# COMAR Title 05 — Department of Housing and Community Development

## Subtitle 03 — Homeownership Programs

### Chapter 05 — Reverse Equity Mortgage Program

**Authority:** Housing and Community Development Article, §§4-804, 4-806, and 4-807, Annotated Code of Maryland

**Administrative History:** Effective date:

**Administrative History:** Regulations .01—.11 adopted as an emergency provision effective May 16, 1989 (16:11 Md. R. 1212); emergency status expired November 15, 1989

**Administrative History:** Regulations .01—.13 adopted effective December 11, 1989 (16:24 Md. R. 2616)

**Administrative History:** Regulation .03B amended effective February 1, 1993 (20:2 Md. R. 110)

**Administrative History:** Regulation .07C and D amended effective February 1, 1993 (20:2 Md. R. 110)

#### Regulation .01 General.

*COMAR 05.03.05.01*

These regulations prescribe the policies, procedures, and authorizations for making home equity mortgage loans, with principal and interest repayment deferred, to elderly homeowners of limited income.

#### Regulation .02 Objective.

*COMAR 05.03.05.02*

The objective of the Program is to provide an eligible borrower with a line of credit, secured by the borrower's home, which is based on the equity in the home and the age of the borrower. The loan proceeds are to be used for housing-related expenses and other personal expenses which enable the borrowers to continue to occupy their homes. In general, payment of principal or interest is not required until the borrower dies or moves out of the home, or until the home is sold, except that the Program has the right to foreclose in the event of a default. In general, the Program will look to the equity in the home for repayment of principal and interest. There are restrictions on the line of credit, including a limit on the amount the borrower can draw each year on the line of credit, and the Program's right to refuse to make disbursements to a defaulting borrower. In addition, because Program funding is appropriated annually by the legislature, there is no assurance that an approved line of credit can be drawn on by a borrower in any year, or that the borrower will ever be able to draw on the entire amount of the borrower's maximum line of credit.

#### Regulation .03 Definitions.

*COMAR 05.03.05.03*

A. The following terms have the meanings indicated.

B. Terms Defined.

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

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

  (3) “Closing costs” may include:

    (a) Fees or premiums for title examination, title insurance, or similar expenses;

    (b) Fees for preparation of a deed, settlement statement, or other documents;

    (c) Payments owed at the time of the loan closing for property taxes, hazard insurance premiums, or ground rent;

    (d) Fees for notarizing deeds and other documents;

    (e) Appraisal and survey fees;

    (f) Recordation taxes and fees;

    (g) Fees or premiums for mortgage insurance;

    (h) Loan application fees;

    (i) Reasonable legal fees;

    (j) Payoff of prior liens or mortgages; and

    (k) Other closing costs as approved by the Program.

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

  (5) “Equity payment” means a loan disbursement made by the Department to a borrower.

  (6) “Home”:

    (a) Means the real property which secures the loan and otherwise fulfills the requirements of Regulation .05;

    (b) Includes the residential dwelling unit, the lot upon which the residential dwelling unit sits, and the accompanying rights to occupy or use other real property in connection with ownership of the home.

  (7) “Household” means the individual or individuals who occupy the home.

  (8) “Household income” means 100 percent of the projected annual gross income, based on income for the year preceding the loan application, from all members of the borrower's household 18 years old or older, including social security, retirement income, pensions, wages, overtime, bonuses, commissions, investment and interest income, rental income, imputed income from non-income producing assets other than the borrower's home when the total value exceeds $20,000, disability or unemployment insurance, alimony and support payments, and all other income from any sources, less:

    (a) Unreimbursable medical expenses, and health or long term care expenses that enable the borrower to remain in the home, including but not limited to:

      (i) Adult day care,

      (ii) Attendant care,

      (iii) Durable medical equipment,

      (iv) Health, supplemental medicare, or other long term care insurance premiums,

      (v) Home health care,

      (vi) Hospice care,

      (vii) Housekeeping assistance,

      (viii) Nursing home expenses for a temporary stay for a borrower,

      (ix) Prescription drugs; and

    (b) Unusual or temporary income items as approved by the Program.

  (9) “Joint borrower” means a borrower who receives a loan along with one or more other borrowers, all of whom together own the home.

  (10) “Loan” means a loan made by the Department to a borrower through the Program and secured by the home.

