgagor in default. All 
notices to mortgagors must be in an accessible format, if requested, or 
if required by the person's known disability, as required by 24 CFR part 
9.
    (c) Eligibility for the Pre-foreclosure Sale Procedure. In order to 
be considered for the pre-foreclosure sale procedure, a mortgagor:
    (1) Must be an owner occupant in a single family residence that is 
security for a mortgage insured under this part, unless otherwise 
prescribed by the Secretary.
    (2) Must have an account in default, for such period as determined 
by the Secretary, which default is the result of an adverse and 
unavoidable financial situation.
    (3) Must have, at the time application is made to pursue a pre-
foreclosure sale, a mortgaged property whose current fair market value, 
compared to the amount needed to discharge the mortgage, meets the 
criterion established by the Secretary, unless a variance is granted by 
the Secretary.
    (4) Must have received an appropriate disclosure, as prescribed by 
the Secretary.

[59 FR 50144, Sept. 30, 1994, as amended at 61 FR 35018, July 3, 1996; 
72 FR 56161, Oct. 2, 2007]



Sec. 203.371  Partial claim.

    (a) General. Notwithstanding the conveyance, sale or assignment 
requirements for payment of a claim elsewhere in this part, HUD will pay 
partial FHA insurance benefits to mortgagees after a period of 
forbearance, the maximum length of which HUD will prescribe, and in 
accordance with this section.
    (b) Requirements. The following conditions must be met for payment 
of a partial claim:
    (1) The mortgagor has been delinquent for at least 4 months or such 
other time prescribed by HUD;
    (2) The amount of the arrearage has not exceeded the equivalent of 
12 monthly mortgage payments;
    (3) The mortgagor is able to resume making full monthly mortgage 
payments;
    (4) The mortgagor is not financially able to make sufficient 
additional payments to repay the arrearage within a time frame specified 
by HUD;
    (5) The mortgagor is not financially qualified to support monthly 
mortgage payments on a modified mortgage or on a refinanced mortgage in 
which the total arrearage is included; and
    (6) The mortgagor must have made a minimum number of monthly 
payments as prescribed by the Secretary on a case-by-case basis.
    (c) Repayment of the subordinate lien. The mortgagor must execute a 
mortgage in favor of HUD with terms and conditions acceptable to HUD for 
the amount of the partial claim under Sec. 203.414(a). HUD may require 
the mortgagee to be responsible for servicing the subordinate mortgage 
on behalf of HUD.
    (d) Application for insurance benefits. Along with the prescribed 
application for partial claim insurance benefits, the mortgagee shall 
provide HUD with the original credit instrument no later than 60 days 
after execution. The mortgagee shall provide HUD with the original 
security instrument, required by paragraph (c) of this section, no later 
than 6 months following the date of execution. If the mortgagee 
experiences a delay from the recording authority, it may request an 
extension of time, in writing, from HUD. If the mortgagee does not 
provide the original of the note and security instrument within the 
prescribed deadlines, the mortgagee shall be required to reimburse the 
amount of the claim paid, including the incentive.

[61 FR 35018, July 3, 1996, as amended at 62 FR 60130, Nov. 6, 1997; 72 
FR 56161, Oct. 2, 2007]

[[Page 215]]

                          Condition of Property



Sec. Sec. 203.375-203.376  [Reserved]



Sec. 203.377  Inspection and preservation of properties.

    The mortgagee, upon learning that a property subject to a mortgage 
insured under this part is vacant or abandoned, shall be responsible for 
the inspection of such property at least monthly, if the loan thereon is 
in default. When a mortgage is in default and a payment thereon is not 
received within 45 days of the due date, and efforts to reach the 
mortgagor by telephone within that period have been unsuccessful, the 
mortgagee shall be responsible for a visual inspection of the security 
property to determine whether the property is vacant. The mortgagee 
shall take reasonable action to protect and preserve such security 
property when it is determined or should have been determined to be 
vacant or abandoned until its conveyance to the Secretary, if such 
action does not constitute an illegal trespass. ``Reasonable action'' 
includes the commencement of foreclosure within the time required by 
Sec. 203.355(b) of this part.

[57 FR 47972, Oct. 20, 1992]



Sec. 203.378  Property condition.

    (a) Condition at time of transfer. When the property is transferred, 
or a mortgage is assigned to the Commissioner, the property shall be 
undamaged by fire, earthquake, flood, or tornado, except as set forth in 
this subpart.
    (b) Damage to property by waste. The mortgagee shall not be liable 
for damage to the property by waste committed by the mortgagor, its 
heirs, successors or assigns in connection with mortgage insurance 
claims paid on or after July 2, 1968.
    (c) Mortgagee responsibility. The mortgagee shall be responsible 
for:
    (1) Damage by fire, flood, earthquake, hurricane, or tornado;
    (2) Damage to or destruction of security properties on which the 
loans are in default and which properties are vacant or abandoned, when 
such damage or destruction is due to the mortgagee's failure to take 
reasonable action to inspect, protect and preserve such properties as 
required by Sec. 203.377 of this part, as to all mortgages insured on 
or after January 1, 1977; and
    (3) As to all mortgages insured under firm commitments issued on or 
after November 19, 1992, or under direct endorsement processing where 
the credit worksheet was signed by the mortgagee's underwriter on or 
after November 19, 1992, any damage of whatsoever nature that the 
property has sustained while in the possession of the mortgage if the 
property is conveyed to the Secretary without notice to and approval by 
the Secretary as required by Sec. 203.379 of this part.
    (d) Limitation. The mortgagee's responsibility for property damage 
shall not exceed the amount of its insurance claim as to a particular 
property.

[36 FR 34508, Dec. 22, 1971. Redesignated and amended at 41 FR 49735, 
Nov. 10, 1976; 57 FR 47973, Oct. 20, 1992; 58 FR 32057, June 8, 1993; 61 
FR 36265, July 9, 1996; 61 FR 36453, July 10, 1996]



Sec. 203.379  Adjustment for damage or neglect.

    (a) If the property has been damaged by fire, flood, earthquake, 
hurricane, or tornado, or, for mortgages insured on or after January 1, 
1977, the property has suffered damage because of the mortgagee's 
failure to take action as required by Sec. 203.377, the damage must be 
repaired before conveyance of the property or assignment of the mortgage 
to the Secretary, except under the following conditions:
    (1) If the prior approval of the Secretary is obtained, there will 
be deducted from the insurance benefits the Secretary's estimate of the 
cost of repairing the damage or any insurance recovery received by the 
mortgagee, whichever is greater.
    (2) If the property has been damaged by fire and was not covered by 
fire insurance at the time of the damage, or the amount of insurance 
coverage was inadequate to repair fully the damage, only the amount of 
insurance recovery received by the mortgagee, if any, will be deducted 
from the insurance benefits, provided the mortgagee certifies, at the 
time that a claim is filed for insurance benefits, that:
    (i) At the time the mortgage was insured, the property was covered 
by fire insurance in an amount at least equal

[[Page 216]]

to the lesser of 100 percent of the insurable value of the improvements, 
or the principal loan balance of the mortgage; and
    (ii) The insurer later cancelled this coverage or refused to renew 
it for reasons other than nonpayment of premium; and
    (iii) The mortgagee made diligent though unsuccessful efforts within 
30 days of any cancellation or non-renewal of hazard insurance, and at 
least annually thereafter, to secure other coverage or coverage under a 
FAIR Plan, in an amount described in paragraph (a)(2)(i) of this 
section, or if coverage to such an extent was unavailable at a 
reasonable rate, the greatest extent of coverage that was available at a 
reasonable rate; and
    (iv) The extent of coverage obtained by the mortgagee in accordance 
with paragraph (a)(2)(iii) of this section was the greatest available at 
a reasonable rate, or if the mortgagee was unable to obtain insurance, 
none was available at a reasonable rate; and
    (v) The mortgagee took the actions required by Sec. 203.377 of this 
part.
    (3) The certification requirements set out in paragraph (a)(2) of 
this section apply to any mortgage insured by HUD on or after September 
22, 1980, for which a claim has not been filed before September 30, 
1986. Any mortgage insured on or after September 22, 1980, for which a 
claim has been filed before September 30, 1986, but the claim has not 
been settled before that date, will be governed by Sec. 203.379(b) 
(1986) Edition as it existed immediately before September 30, 1986.
    (4)(i) As used in this section, reasonable rate means a rate that is 
not in excess of the rate or advisory rate set by the principal State-
licensed rating organization for essential property insurance in the 
voluntary market, or if coverage is available under a FAIR Plan, the 
FAIR Plan rate.
    (ii) If a State has neither a FAIR Plan nor a State-licensed rating 
organization for essential property insurance in the voluntary market, 
the mortgagee must provide to the HUD Field Office having jurisdiction, 
information concerning the lowest rates available from an insurer for 
the types of coverage involved, with a request for a determination of 
whether the rate is reasonable. HUD will determine the rate to be 
reasonable if it approximates the rate assessed for comparable insurance 
coverage applicable to similarly situated properties in a State that 
offers a FAIR Plan or maintains a State-licensed rating organization.
    (b) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992, the provisions of paragraph (a) of this section apply 
and, in addition, if the property has been damaged during the time of 
the mortgagee's possession by events other than fire, flood, earthquake, 
hurricane, or tornado, or if it was damaged notwithstanding reasonable 
action by the mortgagee as required by Sec. 203.377 of this part, the 
mortgagee must provide notice of such damage to the Secretary and may 
not convey until directed to do so by the Secretary. The Secretary will 
either:
    (1) Allow the mortgagee to convey the property damaged; or
    (2) Require the mortgagee to repair the damage before conveyance, 
and the Secretary will reimburse the mortgagee for reasonable payments 
not in excess of the Secretary's estimate of the cost of repair, less 
any insurance recovery.
    (c) In the event the damaged property is conveyed to the Secretary 
without prior notice or approval as provided in paragraphs (a) or (b) of 
this section, the Secretary may:
    (1) After notice, reconvey the property to the mortgagee and the 
mortgagee must reimburse the Secretary in accordance with Sec. Sec. 
203.363 and 203.364 of this part, or
    (2) Require the mortgagee to reimburse the Secretary for the greater 
of the Secretary's estimate of the cost of repair or any insurance 
recovery.

[57 FR 47973, Oct. 20, 1992, as amended at 61 FR 36265, July 9, 1996]



Sec. 203.380  Certificate of property condition.

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

[[Page 217]]

of the mortgage to the Secretary, the property was:
    (i) Undamaged by fire, flood, earthquake, hurricane or tornado; and
    (ii) As to mortgages insured or for which commitments to insure were 
issued on or after January 2, 1977, undamaged due to failure of the 
mortgagee to take action as required by Sec. 203.377; and
    (iii) As to mortgages insured under firm commitments issued on or 
after November 19, 1992, or under direct endorsement processing where 
the credit worksheet was signed by the mortgagee's underwriter on or 
after November 19, 1992, undamaged while the property was in the 
possession of the mortgage; or
    (2) Attach to its claim a copy of the Secretary's authorization to 
convey the property in damaged condition.
    (b) In the absence of evidence to the contrary, the mortgagee's 
certificate or description of the damage shall be accepted by the 
Secretary as establishing the condition of the property, as of the date 
of the filing of the deed or assignment of the mortgage.

[57 FR 47973, Oct. 20, 1992, as amended at 61 FR 36265, July 9, 1996; 61 
FR 36453, July 10, 1996]



Sec. 203.381  Occupancy of property.

    The mortgagee shall certify that the property is vacant and contains 
no personal property as of the date of filing for record of the deed to 
the Secretary or that the Secretary has consented to accept the property 
occupied.

[45 FR 59563, Sept. 10, 1980]



Sec. 203.382  Cancellation of hazard insurance.

    The mortgagee shall cancel any hazard insurance policy as of the 
date of the filing for record of the deed to the Commissioner subject to 
the following conditions:
    (a) The amount of the return premium due the mortgagee because of 
such cancellation may be calculated on a ``short-rate'' basis and 
reported on fiscal data supporting the application for debentures and 
the amount shall be deducted from the total amount claimed.
    (b) If the mortgagee's calculation of the return premium is less 
than the actual return, the amount of the difference between the actual 
refund and the calculated amount shall be remitted to the Commissioner, 
accompanied by the carrier's or agent's statement.
    (c) If the mortgagee's calculation of the return premium is more 
than the actual return, the mortgagee may file with the Commissioner a 
claim, supported by the carrier's or agent's statement of the amount of 
the refund, whereupon the Commissioner shall issue a check to the 
mortgagee in settlement of the claim.

               Property Title Transfers and Title Waivers



Sec. 203.385  Types of satisfactory title evidence.

    The following types of title evidence shall be satisfactory to the 
Commissioner:
    (a) Fee or owner's title policy. A fee or owner's policy of title 
insurance, a guaranty or guarantee of title, or a certificate of title, 
issued by a title company, duly authorized by law and qualified by 
experience to issue such instruments. If an owner's policy of title 
insurance is furnished, it shall show title in the Commissioner and 
inure to the benefit of his successors in office.
    (b) Mortgagee's policy of title insurance. A mortgagee's policy of 
title insurance supplemented by an Abstract and an Attorney's 
Certificate of Title covering the period subsequent to the date of the 
mortgage, the terms of the policy shall be such that the liability of 
the title company will continue in favor of the Commissioner after title 
is conveyed to him. The policy may be drawn in favor of the mortgagee 
and the Federal Housing Commissioner, ``as their interests may appear'', 
with the consent of the title company endorsed thereon;
    (c) Abstract and legal opinion. An abstract of title prepared by an 
abstract company or individual engaged in the business of preparing 
abstracts of title and accompanied by the legal opinion as to the 
quality of such title signed by an attorney at law experienced in 
examination of titles. If title evidence

[[Page 218]]

consists of an Abstract and an Attorney's Certificate of Title, the 
search shall extend for at least forty years prior to the date of the 
Certificate to a well recognized source of good title;
    (d) Torrens of similar certificate. A Torrens or similar title 
certificate; or
    (e) Title standard of U.S. or State government. Evidence of title 
conforming to the standards of a supervising branch of the Government of 
the United States or of any State or Territory thereof.



Sec. 203.386  Coverage of title evidence.

    Evidence of title shall be executed as of a date to include the 
recordation of the deed to the Commissioner. The evidence of title shall 
show that according to the public records, there are not, at such date, 
any outstanding prior liens, including any past-due and unpaid ground 
rents, general taxes or special assessments.



Sec. 203.387  Acceptability of customary title evidence.

    If the title and title evidence are such as to be acceptable to 
prudent lending institutions and leading attorneys generally in the 
community in which the property is situated, such title and title 
evidence shall be satisfactory to the Secretary and shall be considered 
as good and marketable. In cases of disagreement, the Secretary will 
make the final decision.

[57 FR 47974, Oct. 20, 1992]



Sec. 203.389  Waived title objections.

