Chapter 01. Preferred Interest Rate Loan Program

Financing for eligible homebuyers to purchase, or purchase and rehabilitate, a home;

Refinancing to eligible homeowners who, because of certain exceptional adverse personal or economic circumstances, can no longer make the full mortgage payments on their homes and would otherwise have to forfeit title to their homes; and

Short-term loans to nonprofit organizations and local governments for the acquisition and construction, acquisition and rehabilitation together with demolition or lot consolidation, or acquisition and rehabilitation, of residential units affordable for purchase by households of limited income.

The Program is one of four loan programs operated under the Maryland Home Financing Program as authorized by Housing and Community Development Article, Title 4, Subtitle 8, Annotated Code of Maryland.

Other loan programs operating under the Maryland Home Financing Program include programs for making:

“Act” means Housing and Community Development Article, Title 4, Subtitle 8, Annotated Code of Maryland, as amended.

Adjusted Annual Income.

“Applicable codes and standards” means construction, health, safety, fire, occupancy, planning, zoning, and other codes and standards applicable in the State and the political subdivision where the property is located, and similar standards as may be established by the Program.

“Borrower” means an applicant who receives a loan through the Program.

Closing Costs.

“DDF” means the Division of Development Finance, a division of the Department.

“Department” means the Department of Housing and Community Development, a principal department of the State.

“Eligible residence” means residential property that meets the requirements of Regulation .04.

“Household” means the individual or individuals who occupy or intend to occupy:

“Household of limited income” means a household for which the adjusted annual income does not exceed the upper income limit or limits established by the Secretary in accordance with Housing and Community Development Article, §4-806(a)(2), Annotated Code of Maryland.

“Loan” means a loan made by the Department to a borrower through the Program, and secured by a lien on an eligible residence.

“Lot consolidation” means acquisition of real property adjacent to and in connection with a residence financed by the Program for purposes of including the real property as part of the residence.

“Manufactured home” means a structure designed to be used as a dwelling, which:

“Mortgage” means a mortgage or deed of trust.

“Nonprofit organization” means a corporation, foundation, or other legal entity, no part of the net earnings of which inures to the benefit of any private shareholder or individual holding an interest in that entity.

Program.

“Purchase” means the acquisition of a:

“Rehabilitation costs” means the costs for repairs and other rehabilitation work for an eligible residence as described in Regulations .06B and .07B of this chapter.

“Secretary” means the Secretary of the Department of Housing and Community Development.

“Work write-up” means a description of the structural, mechanical, electrical, and other work items needed for the rehabilitation of an eligible residence.

Is comprised of one to four residential units;

Is real property owned by the borrower in fee simple or under a freely transferable, perpetually renewable, ground lease which permits the lessee to transfer the leasehold interest without the consent of the lessor;

Is located in the State;

May be a detached home, modular home, townhouse, condominium, or a manufactured home as defined under Regulation .03B(13) of this chapter;

May not be a residence which is treated as personal property for the purpose of establishing a security interest, such as a cooperative unit or a manufactured home not meeting the requirements for a manufactured home under Regulation .03B(13) of this chapter

Meets all applicable codes and standards, except that if the loan includes proceeds for rehabilitation work, then the Program shall be satisfied that all applicable codes and standards will be met when the rehabilitation work is complete; and

If new construction, is located within a priority funding area identified under State Finance and Procurement Article, §5-7B-02, Annotated Code of Maryland.

May not be encumbered by a tax lien or judgment lien;

May be encumbered by a superior lien under circumstances approved by the Program in its sole discretion to promote housing affordability; and

May be encumbered by a lien subordinate to the lien securing the Program loan, under circumstances which promote housing affordability as determined by the Program in its sole discretion.

The Program may require a borrower to obtain a home inspection before closing.

A home inspection under this section shall meet standards set by the Program and be conducted by a home inspector acceptable to the Program.

Shall be all those persons who will hold title to the eligible residence;

Shall be 18 years old or older, unless married to a joint borrower who is 18 years old or older;

Shall be a member or members of a household of limited income;

Shall intend to reside in the eligible residence;

If the borrower owns a personal residence at the time of application and is purchasing another residence, shall:

May not own or hold any interest in any other real property except cemetery plots, recreational vehicle lots, a 5 percent or less interest in a time share unit (2.6 weeks), real property used in a trade or business, or a lot adjacent to the purchased property that is consolidated with the purchased property securing the Program loan;

Shall satisfy the Program that the borrower does not have assets or resources, which are set forth in §C of this regulation, that could enable the borrower to qualify for conventional or other Departmental mortgage financing;

Shall have the legal capacity to incur the obligations of the loan; and

Shall agree to comply with the requirements established by the Program and with the terms of the loan.