  (11) “Manufactured home” means a structure that:

    (a) Is intended for residential use by a single household;

    (b) Is a multisectional structure fabricated after June 14, 1976, in an off-site manufacturing facility for installation or assembly at the building site;

    (c) Is not less than 24 feet in width and 40 feet in length;

    (d) Is installed permanently on an engineered foundation in conformance with the BOCA National Building Code (1990), which is incorporated by reference under COMAR 05.02.01, or the standards set by the American Standards Institute, Inc., which are incorporated by reference under COMAR 05.02.02, and is not independently capable of movement;

    (e) Has brick, wood, aluminum, or cosmetically equivalent exterior siding and a pitched composition shingle or wood shake roof;

    (f) 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 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;

    (g) 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;

    (h) Meets all applicable zoning requirements as to number of dwelling units, lot size, and building setbacks; and

    (i) Is reasonably expected to have an economic life equal to or greater than the term of the mortgage.

  (12) “Program” means the Reverse Equity Mortgage Program.

  (13) “Secretary” means the Secretary of the Department.

#### Regulation .04 Eligible Borrowers.

*COMAR 05.03.05.04*

A. Each individual borrower and each joint borrower, shall meet the following requirements:

  (1) Be at least 65 years old;

  (2) Have a total household income which does not exceed the limits established by the Department from time to time;

  (3) Have the legal capacity, or the necessary legal authority in the case of someone acting on behalf of the borrower, to incur the obligations of the loan; and

  (4) Agree to comply with the terms of the loan and the requirements established by the Program.

B. For at least 1 year before applying for the loan, the individual borrower or at least one joint borrower shall have continuously owned and occupied the home, except that the individual or joint borrower who has continuously owned the home but has been unable to occupy the home for health or safety reasons shall reasonably expect to reoccupy the home within 2 months after the loan closing.

#### Regulation .05 Eligible Homes.

*COMAR 05.03.05.05*

A. The home shall meet the following requirements:

  (1) Be the primary residence of the individual borrower, or at least one of the joint borrowers; and

  (2) Be real property owned by the individual borrower, or all of the joint borrowers, in fee simple or under a freely transferable, perpetually renewable, ground rent lease which permits the lessee to transfer the leasehold interest without the consent of the lessor.

B. The home shall be a residential dwelling unit located in Maryland. It may be a condominium acceptable to the Program, but not a cooperative unit. Manufactured homes may be eligible, subject to review by the Program of each particular application for a loan.

C. Joint borrowers shall own the home as tenants by the entireties or as joint tenants with a right of survivorship.

D. The mortgage or deed of trust:

  (1) May be subordinate to one other mortgage lien which:

    (a) Shall secure a remaining mortgage debt of not more than 25 percent of the equity in the home, equity being determined in accordance with Regulation .07B, and

    (b) May not secure a line of credit loan;

  (2) May not be subordinate to any other liens including a tax lien.

#### Regulation .06 Eligible Uses.

*COMAR 05.03.05.06*

A. The proceeds of the loan may be used to pay the following costs and expenses:

  (1) Necessary home repair, home maintenance, adaptation, or modification;

  (2) Ongoing housing expenses, including:

    (a) Payoff of the existing mortgage or mortgages,

    (b) Property tax payments,

    (c) Utility costs,

    (d) Homeowner's insurance premiums including all types required under Regulation .07K,

    (e) Ground rent, and

    (f) Other housing expenses approved by the Program;

  (3) Health and long term care expenses that enable the borrower to remain at home, including but not limited to:

    (a) Adult day care,

    (b) Attendant care,

    (c) Durable medical equipment,

    (d) Health, supplemental Medicare or other long term care insurance premiums,

    (e) Home health care,

    (f) Hospice care,

    (g) Housekeeping assistance,

    (h) Nursing home expenses for a temporary stay for a borrower,

    (i) Prescription drugs; and

  (4) Other expenses, as approved by the Program, related to the borrower's maintaining independence in the home.

B. Proceeds of the loan may be used to pay closing costs. The Program may set a maximum amount that will be financed by the loan for legal fees, title searches, appraisals, and other services.

C. The borrower shall certify at closing that all equity payments requested and received shall be used solely for the eligible uses as described in this regulation. The Program may also request certification concerning the use of the loan proceeds when the borrower requests equity payments and during the annual recertification process.