    The Commissioner shall not object to title by reason of the 
following matters:
    (a) Violations of a restriction based on race, color or creed, even 
where such restriction provides for a penalty of reversion or forfeiture 
of title or a lien for liquidated damage.
    (b)(1) Aviation easements, which were approved by the Secretary at 
the time of the origination of the mortgage, and other customary 
easements for public utilities, party walls, driveways, and other 
purposes.
    (2) Easements for public utilities along one or more of the property 
lines and extending not more than 10 feet therefrom and for drainage or 
irrigation ditches along the rear 10 feet of the property, provided the 
exercise of the rights thereunder do not interfere with any of the 
buildings or improvements located on the subject property.
    (c) Easements for underground conduits which are in place and do not 
extend under any buildings on the subject property;
    (d) Mutual easements for joint driveways constructed partly on the 
subject property and partly on adjoining property, provided the 
agreements creating such easements are of record;
    (e) Encroachments on the subject property by improvements on 
adjoining property where such encroachments do not exceed 1 foot, 
provided such encroachments do not touch any buildings or interfere with 
the use of any improvements on the subject property;
    (f) Encroachments on adjoining property by eaves and overhanging 
projections attached to improvements on subject property where such 
encroachments do not exceed 1 foot.
    (g) Encroachments on adjoining property by hedges, wooden or wire 
fences belonging to the subject property;
    (h) Encroachments on adjoining property by driveways belonging to 
subject property where such encroachments do not exceed 1 foot, provided 
there exists a clearance of at least 8 feet between the buildings on the 
subject property and the property line affected by the encroachment;
    (i) Variations between the length of the subject property lines as 
shown on the application for insurance and as shown by the record or 
possession lines, provided such variations do not interfere with the use 
of any of the improvements on the subject property and do not involve a 
deficiency of more than 2 percent with respect to the length of the 
front line or more than 5 percent with respect to the length of any 
other line;
    (j) Encroachments by garages or improvements other than those which 
are attached to or a portion of the main dwelling structure over 
easements for public utilities, provided such encroachment does not 
interfere with the use of the easement or the exercise of the rights of 
repair and maintenance in connection therewith;

[[Page 219]]

    (k) Violations of cost or set back restrictions which do not provide 
a penalty of reversion or forfeiture of title, or a lien for liquidated 
damages which may be superior to the lien of the insured mortgage. 
Violations of such restrictions which do provide for such penalties, 
provided such penalty rights have been duly released or subordinated to 
the lien of the insured mortgage, or provided a policy of title 
insurance is furnished expressly insuring the Commissioner against loss 
by reason of such penalties.
    (l) Customary building and use restrictions which:
    (1) Are coupled with a reversionary clause, provided there has been 
no violation prior to the date of the deed to the Commissioner; or
    (2) Are not coupled with a reversionary clause and have not been 
violated to a material extent.
    (m) Outstanding oil, water or mineral rights (or damage caused by 
the exercise of such rights) which are customarily waived by prudent 
leading institutions and leading attorneys in the community.
    (n) The voluntary or involuntary conveyance of a part of the subject 
property pursuant to condemnation proceedings or in lieu of condemnation 
proceedings, if:
    (1) The part conveyed does not exceed 10 percent by area of the 
property;
    (2) No damage to existing structures, improvements, or unrepaired 
damage to sewage, water, or paving has been suffered;
    (3) All of the payment received as compensation for the taking by 
condemnation or conveyance in lieu of condemnation has been applied to 
reduction of the mortgage indebtedness;
    (4) The conveyance occurred subsequent to insurance of the mortgage; 
and
    (5) There is included with the documents and information furnished 
the Commissioner with the application for insurance benefits, a 
statement by the mortgagee that the requirements of this paragraph have 
been met.
    (o) Federal tax liens and rights of redemption arising therefrom if 
the following conditions are observed. If the mortgagee acquires the 
property by foreclosure the mortgagee shall give notice to the Internal 
Revenue Service (IRS) of the foreclosure action. The Commissioner will 
not object to an outstanding right of redemption in IRS if: (1) The 
Federal tax lien was perfected subsequent to the date of the mortgage 
lien, and (2) The mortgagee has bid an amount sufficient to make the 
mortgagee whole if the property is in fact redeemed by the IRS.

[36 FR 34508, Dec. 22, 1971, as amended at 41 FR 49736, Nov. 10, 1976; 
72 FR 56161, Oct. 2, 2007]



Sec. 203.390  Waiver of title--mortgages or property formerly held
by the Secretary.

    (a) Mortgages sold by the Secretary. (1) If the Secretary sells a 
mortgage and such mortgage is later reassigned to him or the property 
covered by such mortgage is later conveyed to him, he will not object to 
title by reason of any lien or other adverse interest that was senior to 
the mortgage on the date of the original sale of such mortgage.
    (2) The Secretary will accept an assignment of a mortgage previously 
sold by him, where the mortgagee is unable to complete foreclosure 
because of a defect in the mortgage instrument, a defect in the mortgage 
transaction, or a defect in title which existed at or prior to the time 
the mortgage assignment was filed for record. In such instances, the 
Secretary will not object to title by reason of any such defect.
    (b) Property sold by the Secretary. (1) If a property held by the 
Secretary is sold by the Secretary who also insures a mortgage financing 
the sale, and the mortgage is later reassigned to the Secretary or the 
property covered by the mortgage is later conveyed to the Secretary, the 
Secretary will not object to title by reason of any lien or other 
adverse interest that was senior to the mortgage on the date the 
mortgage was filed for record, except where the lien or other adverse 
interest arose from a lien or interest that had already been recorded 
against the mortgagor.
    (2) The Secretary will accept an assignment of a mortgage executed 
in connection with the sale of property by the Secretary, where the 
mortgagee is unable to complete foreclosure because of a defect in the 
mortgage instrument, a defect in the mortgage transaction,

[[Page 220]]

or a defect in title which existed at or prior to the time the mortgage 
was filed for record, except where the defect arose from a lien or 
interest that had already been recorded against the mortgagor on the 
date that the mortgage was filed for record. Except for the case of a 
lien or interest that had already been recorded against the mortgagor, 
the Secretary will not object to title by reason of any of the above 
defects.

[36 FR 24508, Dec. 22, 1971, as amended at 58 FR 35370, July 1, 1993; 61 
FR 36265, July 9, 1996]



Sec. 203.391  Title objection waiver with reduced insurance benefits.

    Payment of an insurance claim will not automatically be refused 
solely because the title evidence reveals a condition of title not taken 
into consideration in the original appraisal and not covered by the 
provisions of Sec. 203.389 of this part, or not otherwise waived in 
writing by the Secretary. In such instances, the Secretary may, at his 
or her option, approve the payment of a claim if the mortgagee agrees to 
accept a reduction in insurance benefits considered adequate by the 
Secretary to compensate for any anticipated loss to the Mutual Mortgage 
Insurance Fund as a result of the existence of the title condition at 
the time of claim.

[57 FR 47974, Oct. 20, 1992]

                      Payment of Insurance Benefits



Sec. 203.400  Method of payment.

    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 at the time of payment except that where the mortgage is 
insured pursuant to section 223(e) of the Act such claim shall be paid 
in cash from the Special Risk Insurance Fund, unless the mortgagee files 
a written request with the application for payment in debentures. If 
such a request is made, the claim shall be paid by issuing debentures.

[36 FR 24508, Dec. 22, 1971; 43 FR 13511, Mar. 31, 1978]



Sec. 203.401  Amount of payment--conveyed and non-conveyed properties.

    (a) Conveyed properties. Where a claim for the insurance benefits is 
filed in accordance with this subpart, based on the conveyance of title 
to the mortgaged property to the Commissioner, the amount of the 
insurance benefits shall be computed by adding to the original principal 
balance of the mortgage (as increased by the amount of open-end advances 
made by the mortgagee and approved by the Commissioner) which was unpaid 
on the date of the institution of foreclosure proceedings, on the date 
of the acquisition of the property otherwise after default, or on the 
date the property was acquired by the Commissioner under a direct 
conveyance by the mortgagor, the amount of all payments made by the 
mortgagee and allowances for items set forth in Sec. 203.402, less all 
applicable items set forth in Sec. 203.403.
    (b) Claims without conveyance of title. (1) If the mortgagee 
acquires title to the mortgaged property pursuant to a bid amount equal 
to the Commissioner's adjusted fair market value and the mortgagee 
elects to retain title as provided in Sec. 203.368(g)(2), or if the 
mortgagee acquires title pursuant to a bid in excess of the 
Commissioner's adjusted fair market value (see Sec. 203.368(g)(4)), the 
amount of the insurance benefits shall be determined by deducting the 
amount bid at the sale from the original principal balance of the 
mortgage (as increased by the amount of open-end advances made by the 
mortgagee and approved by the Commissioner) which was unpaid on the date 
of institution of the foreclosure proceedings, and adding to the 
difference, if any, all applicable items set forth in Sec. 203.402 and 
subtracting therefrom all applicable items set forth in Sec. 203.403; 
provided however, that appropriate adjustment shall be made for any such 
items covered by proceeds of the foreclosure sale.
    (2) If a party other than the mortgagee acquires title to the 
mortgaged property pursuant to a bid at foreclosure sale not less in 
amount than the Commissioner's adjusted fair market value, the amount of 
the insurance benefits shall be determined by deducting the proceeds of 
the foreclosure sale

[[Page 221]]

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 Sec. 203.402 and subtracting 
therefrom all applicable items set forth in Sec. 203.403; provided, 
however, that appropriate adjustment shall be made for any such items 
covered by the proceeds of the foreclosure sale.
    (3) If the mortgagee acquires title to the mortgaged property 
pursuant to a bid not less in amount than the Commissioner's adjusted 
fair market value, and the mortgagor or another party redeems the 
property, the amount of the insurance benefits shall be determined by 
deducting the amount paid to redeem the property and received by the 
mortgagee from the original principal balance of that mortgage (as 
increased by the amount of open-end advances made by the mortgagee and 
approved by the Commissioner) which was unpaid on the date of the 
institution of foreclosure proceedings, and adding to the difference, if 
any, all applicable items set forth in Sec. 203.402 and subtracting 
therefrom all applicable items set forth in Sec. 203.403; provided 
however, that appropriate adjustments shall be made for any such items 
covered by that amount paid by the mortgagor or other party to redeem 
the property.
    (c) Pre-foreclosure Sales. Where a claim for insurance benefits is 
filed in accordance with this subpart, based on a pre-foreclosure sale 
approved by or on behalf of the Secretary (under the provisions of Sec. 
203.370), the amount of insurance benefits shall be computed by adding 
to the original principal balance of the mortgage (as increased by the 
amount of open-end advances made by the mortgagee and approved by the 
Commissioner) which was unpaid on the date of closing of the pre-
foreclosure sale, the amount of all applicable items set forth in Sec. 
203.402; provided however that appropriate adjustment shall be made for 
any such items covered by proceeds of the pre-foreclosure sale.
    (d) Final Payment. (1) The mortgagee may not file for any additional 
payments of its mortgage insurance claim after six months from payment 
by the Commissioner of the final payment except for:
    (i) Cases where the Commissioner requests or requires a deficiency 
judgment.
    (ii) Other cases where the Commissioner determines it appropriate 
and expressly authorizes an extension of time.
    (2) For the purpose of this section, the term final payment shall 
mean, in the case of claims filed for conveyed properties, the payment 
under subpart B of this part which is made by the Commissioner based 
upon the submission by the mortgagee of all required documents and 
information filed pursuant to Sec. 203.365. In the case of claims filed 
under claims without conveyance of title, final payment shall mean the 
payment which is made by the Commissioner based upon submission by the 
mortgagee of all required documents and information filed pursuant to 
Sec. Sec. 203.368 and 203.401(b). In the case of claims filed pursuant 
to pre-foreclosure sales, final payment shall mean the payment which is 
made by the Commissioner based upon submission by the mortgagee of all 
required documents and information filed pursuant to Sec. Sec. 203.370 
and 203.401(d).

[52 FR 1328, Jan. 13, 1987, as amended at 56 FR 3215, Jan. 29, 1991; 59 
FR 50144, Sept. 30, 1994]



Sec. 203.402  Items included in payment--conveyed and non-conveyed
properties.

    The insurance benefits paid in connection with foreclosed 
properties, whether or not conveyed to the Commissioner; and those 
properties conveyed to the Commissioner as a result of a deed in lieu of 
foreclosure; and those properties sold under an approved pre-foreclosure 
sale shall include the following items:
    (a) Taxes, ground rents, water rates, and utility charges that are 
liens prior to the mortgage.
    (b) Special assessments, which are noted on the application for 
insurance or which become liens after the insurance of the mortgage.
    (c) Hazard insurance premiums on the mortgaged property not in 
excess

[[Page 222]]

of a reasonable rate as defined in Sec. 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 Sec. 203.368;
    (f) Foreclosure costs or costs of acquiring the property otherwise 
(including costs of acquiring the property by the mortgagee and of 
conveying and evidencing title to the property to HUD, but not including 
any costs borne by the mortgagee to correct title defects) actually paid 
by the mortgagee and approved by HUD, in an amount not in excess of two-
thirds of such costs or $75, whichever is the greater. For mortgages 
insured on or after February 1, 1998, the Secretary will reimburse a 
percentage of foreclosure costs or costs of acquiring the property, 
which percentage shall be determined in accordance with such conditions 
as the Secretary shall prescribe. Where the foreclosure involves a 
mortgage sold by the Secretary on or after August 1, 1969, or a mortgage 
executed in connection with the sale of property by the Secretary on or 
after such date, the mortgagee shall be reimbursed (in addition to the 
amount determined under the foregoing) for any extra costs incurred in 
the foreclosure as a result of a defect in the mortgage instrument, or a 
defect in the mortgage transaction or a defect in title which existed at 
or prior to the time the mortgage (or its assignment by the Secretary) 
was filed for record, if the mortgagee establishes to the satisfaction 
of the Commissioner that such extra costs are over and above those 
customarily incurred in the area.
    (g)(1) For mortgages insured under firm commitments issued before 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter before 
November 19, 1992, reasonable payments made by the mortgagee, with the 
approval of the Secretary, for the purpose of protecting, operating, or 
preserving the property, or removing debris from the property.
    (2) For mortgages insured under firm commitments issued on or after 
November 19, 1992, or under direct endorsement processing where the 
credit worksheet was signed by the mortgagee's underwriter on or after 
November 19, 1992, reasonable payments made by the mortgagee, with the 
approval of the Secretary, for the purpose of protecting, operating, or 
preserving the property, or removing debris from the property prior to 
the time of conveyance required by Sec. 203.359 of this part.
    (3) Reasonable costs for performing the inspections required by 
Sec. 203.377 of this part and to determine if the property is vacant or 
abandoned are considered to be costs of protecting, operating or 
preserving the property.
    (h) Any uncollected mortgage interest allowed pursuant to an 
approved forbearance plan;
    (i) An amount which the Commissioner finds to be sufficient to 
compensate the mortgagee for any loss which it may have sustained on 
account of interest on debentures and the payment of any MIP and open-
end insurance charge by reason of its having postponed the institution 
of foreclosure proceedings or the acquisition of the property by other 
means under a mortgage to which the provisions of sections 302 and 306 
of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, 
apply during any part or all of the period of the mortgagor's military 
service and three months thereafter;
    (j) Charges for the administration, operation, maintenance, or 
repair of community-owned property or the maintenance or repair of the 
mortgaged property, paid by the mortgagee for the purpose of discharging 
an obligation arising out of a covenant filed for record prior to the 
issuance of the mortgage; and charges for the repair or maintenance of 
the mortgaged property required by, and in an amount approved by, the 
Secretary under Sec. 203.379 of this part.
    (k)(1) Except as provided in paragraphs (k)(1)(i) and (ii) of this 
section, for properties conveyed to the Secretary and endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the

[[Page 223]]

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 Sec. 203.405(b) from 
the date specified in Sec. 203.410, as applicable, to the date of claim 
payment, on the portion of the insurance benefits paid in cash.
    (i) When the mortgagee fails to meet any one of the applicable 
requirements of Sec. Sec. 203.355, 203.356(b), 203.359, 203.360, 
203.365, 203.606(b)(l), or 203.366 within the specified time and in a 
manner satisfactory to the Secretary (or within such further time as the 
Secretary may approve in writing), the interest allowance in such cash 
payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended;
    (ii) When the mortgagee fails to meet the requirements of Sec. 
203.356(a) within the specified time and in a manner satisfactory to the 
Secretary (or within such further time as the Secretary may specify in 
writing), the interest allowance in such cash payment shall be computed 
to a date set administratively by the Secretary.
    (2)(i) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec. 203.368 
and was endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec. 
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned from the date 
the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property to the date when payment of 
the claim is made, on the portion of the insurance benefits paid in cash 
if such portion had been paid in debentures, except that if the 
mortgagee fails to meet any of the applicable requirements of Sec. Sec. 
203.355, 203.356, and 203.368(i)(3) and (5) within the specified time 
and in a manner satisfactory to the Commissioner (or within such further 
time as the Commissioner may approve in writing), the interest allowance 
in such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (ii) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec. 203.368 
and was endorsed for insurance after January 23, 2004, an amount 
equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec. 203.405(b) 
from the date specified in Sec. 203.410, as applicable, to the date 
that the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec. 
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec. 203.405(b) 
from the date the mortgagee or a person other than the mortgagee 
acquires good marketable title to the mortgaged property to the date 
when payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any of 
the applicable requirements of Sec. Sec. 203.355, 203.356, and 
203.368(i)(3) and (5) of this chapter within the specified time and in a 
manner satisfactory to the Commissioner (or within such further time as 
the Commissioner may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended.
    (3)(i) Where a claim for insurance benefits is being paid following 
a pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner in accordance with Sec. 203.370, and the mortgage was 
endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:

