Chapter 01. Maryland Housing Fund — Multifamily Program
Regulation .01 Purpose.LinkCopy Citation
A.
It is the purpose of the Fund to use creatively its authority to insure mortgages so as to increase the housing opportunities of the residents of the State.
B.
More particularly, the Fund promotes the construction and rehabilitation of housing by insuring mortgages to finance multifamily housing funded by any qualified bank, trust company, savings and loan association, national bank association, public agency, insurance company, or other financial institution. This insurance makes these obligations more marketable, and permits them to be sold at more favorable rates than otherwise possible. The qualified public agencies include the Community Development Administration of the Department of Housing and Community Development, which is the State housing finance agency, and may include other public agencies which operate housing finance programs satisfactory to the Fund and which would benefit by Fund insurance.
C.
These regulations set forth the policies and procedures for issuance of mortgage insurance by the Maryland Housing Fund to insure multifamily residential property.
Regulation .02 Scope.LinkCopy Citation
A.
Mortgage loans secured by residential multifamily real property may be insured by the Maryland Housing Fund under its Multifamily Insurance Reserve and these regulations.
B.
The Multifamily Insurance Reserve is governed by the Multifamily Insurance Agreement, as may be amended, by and between the Fund and the Community Development Administration.
C.
The Multifamily Reserve backs the insurance of multifamily loans under these regulations, and in addition backs the insurance of loans made under the multifamily Home and Energy Loan Program, COMAR 05.04.10, and the Special Housing Opportunity Program, COMAR 05.04.11.
Regulation .03 Definitions.LinkCopy Citation
A.
In this chapter, the following terms have the meanings indicated.
B.
Terms Defined.
(1)
“Act” means Housing and Community Development Article, Title 3, Subtitle 2, Annotated Code of Maryland.
(2)
“Appraised value” means the value of a property, as determined by a written valuation performed by a certified appraiser.
(3)
“Borrower” means the original borrower under a mortgage loan and that borrower's successors and assigns by operation of law or as approved by the Fund.
(4)
“Certified appraiser” means a certified general real estate appraiser entitled or qualified to provide real estate appraisal services under Business Occupations and Professions Article, §15.5-101 et seq., Annotated Code of Maryland.
(5)
“Claim” means a request by an insured lender for reimbursement for any loss resulting from the occurrence of a default in a mortgage which is insured by the Maryland Housing Fund.
(6)
“Condominium” means a multi-unit structure or project, subject to a condominium regime under Real Property Article, Title 11, Annotated Code of Maryland. A multifamily condominium may be comprised of five or more individual units.
(7)
“Cooperative” means a multi-unit project operated for the benefit of members or shareholders who occupy the dwelling units in the project under a shareholders' or occupancy agreement.
(8)
“Default” means the failure of a borrower to repay the obligation of a note, or otherwise to fully perform according to the terms provided in a deed of trust.
(9)
“Department” means the Department of Housing and Community Development of Maryland.
(10)
“Director” means the Director of the Division of Housing Credit Assurance of the Department.
(11)
“Fund” or “MHF” means the Maryland Housing Fund, an agency within the Division of Housing Credit Assurance and, when appropriate, its authorized officers or personnel.
(12)
“Housing Finance Review Committee” means the Housing Finance Review Committee established under Housing and Community Development Article, §4-208, Annotated Code of Maryland.
(13)
Insured Lender or Lender.
(a)
“Insured lender” or “lender” means the original lender of a mortgage loan and that lender's successors and assigns, by operation of law or as approved by the Fund.
(b)
“Insured lender” includes any qualified bank, trust company, savings institution, savings and loan association, national bank association, public agency, insurance company, or other financial institution that makes a loan which the Fund insures in whole or in part.
(14)
“Loan” means the delivery by a lender of a sum of money to a borrower, upon agreement that it be repaid.
(15)
Mortgage.
(a)
“Mortgage” means a written instrument evidencing or creating a lien against real property for the purpose of providing collateral to secure the repayment of a loan.
(b)
“Mortgage” includes a deed of trust.
(16)
“Multifamily project” or “project” means:
(a)
A development of one or more structures containing five or more dwelling units;
(b)
Other uses as may be permitted under Regulation .05B of this chapter; and
(c)
The real property upon which a development in §B(16)(a) of this regulation is situated.
(17)
Nonprofit Entity.
(a)
“Nonprofit entity” means any 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 the entity. This includes governmental bodies, local development agencies, and local development corporations.
(b)
“Nonprofit entity” does not mean limited dividend corporations as defined in Housing and Community Development Article, §4-220, Annotated Code of Maryland.
(18)
“Property” means the land upon which a multifamily project is situated, and all improvements constructed on it, including the rights and benefits of its ownership.
(19)
“Public agency” means any board, commission, agency, department, or authority of the State or of any county or municipal corporation, including a county or municipal corporation.
(20)
“Secretary” means the Secretary of Housing and Community Development of Maryland.
(21)
“Statement of projected net revenues” means a statement of projected net revenues, as those terms are defined in the bond indentures authorizing issuance of the bonds.
Regulation .04 Reserves.LinkCopy Citation
A.
