These regulations set forth the policies, procedures, and authorizations for making preferred interest rate loans to households of limited income. The Preferred Interest Rate Loan Program is designed to provide: 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. Programs Operating Under the Maryland Home Financing Program. 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: Emergency mortgage assistance loans to certain households of limited income, who because of involuntary loss of income due to unemployment or other extraordinary hardship are unable to make current mortgage payments on their homes and are likely to forfeit title to their homes, as described in COMAR 05.03.03, as amended from time to time; Short-term construction loans to developers for the construction of or rehabilitation of residential units affordable to certain households of limited income; and Reverse equity mortgage loans to elderly households of limited income for housing-related expenses and personal expenses which enable the owner to continue to occupy the owner's home, as described in COMAR 05.03.05. In this chapter, the following terms have the meanings indicated. Terms Defined. “Act” means Housing and Community Development Article, Title 4, Subtitle 8, Annotated Code of Maryland, as amended. Adjusted Annual Income. “Adjusted annual income” means 100 percent of the projected annual gross income, based on income from all members of the household 18 years old or older, who intend to reside in the eligible residence as their primary residence, except for a full-time high school or undergraduate student who is not a borrower. “Adjusted annual income” includes social security, retirement income, pensions, wages, overtime, bonuses, commissions, investment and interest income, rental income, disability or unemployment insurance, alimony and support payments, and all other income from any source, less: Abnormal expenses of a long-term unusual nature such as extraordinary unreimburseable medical, rehabilitation, or special education expenses; Unusual or temporary one-time income items, such as judgments or gifts, as determined by the Program; and Other income items as may be permitted by the Program. “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. “Closing costs” means costs incurred in connection with purchasing or purchasing and rehabilitating an eligible residence, as approved by the Program. “Closing costs” includes: Credit report fee; Appraisal fee; Home inspection fee; Survey fee; Title examination fee; Title insurance fee; Application fee; Required escrow payments; Attorney's fee; Document preparation fee; Recording fee; and State and local transfer tax and recordation tax. If the loan refinances existing mortgage debt, closing costs may include, in the discretion of the Program, costs such as payments owed at the time of the loan closing for: Property taxes; Hazard insurance premiums; or Ground rent. “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: The eligible residence, in the case of a one unit residence; or One of the units in the eligible residence, in the case of a two to four unit residence. “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: Is a multisectional structure which has a single HUD certification, and was fabricated on or after June 15, 1976, in an off-site manufacturing facility for installation or assembly at the building site; When installed on the site, meets a minimum floor area, depth, and length as required by the Program, in its sole discretion; Is installed permanently on an engineered foundation in conformance with the National Building Code published by the Building Officials and Code Administration International, Inc. which is incorporated by reference under COMAR 05.02.01, or the standards set by the American National Standards Institute, Inc. which are incorporated by reference under COMAR 05.02.02, and is not independently capable of movement; Has brick, wood, aluminum, or cosmetically equivalent exterior siding and a pitched composition shingle or wood shake roof; Is certified by: The United States Department of Housing and Urban Development as a manufactured home in accordance with the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended; or The Department as an industrialized building in accordance with Public Safety Article, §12-308, Annotated Code of Maryland; Complies with all requirements set forth in COMAR 05.02.04; Is installed on real property the borrower owns in fee simple or under a freely transferable ground rent lease, and the legal title to the improvements runs with the real property; Meets all applicable zoning requirements as to number of dwelling units, lot size, and building setbacks; and Is reasonably expected to have an economic life equal to or greater than the term of the mortgage. “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. “Program” means the Preferred Interest Rate Loan Program. “Program” may include staff administering the Program. “Purchase” means the acquisition of a: Lot improved by a residential structure; or Newly constructed residential structure on a lot already owned by the borrower. “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. 