[[Page 224]]

    (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 
Sec. 203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned, from the 
date of the closing of the pre-foreclosure sale to the date when payment 
of the claim is made, on the portion of the insurance benefits paid in 
cash, if such portion had been paid in debentures; except that if the 
mortgagee fails to meet any of the applicable requirements of Sec. 
203.365 within the specified time and in a manner satisfactory to the 
Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid following a 
pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner, in accordance with Sec. 203.370, and the mortgage was 
endorsed for insurance after January 23, 2004, an amount equivalent to 
the sum of:
    (A) Debenture interest at the rate specified in Sec. 203.405(b) 
from the date specified in Sec. 203.410, as applicable, to the date of 
the closing of the pre-foreclosure sale, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec. 
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec. 203.405(b) 
from the date of the closing of the pre-foreclosure sale to the date 
when the payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any of 
the applicable requirements of Sec. 203.365 within the specified time 
and in a manner satisfactory to the Commissioner (or within such further 
time as the Commissioner may approve in writing), the interest allowance 
in such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (l) Reasonable costs of appraisal under Sec. 203.368(e) or pursuant 
to Sec. 203.370;
    (m) Costs of additional advertising under 203.368(h);
    (n) Costs of foreclosure as computed in paragraph (f) of this 
section where the acquiring party is one other than the mortgagee, as 
provided in Sec. 203.368;
    (o) In any case in which the Commissioner, pursuant to Sec. 
203.369, requires or requests that the mortgagee seek a deficiency 
judgment, an amount necessary to reimburse the mortgagee for those 
additional costs incurred that exceed the costs of foreclosure. In those 
jurisidictions that require the initiation of a judicial foreclosure 
action in order to obtain a deficiency judgment, a mortgagee shall 
receive full reimbursement for the costs of the foreclosure action, 
where, but for the requested deficiency judgment, judicial foreclosure 
would not have been necessary.
    (p) An amount approved by HUD and paid to the mortgagor as 
consideration for the execution of a deed in lieu of foreclosure and, if 
authorized by HUD, an administrative fee approved by HUD paid to the 
mortgagee for its role in facilitating a successful deed in lieu of 
foreclosure, not to be subject to the payment of debenture interest 
thereon.
    (q) Reasonable costs incurred in evicting occupants and in removing 
personal property from acquired properties;
    (r) Notwithstanding any other provision in this section, the 
mortgagee will not be reimbursed for any expenses incurred in connection 
with the property after a reconveyance from the Secretary to the 
mortgagee as provided in Sec. 203.363(b) of this part.
    (s) Reasonable costs of the title search ordered by the mortgagee, 
in accordance with procedures prescribed by HUD, to determine the status 
of a mortgagor meeting all other criteria for approval to participate in 
the pre-foreclosure sale procedure, or to determine if a mortgagor meets 
the criteria for approval of the mortgagee's acceptance of a deed in 
lieu of foreclosure.

[[Page 225]]

    (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]



Sec. 203.402a  Reimbursement for uncollected interest.

    The mortgagee shall be entitled to receive an allowance in the 
insurance settlement for unpaid mortgage interest if the mortgagor fails 
to meet the requirements of a forbearance agreement entered into 
pursuant to Sec. 203.614 and this failure continues for a period of 60 
days. The interest allowance shall be computed to:
    (a) The earliest of the applicable following dates, except as 
provided in paragraph (b) of this section:
    (1) The date of the initiation of foreclosure;
    (2) The date of the acquisition of the property by the mortgagee by 
means other than foreclosure;
    (3) The date the property was acquired by the Commissioner under a 
direct conveyance from the mortgagor;
    (4) Ninety days following the date the mortgagor fails to meet the 
requirements of the forbearance agreement, or such other date as the 
Commissioner may approve in writing prior to the expiration of the 90-
day period; or
    (5) The date the mortgagee sends the mortgagor notice of eligibility 
to participate in the Pre-Foreclosure Sale procedure; or
    (b) The date foreclosure is initiated or a deed in lieu is obtained, 
or the date such actions were required by Sec. 203.355(c), whichever is 
earlier, if the commencement of foreclosure within the time limits 
described in Sec. 203.355(a), (b), (g), or (h) is precluded by:
    (1) The laws of the State in which the mortgaged property is 
located; or
    (2) Federal bankruptcy law.

[60 FR 57678, Nov. 16, 1995, as amended at 61 FR 35019, July 3, 1996]



Sec. 203.403  Items deducted from payment--conveyed and non-conveyed 
properties.

    There shall be deducted from the total of the added items in 
Sec. Sec. 203.401 and 203.402 the following cash items:
    (a) All amounts received by the mortgagee on account of the mortgage 
after the institution of foreclosure proceedings or the acquisition of 
the property by direct conveyance or otherwise after default.
    (b) All amounts received by the mortgagee from any source relating 
to the property on account of rent or other income after deducting 
reasonable expenses incurred in handling the property.
    (c) All cash retained by the mortgagee including amounts held or 
deposited for the account of the mortgagor or to which it is entitled 
under the mortgage transaction that have not been applied in reduction 
of the principal mortgage indebtedness.
    (d) With regard to claims filed pursuant to successful pre-
foreclosure sales, all amounts received by the mortgagee relating to the 
sale of the property.

[36 FR 24508, Dec. 22, 1971, as amended at 52 FR 1329, Jan. 13, 1987; 59 
FR 50145, Sept. 30, 1994]



Sec. 203.404  Amount of payment--assigned mortgages.

    Upon an acceptable assignment of a mortgage, the Commissioner shall 
pay to the mortgagee the unpaid principal balance of the loan at the 
time of assignment and an amount determined by:
    (a) Adding the following items:
    (1) Any accrued and unpaid mortgage interest.
    (2) Any advances made under the mortgage and approved by the 
Commissioner.
    (3) Reimbursement for such costs and attorney's fees as HUD finds 
were properly incurred in connection with the defaulted mortgage and its 
modification and assignment to HUD.
    (4) For mortgages endorsed for insurance on or before January 23, 
2004, an

[[Page 226]]

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 Sec. 
203.405(b), from the date specified in Sec. 203.410 to the date of 
claim payment on the portion of the insurance benefits paid in cash, 
except that when the mortgagee fails to meet any one of the requirements 
of Sec. Sec. 203.350(e), 203.351, and 203.353 of this chapter within 
the specified time and in a manner satisfactory to the Commissioner (or 
within such further time as the Commissioner may approve in writing), 
the interest allowance in such cash payment shall be computed only to 
the date on which the particular required action should have been taken 
or to which it was extended.
    (5) An administrative fee to the mortgagee for modifying the 
mortgage.
    (6) A fee for servicing the mortgage assigned to HUD, if HUD 
requires such servicing.
    (b) Deducting all cash retained by the mortgagee, including amounts 
held or deposited for the account of the mortgagor or to which it is 
entitled under the mortgage transaction that have not been applied in 
reduction of the principal mortgage indebtedness.
    (c) The mortgagee may not file for any additional payments of its 
mortgage insurance claim after six months from final payment by the 
Commissioner. For the purpose of this section, the term final payment 
shall mean the payment which is made by the Commissioner based upon the 
submission by the mortgagee of all required documents and information 
pursuant to Sec. 203.351 of this part.

[36 FR 24508, Dec. 22, 1971, as amended at 55 FR 283, Jan. 4, 1990; 56 
FR 3215, Jan. 29, 1991; 61 FR 35019, July 3, 1996; 71 FR 35994, June 22, 
2006]



Sec. 203.405  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year at the rate in effect as of the day the commitment was issued, 
or as of the date the mortgage was endorsed for insurance, whichever 
rate is higher. For applications involving mortgages originated under 
the single family Direct Endorsement program, debentures shall bear 
interest from the date of issue, payable semiannually on the first day 
of January and on the first day of July of each year at the rate in 
effect as of the date the mortgage was endorsed for insurance;
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average yield, 
for the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 years.

[71 FR 35994, June 22, 2006]



Sec. 203.406  Maturity of debentures.

    Debentures shall mature 20 years from the date of issue.



Sec. 203.407  Registration of debentures.

    Debentures shall be registered as to principal and interest.



Sec. 203.408  Form and amounts of debentures.

    Debentures issued under this part shall be in such form and amounts; 
and shall be subject to such term and conditions; and shall include such 
provisions for redemption, if any, as may be prescribed by the 
Secretary, with the approval of the Secretary of the Treasury; and may 
be in book entry or certificated registered form, or such other form as 
the Secretary by regulation may prescribe.

[59 FR 49816, Sept. 30, 1994]



Sec. 203.409  Redemption of debentures.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment date on three 
months' notice of redemption given in such manner as the Commissioner 
shall prescribe. The debenture interest on the debentures called for 
redemption shall cease on the semiannual interest payment date

[[Page 227]]

designated in the call notice. The Commissioner may include with the 
notice of redemption an offer to purchase the debentures at par plus 
accrued interest at any time during the period between the notice of 
redemption and the redemption date. If the debentures are purchased by 
the Commissioner after such call and prior to the named redemption date, 
the debenture interest shall cease on the date of purchase.



Sec. 203.410  Issue date of debentures.

    (a) Conveyed properties, claims without conveyance, pre-foreclosure 
sales-- Where the property is conveyed to the Commissioner, or the 
mortgagee or other party acquires title to the property under the claim 
without conveyance procedure or the pre-foreclosure sale procedure, 
debenture shall be dated:
    (1) If issued prior to September 2, 1964, or issued on or after such 
date and a certificate of claim is also issued, as of one of the dates 
as follows:
    (i) The foreclosure proceedings were instituted;
    (ii) The property was otherwise acquired by the mortgagee after 
default;
    (iii) The property was acquired by the Commissioner, if directly 
conveyed to the Commissioner from the mortgagor; or
    (iv) The property was acquired after default by a third party under 
the pre-foreclosure sale procedure.
    (2) If issued on or after September 2, 1964, and a certificate of 
claim is not issued, as of the date of default as defined in this part.
    (3) As of the day after the date to which mortgage interest is 
computed as specified in Sec. 203.402a, if the insurance settlement 
includes an allowance for uncollected interest in connection with a 
special forbearance.
    (b) Assigned mortgages. Where the mortgage is assigned to the 
Commissioner, debentures shall be dated as of the date of the 
assignment.
    (c) Notwithstanding paragraph (a) of this section, in connection 
with conveyed properties and claims without conveyance, debentures 
issued as reimbursement for expenditures made by a mortgagee after the 
date of default shall be dated as of the date the expenditure is 
actually made by the mortgagee.

[36 FR 24508, Dec. 22, 1971, as amended at 50 FR 3892, Jan. 29, 1985; 52 
FR 1329, Jan. 13, 1987; 59 FR 50145, Sept. 30, 1994; 60 FR 57678, Nov. 
16, 1995]



Sec. 203.411  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the mortgagee and the total amount of the mortgagee's 
claim, as approved by the Commissioner, may be adjusted by the issuance 
of a check in payment thereof.

[59 FR 49816, Sept. 30, 1994]



Sec. 203.412  Payment for foreclosure alternative actions.

    Notwithstanding the conveyance, sale, or assignment requirements for 
payment of a claim elsewhere in this part, HUD may pay the mortgagee, in 
accordance with procedures prescribed by HUD, for the following 
foreclosure alternative actions, in such amounts as HUD determines:
    (a) Assumptions under Sec. 203.512;
    (b) Special forbearance under Sec. Sec. 203.471 and 203.614;
    (c) Recasting or modification of defaulted mortgages under Sec. 
203.616, where the mortgagee is not reimbursed under Sec. 203.405(a);
    (d) Refinancing under Sec. 203.43(c).

[61 FR 35019, July 3, 1996]



Sec. 203.413  [Reserved]



Sec. 203.414  Amount of payment--partial claims.

    (a) Claim amount. Where a claim for partial insurance benefits is 
filed in accordance with Sec. 203.371, the amount of the insurance 
benefits shall consist of the arrearage not to exceed an amount 
equivalent to 12 monthly mortgage payments, and any costs prescribed by 
HUD related to the default.
    (b) Servicing fee. The claim may also include a payment for 
activities, such as servicing the subordinate mortgage, which HUD may 
require.

[61 FR 35019, July 3, 1996, as amended at 62 FR 60130, Nov. 6, 1997]

[[Page 228]]

                          Certificate of Claim



Sec. 203.415  Delivery of certificate of claim.

    (a) If the mortgage was accepted for insurance pursuant to a 
commitment issued prior to September 2, 1964, the mortgagee may, by 
filing a written request with the application for debentures, receive in 
addition to the debentures and the cash adjustment check, a certificate 
of claim issued in accordance with section 204(e) of the Act. This 
certificate shall become payable (if at all) as prescribed in section 
204(f) of the Act.
    (b) If the mortgage was accepted for insurance pursuant to a 
commitment issued on or after September 2, 1964, or under the Direct 
Endorsement, Lender Insurance, or Coinsurance programs, no certificate 
of claim will be issued.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 58349, Dec. 9, 1992; 62 
FR 30227, June 2, 1997]



Sec. 203.416  Amount and items of certificate of claim.

    The certificate shall be for an amount which the Commissioner 
determines to be sufficient to pay all amounts due under the mortgage 
and not covered by the amount of debentures and cash adjustment check. 
The certificate shall include a reasonable amount for necessary expenses 
incurred by the mortgagee in connection with the foreclosure proceedings 
or the acquisition of the mortgaged property otherwise and the 
conveyance thereof to the Commissioner, including reasonable attorneys' 
fees, unpaid interest, and cost of repairs to the property made by the 
mortgagee to remedy the waste.



Sec. 203.417  Rate of interest of certificate of claim.

    Each certificate of claim shall provide that there shall accrue to 
the holder thereof with respect to the face amount of such certificate, 
an increment at the rate of 3 percent per annum.

         Mutual Mortgage Insurance Fund and Distributive Shares



Sec. 203.420  Nature of Mutual Mortgage Insurance Fund.

    The Mutual Mortgage Insurance Fund shall consist of the General 
Surplus Account and the Participating Reserve Account.



Sec. 203.421  Allocation of Mutual Mortgage Insurance Fund income or loss.

    For any semiannual period in which Mutual Mortgage Insurance 
operations shall result in a net income, or loss, the Commissioner shall 
allocate, after taking into account the actuarial status of the entire 
Mutual Mortgage Insurance Fund, such net income or such loss to the 
General Surplus Account and/or to the Participating Reserve Account as 
the Commissioner may determine to be in accord with sound actuarial and 
accounting practice. In determining net income or loss, the Commissioner 
shall take into consideration all income received from fees, premiums 
and earnings on investments of the fund, operating expenses and 
provision for losses to the fund.

[56 FR 18948, Apr. 24, 1991]



Sec. 203.422  Right and liability under Mutual Mortgage Insurance Fund.

    No mortgagor or mortgagee shall have any vested right in a credit 
balance in either the General Surplus Account or the Participating 
Reserve Account. No mortgagor or mortgagee shall be subject to any 
liability arising under the mutuality of the Mutual Mortgage Insurance 
Fund.



Sec. 203.423  Distribution of distributive shares.

    (a) The Commissioner may provide for the distribution to the 
mortgagor of a share of the participating reserve account if the 
contract of insurance is terminated by:
    (1) Conveyance to one other than the Commissioner and a claim for 
the insurance benefits is not presented by the mortgage (Sec. 203.315), 
provided, however, in the case of a mortgage insured pursuant to an 
application for a conditional commitment received on or after May 19, 
1988, (or, as appropriate,

[[Page 229]]

an application for mortgage insurance endorsement under the Single 
Family Direct Endorsement program, as provided in Sec. 203.255, where 
the property appraisal report is signed by the mortgagee's underwriter 
on or after May 19, 1988, no distribution shall be made if the mortgagee 
forecloses the mortgage or accepts a deed-in-lieu of foreclosure;
    (2) Prepayment of the mortgage (Sec. 203.316); or
    (3) Voluntary agreement of the mortgagor and mortgagees (Sec. 
203.317).
    (b) The Commissioner shall determine the amount of the distributive 
share by multiplying the amount of the premium or premiums paid by the 
applicable distributive share percentage for mortgages insured in the 
year the mortgage was endorsed for insurance. The Commissioner shall 
determine the applicable distributive share percentage in an equitable 
manner and in accordance with sound financial and actuarial practice, 
taking into account the cumulative actual financial and actuarial 
experiences through the end of the most recent calendar year.