#### Regulation .07 Loan Terms and Requirements.

*COMAR 05.03.05.07*

A. Each loan shall be made subject to the requirements of this regulation.

B. Equity in the Home. The equity in the home shall be determined by subtracting any existing indebtedness on the home from the value of the home. At the time of application, the value of the home may be established by using the current assessed value of the home, or, at the request and expense of the borrower and with Program approval, by using an appraisal submitted in a form and manner and by an appraiser acceptable to the Program.

C. Line of Credit.

  (1) Scale of Equity Percentages.

    (a) The Secretary shall determine, from time to time, a scale of equity percentages representing the percentage of equity in the home which may be used to calculate the borrower's maximum line of credit. The scale of equity percentages shall vary inversely in relation to the age of the borrower.

    (b) The scale of equity percentages determined in accordance with §C(1)(a) of this regulation is set forth in the table below:

    (c) The scale of equity percentages may be adjusted from time to time by determination of the Secretary to:

      (i) Respond to changes in property values;

      (ii) Take into account Program experience in making loans and receiving repayments of loans; and

      (iii) Take into account other factors relevant to the Program and considered appropriate by the Secretary to periodic adjustment of the scale.

  (2) Borrower's Maximum Line of Credit.

    (a) A borrower's maximum line of credit shall be calculated by multiplying the equity in the home by the appropriate equity percentage.

    (b) In the case of joint borrowers, the youngest borrower's age as of the date of the loan application shall be used to determine the appropriate equity percentage.

    (c) The total amount of equity payments disbursed to the borrower, less any repayment of principal, may not exceed the borrower's maximum line of credit.

  (3) Program Maximum Line of Credit. The maximum line of credit available under the Program is $50,000. A borrower's maximum line of credit may not exceed this Program maximum line of credit.

  (4) Borrower's Minimum Line of Credit. The Program may reject an application for a loan if the requested line of credit is less than $5,000.

  (5) Increasing the Borrower's Maximum Line of Credit. The borrower may request an increase in the borrower's maximum line of credit if the borrower has drawn at least 90 percent of the existing line of credit and if the equity in the home has increased by at least $10,000. The new maximum line of credit shall be calculated in the manner set forth in §C(1), above, taking into account the current age of the individual borrower or youngest joint borrower. In order to determine the increase in equity, the Program may require from the borrower, at the Program's sole option, either evidence of the current tax assessment or an appraisal submitted in a form and manner and by an appraiser acceptable to the Program. The borrower shall pay the cost of the appraisal, a title and lien search, the costs associated with recording additional loan documents evidencing the increase in the line of credit, and increased insurance premiums. These costs may be financed by the loan upon approval from the Program.

D. Annual Maximum of Equity Payments.

  (1) The Secretary shall determine from time to time the total amount of equity payments which can be disbursed to a borrower during the fiscal year, considering factors such as the availability of Program funds, the demand for new Program loans, and the demand for funds for other homeownership programs.

  (2) The annual maximum of equity payments shall be $5,000, subject to revision by determination of the Secretary from time to time in accordance with the factors set forth in §D(1) of this regulation.

  (3) The annual maximum of equity payments shall be subject to:

    (a) The availability of Program funds; and

    (b) A borrower's maximum line of credit.

E. Emergency Equity Payments.

  (1) The Program may increase the annual maximum of equity payments by not more than $5,000, subject to the borrower's maximum line of credit, in the case of a borrower whom the Program determines in its sole discretion:

    (a) Is in imminent danger of losing title to the home or of having to vacate the home for medical or safety reasons;

    (b) Has no other source of funds to alleviate the problem; and

    (c) Whose problem can be alleviated by additional Program funds.

  (2) The borrower shall comply with the Program's terms and conditions, including payment of the cost of a title and lien search, the cost of recording additional loan documents, and increased insurance premiums. These costs may be financed by the loan upon approval from the Program.

F. Interest Rate. The Program shall establish, from time to time, the interest rate for the loans.

G. Maturity of the Loan. The loan shall become due and payable at the earliest occurrence of:

  (1) The death of an individual borrower, or in the case of joint borrowers, after the death of the last surviving borrower;

  (2) Failure by an individual borrower or all of the joint borrowers to occupy the home as the principal residence during any continuous period exceeding 1 year, unless the borrower has received the prior written approval of the Program;

  (3) Transfer of title to the home, including a transfer of any interest in the home, except that the borrower may lease a room or a portion of the home if the borrower continues to reside in the home and obtains the prior written approval of the Program; or

  (4) Any of the events of default which are enumerated in the deed of trust or other loan documents executed by the borrower.