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. Other Liens. At the time of the loan closing, the eligible residence: 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. Except as provided in Regulation .07 of this chapter, an eligible residence comprised of one residential unit shall be occupied by the borrower as the borrower's primary residence. If the eligible residence is comprised of two to four residential units, each unit not occupied by the borrower shall be occupied by a household of limited income. Home Inspection. 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. In order to be eligible for a loan to finance the purchase, or the purchase and rehabilitation, of an eligible residence comprised of one residential unit, a borrower: 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: Have the existing residence under contract of sale at the time of the loan application and shall sell the residence before or simultaneous with the borrower's purchase of the property financed by the Program loan; and Provide evidence satisfactory to the Program that the borrower has a compelling need to purchase a new residence, because of a change in: Circumstances of employment such as a new place of work, or Personal circumstances such as a divorce or an increase in the size of the household; 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. In order for a borrower to be eligible for a loan to finance the purchase, or the purchase and rehabilitation, of an eligible residence comprised of two to four residential units, a borrower: 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: Have the existing residence under contract of sale at the time of the loan application and shall sell the residence before or simultaneous with the borrower's purchase of the property financed by the Program loan; and Provide evidence satisfactory to the Program that the borrower has a compelling need to purchase a new residence, because of a change in: Circumstances of employment such as a new place of work, or Personal circumstances such as a divorce or an increase in the size of the household; 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: Requires a tenant to be a household of limited income; and Requires a tenant to provide income tax returns or other evidence satisfactory to the Program of the tenant's household income, at the time the lease is made; and Shall agree to comply with the requirements established by the Program and with terms of the loan. The assets in §A(7) and §B of this regulation: May include: Individual or joint savings accounts; Individual or joint checking accounts; Individual or joint certificates of deposit; Individual or joint money market or mutual fund accounts; Other individual or joint bank accounts; Proceeds derived or to be derived from the sale of real property or a mobile home or other personal property prior to loan closing; In trust for accounts; Any stocks or bonds; Funds from gift letters; Amounts used or borrowed from a life insurance policy, individual retirement account, or 401(k) account minus any penalty; Items paid outside of closing, such as appraisal, credit report fee, home inspection fee, and deposit on property; or Other asset items as determined by the Program policy; May not include: Cash surrender value of a life insurance policy, value of individual retirement accounts or 401(k) accounts, or value of other similar accounts as may be determined by the Program; or Proceeds from any Program approved secondary financing or grant. In order to be eligible for a loan that refinances existing mortgage debt, a borrower: 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: Involuntary unemployment of a borrower, Onset of a borrower's disability or handicap, Divorce or separation, provided that the separated spouse or former spouse no longer holds title to the property, Death of a spouse or other co-borrower, Incarceration of a spouse or other co-borrower, Business reversal leading to sustained material loss of income, or Other similar circumstances of unforeseeable hardship as determined by the Program; 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 proceeds of a loan made to purchase an eligible residence may be used to pay for: The purchase price of the eligible residence; and Closing costs. The proceeds of a loan made under Regulation .05A and B of this chapter to purchase and rehabilitate an eligible residence may be used to pay for: 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: The reasonable cost of correcting major structural defects, The reasonable cost of repairing or replacing plumbing, HVAC, or electrical systems, The reasonable cost of correcting any violations of local planning, zoning, or building codes, or other applicable laws, The reasonable costs of eliminating health and safety hazards including correcting or removing defective paint surfaces and lead-based paint problems; and The reasonable cost of demolition, construction, or lot consolidation as may be approved by the Program; and Any of the following costs: The reasonable cost of inspections performed in accordance with Regulation .08D of this chapter; and Other reasonable rehabilitation costs as may be approved by the Program, such as the cost of developer fees, cosmetic repairs, energy conservation improvements, accessibility modifications, or major appliances. The proceeds of a loan made to refinance an eligible residence may be used to pay for: The payoff and release of the existing mortgage loan or loans, including: The remaining principal balance of the existing mortgage loan or loans, and Unpaid interest due on an existing mortgage loan or loans at the time the Program loan closes; 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: