In General. The Department recognizes that the most effective housing programs of this kind are those administered at the local level. Therefore, each political subdivision is encouraged and expected to develop the capacity to originate and administer Program loans. While the Department has the authority to originate and administer grants and loans, the Department does not plan to operate a program for a political subdivision. The Department reserves the right, however, to originate or administer Program grants and loans at its discretion. Certification of Level I Local Administrators. The Department may certify a political subdivision to originate and administer grants and loans when the political subdivision meets the following minimum criteria to the satisfaction of the Department: The political subdivision shall be able to provide staff to perform adequately the functions of the following positions: A rehabilitation director, experienced in operating a rehabilitation program, supervising employees, and dealing with the public; A building inspector, experienced in residential rehabilitation, cost estimation, writing specifications, blueprint reading, and residential inspections, and trained to understand and apply the appropriate codes and rehabilitation standards; A loan underwriter, experienced in mortgage lending and financial processing of loans; and Clerical and administrative staff trained to ensure prompt and efficient processing of applications, draw schedules, and other required items; The rehabilitation staff of the political subdivision shall be capable of: Establishing a rehabilitation program, evidenced by prior experience in the development and operation of a rehabilitation program; Evaluating loan and grant applications; and Monitoring the loans and grants as well as the work done; and The political subdivision shall execute and comply with the terms of an agreement required by the Department. Certification of Level II Local Administrators. The Department may certify a political subdivision to originate and administer grants and loans in any amount, as well as approve grants and loans, or combination of grants and loans, in the amount of $60,000 or less, when: The political subdivision meets the criteria outlined in §B of this regulation to the Department's satisfaction; and The Department determines that the rehabilitation staff of the political subdivision is capable of: Evaluating, recommending, approving, or rejecting loans and grants; Scheduling and executing loan and grant closings; Monitoring construction activities; Closing out loan and grant accounts; and Providing financial information to loan servicers and the Department. Subcontracting Program Administration. A political subdivision may subcontract its duties and responsibilities as a local administrator under this chapter, except as provided in §D(2) and (3) of this regulation, with the approval of the Department. The duties described in §§B and C of this regulation may be carried out by staff of the local administrator or its subcontractor. A political subdivision may not subcontract the holding and disbursement of loan funds described in Regulation .15B and J of this chapter, except to a subcontractor which meets the following criteria to the satisfaction of the Department: The subcontractor meets the criteria of §§B and C of this regulation; Any employee of the subcontractor with access to the loan funds shall be covered by a fidelity bond, or insured with employee dishonesty liability insurance, in an amount not less than $100,000; The subcontractor provides the local administrator and the Department with statements of: All loan funds held and disbursed by the subcontractor under Regulation .15C(2) of this chapter; and The balance of funds on hand; The subcontractor provides the local administrator and the Department with an annual audit conducted by an independent certified public accountant and prepared in accordance with generally accepted auditing standards; and The subcontractor complies with any other requirements established by the Department. Regardless of any subcontracting, the Department shall continue to hold the political subdivision directly responsible for fulfilling all of its duties and responsibilities as a local administrator. Revocation of Certification. The Department reserves the right and expects to monitor periodically the loan administration of certified local administrators, and may revoke certification upon determination that the local administrator is administering the loans in a manner inconsistent with the intent of the Program. Special Requirements for Local Administrators and Their Subcontractors. A local administrator and local administrator's subcontractors shall maintain financial records of loan disbursements for at least 3 years, and shall make them available for review by the Department at all reasonable times and as set forth in Regulation .19 of this chapter. A noncomplying loan approved by a level II local administrator shall either be amended, with the borrower's concurrence, to comply with the Program's requirements, or purchased from the Department by the political subdivision. Local Administration Fee. The Department may, at its sole discretion, pay a local administrator an annual fee for administering loans made under the Program. Department Authority. When the Department, in its sole discretion, administers a loan, the Department shall have the authority that a local administrator would have under these regulations, in addition to its authority as the Department.