H. Payments.

  (1) Payment on the loan is not required of a borrower until the loan matures as described in §G, above. Full or partial payment of principal or interest, or both, may be made at any time without penalty.

  (2) All accrued principal and interest shall be paid at maturity to the extent of equity in the home at that time. At the sole option of the Program, the equity in the home at that time may be established by using:

    (a) The sale price of the home, if applicable, less a reasonable real estate agent or broker commission not exceeding 7 percent;

    (b) The current assessed value of the home; or

    (c) An appraisal to be submitted in a form and manner and by an appraiser acceptable to the Program.

  (3) The borrower may not be personally liable for the loan, and in order to satisfy the debt, the Department shall look only to the equity in the home and may not seek payment from the borrower's personal assets or estate, other than from the home, except:

    (a) In the case of borrower's fraud or misrepresentation;

    (b) In the case of borrower's willful neglect or abuse of the home; or

    (c) Under other conditions determined by the Program and set forth in the loan documents.

I. Outstanding Indebtedness. At least once a year, the borrower shall receive a statement of the outstanding indebtedness on the loan. The outstanding indebtedness shall be the total of equity payments disbursed to the borrower plus the simple interest accrued on the sums disbursed, less any repayments of principal or interest. Accrued interest and repayments of principal or interest shall be indicated on the statement.

J. Security for Loans. Each loan shall be secured by a mortgage or deed of trust, in the form required by the Program, and recorded in the land records of the county in which the home is located. Subordinate liens may not be placed on the home without the prior written consent of the Program. The mortgage or deed of trust securing the loan may be subordinate to not more than one other recorded mortgage lien which:

  (1) Shall secure a remaining mortgage debt of not more than 25 percent of the equity in the home, equity being determined in accordance with §B of this regulation; and

  (2) May not secure a line of credit loan.

K. Insurance.

  (1) Hazard Insurance. The borrower shall maintain fire and extended coverage insurance at the owner's expense in an amount not less than the replacement value of the home. The hazard insurance policy shall:

    (a) Be written by companies authorized to transact business in Maryland;

    (b) Be in force at the time of loan closing;

    (c) Name the Department as loss payee as its interest may appear in the standard mortgagee endorsement attached to or printed in the policy; and

    (d) Contain terms and coverage satisfactory to the Program.

  (2) Flood Insurance. If the home is in the 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the:

    (a) Home shall be covered by a flood plain insurance policy naming the Department as a beneficiary, in an amount equal to the borrower's maximum line of credit, up to the federal limit, plus any other indebtedness secured by the home; and

    (b) Flood plain insurance policy may not be terminated without prior notification to the Department.

L. Disbursements.

  (1) The Program shall establish procedures for requesting equity payments, and shall establish limits for:

    (a) Minimum and maximum dollar amounts for the initial and any succeeding equity payment requests during any fiscal year; and

    (b) The maximum frequency of requests per year.

  (2) Equity payments will be made to the borrower only upon borrower's request, which shall be in accordance with Program procedures.

  (3) The borrower is responsible for making payments for real estate taxes, insurance, ground rent, and any other fees or payments relating to the home. The borrower may use loan disbursements to make these payments. If any of these payments become delinquent, the Program, in its sole discretion and without any obligation to do so, may make immediate and direct payment of these expenses and increase the outstanding loan balance by the amount of the payment. In making this payment, the Program may override the borrower's maximum line of credit, the Program maximum line of credit, or the maximum in equity payments available to the borrower for that fiscal year. Any direct payment by the Program may not be construed as a waiver of the borrower's obligation, and the borrower's loan still may be declared in default.

  (4) The borrower may not be entitled to disbursements of equity payments if there are any uncured defaults under the deed of trust or any other loan documents.

M. Change of Ownership or Occupancy of the Home or of Borrower Eligibility. The Program shall establish policies and procedures to monitor the continued ownership and occupancy of the home and eligibility of the borrower for the loan, including an annual borrower recertification procedure. The Program may at its option terminate the right to any future borrowing against the line of credit or may accelerate the loan if:

  (1) The borrower fails to meet the standards for occupancy or use of the loan proceeds;

  (2) An interest in the home has been transferred, except that the borrower may lease a room or portion of the home if the borrower continues to reside in the home and obtains the prior written approval of the Program;

  (3) There is an unpermitted lien or encumbrance on the home; or

  (4) The borrower fails to respond to the recertification request within a reasonable time.

