This chapter prescribes the policies, procedures, and authorizations for making mortgage loans to pay for settlement expenses for purchasing a home. The objective of the Downpayment and Settlement Expense Loan Program is to provide financing for settlement expenses for eligible home buyers who lack the resources to purchase a home. In this chapter, the following terms have the meanings indicated. Terms Defined. “Act” means Housing and Community Development Article, Title 4, Subtitle 3, Annotated Code of Maryland, as amended. “Administration” means the Community Development Administration, an agency within the Division of Development Finance of the Department. “Borrower” means an applicant who receives a loan through the Program. “Department” means the Department of Housing and Community Development, a principal department of the State. “Home buyer of eligible income” means a borrower whose household income does not exceed the upper income limits established from time to time by the Secretary in accordance with Housing and Community Development Article, §4-304, Annotated Code of Maryland. “Home buyer of low income” means a borrower whose household income does not exceed the income limits established from time to time by the Secretary in accordance with Housing and Community Development Article, §4-304, Annotated Code of Maryland, which income limits will be less than those established for the home buyer of eligible income. “Household” means an 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 income” means 100 percent of the projected annual gross income based on current rate of income from all members of the borrower's household, 18 years old or older, including wages, overtime, bonuses, commissions, investment and interest income, unemployment insurance, alimony, child support, pensions, and all other income from any source, less: Abnormal expenses of a long-term unusual nature, such as extraordinary medical, rehabilitation, or special education expenses, as determined by the Program; and Unusual or temporary income items, as determined by the Program. “Loan” means a loan made by the Department to a borrower from the Downpayment and Settlement Expense Loan Program fund. “Manufactured home” means a structure that: Is intended for residential use by a single household; Is a multisectional structure fabricated after June 14, 1976, in an off-site manufacturing facility for installation or assembly at the building site; Is not less than 24 feet in width and 40 feet in length; Is installed permanently on an engineered foundation in conformance with the BOCA National Building Code (1987), 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, or by the Department as an industrialized building in accordance with Public Safety Article, §12-308, Annotated Code of Maryland, and 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. “MHF” means the Maryland Housing Fund, a Division of the Department. “Mortgage lender” means the Administration, the Department, or a bank, trust company, savings institution, savings and loan association, national bank association, mortgage banker, or other financial institution that maintains an office in the State and engages in making or originating residential mortgage loans, and that is licensed or otherwise authorized to make residential mortgage loans in the State pursuant to applicable State and federal law. “Program” means the Downpayment and Settlement Expense Loan Program. “Secretary” means the Secretary of Housing and Community Development. An eligible borrower: Shall be one or more members of a household who are purchasing, and shall hold title to, an eligible residence in Maryland; Shall be 18 years old or older, unless married to a joint borrower who is 18 years old or older; Shall be a home buyer of eligible income; Shall intend the borrower's primary residence to be the eligible residence for which settlement expenses are financed by the Program; May not have assets or resources, such as savings accounts, checking accounts, certificates of deposit, money market accounts, or other bank accounts, or proceeds from the sale of real property or a mobile home or other personal property, but not including individual retirement accounts or other similar accounts as approved by the Program, which could enable the borrower to pay for the settlement expenses and the minimum down payment required by the first mortgage lender, without assistance from the Program; Shall have legal capacity to incur the obligations of the loan; Shall agree to comply with the requirements established by the Program and with the terms of the loan. If the borrower's first mortgage is made or purchased by the Administration, then after the closing of the Program loan, the borrower may be required by the Administration to participate in a homeownership education program acceptable to the Administration and operated by an agency acceptable to the Administration. An eligible residence shall: Be a newly constructed or existing dwelling of not more than four residential units, one of which shall be occupied by the borrower; Be located in the State; Be real property that will be purchased by the borrower in fee simple or under a ground lease which permits the lessee to transfer the leasehold interest without the consent of the lessor; Have an acquisition cost that does not exceed the acquisition cost limits as may be established by the Secretary from time to time; and If new construction, be located within a priority funding area identified under State Finance and Procurement Article, §5-7B-02, Annotated Code of Maryland. An eligible residence may be a detached dwelling, a townhouse, a manufactured home, or a condominium, but not a cooperative unit. The first mortgage loan for the eligible residence shall be: Made by a mortgage lender as defined in Regulation .03 of this chapter; Purchased by the Administration if it is made by a mortgage lender other than the Administration; and Insured or guaranteed by an insurer or guarantor acceptable to the Program. A loan may be used to pay up to 100 percent of the following types of settlement expenses: Fees or premiums for title examination, title insurance, or similar expenses; Fees for preparation of a deed, settlement statement, or other documents; Payments owed at the time of settlement for property taxes or hazard insurance coverage; Escrows for future payments of taxes and hazard insurance; Fees for notarizing deeds and other documents; Appraisal fees; Fees for credit reports; Transfer and recordation taxes and fees; Fees or premiums for mortgage insurance; Loan discount points and origination fees; Down payments; Up to 30 days' worth of prepaid interest; Home inspection fee; and Other settlement expenses as may be approved by the Program before the loan closing. Loan Amount. The Program shall determine limits on loan amounts from time to time. In making the determination under §A(1) of this regulation, the Program may consider factors including the following: Regional costs of affordable housing; The amount and payment terms of other financing available to borrowers; and Exceptional circumstances in individual cases or projects. Equity Capital. The Program may require the borrower to contribute as equity capital a minimum amount of cash to the transaction, in an amount determined as a percent of the first mortgage loan amount. Loan Terms. Interest Rate. The Program shall establish, from time to time, for loans under the Program, either a single interest rate or a range of interest rates based on household income. The interest rate may be as low as zero percent. Term. The