Late fees, Real property taxes, Insurance premiums, Fees or costs, such as condominium or homeowners association fees, as approved by the Program, or Reasonable costs previously expended by a mortgage lienholder in connection with initiating foreclosure proceedings, if approved by the Program; 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. For short-term loans to finance the acquisition and construction, or acquisition and rehabilitation together with demolition or lot consolidation, or acquisition and rehabilitation, of residential units, an applicant shall: 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 proceeds of short-term loans to local governments and nonprofits to finance the acquisition and construction, acquisition and rehabilitation together with demolition or lot consolidation, or acquisition and rehabilitation, of residential units may be used for: 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; Correcting major structural defects; Repairing or replacing plumbing, HVAC, or electrical systems; Correcting any violations of local planning, zoning, or building codes, or other applicable laws; Eliminating health and safety hazards including correcting or removing defective paint surfaces and lead-based paint problems; and Cost of demolition, construction, or lot consolidation as may be approved by the Program; and Any of the following costs: The reasonable cost of inspections performed in accordance with Regulation .08D of this chapter; and Other reasonable rehabilitation costs as may be approved by the Program, such as the cost of developer fees, cosmetic repairs, energy conservation improvements, accessibility modifications, or major appliances. Loans made under this regulation may not exceed the lesser of: The sum of: The sales price of the eligible residence; plus The rehabilitation costs permitted under §B of this regulation; plus Closing costs; minus Any contribution required by the Program; minus The amount of any prior permitted mortgage lien; or The sum of: The appraiser's estimate of the value of the property after the rehabilitation is completed; plus Closing costs; minus The applicant's contribution described in Regulation .11C of this chapter; minus Any prior permitted mortgage lien. Standards for Rehabilitation Work. The rehabilitated property shall satisfy: State and local planning, zoning, and building codes and other applicable laws; and Standards established by the Program. Rehabilitation Work Write-Up. The work write-up describing the rehabilitation work to be done shall: Be prepared by the Department or an entity, such as a government agency, a nonprofit or for-profit corporation, or a licensed contractor, acceptable to the Program; Be approved by the Program; and Include only eligible rehabilitation costs as described in Regulation .06B or .07B of this chapter, as applicable. 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. Monitoring Generally. In monitoring loans and disbursements, the Program, in its sole discretion, shall determine the frequency and level of oversight by the Program during rehabilitation, taking into consideration: 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. Inspections of Rehabilitation Work. For rehabilitation work under Regulation .05 of this chapter: The Program staff or those persons or entities, which may include the borrower, authorized by the Program, shall conduct inspections to: Determine the necessary scope of work, when required; and Verify whether the contractor performing the work is entitled to a draw payment. Inspection reports shall be made on a standard form prescribed by the Program. The Department may charge borrowers a fee for inspections of the rehabilitation work. For rehabilitation work under Regulation .07 of this chapter: The Program may require that periodic inspections or a final home inspection be conducted to: Determine the necessary scope of work, if required; and Verify whether the contractor performing the work is entitled to a draw payment or that all work has been completed; Inspection reports shall be made on a standard form prescribed by the Program; Inspections shall meet standards set by the Program and be conducted by the Program or an inspector acceptable to the Program; and The Department may charge borrowers a fee for inspections of the rehabilitation work. Completion of Work Required. Except as provided in §B of this regulation, payments shall be made only for work completed. Payments may not be made for material delivered to the site but not incorporated into the project. Advances. 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. 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. Joint Payee Checks. Payments of draws shall be made by a joint payee check issued to the borrower and contractor unless an alternative payment method is approved by the Program Director. Effect of Arrearage. Loan funds may not be disbursed if there is any arrearage of interest payments or escrows required by the loan documents. Retainage. 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 type of project; The contractor's experience; and Other factors the Program considers relevant. 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. Final Payment. Final payment shall be made as follows: The borrower shall submit to the Program a certificate of completion, executed by the borrower and contractor, certifying that all work: Has been completed in accordance with the contract documents; Was performed in a workmanlike manner; and Was in accordance with all applicable planning, zoning, and building codes, and other applicable laws. 