Shall be all those persons who will hold title to the eligible residence;

Shall be 18 years old or older, unless married to a joint borrower who is 18 years old or older;

Shall intend to reside in one unit of the eligible residence;

If the borrower owns a personal residence at the time of application and is purchasing another residence, shall:

May not own or hold any interest in any other real property except cemetery plots, recreational vehicle lots, a 5 percent or less interest in a time share unit (2.6 weeks), real property used in a trade or business, or a lot adjacent to the purchased property that is consolidated with the purchased property securing the Program loan;

Shall satisfy the Program that the borrower does not have assets or resources, which are set forth in §C of this regulation, that could enable the borrower to qualify for conventional or other Departmental mortgage financing;

Shall have the legal capacity to incur the obligations of the loan;

Shall lease all units other than the borrower's unit only to households of limited income;

Shall agree to require each lease to include a lease addendum, in a form specified by the Program, which at a minimum:

Shall agree to comply with the requirements established by the Program and with terms of the loan.

May include:

May not include:

Shall satisfy the requirements in §§A and C, or §§B and C of this regulation;

Shall be likely, in the estimation of the Department, to have to forfeit title to the eligible residence;

Shall be unable to keep current the existing mortgage loan or loans on the eligible residence due to any of the following exceptional adverse personal or economic circumstances:

Is not expected, in the judgment of the Program, to recover from the adverse personal or economic circumstances which caused the applicant to be unable to keep mortgage payments current, but can afford to repay a Program loan that refinances existing mortgage debt;

Can be better assisted, in the judgment of the Program, by a loan to refinance existing mortgage debt rather than by the short-term mortgage assistance available through the Emergency Mortgage Assistance Program, as described in COMAR 05.03.03;

Shall hold title to the eligible residence free and clear of all other liens, except for a subordinate mortgage lien which satisfies the criteria of Regulation .04B(3); and

Shall reside and intend to continue to reside in the eligible residence at the time of the loan closing.

The purchase price of the eligible residence; and

Closing costs.

The purchase price of the eligible residence;

Closing costs; plus

Any of the following rehabilitation costs, which shall total $5,000 or more to be eligible for a loan under this regulation:

Any of the following costs:

The payoff and release of the existing mortgage loan or loans, including:

The cost of buying out the equity interest of a co-owner;

Any of the following fees, taxes, premiums, or costs which are unpaid and overdue at the time the Program loan closes, up to a limit of 20 percent of the amount of the loan:

Closing costs that are associated with the refinancing;

Program fees such as application fees and loan review fees;

Fees for financial counseling received in accordance with Regulation.14D of this chapter;

In extraordinary individual cases, as determined in the discretion of the Director of DDF, the payoff and release of liens other than mortgage liens.

Be a nonprofit organization or a local government;

Demonstrate to the satisfaction of the Program that it has successfully completed an acquisition and rehabilitation project or a similar project within the last 2 years;

Agree to sell the residential unit to a household of limited income under a purchase or a lease purchase contract acceptable to the Program;

Have a commitment from the Department for permanent financing under the Program for the sale of the residence acquired and constructed or rehabilitated with the loan; and

Provide costs for acquisition, construction, rehabilitation, demolition, or lot consolidation, marketing data, and such other information as may be required by the Program;

The purchase price of the eligible residence;

Closing costs;

Any of the following reasonable rehabilitation and construction costs which shall total at least $5,000;

Any of the following costs:

The sum of:

The sum of:

State and local planning, zoning, and building codes and other applicable laws; and

Standards established by the Program.

The work write-up describing the rehabilitation work to be done shall:

All rehabilitation work shall be performed by State-licensed contractors in accordance with the work write-up.

The contractor or contractors performing the work shall submit to the Program both a draw schedule and a plan for implementing the work write-up.

The Program, in its discretion, may revise the draw schedule in §B(3), above.

The capability of the borrower or the developer under Regulation .07 of this chapter;

The demonstrated experience and reliability of the contractor;

The amount of the loan;

The availability of local technical assistance; and

Other factors considered relevant.

For rehabilitation work under Regulation .05 of this chapter:

For rehabilitation work under Regulation .07 of this chapter:

For loans under Regulation .05 of this chapter, there may be an advance or down payment in an amount which does not exceed 10 percent of the rehabilitation costs, if required by the contract for the rehabilitation.