N. Taxes, Insurance, and Other Assessments.

  (1) Real estate taxes, ground rent, water and sewer fees, condominium or homeownership fees, insurance coverage required under §K, and other assessments shall be paid when due by the borrower. If the borrower fails to make the payments or to provide the Program with evidence of payment, the Program may at its option take one or more of the following actions:

    (a) Make these payments directly as described in §L(3), above;

    (b) Refuse to make further disbursements requested by the borrower; or

    (c) Foreclose on the home.

  (2) Escrow Account. If there is no prior mortgage requiring the payment of expenses to a mortgagee, the Program may establish an escrow account for the borrower at the loan closing and may require the borrower to make monthly expense payments consisting of 1/12 of annual real estate taxes, ground rent, property insurance premiums and, when appropriate, other items for which payments are required by the Program. Instead of an escrow account, the Program may require evidence of payment of the taxes, insurance, and assessments described in §N(1), above.

O. Maintaining the Home. The borrower shall maintain the home in good repair, and the Program shall have the right to inspect the home. If the Program determines that repairs are necessary, the Program shall have the right but not the obligation to cause the repairs to be made and to charge the cost of the repairs against the borrower's line of credit as an equity payment. In this event, the Program may override the borrower's maximum line of credit, the Program maximum line of credit, or the maximum of equity payments available to the borrower for that fiscal year. These actions by the Program may not be construed as a waiver of borrower's obligation to maintain the home, and the borrower's loan may still be declared in default.

#### Regulation .08 Availability of Future Funding.

*COMAR 05.03.05.08*

The Department shall establish the maximum dollar amount of equity payments authorized for disbursement to each borrower for each fiscal year. Because Program funding is appropriated annually by the legislature, there is no assurance that an approved line of credit can be drawn on by the borrower in any year, or that the borrower will ever be able to draw on the entire amount of the borrower's maximum line of credit.

#### Regulation .09 Loan Closing.

*COMAR 05.03.05.09*

A. Time and Place. The loan closing shall be scheduled at a time and place acceptable to the borrower and the Program and conducted in a manner acceptable to the Program.

B. 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 maximum line of credit. The title policy shall evidence that title to the home is vested in the borrower, or the joint borrowers as the case may be, and contain only those exceptions and encumbrances acceptable to the Program.

C. 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 loan as described in Regulation .06B.

#### Regulation .10 Program Administration.

*COMAR 05.03.05.10*

A. Forms and Documentation. The application and the loan documents shall be made upon standard forms prescribed by the Program.

B. Application Fee. The Program may require an application fee for processing the loan.

C. Program Fund Allocations. It is the intent of the Department that Program funds be distributed Statewide to eligible applicants and borrowers. At the discretion of the Department, the Program may:

  (1) Make Program funds available on a first come, first served basis;

  (2) Give priority to a loan applicant or borrower whom the Program, in its discretion, determines:

    (a) Is in imminent danger of losing title to the home or having to vacate the home for medical or safety reasons,

    (b) Has no alternative source of funds to alleviate the problem, and

    (c) Whose problem can be alleviated by a Program loan;

  (3) Give priority, among eligible loan applicants, to those with less income or fewer assets, or both; or

  (4) Use Program funds in a combination of §C(1)—(3), above.

D. Procedures. The Department shall establish procedures for operating the Program which may include:

  (1) Internal operating procedures for making loans directly; or

  (2) Procedures for directing financial institutions to make loans on behalf of the Department.

E. Delegation of Authority. An action or decision required or permitted to be taken or made by the Department pursuant to the Act or these regulations, except for actions where the Secretary is designated, may be taken by the Director of the Division of Housing Finance of the Department, or the Director's designee.

#### Regulation .11 False Statements.

*COMAR 05.03.05.11*

A borrower who knowingly makes or causes to be made any material misstatement or material omission of fact, whether in the nature of an understatement or overstatement of financial condition or any other fact material to the Department's action, in any statement or report in or regarding an application for a loan, a borrower recertification, or an equity payment request, or affecting an equity payment already made, shall be 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.

#### Regulation .12 Waiver.

*COMAR 05.03.05.12*

The Secretary may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act if:

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

B. 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.

#### Regulation .13 Severability.

*COMAR 05.03.05.13*

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 no judgment had been entered.