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 Program may require the borrower to explain in writing within 10 days why the Program should not make direct payment to the contractor; If the borrower responds within the 10-day period and requests a meeting, the Program Director shall hold a meeting at which the borrower shall present objections to requesting or releasing the final payment; and The Program, in its discretion, may then approve direct payment to the contractor or the borrower. Closeout Procedures. After final payment is made, the Department shall reconcile all receipts and disbursements and prepare a close-out statement. Secretarial Determination of Maximum Loan Amounts. 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: Regional costs of housing; Costs of housing affordable to households of limited income; and Exceptional circumstances in individual cases. Purchase Loans. A loan made to finance the purchase of an eligible residence may not exceed the sum of: 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. Purchase and Rehabilitation Loans. A loan made under Regulation .05A and B of this chapter to finance the purchase and rehabilitation of an eligible residence may not exceed the lesser of: The sum of: The sales price of the eligible residence; plus The rehabilitation costs permitted under Regulation .06B of this chapter; plus Closing costs; minus The borrower's contribution described in Regulation .11C of this chapter; minus Any prior permitted mortgage lien; or The sum of: The appraiser's estimate of the value of the property after the rehabilitation is completed; plus Closing costs; minus The borrower's contribution described in Regulation .11C of this chapter; minus Any prior permitted mortgage lien. Subordinate Program Loans. The sum of a subordinate Program loan made under Regulation .04B of this chapter, plus the amount of the superior mortgage loan, may not exceed the sum of the appraised value plus closing costs, minus the borrower's contribution required under Regulation .11C of this chapter. Refinancing Loans. A loan made to refinance existing mortgage loans may not exceed the lesser 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. Interest Rates. The initial preferred interest rate for a loan shall be: Not higher than the prevailing private market rate as determined by the Program; and A rate, which may be as low as 0 percent, set by the Program in relation to the borrower's financial capacity as determined by the Program. 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. Loan Term. On the stated date for the borrower to begin repayment of the loan, the maximum loan term may not exceed the lesser of: 40 years; or If an appraisal is required for the loan, the estimated remaining economic life of the property. Borrower's Contribution. 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. Security for 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. Late Charges. A late charge, as permitted by law, may be imposed. Prepayment Penalty. A prepayment penalty may not be charged. Change of Ownership. The loan shall become due and payable upon the sale or transfer of the real property securing the loan unless the transfer is: To a spouse, divorced spouse, or a child who resides at the mortgaged property; Any other transfer which lenders are required by federal law to permit; or To an assuming transferee who would otherwise be eligible for a Program loan. For a loan made under Regulation .07 of this chapter: The loan shall be due and payable upon the sale or transfer of the real property securing the loan, under partial release provisions set by the Program if applicable; and The real property securing the loan shall be sold to a household of limited income. Loan Payments During Rehabilitation. During the rehabilitation period for the loan, which is to be determined by the Program, the borrower may be charged interest only. Hazard Insurance. The borrower shall maintain fire and extended coverage insurance at the borrower's expense in an amount equal to the lesser of the: 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. Flood Insurance. If the property is located in an area designated by either the Director of the Federal Emergency Management Agency or the Secretary of the Department of Housing and Urban Development as having special flood hazards, and for which flood insurance is available, the eligible residence shall be covered by a flood insurance policy in an amount equal to the lesser of the: Maximum amount of insurance available; or Amount of the loan. Terms and Conditions. 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: Be written by a company: Acceptable to the Department, and Which is reputable and financially sound, as determined by the Department; Be in force upon the closing of the loan; Contain a standard mortgagee endorsement attached to or printed in the policy naming the Department as mortgagee; Provide for notification to the Department before termination; and Contain terms and coverage satisfactory to the Department. Applicability. This regulation applies to loans made to owners of one-to-four unit properties. Adjustable Interest Rates. The initial preferred interest rate on the loan may be adjustable. Loans subject to adjustment shall be made in accordance with the following provisions: The interest rate adjustment shall be based on increases or decreases in the borrower's household income; The manner of calculating interest rate adjustments and the frequency of the adjustments shall be fully disclosed to the borrower at the time the loan is made; and An interest rate adjustment shall take place only after written notice to the borrower. 