[48 FR 28806, June 23, 1983, as amended at 52 FR 1329, Jan. 13, 1987; 53 
FR 10530, Apr. 1, 1988; 61 FR 36453, July 10, 1996]



Sec. 203.424  Maximum amount of distributive shares.

    In no event shall a distributive share of the Participating Reserve 
Account exceed the aggregate scheduled annual premiums of the mortgagor 
to the year of termination of the insurance.



Sec. 203.425  Finality of determination.

    The determination of the Commissioner as to the amount to be paid to 
any mortgagor from the Mutual Mortgage Insurance Fund shall be final and 
conclusive.



Sec. 203.426  Inapplicability to housing in older declining urban areas.

    The provisions of Sec. Sec. 203.420 through 203.425 shall not apply 
to mortgages financing housing in declining urban areas meeting the 
requirements of Sec. 203.43a.



Sec. 203.427  Statute of limitations on payment of distributive shares.

    The Commissioner shall not distribute any distributive share to an 
eligible mortgagor under Sec. 203.423 beginning on the date which is 
six years after the date the Commissioner first transmitted written 
notification of eligibility to the last known address of the mortgagor, 
unless the mortgagor has applied in accordance with procedures 
prescribed by the Commissioner for payment of the share within the six-
year period. The Commissioner shall transfer any amounts no longer 
eligible for distribution under this section from the Participating 
Reserve Account to the General Surplus Account.

[59 FR 49816, Sept. 30, 1994]

             Sale, Assignment and Pledge of Insured Mortgage



Sec. 203.430  Sale of interests in insured mortgages.

    No mortgagee may sell or otherwise dispose of any insured mortgage, 
or group of insured mortgages, or any partial interest in such mortgage 
or mortgages by means of any agreement, arrangement or device except 
pursuant to this subpart.



Sec. 203.431  Sale of insured mortgage to approved mortgagee.

    An insured mortgage may be sold to another approved mortgagee. The 
seller shall notify HUD of the sale within 15 calendar days, on a form 
prescribed by HUD and acknowledged by the buyer.

[45 FR 27929, Apr. 25, 1980]



Sec. 203.432  Effect of sale of insured mortgage.

    When an insured mortgage is sold to another approved mortgagee, the 
buyer shall thereupon succeed to all the rights and become bound by all 
the obligations of the seller under the contract of insurance and the 
seller shall be released from its obligations under the contract, 
provided that the seller shall not be relieved of its obligation to pay 
mortgage insurance premiums until the notice required by Sec. 203.431 
is received by HUD.

[45 FR 27929, Apr. 25, 1980]

[[Page 230]]



Sec. 203.433  Assignments, pledges and transfers by approved mortgagee.

    (a) An assignment, pledge, or transfer of an insured mortgage or 
group of insured mortgages, not constituting a final sale, may be made 
by an approved mortgagee to another approved mortgagee provided the 
following requirements are met:
    (1) The assignor, pledgor or transferor shall remain the mortgagee 
of record.
    (2) The Commissioner shall have no obligation to recognize or deal 
with any party other than the mortgagee of record with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.
    (b) An assignment or transfer of an insured mortgage or group of 
insured mortgages may be made by an approved mortgagee to other than an 
approved mortgagee provided the requirements under paragraphs (a)(1) and 
(2) of this section are met and the following additional requirements 
are met:
    (1) The assignee or transferee shall be a corporation, trust or 
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved mortgagee that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to hold an insured mortgage or group of 
insured mortgages.
    (2) The assignment or transfer shall be made pursuant to an 
agreement under which the transferor or assignor is obligated to take 
one of the following alternate courses of action within 1 year from the 
date of the assignment or within such additional period of time as may 
be approved by the Commissioner:
    (i) The transferor or assignor shall repurchase and accept a 
reassignment of such mortgage or group of mortgages.
    (ii) The transferor or assignor shall obtain a sale and transfer of 
such mortgage or group of mortgages to an approved mortgagee.
    (c) Notice to or approval of the Commissioner is not required in 
connection with assignments, pledges or transfers pursuant to this 
section.



Sec. 203.434  Declaration of trust.

    A sale of a beneficial interest in a group of insured mortgages, 
where the interest to be acquired is related to all of the mortgages as 
an entirety, rather than an interest in a specific mortgage shall be 
made only pursuant to a declaration of trust, which has been approved by 
the Commissioner prior to any such sale.



Sec. 203.435  Transfers of partial interests.

    A partial interest in an insured mortgage may be transferred under a 
participation agreement without obtaining the approval of the 
Commissioner, if the following conditions are met:
    (a) Principal mortgagee. The insured mortgage shall be held by an 
approved mortgagee which, for the purposes of this section, shall be 
referred to as the principal mortgagee.
    (b) Interest of principal mortgagee. The principal mortgagee shall 
retain and hold for its own account a financial interest in the insured 
mortgage.
    (c) Qualification for holding partial interest. A partial interest 
in an insured mortgage shall be issued to and held only by:
    (1) A mortgagee approved by the Commissioner; or
    (2) A corporation, trust or organization (including, but not limited 
to any pension fund, pension trust, or profit-sharing plan) which 
certifies to the principal mortgagee that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to acquire a partial interest in an 
insured mortgage.
    (d) Participation agreement provisions. The participation agreement 
shall include provisions that:
    (1) The principal mortgagee shall retain title to the mortgage and 
remain the mortgagee of record under the contract of mortgage insurance.
    (2) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the principal mortgagee with respect to the 
rights, benefits and obligations of the mortgagee under the contract of 
insurance.
    (3) The mortgage documents shall remain in the custody of the 
principal mortgagee.

[[Page 231]]

    (4) The responsibility for servicing the insured mortgages shall 
remain with the principal mortgagee.

                       Graduated Payment Mortgages



Sec. 203.436  Claim procedure--graduated payment mortgages.

    All of the provisions of this subpart are applicable to mortgages 
insured under the provisions of Sec. 203.45 except as provided in this 
section.
    (a) Beginning of Amortization means the date one month prior to the 
date of the first monthly payment to principal or interest.
    (b) The phrases unpaid principal balance of the loan or principal of 
the mortgage which was unpaid as used in this subpart, shall be 
construed to refer to the outstanding mortgage amount as increased by 
any accrued mortgage interest which was unpaid pursuant to a financing 
plan approved by the Secretary.

[41 FR 42949, Sept. 29, 1976]

                       Cooperative Unit Mortgages



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

    (a) The provisions of Sec. Sec. 203.251(d), 203.366 and 203.440 
through 203.495 shall not apply to mortgages insured pursuant to section 
203(n) of the National Housing Act.
    (b) References in this subpart to the term deed and deed in lieu of 
foreclosure, or the word property when found in the phrases conveyance 
of property, acquisition of property, or other phrases indicating 
transfer of property, shall be construed to mean the assignment of the 
Corporate Certificate and Occupancy Certificate. However, when the use 
of such terms, as interpreted in light of section 203(n) of the National 
Housing Act, clearly indicates that reference to the dwelling unit is 
intended, such terms shall mean the dwelling unit identified in the 
Occupancy Certificate.
    (c) In addition to the requirements of Sec. 203.365, the mortgagee 
shall forward to the Secretary within 45 days after the transfer of the 
Corporate Certificate:
    (1) A statement certified by the officer of the corporation charged 
with maintenance of the Corporate Certificate Transfer Book that such 
book currently shows that the Secretary is the owner of the Corporate 
Certificate; and,
    (2) The Occupancy Certificate in the name of the Secretary.
    (d) The mortgagee shall tender to the Secretary good and marketable 
title to the Corporate Certificate and the exclusive right of permanent 
possession of the dwelling unit.
    (e) In lieu of the types of title evidence provided in Sec. 
203.385, the Secretary will accept a legal opinion signed by an attorney 
at law experienced in the examination of titles that the Secretary has 
good and marketable title to the Corporate Certificate and the exclusive 
right of possession of the dwelling unit.
    (f) The Secretary may accept assignment of mortgages insured under 
this part if it is determined by the Secretary that it is in the 
Department's interest to do so provided that the blanket mortgage is in 
default and the holder of such mortgage has announced an intention to 
foreclose.

[42 FR 40432, Aug. 10, 1977; 42 FR 57435, Nov. 2, 1977]

              Mortgages on Property Located on Indian Land



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

    (a) Exemptions. The provisions of Sec. 203.366 shall not apply to 
mortgages insured pursuant to section 248 of the National Housing Act.
    (b) Claim procedure. In addition to other actions which the 
mortgagee may take pursuant to this subpart in order to receive 
insurance benefits, a mortgagee shall be entitled to receive such 
benefits on a mortgage insured under Sec. 203.43h when (1) the 
mortgagor is more than 90 days in default; (2) the mortgagee has 
submitted appropriate documentation to the Secretary in accordance with 
Sec. 203.350(b); and (3) the Secretary has approved the assignment of 
the mortgage.

[[Page 232]]

    (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



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

    (a) Exemptions. The provisions of Sec. Sec. 203.351(a)(8), 
203.353(a), and 203.368, do not apply to mortgages insured pursuant to 
section 247 of the National Housing Act.
    (b) Claim procedure. Where the mortgage is 180 days or more in 
default, the mortgagee may assign the mortgage to the Secretary and file 
its claim for insurance benefits in accordance with the provisions of 
this subpart. No claim on an insured mortgage will be paid other than 
through assignment of the mortgage.
    (c) Notice of delinquency. Once each month on a day prescribed by 
HUD, the mortgagee shall notify the Department of Hawaiian Home Lands of 
all mortgages insured pursuant to section 247 of the National Housing 
Act on leaseholds of Hawaiian home lands that are delinquent on the last 
day of the month, or that were reported as delinquent the previous 
month. The notice is in addition to the requirement in Sec. Sec. 
203.330 and 203.331.

[52 FR 8068, Mar. 16, 1987. Correctly designated at 52 FR 9989, Mar. 27, 
1987 and 52 FR 28470, July 30, 1987, and amended at 55 FR 283, Jan. 4, 
1990; 71 FR 16234, Mar. 31, 2006]

     Mortgages on Property in Allegany Reservation of Seneca Indians



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

National Housing Act.

    (a) Applicability. This section shall apply to mortgages authorized 
by section 203(q) of the National Housing Act (Sec. 203.43j of this 
part) only when the date of default occurs before the mortgagor and the 
lessor execute a lease renewal or a new lease either with a term of not 
less than five years beyond the maturity date of the mortgage, or with a 
term established by an arbitration award.
    (b) Claims. In addition to other actions which the mortgagee may 
take pursuant to this subpart in order to receive insurance benefits, a 
mortgagee shall be entitled to receive such benefits when the Secretary 
has agreed to accept assignment of a mortgage in accordance with Sec. 
203.350(d) and the mortgagee has complied with Sec. Sec. 203.351 and 
203.353.
    (c) Exceptions. Notwithstanding Sec. 203.366, title to a leasehold 
estate conveyed to the Commissioner is not required to be marketable as 
to the term of the lease, provided that the mortgagee has taken any 
actions required by the Secretary to attempt to obtain a long-term 
renewal of the lease. Title evidence will be required in a form 
satisfactory to the Commissioner (see Sec. 203.385) unless the 
Commissioner agrees to accept title to a leasehold estate without title 
evidence.

[52 FR 48202, Dec. 21, 1987, and 53 FR 9869, Mar. 28, 1988]

                          Rehabilitation Loans



Sec. 203.440  Definitions.

    All of the definitions contained in Sec. 203.50 of this subchapter 
shall apply to Sec. Sec. 203.440 et seq. In addition the following 
terms shall have the meaning indicated:
    (a) Insured loan means a loan which has been insured as evidenced by 
the issuance of an Insurance Certificate or by the endorsement of the 
note for insurance by the Commissioner.
    (b) Contract of insurance means the agreement evidenced by the 
issuance of an Insurance Certificate or by the endorsement of the 
Commissioner upon the note given in connection with an insured loan, 
incorporating by reference the regulations in Sec. Sec. 203.440 et seq. 
and the applicable provisions of the Act.

[[Page 233]]

    (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]



Sec. 203.441  Insurance of loan.

    Under compliance with the commitment, or as provided in Sec. 
203.255(b) with respect to mortgages processed under the Direct 
Endorsement program, the Commissioner shall insure the loan evidencing 
the insurance by the issuance of an insurance certificate which will 
identify the regulations under which the loan is insured and the date of 
insurance.

[57 FR 58349, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993]



Sec. 203.442  Contract created by Insurance Certificate or by endorsement.

    The loan is insured from the date of the issuance of an Insurance 
Certificate or from the date of the endorsement of the note. The 
Commissioner and the lender shall thereafter be bound by the Act and the 
regulations in Sec. Sec. 203.440 et seq. with the same force and to the 
same extent as if a separate contract had been executed relating to the 
insured loan.



Sec. 203.443  Insurance premium.

    All of the provisions of Sec. Sec. 203.260 through 203.269 \1\ 
concerning mortgage insurance premiums, apply to loans insured under 
Sec. 203.50.
---------------------------------------------------------------------------

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

[47 FR 30753, July 15, 1982]



Sec. 203.457  Voluntary termination of contract.

    Upon request by the borrower and lender the Commissioner may 
terminate the insurance contract on the loan. The lender shall cancel 
the insurance endorsement on the insurance certificate or note upon 
receipt of notice from the Commissioner that the contract of insurance 
is terminated.

[37 FR 8662, Apr. 29, 1972]



Sec. 203.458  Termination by prepayment of loan.

    The contract of insurance shall be terminated if the loan is paid in 
full prior to its maturity.



Sec. 203.459  Notice of termination by lender.

    No contract of insurance shall be terminated until the lender has 
given written notice thereof to the Commissioner within 15 calendar days 
from the occurrence of one of the approved methods of termination set 
forth in this subpart.

[45 FR 31716, May 14, 1980]



Sec. 203.462  Pro rata payment of premium before termination.

    No contract of insurance shall be terminated until the lender has 
paid to the Commissioner the pro rata portion of the current annual 
insurance premium.



Sec. 203.463  Notice and date of termination by Commissioner.

    The Commissioner shall notify the lender that the contract of 
insurance has been terminated and the effective termination. The 
termination date shall be the last day of the month in which:
    (a) The loan was prepaid; or
    (b) A voluntary termination request is received by the Commissioner, 
or
    (c) The contract of insurance is otherwise terminated with the 
consent of the Commissioner.

[[Page 234]]



Sec. 203.464  Effect of termination.

    Upon termination of the contract of insurance, the obligation to pay 
any subsequent insurance premium shall cease and all rights of the 
borrower and lender shall be terminated.



Sec. 203.466  Definition of delinquency and requirement for notice 
of delinquency to HUD.

    (a) A mortgage account is delinquent any time a payment is due and 
not paid.
    (b) Once each month on a day prescribed by HUD, the mortgagee shall 
report to HUD all mortgages insured under this part that were delinquent 
on the last day of the month, or that were reported as delinquent the 
previous month. The report shall be made in a manner prescribed by HUD.

[71 FR 16234, Mar. 31, 2006]



Sec. 203.467  Definition of default, date of default, and requirement
of notice of default to HUD.

    (a) Default. If the mortgagor fails to make any payment or to 
perform any other obligation under the mortgage, and such failure 
continues for a period of 30 days, the mortgage shall be considered in 
default for the purposes of this subpart.
    (b) Date of default. For the purposes of this subpart, the date of 
default shall be considered as 30 days after:
    (1) The first uncorrected failure to perform any obligation under 
the mortgage; or
    (2) The first failure to make a monthly payment that subsequent 
payments by the borrower are insufficient to cover when applied to the 
overdue monthly payments in the order in which they became due.
    (c) Notice of default. Once each month, on a day prescribed by HUD, 
the mortgagee shall report to HUD all mortgages that were in default on 
the last day of the month, or that were reported as in default the 
previous month. The report shall be made on a form prescribed by HUD.
    (d) Number of days in month. For the purposes of this section, each 
month shall be considered to have 30 days.

[71 FR 16234, Mar. 31, 2006]



Sec. 203.468  [Reserved]



Sec. 203.469  Reinstatement of defaulted loan.