loan term may not exceed the term of the first mortgage. Payments. General. Monthly payments shall be applied to expenses, when applicable, interest, and principal, in that order. Deferred Loans. Payments of principal or interest, or both principal and interest, may be deferred until the earlier of: The sale or other transfer of the property; The maturity date or prepayment of the first mortgage loan; or A default under the Program loan. Late Charge. Late charges, as permitted by law, may be imposed. Prepayment Penalty. A prepayment penalty may not be charged. Security for Loans. Loans shall be secured by a mortgage or deed of trust, in the form required by the Department, which shall be recorded in the land records of the county in which the property is located. The mortgage or deed of trust may be subordinate to not more than two other recorded mortgage liens. Insurance. Hazard Insurance. The borrower shall maintain fire and extended coverage insurance at the borrower's expense in an amount not less than the sum of the loan and any other indebtedness secured by the eligible residence, up to the value of the improvements. The hazard insurance policy shall: Be written by companies authorized to do business in Maryland; Be in force at the time of loan closing; Name the Department as a loss payee as its interest may appear in a standard mortgagee endorsement attached to or printed in the policy; and Contain terms and coverage satisfactory to the Department. Flood Insurance. If the building is in a 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the: Eligible residence shall be covered by a flood plain insurance policy in an amount equal to the sum of the loan and any other indebtedness secured by the residence, naming the Department as beneficiary; and Flood plain policy may not be terminated without prior notification to the Department. Change of Ownership. The loan shall become due and payable upon the sale or transfer of the real property securing the loan unless the: Department has consented in writing to the assumption of the loan by a purchaser who meets the requirements of an eligible borrower under Regulation .04 of this chapter, and such other terms as are satisfactory to the Program; or Transfer is to a spouse, divorced spouse, or child who resides at the mortgaged property, or the transfer is otherwise in accordance with federal law. Tenant Income. The Secretary shall determine maximum household income levels for tenants occupying units in the eligible residence. The Program may set a maximum fee that mortgage lenders can charge borrowers to process the application for a loan. The fee may be financed as part of the loan. At loan closing, the borrower may be charged not more than customary and usual amounts for settlement costs. In determining the settlement expenses which may be financed by a loan under the Program, the Program may set a maximum amount for legal fees, title searches, appraisals, and other services as the Program deems necessary. The Department may charge application fees to loan applicants or mortgage lenders. The Program shall establish procedures to operate the Program. The Program may: Provide for a process by which mortgage lenders are certified to originate, sell, and service the loans; Enter into servicing agreements with mortgage lenders or other mortgage loan servicers acceptable to the Department; Prescribe the documentation required to establish an applicant's eligibility; Prescribe the form of legal documents to be used in closing the loans; Enter into agreements with local governments and nonprofit organizations to assist in the operation and funding of the Program. The Program expects to give preference for the use of loan funds in the following ways: The Program may reserve a portion of loan funds for use in connection with other Departmental programs or particular housing developments, as approved by the Secretary, where the properties being purchased are one or two unit residences; The Program intends to give preference to applicants purchasing one and two unit residences; The Program shall give priority to homebuyers of low income by reserving at least 50 percent of the funds available for Program loans in each fiscal year for making loans to homebuyers of low income. Any reserve funds not applied for after 8 months of the fiscal year shall become available to all eligible borrowers. The Program shall establish procedures for the closing of loans either by the Department directly or by authorized agent. The Department may use Program funds for initiatives or special programs that promote affordable housing under the terms and conditions set by the Program. In the event of default, as provided in the legal documents, the Department may: Modify the rate of interest; Defer payment of principal, interest, or both; Modify the term of the loan; Modify the loan in any other way in order to promote repayment of the loan and achieve the purposes of the Program; or Foreclose the loan or accept a deed instead of foreclosure. 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 purposes of the Act. An action or decision required or permitted to be taken or made by the Department pursuant to the Act or these regulations, except for waiver under Regulation .11, may be taken by the Director of the Division of Housing Finance of the Department, or the Director's designees. 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 directly affect the rights of, or the procedures available to, the public. A borrower who knowingly makes or causes to be made a false statement or report, whether in the nature of an understatement or overstatement of financial condition or any other fact material to the Department's action, shall be subject to immediate acceleration of the loan, in addition to the criminal penalties authorized by Housing and Community Development Article, §4-309, Annotated Code of Maryland. The provisions of these regulations are severable. A judgment by any court of competent jurisdiction finding or declaring that any provisions of these regulations or the application of any provision to any person or circumstance is invalid does not affect the validity of the remaining provisions of the regulations or any other application of these regulations, and the remaining regulations shall have full force and effect as if a judgment had not been entered. Housing and Community Development Article, Title 4, Subtitle 3, Annotated Code of Maryland Effective date: Regulations .01—.14 adopted as an emergency provision effective December 13, 1988 (15:27 Md. R. 3114); emergency status extended at 16:12 Md. R. 1331; emergency status expired October 31, 1989 Regulations .01—.14 adopted effective December 11, 1989 (16:24 Md. R. 2616) Regulation .03B amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .04 amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .05 amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .06 amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2024); amended permanently effective July 1, 1996 (23:13 Md. R. 939) Regulation .07 amended effective February 1, 1993 (20:2 Md. R. 110) Regulation .07B amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2024); amended permanently effective July 1, 1996 (23:13 Md. R. 939) Regulation .09 amended effective February 1, 1993 (20:2 Md. R. 110) Chapter revised effective October 16, 2000 (27:20 Md. R.1838) Regulation .05A amended effective October 13, 2003 (30:20 Md. R. 1447) Regulation .07A amended effective December 1, 2008 (35:24 Md. R. 2075) Regulation .09E adopted effective December 1, 2008 (35:24 Md. R. 2075)