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: Below the initial preferred interest rate described in Regulation .11A of this chapter; or Above a rate determined by the Program to be the market interest rate at the time the loan is made. 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. Adjustable Rate Loans; Review of Income and Adjustment of Rate. 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: Eligible for a decrease in the interest rate, then the: Program may decrease the interest rate to a lower rate which the Program has determined the borrower can afford, based on the decrease in the borrower's income, and Decreased interest rate may not drop below the initial preferred interest rate described in Regulation .11A of this chapter, except that in extraordinary individual cases as determined by the Program, the interest rate may be decreased to a lower rate necessitated by the financial circumstances of the borrower; No longer eligible for the preferred interest rate stated in the borrower's loan documents, then the Program may: Increase the preferred interest rate to a higher rate which the Program has determined the borrower can afford, based on the increase in the borrower's income, except that the increased interest rate may not exceed the lower of the maximum rate, if any, set forth in the loan documents, or the current prevailing rate for private mortgages, as determined by the Program, or Call the loan and declare it due and payable after the first 5 years of the loan if the loan documents so permit. 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: Upon the request of the Program, the borrower fails to provide a current Maryland or federal tax return or other evidence of financial circumstances satisfactory to the Program; or The borrower does not execute all of the legal documents required by the Program necessary to increase the preferred interest rate. 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: Shall submit to the Program a written statement of reasons why the borrower believes the loan is eligible for a lower interest rate, which statement may be accompanied by any supporting documentation; and May request a personal interview in connection with the request to reconsider the interest rate adjustment. 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 review committee shall review all requests by borrowers to reconsider an interest rate adjustment; The review committee shall conduct all personal interviews requested by borrowers, except that only two members of the review committee need to be present at each interview; If a borrower does not request an interview or fails to appear for an interview, then the review committee shall make its recommendation about the interest rate adjustment based on any written statements and documentation submitted by the borrower, in addition to any other relevant information available; If a personal interview takes place, then the review committee's recommendation about the interest rate adjustment shall take into account information provided in the interview. The Director of DDF may: Make the final decision about requests to reconsider interest rate adjustments; or Delegate the authority to make the final decisions to the Director or Deputy Director of Homeownership Programs, as long as the designee is not a member of the review committee. Applications. To apply for a loan, an applicant shall: Submit a completed application in the form that the Department requires; Supply a copy of the latest income tax return, if appropriate, for each member of the household, or other available verification of any existing household income; and Submit any other information or documentation reasonably requested by the Program in order to establish eligibility and qualifications for a loan. Application or Other Program Fees. The Program may require application fees and loan review fees. Loan Closings. 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. Appraisals. 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: Value of the property before rehabilitation work is done; and Estimated value of the property after rehabilitation work is completed. Home Buyer Counseling. 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. For eligible developers of eligible homes, the Department may enter into forward commitments to reserve, for a fixed period of time, a fixed amount of Program funds. The Program funds reserved in the forward commitment shall be used to finance Program loans for eligible borrowers purchasing eligible homes constructed or rehabilitated by the developer. Eligible developers are: Nonprofit or for-profit organizations; Local governments; or Local government agencies. To be eligible for a commitment, homes to be financed with the funds reserved shall: 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. If homes to be included in this forward commitment are new construction, or will change the type of use or increase the intensity of the existing use of the property included in the commitment, the homes