    If after default and prior to assignment by the lender of the loan 
to the Commissioner, the borrower shall pay to the lender all monthly 
payments in default, written notice shall be given to the Commissioner 
within 30 days and the insurance shall continue as if such default had 
not occurred.



Sec. 203.471  Special forbearance.

    If the mortgagee finds that a default is due to circumstances beyond 
the mortgagor's control, as defined by the Secretary, the mortgagee may 
grant special forbearance relief to the mortgagor in accordance with the 
conditions prescribed by the Secretary.

[61 FR 35019, July 3, 1996]



Sec. 203.472  Relief for borrower in military service.

    If the borrower is a person in military service, as defined in the 
Soldiers' and Sailors' Civil Relief Act of 1940, the lender may, by 
written agreement with the borrower, postpone for the period of military 
service, and 3 months thereafter, any part of the monthly payment, which 
represents amortization of principal. The agreement shall contain a 
provision for the resumption of monthly payments thereafter in amounts 
which will completely amortize the obligation within its original 
maturity. The agreement shall in no way affect the amount of the annual 
insurance premium which shall continue to be calculated in accordance 
with the original amortization provisions of the loan.



Sec. 203.473  Claim procedure.

    (a) A claim for insurance benefits on a loan secured by a first 
mortgage shall be made, and insurance benefits shall be paid, as 
provided in Sec. Sec. 203.350 through 203.414.
    (b) A claim for insurance benefits on a loan secured by other than a 
first mortgage shall be made, and insurance benefits shall be paid, as 
provided in Sec. Sec. 203.474 through 203.478. However, the lender may 
not, except with the approval of the Commissioner, proceed

[[Page 235]]

against the security and also make claim under the contract of 
insurance, but shall elect which method it desires to pursue.

[49 FR 21319, May 21, 1984, as amended at 61 FR 35019, July 3, 1996]



Sec. 203.474  Maximum claim period.

    A claim for insurance benefits on a loan secured by other than a 
first mortgage shall be filed within one year from the date of default, 
or within such additional period of time as may be approved by the 
Commissioner.

[49 FR 21319, May 21, 1984]



Sec. 203.476  Claim application and items to be filed.

    The claim for reimbursement on a loan secured by other than a first 
mortgage shall be made upon an application form prescribed by the 
Commissioner. The application shall be accompanied by:
    (a) The fiscal data pertaining to the loan transaction as required 
by the fiscal data form;
    (b) Receipts covering all disbursements as required by the fiscal 
data form;
    (c) The original note and the security held, assigned to the 
Commissioner without recourse of warranty, except that no act or 
omission of the lender shall have impaired the validity and priority of 
such security;
    (d) Any hazard insurance policies held on property serving as 
security for the loan, together with a copy of the lender's notification 
to the carrier authorizing the amendment of the loss payable clause 
substituting the Commissioner as the holder of the security;
    (e) The assignment to the Commissioner of all rights and interests 
arising under the loan, and all claims of the lender against the 
borrower or others arising out of the loan transaction;
    (f) Any title evidence held by the lender;
    (g) All property of the borrower held by the lender or to which it 
is entitled and, if payment is requested 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]



Sec. 203.477  Certificate by lender when loan assigned.

    At the time of the assignment of the loan, the lender shall certify 
to the Commissioner that:
    (a) The amount stated in the instrument of assignment is actually 
due and owing on the loan;
    (b) There are no offsets of counterclaims thereto, and the financial 
institution has a good right to assign.
    (c) The mortgage transaction did not involve a first mortgage and 
the mortgage is prior to all mechanics' and materialmen's liens filed of 
record, regardless of when such liens attach, and prior to all liens and 
encumbrances other than a first mortgage, or defects which may arise 
except such liens or other matters as may have been approved by the 
Commissioner.

[36 FR 34508, Dec. 22, 1971, as amended at 45 FR 33967, May 21, 1980; 49 
FR 21320, May 21, 1984]



Sec. 203.478  Payment of insurance benefits.

    (a) Claim computation, items included. Upon acceptable assignment of 
the note and security instruments, the Commissioner shall pay the lender 
an amount equal to the unpaid principal balance of the loan, plus:
    (1) Any accrued interest due as of the date of execution of the 
assignment of the loan to the Commissioner.
    (2) Any advances made previously under the provisions of the loan 
instrument and approved by the Commissioner.
    (3) Reimbursement for such reasonable collection costs, court costs 
and attorney's fees as may be approved by the Commissioner.

[[Page 236]]

    (4) Reimbursement for premiums paid on any hazard insurance policies 
held on the property.
    (5)(i) If payment is made in cash on a mortgage endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date insurance 
settlement occurs, except that where the lender fails to meet any one of 
the requirements of Sec. Sec. 203.476 and 203.477 and such failure 
continues for more than 30 days (or such further time as the 
Commissioner may approve in writing), the debenture interest shall be 
computed for 30 days or the extended period;
    (ii) If payment is made in cash on a mortgage endorsed for insurance 
after January 23, 2004, debenture interest at the rate specified in 
Sec. 203.479 from the date specified in Sec. 203.486 to the date 
insurance settlement occurs, except that where the lender fails to meet 
any one of the requirements of Sec. Sec. 203.476 and 203.477 and such 
failure continues for more than 30 days (or such further time as the 
Commissioner may approve in writing), the debenture interest shall be 
computed for 30 days or the extended period.
    (b) Claim computation, items deducted. If the lender is to receive 
cash, there shall be deducted from the total of the added items in 
paragraph (a) of this section any cash held by the lender or to which it 
is entitled including deposits made for the account of the borrower and 
which have not been applied in reduction of the principal loan 
indebtedness.
    (c) Method of payment. Payment of claim shall be made in the 
following manner:
    (1) Payment in cash. Unless a written request for payment in 
debentures is filed with the application, payment shall be made in cash.
    (2) Optional payment in debentures. Payment shall be made in 
debentures upon filing a written request with the application.
    (d) Special provision--payment in debentures. All of the provisions 
of Sec. Sec. 203.479 through 203.487 of this subpart shall be 
applicable in connection with the payment in debentures of insurance 
benefits under this subpart.

[36 FR 24508, Dec. 22, 1971, as amended at 71 FR 35994, June 22, 2006]



Sec. 203.479  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and on the first day of July 
every year at the rate in effect as of the date the commitment was 
issued, or as of the date the loan was endorsed for insurance, whichever 
rate is higher. The applicable rates of interest will be published twice 
each year as a notice in the Federal Register.
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average yield, 
for the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 years.

[71 FR 35994, June 22, 2006]



Sec. 203.481  Maturity of debentures.

    Debentures shall mature 10 years from the date of issue.



Sec. 203.482  Registration of debentures.

    Debentures shall be registered as to principal and interest.



Sec. 203.483  Forms and amounts of debentures.

    Debentures issued under this part shall be in such form and amounts; 
and shall be subject to such terms and conditions; and shall include 
such provisions for redemption, if any, as may be prescribed by the 
Secretary, with the approval of the Secretary of the Treasury; and may 
be in book entry or certificated registered form, or such other form as 
the Secretary by regulation may prescribe.

[59 FR 49816, Sept. 30, 1994]



Sec. 203.484  Redemption of debentures.

    Debentures shall, at the option of the Commissioner and with the 
approval of the Secretary of the Treasury, be redeemable at par plus 
accrued interest on any semiannual interest payment

[[Page 237]]

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



Sec. 203.486  Issue date of debentures.

    The debentures shall be issued as of the date of the execution of 
the assignment of the loan in accordance with the requirements of Sec. 
203.476(c).



Sec. 203.487  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a check 
in payment thereof.

[59 FR 49816, Sept. 30, 1994]



Sec. 203.488  Sale of interests in insured loans.

    No lender may sell or otherwise dispose of any insured loan or group 
of insured loans, or any partial interest in such loan or loans by means 
of any agreement, arrangement or device except pursuant to this subpart.



Sec. 203.489  Sale of insured loan to approved lender.

    An insured loan may be sold to another approved lender. The seller 
shall notify HUD of the sale within 15 calendar days, on a form 
prescribed by HUD and acknowledged by the buyer.

[45 FR 27929, Apr. 25, 1980]



Sec. 203.491  Effect of sale of insured loan.

    When an insured loan is sold to another approved lender, the buyer 
shall thereupon succeed to all the rights and become bound by all the 
obligations of the seller under the contract of insurance and the seller 
shall be released from its obligations under the contract, provided that 
the seller shall not be relieved of its obligation to pay insurance 
premiums until the notice required by Sec. 203.489 is received by HUD.

[45 FR 27929, Apr. 25, 1980]



Sec. 203.492  Assignments, pledges and transfers by approved lender.

    (a) An assignment, pledge or transfer of an insured loan or group of 
insured loans, not constituting a final sale, may be made by an approved 
lender to another approved lender provided the following requirements 
are met:
    (1) The assignor, pledgor or transferor shall remain the lender of 
record.
    (2) The Commissioner shall have no obligation to recognize or deal 
with any party other than the lender of record with respect to the 
rights, benefits and obligations of the lender under the contract of 
insurance.
    (b) An assignment or transfer of an insured loan or group of insured 
loans may be made by an approved lender to other than an approved lender 
provided the requirements under paragraphs (a) (1) and (2) of this 
section are met and the following additional requirements are met:
    (1) The assignee or transferee shall be a corporation, trust or 
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved lender that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to hold an insured loan or group of 
insured loans.
    (2) The assignment or transfer shall be made pursuant to an 
agreement under which the transferor or assignor is obligated to take 
one of the following alternate courses of action within one year from 
the date of the assignment or within such additional period of time as 
may be approved by the Commissioner:
    (i) The transferor or assignor shall repurchase and accept a 
reassignment of such loan or group of loans.
    (ii) The transferor or assignor shall obtain a sale and transfer of 
such loan or group of loans to an approved lender.
    (c) Notice to or approval of the Commissioner is not required in 
connection

[[Page 238]]

with assignments, pledges or transfers pursuant to this section.



Sec. 203.493  Declaration of trust.

    A sale of a beneficial interest in a group of insured loans, where 
the interest to be acquired is related to all of the loans as an 
entirety, rather than an interest in a specific loan, shall be made only 
pursuant to a declaration of trust, which has been approved by the 
Commissioner prior to any such sale.



Sec. 203.495  Transfers of partial interests.

    A partial interest in an insured loan may be transferred under a 
participation agreement without obtaining the approval of the 
Commissioner, if the following conditions are met:
    (a) Principal mortgagee. The insured loan shall be held by an 
approved lender which, for the purposes of this section, shall be 
referred to as the principal lender.
    (b) Interest of principal lender. The principal lender shall retain 
and hold for its own account a financial interest in the insured loan.
    (c) Qualification for holding partial interest. A partial interest 
in an insured loan shall be issued to and held only by:
    (1) A lender approved by the Commissioner; or
    (2) A corporation, trust or organization (including, but not limited 
to any pension fund, pension trust, or profit-sharing plan) which 
certifies to the principal lender that:
    (i) It has assets of $100,000 or more; and
    (ii) It has lawful authority to acquire a partial interest in an 
insured loan.
    (d) Participation agreement provisions. The participation agreement 
shall include provisions that:
    (1) The principal lender shall retain title to the loan and remain 
the lender of record under the contract of loan insurance.
    (2) The Commissioner shall have no obligation to recognize or deal 
with anyone other than the principal lender with respect to the rights, 
benefits, and obligations of the lender under the contract of insurance.
    (3) The loan documents shall remain in the custody of the principal 
lender.
    (4) The responsibility for servicing the insured loans shall remain 
with the principal lender.

                            Extension of Time



Sec. 203.496  Actions to be taken by mortgagee or lender.

    With respect to any action required by the mortgagee or lender 
within a period of time prescribed by this subpart the Commissioner may 
extend such period.

                               Amendments



Sec. 203.499  Effect of amendments.

    The regulations in this subpart may be amended by the Secretary at 
any time and from time to time, in whole or in part, but such amendment 
will not adversely affect the interests of a mortgagee under the 
contract of insurance on any mortgage or loan already insured, and will 
not adversely affect the interest of a mortgagee on any mortgage or loan 
to be insured for which either the Direct Endorsement or Lender 
Insurance mortgagee has approved the mortgagor and all terms and 
conditions of the mortgage or loan, or the Secretary has issued a firm 
commitment. In addition, such amendment will not adversely affect the 
eligibility of specific property if such property is covered by a 
conditional commitment issued by the Secretary, a certificate of 
reasonable value issued by the Secretary of Veterans Affairs, or an 
appraisal report approved by a Direct Endorsement or Lender Insurance 
underwriter.

[62 FR 30227, June 2, 1997]



                  Subpart C_Servicing Responsibilities

    Source: 41 FR 49736, Nov. 10, 1976, unless otherwise noted.

                          General Requirements



Sec. 203.500  Mortgage servicing generally.

    This subpart identifies servicing practices of lending institutions 
that HUD considers acceptable for mortgages insured by HUD. Failure to 
comply with this subpart shall not be a basis for denial of insurance 
benefits,

[[Page 239]]

but failure to comply will be cause for imposition of a civil money 
penalty, including a penalty under Sec. 30.35(c)(2), or withdrawal of 
HUD's approval of a mortgagee. It is the intent of the Department that 
no mortgagee shall commence foreclosure or acquire title to a property 
until the requirements of this subpart have been followed.

[70 FR 21578, Apr. 26, 2005]



Sec. 203.501  Loss mitigation.

    Mortgagees must consider the comparative effects of their elective 
servicing actions, and must take those appropriate actions which can 
reasonably be expected to generate the smallest financial loss to the 
Department. Such actions include, but are not limited to, deeds in lieu 
of foreclosure under Sec. 203.357, pre-foreclosure sales under Sec. 
203.370, partial claims under Sec. 203.414, assumptions under Sec. 
203.512, special forbearance under Sec. Sec. 203.471 and 203.614, and 
recasting of mortgages under Sec. 203.616. HUD may prescribe conditions 
and requirements for the appropriate use of these loss mitigation 
actions, concerning such matters as owner-occupancy, extent of previous 
defaults, prior use of loss mitigation, and evaluation of the 
mortgagor's income, credit and property.

[59 FR 50145, Sept. 30, 1994, as amended at 61 FR 35019, July 3, 1996]



Sec. 203.502  Responsibility for servicing.

    (a) After January 10, 1994, servicing of insured mortgages must be 
performed by a mortgagee that is approved by HUD to service insured 
mortgages. The servicer must fully discharge the servicing 
responsibilities of the mortgagee as outlined in this part. The 
mortgagee shall remain fully responsible to the Secretary for proper 
servicing, and the actions of its servicer shall be considered to be the 
actions of the mortgagee. The servicer also shall be fully responsible 
to the Secretary for its actions as a servicer.
    (b) Whenever servicing of any mortgage is transferred from one 
mortgagee or servicer to another, notice of the transfer of service 
shall be delivered:
    (1) By the transferor mortgagee or servicer to the mortgagor. The 
notification shall be delivered not less than 15 days before the 
effective date of the transfer and shall contain the information 
required in Sec. 3500.21(e)(2) of this title; and
    (2) By the transferee mortgagee or servicer:
    (i) To the mortgagor. The notification shall be delivered not less 
than 15 days before the effective date of the transfer and shall contain 
the information required in Sec. 3500.21(e)(2) of this title; and
    (ii) To the Secretary. This notification shall be delivered within 
15 days of the transfer, in a format prescribed by the Secretary.

[36 FR 24508, Dec. 22, 1971, as amended at 57 FR 47974, Oct. 20, 1992; 
57 FR 58349, Dec. 9, 1992; 59 FR 65448, Dec. 19, 1994; 61 FR 36266, July 
9, 1996]



Sec. 203.508  Providing information.