Types of Reserves. Insurance issued by the Fund is backed by an insurance reserve. There currently exist seven separate reserves, one for multifamily insurance, three for single family insurance, one for general use, one for business insurance, and an unallocated reserve for moneys not yet transferred to a specific reserve. More specifically, separate reserve funds have been established to back the following categories of insurance:
(1)
Single family regular insurance;
(2)
Revitalization program insurance formerly known as pilot program insurance;
(3)
Single family home and energy loan insurance;
(4)
Multifamily insurance;
(5)
General reserve insurance;
(6)
Business reserve insurance; and
(7)
An unallocated reserve.
B.
Claims on Reserves.
(1)
Except for the unallocated reserve, each specified category of reserve is maintained as a reserve to pay claims, when necessary or desirable to do so, arising from its respective category of insurance, and is not subject to claims arising from other categories of insurance except as provided in §B(2) of this regulation.
(2)
Reserves are subject to payment of claims arising from single family regular and revitalization program insurance issued before August 20, 1975.
(3)
The unallocated reserve may be used, as provided in §C of this regulation, for the payment of claims arising under any category of insurance.
C.
Earnings on Reserves. Investment earnings on each of the seven reserves which are retained by the Fund are credited to the unallocated reserve. The moneys in the unallocated reserve may be:
(1)
Allocated and transferred by the Secretary into any or each of the identified reserves;
(2)
Restricted by the Secretary as a reserve for the payment of a claim or potential claim under any category of insurance during any workout period;
(3)
Applied by the Fund as payment of a claim, in whole or in part, under any category of insurance; or
(4)
Retained in the unallocated reserve pending allocation, transfer, restriction, or use.
D.
Allocations to Reserves. The Secretary may issue determinations from time to time to make the discretionary allocations, transfers, or restrictions to or within the reserve funds.
Regulation .05 Eligible Projects.LinkCopy Citation
A.
General. A multifamily project is eligible for Fund insurance if it:
(1)
Is located in Maryland;
(2)
When complete, conforms to all applicable federal, State, and local building, health, environmental, historic preservation, and housing codes or regulations;
(3)
Is zoned to permit rental housing; and
(4)
Secures a loan which is in all respects in conformance with these regulations.
B.
Uses.
(1)
A multifamily project shall be used primarily for residential dwelling purposes, including space for living, dining, sleeping, and sanitary purposes.
(2)
A multifamily project may include up to:
(a)
15 percent of the total building space for related noncommercial supporting purposes for use by the residents; and
(b)
5 percent of the total building space for incidental, ancillary, and supportive commercial or other nonresidential uses that may be used by residents and nonresidents.
(3)
A project may include up to an additional 15 percent of the total building space for related noncommercial supporting purposes upon a written determination of the Director of the Fund that the nonresidential spaces and architectural configuration of the project are adaptable to other marketable uses.
C.
Loans secured by cooperatives are eligible for insurance.
D.
Loans secured by a qualified condominium of five or more units are eligible for insurance.
Regulation .06 Eligible Lenders.LinkCopy Citation
A.
General Criteria. Any for-profit or nonprofit entity or public agency may qualify as an eligible lender if, in the determination of the Fund, it:
(1)
Makes loans as a substantial function of its operations;
(2)
Provides evidence of responsibility, permanency, and financial capacity; and
(3)
Has requisite administrative, loan underwriting, loan servicing, and construction loan monitoring capabilities.
B.
Office in State. The insured lender shall maintain an office in the State, be authorized to transact business in the State, and agree to receive service of process in and be subject to the jurisdiction and venue of the courts of the State.
C.
Certification of Lenders. An entity which meets the eligibility requirements under this regulation may request certification by the Fund that it qualifies to originate loans to be insured under this chapter. To become certified, an eligible lender shall submit an application to the Fund, which application may require information and supporting documentation regarding the lender's ability to satisfy all eligibility criteria.
D.
Disciplinary Prohibition. A lender may not be under an order suspending or debarring it from participating in the Department's programs under COMAR 05.01.05 at the time the loan is initially endorsed for insurance. The Department may decline to grant eligibility to an otherwise qualified lender that is suspended or disbarred from participating in the programs of any other state or federal agency.
Regulation .07 Eligible Borrowers.LinkCopy Citation
A limited partnership, corporation, or public agency may qualify as an eligible borrower if, in the determination of the Fund, it:
A.
Owns, at the closing of the loan, the property in fee simple or controls the property under a leasehold interest under a ground lease satisfactory to the Fund having a term not shorter than the term of the insured loan plus 25 years;
B.
Has all necessary legal and corporate authority to incur the obligations of the insured loan;
C.
Is in good standing and qualified to do business in Maryland;
D.
Can establish to the satisfaction of the Fund the:
(1)
Financial capacity to complete the development of the project, including the satisfaction of all equity requirements,
(2)
Experience, background, and construction capacity to construct the project, including the ability to provide all required guarantees, collateral, and escrows, and
(3)
Managerial capacity to operate the project, together with the financial capacity to meet the normal and typical expenses of ownership;
E.