are eligible for a forward commitment only if the: Department has complied with COMAR 05.01.06.06; and Secretary has issued the written determination required under COMAR 05.01.06.07. To be eligible for a commitment, newly constructed homes to be included in a forward commitment shall be located within a priority funding area identified under State Finance and Procurement Article, §5-7B-02, Annotated Code of Maryland. A developer seeking a forward commitment shall submit sufficient information and documentation to determine the extent, if any, to which the homes to be financed by the loans will change the type of use or increase the intensity of the existing use of the property included in the forward commitment. The Department, in its discretion, may set aside Program funds for initiatives and special programs, whereby funds may be made available under special terms set by the Administration. Forward Commitments. 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. The Department may: 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. In the event of default, as provided in the loan documents, or in the event of a prospective default, the Department, in its sole discretion, may: 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. Loan Documentation. Loans shall be made using standard forms prescribed by the Program. Program Fund Allocations. 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: For a particular purpose consistent with Program goals; For limited times or geographic areas; To meet certain economic or other emergencies; or To one of the other loan programs operated under the Maryland Home Financing Program described in Regulation .02B of this chapter, or to the Settlement Expense Loan Program described in COMAR 05.03.04. 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. Delegation of Authority. An action or decision required or permitted to be taken or made by the Department under the Act or these regulations, except for actions when the Secretary is designated, may be delegated by the Secretary. Operational Manuals. The Department may establish from time to time operational handbooks or manuals governing matters relating to the program, including descriptive statements of program procedures which do not affect directly the rights of, or the procedures available to, the public. Loan Servicing and Origination. The Department may enter into servicing agreements with mortgage loan servicers acceptable to the Department. Waiver. The Secretary may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act if: 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. Reconsideration. An applicant or developer dissatisfied with any decision of the Program may request reconsideration by writing to the Director of the Program. An initial decision or reconsideration of a decision is not a contested case within the meaning of the Administrative Procedure Act or COMAR 05.01.01. Agreements with Political Subdivisions. The Program may enter into agreements with political subdivisions to perform loan application intake services if the political subdivision meets the minimum criteria established by the Department. A borrower who knowingly makes or causes to be made any material statement or material misstatement of fact, whether in the nature of an understatement or overstatement of financial condition or any other fact material to the Department's action, is subject to immediate acceleration of the loan, in addition to the criminal penalties authorized by Housing and Community Development Article, §4-816, Annotated Code of Maryland. Housing and Community Development Article, §§4-803—4-806; State Finance and Procurement Article, §§5-7B-01—5-7B-10; Annotated Code of MarylandExecutive Orders 01.01.1992.27C and 01.01.1998.04 Effective date: April, 1973 Regulations .01—.20 amended effective September 1, 1974 (1:2 Md. R. 112) Regulations .01—.20 amended effective July 23, 1975 (2:16 Md. R. 1138) Regulation .03F amended effective April 13, 1977 (4:8 Md. R. 632) Regulation .03H adopted effective April 13, 1977 (4:8 Md. R. 632) Regulation .04D amended effective April 13, 1977 (4:8 Md. R. 632) Chapter recodified from COMAR 05.01.04 to COMAR 05.03.01 Regulations .01, .03, .04, .07—.11, and .13—.15 amended and new Regulation .17 adopted as an emergency provision effective January 25, 1989 (16:3 Md. R. 334); emergency status expired July 25, 1989; adopted permanently effective August 7, 1989 (16:15 Md. R. 1650) Regulation .05 amended effective January 8, 1990 (16:26 Md. R. 2786) Chapter, Maryland Home Financing Program, repealed effective July 22, 1991 (18:14 Md. R. 1609) Regulations .01—.17 under a new chapter, Preferred Interest Rate Loan Program, adopted effective July 22, 1991 (18:14 Md. R. 1609) Regulation .03B amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .04 amended effective February 1, 1993 (20:2 Md. R. 110); January 21, 2002 (29:1 Md. R. 20) Regulation .05 amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .06C amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .10A and G amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .12 amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .14 amended effective January 2, 1994 (20:25 Md. R. 1941); January 21, 2001 (29:1 Md. R. 20) Chapter revised effective August 5, 2002 (29:15 Md. R. 1141) Regulation .04A amended effective October 13, 2003 (30:20 Md. R. 1447) Regulation .15E amended effective October 13, 2003 (30:20 Md. R. 1447)