    (a) Mortgagees shall provide loan information to mortgagors and 
arrange for individual loan consultation on request. The mortgagee must 
establish written procedures and controls to assure prompt responses to 
inquiries. One or more of the following means of making information 
readily available to mortgagors is required:
    (1) An office staffed with competent personnel located within 200 
miles of the property, capable of providing timely responses to requests 
for information. Complete records need not be maintained in such an 
office if the staff is able to secure needed information and pass it on 
to the mortgagor.
    (2) Toll-free telephone service at an office capable of providing 
needed information.
    (b) All mortgagors must be informed of the system available for 
obtaining answers to loan inquiries, the office from which needed 
information may be obtained and reminded of the system at least 
annually. Toll-free telephone service need not be provided to a 
mortgagor other than at the office designated to serve the mortgagor nor 
other than from the immediate vicinity of the security property.
    (c) Within thirty days after the end of each calendar year, the 
mortgagee shall furnish to the mortgagor a statement of the interest 
paid, and of the taxes disbursed from the escrow account during the 
preceding year. At

[[Page 240]]

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

(The information collection requirements contained in paragraph (c) were 
approved by the Office of Management and Budget under control number 
2502-0235)

[41 FR 49736, Nov. 10, 1976, as amended at 48 FR 28986, June 24, 1983; 
59 FR 65448, Dec. 19, 1994]



Sec. 203.510  Release of personal liability.

    (a) Procedures. The mortgagee shall release a selling mortgagor from 
any personal liability for payment of the mortgage debt, if release is 
permitted by Sec. 203.258 of this part, in accordance with the 
following procedures:
    (1) The mortgagee receives a request for a creditworthiness 
determination for a prospective purchaser of all or part of the 
mortgaged property;
    (2) The mortgagee or servicer performs a creditworthiness 
determination under Sec. 203.512(b)(1) of this part if the mortgagee or 
servicer is approved for participation in the Direct Endorsement 
program, or the mortgagee requests a creditworthiness determination by 
the Secretary;
    (3) The prospective purchaser is determined to be creditworthy under 
the standards applicable when a release of the selling mortgagor is 
intended;
    (4) The prospective purchaser assumes personal liability by agreeing 
to pay the mortgage debt; and
    (5) The mortgagee provides the selling mortgagor with a release of 
personal liability on a form approved by the Secretary.
    (b) Release after 5 years. (1) If a selling mortgagor is not 
released under the procedures described in paragraph (a) of this 
section, either because no request for a creditworthiness determination 
is submitted under paragraph (a)(1) of this section, or because there is 
no affirmative determination of creditworthiness under paragraph (a)(3) 
of this section, then the selling mortgagor is automatically released 
from any personal liability for payment of the mortgage debt because of 
section 203(r) of the National Housing Act if:
    (i) The purchasing mortgagor has assumed personal liability by 
agreeing to pay the mortgage debt;
    (ii) Five years have elapsed after the assumption; and
    (iii) The purchasing mortgagor is not in default under the mortgage 
at the end of the five-year period.
    (2) If the conditions of this paragraph (b) for a release are 
satisfied, the mortgagee shall provide a written release upon request to 
the selling mortgagor.
    (3) This paragraph (b) only applies to a mortgage originated 
pursuant to an application by the mortgagor on or after December 1, 1986 
on a form approved by the Secretary.
    (c) Mortgagee to provide notice. A mortgagee shall inform mortgagors 
(including prospective mortgagors seeking information) about the 
procedures for release of personal liability by providing a notice 
approved by the Secretary when required by the Secretary.

[58 FR 42649, Aug. 11, 1993]



Sec. 203.512  Free assumability; exceptions.

    (a) Policy of free assumability with no restrictions. A mortgagee 
shall not impose, agree to or enforce legal restrictions on conveyance, 
as defined in Sec. 203.41(a)(3) of this part, or restrictions on 
assumption of the insured mortgage, unless specifically permitted by 
this part or contained in a junior lien granted to the mortgagee after 
settlement on the insured mortgage.
    (b) Credit review. If approval is required by the mortgage, the 
mortgagee shall not approve the sale or other transfer of all or part of 
the mortgaged property, or the sale or transfer of a beneficial interest 
in a trust owning all or part of the property, whether or not any person 
acquires personal liability

[[Page 241]]

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 Sec. 
203.258 of this part because the property will not be a primary 
residence or a secondary residence permitted by that section.
    (d) Due-on-sale clause. Each mortgage shall contain a due-on-sale 
clause permitting acceleration, in a form prescribed by the Secretary. 
If a sale or other transfer occurs without mortgagee approval and a 
prohibition in paragraphs (b) or (c) of this section applies, a 
mortgagee shall enforce this section by requesting approval from the 
Secretary to accelerate the mortgage, provided that acceleration is 
permitted by applicable law. The mortgagee shall accelerate if approval 
is granted. This paragraph applies only if the application by the 
mortgagor on a form approved by the Secretary is dated on or after 
December 1, 1986.

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

                     Payments, Charges and Accounts



Sec. 203.550  Escrow accounts.

    (a) It is the mortgagee's responsibility to make escrow 
disbursements before bills become delinquent. Mortgagees must establish 
controls to insure that bills payable from the escrow fund or the 
information needed to pay such bills is obtained on a timely basis. 
Penalties for late payments for items payable from the escrow account 
must not be charged to the mortgagor unless it can be shown that the 
penalty was the direct result of the mortgagor's error or omission. The 
mortgagee shall use the procedures set forth in Sec. 3500.17 of this 
title, implementing Section 10 of the Real Estate Settlement Procedures 
Act (12 U.S.C. 2609), to compute the amount of the escrow, the methods 
of collection and accounting, and the payment of the bills for which the 
money has been escrowed.
    (b) [Reserved]
    (c) In the case of escrow accounts created for purposes of Sec. 
203.52 or Sec. 234.64 of this chapter, mortgagees may estimate escrow 
requirements based on the best information available as to probable 
payments that will be required to be made from the account on a periodic 
basis throughout the period during which the account is maintained.
    (d) The mortgagee shall not institute foreclosure when the only 
default of the mortgagor occupant is a present inability to pay a 
substantial escrow shortage, resulting from an adjustment pursuant to 
this section, in a lump sum.
    (e) When the contract of mortgage insurance is terminated 
voluntarily or because of prepayment in full, sums in the escrow account 
to pay the mortgage insurance premiums shall be remitted to HUD with a 
form approved by the Secretary for reporting the voluntary termination 
of prepayment. Upon prepayment in full sums held in escrow for taxes and 
hazard insurance shall be released to the mortgagor promptly.

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

[41 FR 49736, Nov. 10, 1976, as amended at 57 FR 9611, Mar. 19, 1992; 57 
FR 27927, June 23, 1992; 59 FR 53901, Oct. 26, 1994; 60 FR 8812, Feb. 
15, 1995]



Sec. 203.552  Fees and charges after endorsement.

    (a) The mortgagee may collect reasonable and customary fees and 
charges from the mortgagor after insurance endorsement only as provided 
below. The mortgagee may collect these fees or charges from the 
mortgagor only to the extent that the mortgagee is not reimbursed for 
such fees by HUD.
    (1) Late charges as set forth in Sec. 203.25;
    (2) Charges for processing or reprocessing a check returned as 
uncollectible; (Where bank policy permits, the mortgagee must deposit a 
check for collection a second time before assessing a bad check charge);

[[Page 242]]

    (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 Sec. 203.368(e) and cost 
of advertising pursuant to Sec. 203.368(h)) when a case has been 
referred for foreclosure in accordance with the provisions of this part 
after a firm decision to foreclose if foreclosure is not completed 
because of a reinstatement of the account. (No attorney's fee may be 
charged for the services of the mortgagee's or servicer's staff attorney 
or for the services of a collection attorney other than the attorney 
handling the foreclosure.)
    (10) The service charge provided for by Sec. 203.23(c) and escrow 
charges in accordance with Sec. 203.23(a);
    (11) A trustee's fee if the security instrument in deed-of-trust 
states provides for payment of such a fee for execution of a 
satisfactory, release, or trustee's deed when the deed of trust is paid 
in full; and
    (12) Such other reasonable and customary charges as may be 
authorized by the Secretary. (This shall not include:
    (i) Charges for servicing activities of the mortgagee or servicer;
    (ii) Fees charged by independent tax servicer organizations which 
contract to furnish data and information necessary for the payment of 
property taxes,
    (iii) Satisfaction, termination, or reconveyance fees when a 
mortgage is paid in full (other than as provided in paragraph (a)(11) of 
this section), or
    (iv) The fee for recordation of a satisfaction of the mortgage in 
states where recordation is the responsibility of the mortgagee.)
    (13) Where permitted by the security instrument, attorney's fees and 
expenses actually incurred in the defense of any suit or legal 
proceeding wherein the mortgagee shall be made a party thereto by reason 
of the mortgage; (No attorney's fee may be charged for the services of 
the mortgagee's or servicer's staff attorney.)
    (14) Property preservation expenses incurred pursuant to Sec. 
203.377.
    (b) reasonable and customary fees must be predicated upon the actual 
cost of the work performed including out-of-pocket expenses. Directors 
of HUD Area and Insuring Offices are authorized to establish maximum 
fees and charges which are reasonable and customary in their areas. 
Except as provided in this part, no fee or charge shall be based on a 
percentage of either the face amount of the mortgage or the unpaid 
principal balance due on the mortgage.

[41 FR 49736, Nov. 10, 1976, as amended at 52 FR 1330, Jan. 13, 1987; 61 
FR 35019, July 3, 1996; 62 FR 60130, Nov. 6, 1997]



Sec. 203.554  Enforcement of late charges.

    (a) A mortgagee shall not commence foreclosure when the only default 
on the part of the mortgagor is the failure to pay a late charge or 
charges (Sec. 203.25), except as provided in Sec. 203.556.
    (b) A late charge attributable to a particular installment payment 
due under the mortgage shall not be deducted from that installment. 
However, if the mortgagee thereafter notifies the mortgagor of his 
obligation to pay a late charge, such a charge may be deducted from any 
subsequent payment or payments submitted by the mortgagor or on his 
behalf if this is not inconsistent with the terms of the mortgage. 
Partial payments shall be treated as provided in Sec. 203.556.
    (c) A payment may be returned because of failure to include a late 
charge only if the mortgagee notifies the mortgagor before imposition of 
the charge of the amount of the monthly payment, the date when the late 
charge will be imposed and either the amount of the late charge or the 
total

[[Page 243]]

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]



Sec. 203.556  Return of partial payments.

    (a) For the purpose of this section, a partial payment is a payment 
of any amount less than the full amount due under the terms of the 
mortgage at the time the payment is tendered, including late charges.
    (b) Except as provided in this section, the mortgagee shall accept 
any partial payment and either apply it to the mortgagor's account or 
identify it with the mortgagor's account and hold it in a trust account 
pending disposition. When partial payments held for disposition 
aggregate a full monthly installment they shall be applied to the 
mortgagor's account, thus advancing the date of the oldest unpaid 
installment but not the date on which the account first became 
delinquent.
    (c) If the mortgage is not in default, a partial payment may be 
returned to the mortgagor with a letter of explanation.
    (d) If the mortgage is in default, a partial payment may be returned 
to the mortgagor with a letter of explanation in any of the following 
circumstances:
    (1) When payment aggregates less than 50 percent of the amount then 
due;
    (2) The payment is less than the amount agreed to in a forbearance 
plan, whether or not reduced to writing;
    (3) The property is occupied by a tenant who is paying rent and the 
rentals are not being applied to the mortgage payments;
    (4) Foreclosure has been commenced. (Foreclosure is commenced when 
the first action required for foreclosure under applicable law is 
taken.)
    (e) Under the following circumstances the mortgagee may return any 
partial payment received more than 14 days after the mortgagee has 
mailed to the mortgagor a statement of the full amount due, including 
late charges, and a notice of intention to return any payment less than 
such amount.
    (1) Four or more monthly installments are due and unpaid, or
    (2) A delinquency of any amount has continued for at least six 
months since the account first became delinquent.

[42 FR 15680, Mar. 23, 1977]



Sec. 203.558  Handling prepayments.

    (a) Notwithstanding the terms of the mortgage, the mortgagee may 
accept a prepayment at any time and in any amount. Except as set out 
below, monthly interest on the debt must be calculated on the actual 
unpaid principal balance of the loan.
    (b) With respect to 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.
    (c) With respect to mortgages insured on or after August 2, 1985, 
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.

[[Page 244]]

    (d) If the installment due date (the first day of the month) falls 
on a nonworking day, the mortgagor's notice of intention to prepay under 
paragraph (b) or the prepayment shall be timely if received on the next 
working day.
    (e) If the mortgagee fails to meet the full disclosure requirements 
of paragraphs (b) and (c) 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.
    (f) Each mortgagee, with respect to a mortgage under this part, 
shall provide to each of its mortgagors not less frequently than 
annually a written notice, in a form approved by the Commissioner, 
containing a statement of the amount outstanding for prepayment of the 
principal amount of the mortgage and describing 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 insured mortgage outstanding on or after August 22, 1991.

[50 FR 25914, June 24, 1985, as amended at 56 FR 18948, Apr. 24, 1991]

                    Mortgagee Action and Forbearance



Sec. 203.600  Mortgage collection action.

    Subject to the requirements of this subpart, mortgagees shall take 
prompt action to collect amounts due from mortgagors to minimize the 
number of accounts in a delinquent or default status. Collection 
techniques must be adapted to individual differences in mortgagors and 
take account of the circumstances peculiar to each mortgagor.



Sec. 203.602  Delinquency notice to mortgagor.

    The mortgagee shall give notice to each mortgagor in default on a 
form supplied by the Secretary or, if the mortgagee wishes to use its 
own form, on a form approved by the Secretary, no later than the end of 
the second month of any delinquency in payments under the mortgage. If 
an account is reinstated and again becomes delinquent, the delinquency 
notice shall be sent to the mortgagor again, except that the mortgagee 
is not required to send a second delinquency notice to the same 
mortgagor more often than once each six months. The mortgagee may issue 
additional or more frequent notices of delinquency at its option.



Sec. 203.604  Contact with the mortgagor.

    (a) [Reserved]
    (b) The mortgagee must have a face-to-face interview with the 
mortgagor, or make a reasonable effort to arrange such a meeting, before 
three full monthly installments due on the mortgage are unpaid. If 
default occurs in a repayment plan arranged other than during a personal 
interview, the mortgagee must have a face-to-face meeting with the 
mortgagor, or make a reasonable attempt to arrange such a meeting within 
30 days after such default and at least 30 days before foreclosure is 
commenced, or at least 30 days before assignment is requested if the 
mortgage is insured on Hawaiian home land pursuant to section 247 or 
Indian land pursuant to section 248 or if assignment is requested under 
Sec. 203.350(d) for mortgages authorized by section 203(q) of the 
National Housing Act.
    (c) A face-to-face meeting is not required if:
    (1) The mortgagor does not reside in the mortgaged property,
    (2) The mortgaged property is not within 200 miles of the mortgagee, 
its servicer, or a branch office of either,
    (3) The mortgagor has clearly indicated that he will not cooperate 
in the interview,
    (4) A repayment plan consistent with the mortgagor's circumstances 
is entered into to bring the mortgagor's account current thus making a 
meeting unnecessary, and payments thereunder are current, or
    (5) A reasonable effort to arrange a meeting is unsuccessful.
    (d) A reasonable effort to arrange a face-to-face meeting with the 
mortgagor shall consist at a minimum of 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

[[Page 245]]

property, unless the mortgaged property is more than 200 miles from the 
mortgagee, its servicer, or a branch office of either, or it is known 
that the mortgagor is not residing in the mortgaged property.
    (e)(1) For mortgages insured pursuant to section 248 of the National 
Housing Act, the provisions of paragraphs (b), (c) and (d) of this 
section are applicable, except that a face-to-face meeting with the 
mortgagor is required, and a reasonable effort to arrange such a meeting 
shall include at least one trip to see the mortgagor at the mortgaged 
property, notwithstanding that such property is more than 200 miles from 
the mortgagee, its servicer, or a branch office of either. In addition, 
the mortgagee must document that it has made at least one telephone call 
to the mortgagor for the purpose of trying to arrange a face-to-face 
interview. The mortgagee may appoint an agent to perform its 
responsibilities under this paragraph.
    (2) The mortgagee must also:
    (i) Inform the mortgagor that HUD will make information regarding 
the status and payment history of the mortgagor's loan available to 
local credit bureaus and prospective creditors;
    (ii) Inform the mortgagor of other available assistance, if any;
    (iii) Inform the mortgagor of the names and addresses of HUD 
officials to whom further communications may be addressed.