For loans under Regulation .07 of this chapter, the Program may advance to a nonprofit organization or local government 10—90 percent of the acquisition and rehabilitation costs. The percentage of costs advanced shall be in the sole discretion of the Department, taking into account experience managing construction or rehabilitation projects and disbursing funds.

Progress payments may not be made until the borrower has delivered satisfactory evidence, such as receipts or bills, of the amount of the payment requested.

Progress payments may not be made without an inspection to verify completion of the work, except at the discretion of the Program. At a minimum, however, the Program or its approved agents shall verify completion of the work before disbursing the final payment, as described in §G of this regulation.

If a request for payment is refused, the Program shall notify the borrower.

The determination of the Program as to percentage of work completed is final. The Program shall give the borrower written notice of its determination of the percentage of work completed.

For all projects for which the borrower is responsible for project inspections, the Program shall retain loan proceeds equal to not more than 10 percent of the contract proposal costs until final payment.

For any other project, the Program, at its discretion, may elect to retain loan proceeds equal to not more than 10 percent of the contract proposal costs until final payment, taking into consideration:

The retainage shall be released at final payment upon verification that all contracted rehabilitation items are complete and acceptable to the Department.

In addition to standard retainage, if the Program receives written notice that subcontractors, materialmen, or suppliers have not been paid for work done or material supplied to and for the project, and all loan funds have not yet been disbursed, the Program shall retain an amount equal to the lesser of all funds not yet disbursed and the amount sufficient to satisfy the claims until satisfactory evidence of satisfaction and release by the subcontractors, materialmen, or suppliers is presented. The contractor shall promptly pay or bond any liens established.

The borrower shall submit to the Program a certificate of completion, executed by the borrower and contractor, certifying that all work:

Upon final inspection and receipt and approval of the certificate of completion, final payment shall be processed.

If, in the opinion of the Program, the contractor has satisfied the contract and the borrower has refused to request or release the final payment, then the Program may follow the procedure described below:

The Secretary shall determine limits on loan amounts from time to time.

In making the determinations in §A(1) of this regulation, the Secretary may consider factors including the following:

100 percent of the sales price of the eligible residence, up to the appraised value of the property, plus

Closing costs, minus

The borrower's minimum cash contribution described in Regulation .11C of this chapter; minus

Any prior permitted mortgage lien.

The sum of:

The sum of:

The total refinancing costs permitted in accordance with Regulation .06C of this chapter; or

The appraised value of the eligible residence, plus applicable closing costs.

The initial preferred interest rate for a loan shall be:

The initial preferred interest rate may be adjustable in accordance with Regulation .13 of this chapter.

For purchase and rehabilitation loans, during the rehabilitation period, the Program may in the discretion of the Program charge interest at a rate lower than the initial interest rate.

40 years; or

If an appraisal is required for the loan, the estimated remaining economic life of the property.

The Program may require the borrower to make a minimum contribution to the transaction, as determined by the Department.

The minimum contribution requirement described in §C(1) of this regulation applies only to purchase loans, not to refinancing loans.

A loan shall be secured by a mortgage on the property in the form required by the Department, which shall be recorded in the land records of the county in which the property is located. A loan shall be secured by a first mortgage unless it is permitted to be secured by a second mortgage under Regulations .04B and .07C of this chapter.

The mortgage securing the Program loan may not be subordinate to any other liens, including but not limited to mortgage liens other than mortgage liens permitted under Regulations .04B and .07C of this chapter, tax liens, or judgment liens.

The loan shall become due and payable upon the sale or transfer of the real property securing the loan unless the transfer is:

For a loan made under Regulation .07 of this chapter:

Replacement value of the improvements, as determined by the appraisal required under this chapter; or

Sum of the loan, plus any superior mortgage lien permitted by the Program.

Maximum amount of insurance available; or

Amount of the loan.

An insurance policy shall meet the minimum requirements in §C(2), below, plus any additional requirements which may be set by the Department.

An insurance policy shall:

The initial preferred interest rate on the loan may be adjustable.

Loans subject to adjustment shall be made in accordance with the following provisions:

Except for the reasons set forth in §C(4) of this regulation or Regulation .11A(3) of this chapter, the interest rate may not be adjusted:

The Program may establish an alternative interest rate for a borrower that is permitted to assume the loan under Regulation .11G of this chapter, but fails to provide the Program with evidence that the borrower meets the income limits in effect at the time the borrower acquires the property or an interest in the property.

The provisions of this section apply only to adjustable rate loans made under §B of this regulation.