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

[41 FR 49736, Nov. 10, 1976, as amended at 51 FR 21873, June 16, 1986; 
52 FR 48202, Dec. 21, 1987; 53 FR 9869, Mar. 28, 1988; 61 FR 35019, July 
3, 1996; 61 FR 36266, July 9, 1996]



Sec. 203.605  Loss mitigation performance.

    (a) Duty to mitigate. Before four full monthly installments due on 
the mortgage have become unpaid, the mortgagee shall evaluate on a 
monthly basis all of the loss mitigation techniques provided at Sec. 
203.501 to determine which is appropriate. Based upon such evaluations, 
the mortgagee shall take the appropriate loss mitigation action. 
Documentation must be maintained for the initial and all subsequent 
evaluations and resulting loss mitigation actions. Should a claim for 
mortgage insurance benefits later be filed, the mortgagee shall maintain 
this documentation in the claim review file under the requirements of 
Sec. 203.365(c).
    (b) Assessment of mortgagee's loss mitigation performance. (1) HUD 
will measure and advise mortgagees of their loss mitigation performance 
through the Tier Ranking System (TRS). Under the TRS, HUD will analyze 
each mortgagee's loss mitigation efforts portfolio-wide on a quarterly 
basis, based on 12 months of performance, by computing ratios involving 
loss mitigation attempts, defaults, and claims. Based on the ratios, HUD 
will group mortgagees in four tiers (Tiers 1, 2, 3, and 4), with Tier 1 
representing the highest or best ranking mortgagees and Tier 4 
representing the lowest or least satisfactory ranking mortgagees. The 
precise methodology for calculating the TRS ratios and for determining 
the tier stratification (or cutoff points) will be provided through 
Federal Register notice. Notice of future TRS methodology or 
stratification changes will be published in the Federal Register and 
will provide a 30-day public comment period.
    (2) Before HUD issues each quarterly TRS notice, HUD will review the 
number of claims paid to the mortgagee. If HUD determines that the 
lender's low TRS score is the result of a small number of defaults or a 
small number of foreclosure claims, or both, as defined by notice, HUD 
may determine not to designate the mortgagee as Tier 3 or Tier 4, and 
the mortgagee will remain unranked.
    (3) Within 30 calendar days after the date of the TRS notice, a 
mortgagee that scored in Tier 4 may appeal its ranking to the Deputy 
Assistant Secretary for Single Family or the Deputy Assistant 
Secretary's designee and request an informal HUD conference. The only 
basis for appeal by the Tier 4 mortgagee is disagreement with the data 
used by HUD to calculate the 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

[[Page 246]]

mortgagee will receive a corrected tier ranking score.
    (c) Assessment of civil money penalty. A mortgagee that is found to 
have failed to engage in loss mitigation as required under paragraph (a) 
of this section shall be liable for a civil money penalty as provided in 
Sec. 30.35(c) of this title.

[70 FR 21578, Apr. 26, 2005]



Sec. 203.606  Pre-foreclosure review.

    (a) Before initiating foreclosure, the mortgagee must ensure that 
all servicing requirements of this subpart have been met. The mortgagee 
may not commence foreclosure for a monetary default unless at least 
three full monthly installments due under the mortgage are unpaid after 
application of any partial payments that may have been accepted but not 
yet applied to the mortgage account. In addition, prior to initiating 
any action required by law to foreclose the mortgage, the mortgagee 
shall notify the mortgagor in a format prescribed by the Secretary that 
the mortgagor is in default and the mortgagee intends to foreclose 
unless the mortgagor cures the default.
    (b) If the mortgagee determines that any of the following conditions 
has been met, the mortgagee may initiate foreclosure without the delay 
in foreclosure required by paragraph (a) of this section:
    (1) The mortgaged property has been abandoned, or has been vacant 
for more than 60 days.
    (2) The mortgagor, after being clearly advised of the options 
available for relief, has clearly stated in writing that he or she has 
no intention of fulfilling his or her obligation under the mortgage.
    (3) The mortgaged property is not the mortgagor's principal 
residence and it is occupied by tenants who are paying rent, but the 
rental income is not being applied to the mortgage debt.
    (4) The property is owned by a corporation or partnership.

[52 FR 6915, Mar. 5, 1987, as amended at 61 FR 35020, July 3, 1996]



Sec. 203.608  Reinstatement.

    The mortgagee shall permit reinstatement of a mortgage, even after 
the institution of foreclosure proceedings, if the mortgagor tenders in 
a lump sum all amounts required to bring the account current, including 
foreclosure costs and reasonable attorney's fees and expenses properly 
associated with the foreclosure action, unless: (a) The mortgagee has 
accepted reinstatement after the institution of foreclosure proceedings 
within two years immediately preceding the commencement of the current 
foreclosure action, (b) reinstatement will preclude foreclosure 
following a subsequent default, or (c) reinstatement will adversely 
affect the priority of the mortgage lien.



Sec. 203.610  Relief for mortgagor in military service.

    The mortgagee shall specifically give consideration to affording the 
mortgagor the benefit of relief authorized by Sec. Sec. 203.345 and 
203.346, if the mortgagor is person in the military service as that term 
is defined in the Soldiers and Sailors Civil Relief Act of 1940, as 
amended.



Sec. 203.614  Special forbearance.

    If the mortgagee finds that a default is due to circumstances beyond 
the mortgagor's control, as defined by HUD, the mortgagee may grant 
special forbearance relief to the mortgagor in accordance with the 
conditions prescribed by HUD.

[61 FR 35020, July 3, 1996]



Sec. 203.616  Mortgage modification.

    The mortgagee may modify a mortgage for the purpose of changing the 
amortization provisions by recasting the total unpaid amount due for a 
term not exceeding 360 months. The mortgagee must notify HUD of such 
modification in a format prescribed by HUD within 30 days of the 
execution of the modification agreement.

[62 FR 60130, Nov. 6, 1997]

[[Page 247]]

     Mortgages in Default on Property Located on Indian Reservations



Sec. 203.664  Processing defaulted mortgages on property located
on Indian land.

    Before a mortgagee requests that the Secretary accept assignment 
under Sec. 203.350(b) of a mortgage insured pursuant to section 248 of 
the National Housing Act (Sec. 203.43h), the mortgagee must submit 
documents showing that the requirements of Sec. 203.604 have been met.

[61 FR 35020, July 3, 1996]

     Mortgages in Default on Property Located on Hawaiian Home Lands



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

    Before a mortgagee requests the Secretary to accept assignment under 
Sec. 203.350(c) of a mortgage insured pursuant to section 247 of the 
National Housing Act (Sec. 203.43i), the mortgagee must submit 
documents showing that the requirements of Sec. 203.604 have been met.

[61 FR 35020, July 3, 1996]

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



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

    (a) Applicability. This section applies to mortgages authorized by 
section 203(q) of the National Housing Act (Sec. 203.43j) only if the 
default occurred before the mortgagor and the lessee execute a lease 
renewal or a new lease either with a term of not less than five years 
beyond the maturity date of the mortgage, or with a term established by 
an arbitration award.
    (b) Claims through assignment. Before a mortgagee requests the 
Secretary to accept assignment under Sec. 203.350(d) the mortgagee must 
submit documents showing that the requirements of Sec. 203.604 have 
been met.

[53 FR 13405, Apr. 25, 1988, as amended at 61 FR 35020, July 3, 1996]

                           Occupied Conveyance



Sec. 203.670  Conveyance of occupied property.

    (a) It is HUD's policy to reduce the inventory of acquired 
properties in a manner that expands homeownership opportunities, 
strengthens neighborhoods and communities, and ensures a maximum return 
to the mortgage insurance fund.
    (b) The Secretary will accept conveyance of an occupied property 
containing one to four residential units if the Secretary finds that:
    (1) An individual residing in the property suffers from a temporary, 
permanent, or long-term illness or injury that would be aggravated by 
the process of moving from the property, and that the individual meets 
the eligibility criteria in Sec. 203.674(a);
    (2) State or local law prohibits the mortgagee from evicting a 
tenant residing in the property who is making regular monthly payments 
to the mortgagor, or prohibits eviction for other similar reasons beyond 
the control of the mortgagee; or
    (3) It is in the Secretary's interest to accept conveyance of the 
property occupied under Sec. 203.671, the property is habitable as 
defined in Sec. 203.673, and, except for conveyances under Sec. 
203.671(d), each occupant who intends to remain in the property after 
the conveyance meets the eligibility criteria in Sec. 203.674(b).
    (c) HUD consents to accept good marketable title to occupied 
property where 90 days have elapsed since the mortgagee notified HUD of 
pending acquisition, the Department has notified the mortgagee that it 
was considering a request for continued occupancy, and no subsequent 
notification from HUD has been received by the mortgagee.

[53 FR 874, Jan. 14, 1988, as amended at 56 FR 46967, Sept. 16, 1991; 58 
FR 54246, Oct. 20, 1993; 61 FR 36266, July 9, 1996]



Sec. 203.671  Criteria for determining the Secretary's interest.

    It is in the Secretary's interest to accept occupied conveyance when 
one or more of the following are met:
    (a) Occupancy of the property is essential to protect it from 
vandalism

[[Page 248]]

from time of acquisition to the time of preparation for sale.
    (b) The average time in inventory for HUD's unsold inventory in the 
residential area in which the property is located exceeds six months.
    (c) With respect to multi-unit properties, the marketability of the 
property would be improved by retaining occupancy of one or more units.
    (d) The high cost of eviction or relocation expenses makes eviction 
impractical.

[45 FR 59563, Sept. 10, 1980, as amended at 56 FR 46967, Sept. 16, 1991; 
58 FR 54246, Oct. 20, 1993]



Sec. 203.672  Residential areas.

    (a) For the purposes of occupied conveyance considerations, a 
residential area is any area which constitutes a local economic market 
for the purchase and sale of residential real estate. In making 
determinations of residential areas, substantial weight shall be given 
to delineations of such areas commonly used by persons active in the 
real estate industry in the affected area.
    (b) HUD shall establish such residential areas within six (6) months 
of the publication of these regulations when HUD's current established 
patterns of dealing with the disposition of its acquired home property 
inventory and related recordkeeping does not coincide with paragraph (a) 
of this section. Under such circumstances the Secretary shall apply such 
established patterns in defining residential areas until the standards 
in paragraph (a) of this section are implemented.

[45 FR 59563, Sept. 10, 1980]



Sec. 203.673  Habitability.

    (a) For purposes of Sec. 203.670, a property is habitable if it 
meets the requirements of this section in its present condition, or will 
meet these requirements with the expenditure of not more than five 
percent of the fair market value of the property. The cost of hazard 
reduction or abatement of lead-based paint hazards in the property, as 
required by the Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 
4821-4846), and the Residential Lead-Based Paint Hazard Reduction Act of 
1992 (42 U.S.C. 4851-4856), and implementing regulations in part 35 of 
this title, is excluded from these repair cost limitations.
    (b)(1) Each residential unit must contain:
    (i) Heating facilities adequate for healthful and comfortable living 
conditions, taking into consideration the local climate;
    (ii) Adequate electrical supply for lighting and for equipment used 
in the residential unit;
    (iii) Adequate cooking facilities;
    (iv) A continuing supply of hot and cold water; and
    (v) Adequate sanitary facilities and a safe method of sewage 
disposal.
    (2) The property shall be structurally sound, reasonably durable, 
and free from hazards that may adversely affect the health and safety of 
the occupants or may impair the customary use and enjoyment by the 
occupants. Unacceptable hazards include, but are not limited to, 
subsidence, erosion, flood, exposure to the elements, exposed or unsafe 
electrical wiring, or an accumulation of minor hazards, such as broken 
stairs.
    (c) If repairs, including lead-based paint hazard reduction or 
abatement, are to be made while the property is occupied, the occupant 
must hold the Secretary and the Department harmless against any personal 
injury or property damage that may occur during the process of making 
repairs. If temporary relocation of the occupant is necessary during 
repairs, no reimbursement for relocation expenses will be provided to 
the occupant.

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



Sec. 203.674  Eligibility for continued occupancy.

    (a) Occupancy because of temporary, permanent, or long-term illness 
or injury of an individual residing in the property will be limited to a 
reasonable time, to be determined by the Secretary on a case-by-case 
basis, and will be permitted only if all the conditions in this 
paragraph (a) are met:
    (1) A timely request is made in accordance with Sec. 203.676, 
including the submittal of documents required in Sec. 203.675(b)(4).

[[Page 249]]

    (2) The occupant agrees to execute a month-to-month lease, at the 
time of acquisition of the property by the Secretary and on a form 
prescribed by HUD, and to pay a fair market rent as determined by the 
Secretary. The rental rate shall be established on the basis of rents 
charged for other properties in comparable condition after completion of 
repairs (if any).
    (3) The occupant's total housing cost (rent plus utility costs to be 
paid by the occupant) will not exceed 38 percent of the occupant's net 
effective income (gross income less Federal income taxes). However, a 
higher percentage may be permitted if the occupant has been paying at 
least the required rental amount for the dwelling, or if there are other 
compensating factors (e.g., where the occupant is able to rely on cash 
savings or on contributions from family members to cover total housing 
costs).
    (4) The occupant agrees to allow access to the property (during 
normal business hours and upon a minimum of two days advance notice) by 
HUD Field Office staff or by a HUD representative, so that the property 
may be inspected and any necessary repairs accomplished, or by a sales 
broker.
    (5) The occupant discloses and verifies Social Security Numbers, as 
provided by part 200, subpart T, of this chapter.
    (b) An occupant who does not meet the illness or injury criteria in 
paragraph (a) of this section is eligible for continued occupancy only 
if all the conditions in this paragraph (b) are met:
    (1) A timely request is made in accordance with Sec. 203.676.
    (2) The occupant agrees to execute a month-to-month lease, at the 
time of acquisition of the property by the Secretary and on a form 
prescribed by HUD, to pay fair market rent as determined by the 
Secretary, and to pay the rent for the first month in advance at the 
time the lease is executed. The rental rate shall be established on the 
basis of rents charged for other properties in comparable condition 
after completion of repairs (if any).
    (3) The occupant will have been in occupancy at least 90 days before 
the date the mortgagee acquires title to the property.
    (4) The occupant's total housing cost (rent plus utility costs to be 
paid by the occupant) will not exceed 38 percent of the occupant's net 
effective income (gross income less Federal income taxes). However, a 
higher percentage may be permitted if the occupant has been paying at 
least the required rental amount for the dwelling, or if there are other 
compensating factors (e.g., where the occupant is able to rely on cash 
savings or on contributions from family members to cover total housing 
costs).
    (5) The occupant agrees to allow access to the property (during 
normal business hours and upon a minimum of two days advance notice) by 
HUD Field Office staff or by a HUD representative, so that the property 
may be inspected and any necessary repairs accomplished, or by a sales 
broker.
    (6) The occupant discloses and verifies Social Security Number, as 
provided by part 200, subpart T, of this chapter.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 874, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
54 FR 39693, Sept. 27, 1989; 56 FR 46967, Sept. 16, 1991]



Sec. 203.675  Notice to occupants of pending acquisition.

    (a) At least 60 days, but not more than 90 days, before the date on 
which the mortgagee reasonably expects to acquire title to the property, 
the mortgagee shall notify the mortgagor and each head of household who 
is actually occupying a unit of the property of its potential 
acquisition by HUD. The mortgagee shall send a copy of this notification 
to the appropriate HUD Field Office.
    (b) The notice shall provide a brief summary of the conditions under 
which continued occupancy is permissible and advise them that:
    (1) Potential acquisition of the property by the Secretary is 
pending;
    (2) The Secretary requires that properties be vacant at the time of 
conveyance to the Secretary, unless the mortgagor or other occupant can 
meet the conditions for continued occupany in Sec. 203.670, the 
habitability criteria in

[[Page 250]]

Sec. 203.673, and the eligibility criteria in Sec. 203.674;
    (3) An occupant may request permission to remain in occupancy in the 
event of acquisition of the property by the Secretary by notifying the 
HUD Field Office in writing, with any required documentation, within 20 
days of the date of the mortgagee's notice to the occupant;
    (4) If an occupant seeks to qualify for continued occupancy under 
the illness or injury provisions of Sec. 203.674(a), the occupant shall 
provide to the HUD Field Office, at the time of the occupant's request 
for permission to remain in occupancy, documentation to support this 
claim. Documentation shall include an estimate of the time when the 
patient could be moved without severely aggravating the illness or 
injury, and a statement by a State-certified physician establishing the 
validity of the occupant's claim. HUD may require more than one medical 
opinion or may arrange an examination by a physician approved by HUD; 
and
    (5) If an occupant fails to make a timely request, the property must 
be vacated before the scheduled time of acquisition.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
58 FR 54246, Oct. 20, 1993]



Sec. 203.676  Request for continued occupancy.

    An occupant may request permission to continue to occupy the 
property following conveyance to the Secretary by notifying the HUD 
Field Office in writing, within 20 days after the date of the 
mortgagee's notice of pending acquisition. Verification of illness or 
injury as described in Sec. 203.675(b)(4) shall be submitted within 
this time period if an occupant seeks to qualify for continued occupancy 
under the provisions of Sec. 203.674(a). The HUD Field Office will 
notify the mortgagee in writing that an occupied conveyance has been 
requested.

(Approved by the Office of Management and Budget under control number 
2502-0268)

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988, as amended at 
58 FR 54246, Oct. 20, 1993]



Sec. 203.677  Decision to approve or deny a request.

    (a) The HUD Field Office will provide written notification of its 
decision to an occupant who makes a timely request to continue to occupy 
the property. The decision of the HUD Field Office on this matter will 
be made by the Chief, Property Disposition. If the decision is to deny 
the request, the notice to the occupant will include a statement of the 
reason or reasons for the decision and of the occupant's right to 
appeal. The occupant may appeal HUD's decision within 20 days after the 
date of HUD's notice. The appeal must be addressed to the Field Office 
Manager and be in writing, and the occupant may provide documentation 
intended to refute the reasons given for HUD's decision. The occupant 
may also request an informal conference with a representative of the HUD 
Field Office Manager. A request for an informal conference must be made 
in writing within 10 days after the date of HUD's notice. The occupant 
may be represented at the conference by counsel or by other persons with 
pertinent expert knowledge or experience.
    (b) After notification that HUD has denied a request for continued 
occupancy, the occupant, on his or her request, shall be permitted to 
review all relevant material in HUD's possession (including a copy of 
the inspection report if the request is denied because the property is 
not habitable as defined in Sec. 203.673). Only material in HUD's 
possession that directly pertains to conditions for continued occupancy 
under Sec. Sec. 203.670, 203.673, and 203.674 may be considered 
material relevant for an occupant's review under this paragraph. This 
review shall be limited to a review of material for purposes of the 
informal conference or the appeal of the Department's decision. The 
information will only be provided after request for an informal 
conference or appeal has been submitted to HUD.

[[Page 251]]

    (c) After consideration of an appeal, the HUD Field Office will 
notify the applicant in writing of HUD's final decision. This final 
decision will be made by the HUD Field Office Manager or a 
representative of the Field Office Manager (other than the Chief, 
Property Disposition). If the decision is to deny the occupant's 
request, the notice to the occupant will reflect consideration of the 
issues raised by the occupant.
    (d) If, after consideration of an appeal, the Field Office Manager 
denies the request for new or additional reasons, the occupant will be 
afforded an opportunity to request that the Field Office Manager 
reconsider its decision under the provisions of paragraph (c) of this 
section.

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec. 203.678  Conveyance of vacant property.

    (a) HUD will require that the property be conveyed vacant if the 
occupant fails to request permission to continue to occupy within the 
time period specified in Sec. 203.676, or fails to request a conference 
or to appeal a decision to deny occupied conveyance within the time 
period specified in Sec. 203.677(a).
    (b) If the mortgagee has not been notified by HUD, within 45 days of 
the date of the mortgagee's notification of pending acquisition, that a 
request for continued occupancy is under consideration, the mortgagee 
shall convey the property vacant, unless otherwise directed by HUD.

[53 FR 875, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec. 203.679  Continued occupancy after conveyance.

    (a) Occupancy of HUD-acquired property is temporary in all cases and 
is subject to termination when necessary to facilitate preparing the 
property for sale and completing the sale.
    (b) HUD will notify the occupant to vacate the property and, if 
necessary, will take appropriate eviction action in any of the following 
situations:
    (1) Failure of the occupant to execute the lease required by Sec. 
203.674 (a)(2) and (b)(2), or failure to pay the rental amount required, 
including the initial payment at the time of execution of the lease, or 
to comply with the terms of the lease;
    (2) Failure of the occupant to allow access to the property upon 
request in accordance with Sec. 203.674 (a)(4) and (b)(5);
    (3) Necessity to prepare the property for sale; or
    (4) Assignment of the property by the Secretary to a different use 
or program.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988; 61 FR 36266, 
July 9, 1996]



Sec. 203.680  Approval of occupancy after conveyance.

    When an occupied property is conveyed to HUD before HUD has had an 
opportunity to consider continued occupancy (e.g., where HUD has taken 
more than 90 days to make a final decision on continued occupancy in 
accordance with Sec. 203.670(c)), a determination regarding continued 
occupancy will be made in accordance with the conditions for the initial 
approval of occupied conveyance. Any such determination shall be in 
accordance with HUD's obligations under the terms of any month-to-month 
lease that has been executed.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



Sec. 203.681  Authority of HUD Field Office Managers.

    Field Office Managers shall act for the Secretary in all matters 
relating to assignment and occupied conveyance determinations. The 
decision of the Field Office Manager under Sec. 203.677 will be final 
and not be subject to further administrative review.

[53 FR 876, Jan. 14, 1988, and 53 FR 8626, Mar. 16, 1988]



PART 204_COINSURANCE--Table of Contents




    Authority: 12 U.S.C. 1715z-9; 42 U.S.C. 3535(d).



Sec. 204.1  Termination of program.

    Effective December 29, 1994, of final rule the authority to coinsure 
mortgages under this part is terminated, except that the Department will 
honor

[[Page 252]]

legally binding and validly issued borrower approvals issued by lenders 
before the termination date. This part 204, as it existed immediately 
before the termination date, will continue to govern the rights and 
obligations of coinsured lenders, mortgagors, and the Department of 
Housing and Urban Development with respect to loans coinsured under this 
part.

[59 FR 39957, Aug. 5, 1994]



PART 206_HOME EQUITY CONVERSION MORTGAGE INSURANCE--Table of Contents




                            Subpart A_General

Sec.
206.1 Purpose.
206.3 Definitions.
206.7 Effect of amendments.
206.8 Preemption.

                   Subpart B_Eligibility; Endorsement

206.9 Eligible mortgagees.
206.13 [Reserved]
206.15 Insurance.

                           Eligible Mortgages

206.17 General.
206.19 Payment options.
206.21 Interest rate.
206.23 Shared appreciation.
206.25 Calculation of payments.
206.26 Change in payment option.
206.27 Mortgage provisions.
206.29 Initial disbursement of mortgage proceeds.
206.31 Allowable charges and fees.
206.32 No outstanding unpaid obligations.

                           Eligible Mortgagors

206.33 Age of mortgagor.
206.35 Title held by mortgagor.
206.37 Credit standing.
206.39 Principal residence.
206.40 Disclosure and verification of Social Security and Employer 
          Identification Numbers.
206.41 Counseling.
206.43 Information to mortgagor.

                           Eligible Properties

206.45 Eligible properties.
206.47 Property standards; repair work.
206.51 Eligibility of mortgages involving a dwelling unit in a 
          condominium.

        Refinancing of existing home equity conversion mortgages

206.53 Refinancings.

                Subpart C_Contract Rights and Obligations

                       Sale, Assignment and Pledge

206.101 Sale, assignment and pledge of insured mortgages.
206.102 General Insurance Fund.

                       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 [Reserved]
206.116 Refunds.

                    HUD Responsibility to Mortgagors

206.117 General.
206.119 [Reserved]
206.121 Secretary authorized to make payments.

                             Claim Procedure

206.123 Claim procedures in general.
206.125 Acquisition and sale of the property.
206.127 Application for insurance benefits.
206.129 Payment of claim.

                              Condominiums

206.131 Contract rights and obligations for mortgages on individual 
          dwelling units in a condominium.

                    Termination of Insurance Contract

206.133 Termination of insurance contract.

                  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 Annual determination of principal residence.

    Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).

    Source: 54 FR 24833, June 9, 1989, unless otherwise noted.



                            Subpart A_General



Sec. 206.1  Purpose.

    The purposes of the Home Equity Conversion Mortgage Insurance 
program are set out in section 255(a) of the National Housing Act, 
Public Law 73-

[[Page 253]]

479, 48 STAT. 1246 (12 U.S.C. 1715z-20) (``NHA'').

[61 FR 49032, Sept. 17, 1996]



Sec. 206.3  Definitions.

    As used in this part, the following terms shall have the meaning 
indicated.
    Contract of insurance. (See 24 CFR 203.251(j)).
    Day means calendar day, except where the term business day is used.
    Estate planning service firm means an individual or entity that is 
not a mortgagee approved under part 202 of this chapter or a housing 
counseling agency approved under Sec. 206.41 and that charges a fee 
that is:
    (1) Contingent on the homeowner obtaining a mortgage loan under this 
part, except the origination fee authorized by Sec. 206.31 or a fee 
specifically authorized by the Secretary; or
    (2) For information that homeowners must receive under Sec. 206.41, 
except a fee by:
    (i) A housing counseling agency approved under Sec. 206.41; 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 an elderly 
homeowner's access to mortgages covered by this part, except where the 
fee is for services specifically authorized by the Secretary.
    Expected average mortgage interest rate means the interest rate used 
to calculate the principal limit and the future payments to the 
mortgagor and is established based on the date on which the initial loan 
application is signed by the borrower. For fixed rate HECMs, it is the 
fixed mortgage interest rate. For adjustable 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 mortgagor. The 
margin is determined by the mortgagee and is defined as the amount that 
is added to the index value to compute the mortgage interest rate. The 
index type (i.e., CMT or LIBOR) used to calculate the expected average 
mortgage interest rate must be the same index type used to calculate 
mortgage interest rate adjustments--commingling of index types is not 
allowed (e.g., it is not permissible to use the 10-year CMT to determine 
the expected average mortgage interest rate and use the one-year LIBOR 
index to adjust the interest rate). The mortgagee's margin is the same 
margin used to determine the periodic adjustments to the interest rate.
    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.
    Maximum claim amount means the lesser of the appraised value of the 
property, as determined by the appraisal used in underwriting the loan, 
or the maximum dollar amount for an area established by the Secretary 
for a one-family residence under section 203(b)(2) of the National 
Housing Act (as adjusted where applicable under section 214 of the 
National Housing Act) as of the date of loan closing. Closing costs must 
not be taken into account in determining appraised value.
    MIP. (See 24 CFR 203.251(k)).
    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. The 
term mortgage also includes the credit instrument, or note, secured by 
the lien, and the loan agreement between the mortgagor, the mortgagee 
and the Secretary.

[[Page 254]]

    Mortgagee. (See section 255(b)(2) of NHA).
    Mortgagor means each original borrower under a mortgage. The term 
does not include successors or assigns of a borrower.
    Principal limit means the maximum disbursement that could be 
received in any month under a mortgage, assuming that no other 
disbursements are made, taking into account the age of the youngest 
mortgagor, the mortgage interest rate, and the maximum claim amount. 
Mortgagors over the age of 95 will be treated as though they are 95 for 
purposes of calculating the principal limit. The principal limit is used 
to calculate payments to a mortgagor. It is calculated for the first 
month that a mortgage could be outstanding using factors provided by the 
Secretary. It increases each month thereafter at a rate equal to one-
twelfth of the mortgage interest rate in effect at that time, plus one-
twelfth of one-half percent per annum, if the mortgage was executed on 
or after May 1, 1997. If the mortgage was executed before May 1, 1997, 
the principal limit increases each month at a rate equal to one-twelfth 
of the expected average mortgage interest rate plus one-twelfth of one-
half percent per annum. The principal limit may decrease because of 
insurance or condemnation proceeds applied to the mortgage balance under 
Sec. 209.209(b) of this chapter.
    One-month Constant Maturity Treasury (CMT) Index means the average 
weekly yield of U.S. Treasury securities adjusted to a constant maturity 
of one month.
    Principal residence means the dwelling where the mortgagor maintains 
his or her permanent place of abode, and typically spends the majority 
of the calendar year. A person may have only one principal residence at 
any one time.
    Secretary. (See 24 CFR 5.100).

[54 FR 24833, June 9, 1989; 54 FR 32060, Aug. 4, 1989, as amended at 59 
FR 50464, Oct. 3, 1994; 60 FR 42759, Aug. 16, 1995; 61 FR 36266, July 9, 
1996; 61 FR 49032, Sept. 17, 1996; 62 FR 12953, Mar. 19, 1997; 62 FR 
30227, June 2, 1997; 64 FR 2987, Jan. 19, 1999; 72 FR 40050, July 20, 
2007; 73 FR 1436, Jan. 8, 2008]



Sec. 206.7  Effect of amendments.

    The regulations in this part may be amended by the Secretary 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 
mortgagor and all terms and conditions of the mortgage, or the Secretary 
has made a commitment to insure. Such amendments will not adversely 
affect the interests of a mortgagor in the case of a default by a 
mortgagee where the Secretary makes payments to the mortgagor.

[62 FR 30227, June 2, 1997]



Sec. 206.8  Preemption.

    (a) Lien priority. The full amount secured by the mortgage shall 
have the same priority over any other liens on the property as if the 
full amount had been disbursed on the date the initial disbursement was 
made, regardless of the actual date of any disbursement. The amount 
secured by the mortgage shall include all direct payments by the 
mortgagee to the mortgagor and all other loan advances permitted by the 
mortgage for any purpose including loan advances for interest, taxes and 
special assessments, premiums for hazard or mortgage insurance, 
servicing 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 Secretary 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).

[61 FR 49033, Sept. 17, 1996]



                   Subpart B_Eligibility; Endorsement



Sec. 206.9  Eligible mortgagees.

    (a) Statutory requirements. (See section 255(b)(3) of NHA).
    (b) HUD approved mortgagees. Any mortgagee authorized under 
paragraph

[[Page 255]]

(a) of this section and approved under part 202 of this chapter, except 
an investing mortgagee approved under Sec. 202.9 of this chapter, is 
eligible to apply for insurance. A mortgagee approved under Sec. Sec. 
202.6, 202.7, 202.9 or 202.10 of this chapter may purchase, hold and 
sell mortgages insured under this part without additional approval.

[54 FR 24833, June 9, 1989; 54 FR 32060, Aug. 4, 1989, as amended at 57 
FR 58350, Dec. 9, 1992; 60 FR 42759, Aug. 16, 1995; 61 FR 36266, July 9, 
1996; 61 FR 49033, Sept. 17, 1996; 62 FR 20088, Apr. 24, 1997]



Sec. 206.13  [Reserved]



Sec. 206.15  Insurance.

    Mortgages originated under this part must be endorsed through the 
Direct Endorsement program under Sec. 203.5 of this chapter, or insured 
through the Lender Insurance program under Sec. 203.6 of this chapter, 
except as provided in Sec. Sec. 203.1 or 203.4 of this chapter. The 
mortgagee must submit the information as described in Sec. 203.255 (b) 
or (f) of this chapter, as applicable; the certificate of housing 
counselling as described in Sec. 206.41; a copy of the title insurance 
commitment satisfactory to the Secretary (or other acceptable title 
evidence if the Secretary has determined not to require title insurance 
under Sec. 206.45(a)); the mortgagee's election of either the 
assignment or shared premium option under Sec. 206.17; and any other 
documentation required by the Secretary. Section 203.255 (c), (d), (e), 
and (f) of this chapter, pertaining to the processes for Direct 
Endorsement and Lender Insurance, apply to mortgages under this part. If 
the mortgagee has complied with the requirements of Sec. Sec. 203.3, 
203.4, 203.5, 203.6, and 203.255 of this chapter (as applicable), and 
the requirements of this part, and the mortgage is determined to be 
eligible, the Secretary will either endorse the mortgage for insurance 
by issuing a Mortgage Insurance Certificate or will electronically 
acknowledge that the mortgage has been insured. The mortgagee under the 
Lender Insurance program shall execute for the Secretary the loan 
agreement included in the term ``mortgage'' as defined in Sec. 206.3.

[62 FR 30227, June 2, 1997]

                           Eligible Mortgages



Sec. 206.17  General.

    (a) Payment options. A mortgage