A borrower's household income may be reviewed periodically as required or permitted under the loan documents, upon request of the borrower, or for a new owner permitted to assume the loan as described in §B(4) of this regulation.

For the purposes of reviewing household income, the Program may require the borrower to submit, in a timely manner, copies of income tax returns and other pertinent information for all members of the borrower's household.

If, upon review, the Program determines that the financial circumstances of the borrower have changed and the borrower is:

The Program may increase the preferred rate to the maximum rate set forth in the loan documents, regardless of the prevailing rate for private mortgages, if:

If, after receiving notice of an adjustment to the loan's interest rate, the borrower believes the interest rate adjustment is unwarranted, then the borrower may request the Program to reconsider the adjustment.

Within 30 days of the date of the notice in §C(5) of this regulation, the borrower requesting reconsideration of an adjustment to the loan's interest rate:

The Director of DDF shall designate a review committee composed of at least three employees of the Department, none of whom participate in original decisions about interest rate adjustments.

The review committee shall make a recommendation to the Director of DDF for a request to reconsider an interest rate adjustment, following the procedure described below:

The Director of DDF may:

To apply for a loan, an applicant shall:

Application or Other Program Fees. The Program may require application fees and loan review fees.

The Program shall establish procedures for closing loans either by the Department directly or by authorized agent.

Loan closings shall be scheduled at a time and place acceptable to the Program and the borrower and conducted in a manner acceptable to the Department and the Office of the Attorney General.

Title Insurance. The borrower shall provide at closing a standard American Land Title Association Loan Policy that is acceptable to the Program, insuring the Department for an amount equal to the borrower's loan. The title policy shall evidence that title to the home is vested in the borrower, or borrowers as the case may be, and contain only those exceptions and encumbrances acceptable to the Program.

Charges and Fees. The borrower is responsible for paying closing costs. Payment may be made directly by the borrower or may be financed by the Program loan in accordance with Regulation .06 of this chapter.

The Program may require an appraisal of the value of an eligible residence submitted by an appraiser, and in a form and manner acceptable to the Program.

The appraisal may be required to estimate the remaining economic life of the property.

If the loan is for purchase and rehabilitation of the eligible residence, the Program may require the appraisal to state the:

Each individual borrower receiving a loan may be required to participate in a homebuyer counseling program acceptable to the Department.

Borrowers required to participate in a homebuyer counseling program may be required to pay a fee for the program, which fee may be included in the loan amount in accordance with Regulation .06C(5) of this chapter.

Nonprofit or for-profit organizations;

Local governments; or

Local government agencies.

Be priced to be affordable to eligible borrowers; and

In the determination of the Department, avoid creating or aggravating a concentration of low income households that would adversely affect surrounding communities.

Department has complied with COMAR 05.01.06.06; and

Secretary has issued the written determination required under COMAR 05.01.06.07.

The Department may enter into forward commitments with sponsors to reserve, for a fixed period of time, a fixed amount of Program funds for initiatives or special programs.

The sponsor may be a nonprofit organization or a local government.

Assign a mortgage for value;

Release a mortgage;

Foreclose a mortgage;

Acquire property securing a loan in default;

Encumber, sell, or otherwise dispose of property acquired in connection with a loan in default; or

Obtain and seek enforcement of a deficiency judgment.

Modify the rate of interest;

Modify the time or amount of payment;

Modify the term of the loan;

Modify the loan in any other way in order to promote repayment of the loan and achieve the purpose of the Program;

Accelerate the loan and foreclose on the mortgage, or accept a deed instead of foreclosure;

Accept a deed in lieu of foreclosure whereby the Department accepts a voluntary conveyance of the property securing the loan in exchange for cancellation of debt;

Permit a short sale whereby the borrower sells the property and pays less than the full amount of the mortgage debt, if the Department determines that loan loss will be minimized as a result; or

Take any other action permitted under the Act.

The Secretary may reserve all or any portion of the Program funds at any time for any purpose.

The Secretary also may restrict the use of all or a portion of the unreserved Program funds so that funds are made available:

To the extent that Program funds are not reserved or restricted under §B(1) or (2) of this regulation, or encumbered under a forward commitment made under Regulation .15 or .16 of this chapter, the Program may make funds available to eligible loan applicants on a first-come, first-served basis. However, the Program is not obligated to make loans generally available or to make a specific loan.

Conformance to the requirements of any federal, State, or local programs in connection with a loan necessitates waiver or variance of a regulation; or

In the written determination of the Secretary, the application of a regulation in a specific case or in an emergency situation would be inequitable or contrary to the purpose of the Act.