Has a general credit standing and an overall financial position acceptable to the Fund after a review of the borrower's:
(1)
Total obligations,
(2)
Contingent liabilities,
(3)
Operating capital, and
(4)
Other relevant information as may be required by the Fund;
F.
Is not under an order suspending or debarring it from participating in the Department's programs under COMAR 05.01.05, or under any similar order from any other State agency, nor has the Department declined to grant eligibility to an otherwise qualified borrower because the borrower is suspended or debarred from participating in the programs of any federal agency; and
G.
Agrees and certifies that it shall comply with all applicable federal, State, and local laws and Departmental policies and programs regarding discrimination and equal opportunity in employment, housing and credit practices, and drug-free and alcohol-free workplaces, including:
(1)
Titles VI and VII of the Civil Rights Act of 1964, as amended,
(2)
Title VIII of the Civil Rights Act of 1968, as amended, including the Fair Housing Amendments Act of 1988,
(3)
For projects containing nonresidential uses, the Americans with Disabilities Act of 1990, as amended,
(4)
The Governor's Code of Fair Practices, as amended,
(5)
The Department's Minority Business Enterprise Plan, as amended, and
(6)
Executive Order 01.01.1989.18 relating to drug and alcohol free workplaces, and any Departmental regulations adopted to carry out more specifically the requirements of the Order.
Regulation .08 Eligible Loans—Generally.LinkCopy Citation
A.
To qualify as an eligible loan for a project, a loan shall meet the general terms in §§B—J of this regulation.
B.
Eligible Lender. The loan shall be originated by a lender who has been determined eligible under Regulation .06 of this chapter.
C.
First Lien. The loan shall be secured by a first lien upon the property. The loan shall be evidenced and secured using such documentation as is approved by the Office of the Attorney General, as counsel to the Fund.
D.
Insured Loan-to-Value Ratio.
(1)
The maximum loan-to-value ratio of a loan insured by the Fund may not exceed 90 percent of the property's appraised value as of completion of the project, except as provided in §D(2)—(5) of this regulation.
(2)
Notwithstanding the maximum insured loan-to-value ratio set forth in §D(1) of this regulation, 15 percent of the multifamily reserve may be used to back the outstanding principal of loans which have a maximum loan-to-value ratio of between 90 and 100 percent if the loan qualifies under §D(3), (4), or (5) of this regulation.
(3)
The permitted loan-to-value ratio of an insured project may be over 90 percent if:
(a)
A materially significant number of the units in the project are subsidized by federal rent subsidies and the rent subsidy contract extends to or beyond the time when the project is expected to achieve a 90 percent loan-to-value ratio; or
(b)
The first 10 percent of the insured loss is covered by a:
(i)
Governmental agency other than the Fund,
(ii)
Financial institution acceptable to the Fund, or
(iii)
Letter of credit from a financial institution acceptable to the Fund; or
(c)
The loan being insured is a refinancing of an existing Fund-insured project and the reinsurance or continuation of insurance is essential to bring the loan current or otherwise avoid a claim to the Fund.
(4)
A loan may be insured with a loan-to-value ratio up to 100 percent in order to achieve the public purposes of the Fund, if the:
(a)
Project meets all other underwriting standards of the Fund; and
(b)
Secretary has executed a determination of exceptional public purpose.
(5)
The permitted loan-to-value ratio for insurance of a permanent loan for a project with an operating history, but not previously insured by the Fund, may be up to 100 percent of the property's appraised value if the project satisfies the following criteria:
(a)
The loan is secured by a completed and occupied project;
(b)
The project has a minimum of 5 years' operating history and has positive cash flow for a minimum of 3 years immediately before the application for insurance;
(c)
The project has no greater than 5 percent annual average vacancy rate during the 3 years immediately before the application for insurance;
(d)
The project has been assessed by an independent construction analyst or building engineer and requires no major systems or structural rehabilitation; and
(e)
The borrower will not be receiving any cash or other return on equity from the project at the time the loan is insured.
E.
Interest. The loan shall bear interest at the rate agreed upon by the insured lender and the borrower and acceptable to the Fund.
F.
Proceeds. The proceeds of an insured loan shall be:
(1)
Used for the financing or refinancing of acquisition, construction, or rehabilitation of a multifamily project; and
(2)
Evidenced by a promissory note and secured by a mortgage.
G.
Amortization.
(1)
Permanent loans shall contain amortization provisions satisfactory to the Fund for the complete amortization of the loan in monthly installments.
(2)
The Fund may not insure a permanent loan that comes due before the expiration of its full term of years, which loan may be otherwise known as a balloon loan.
H.
Loan Term. The Fund may insure a permanent loan for a period of up to 40 years.
I.
Transfer of Property Insured. The loan shall provide that any transfer of the property, except by operation of law, shall require prior approval of the Fund for the insurance to remain in effect. The Fund's coverage will not be impaired by reason of a transfer in violation of covenants of the mortgage, unless the insured lender had actual advance knowledge of the transfer and is considered to have consented to it.
J.
Multiple Insured Loans. The Fund may insure more than one loan on any project if all insured loans, in the aggregate, comply with these regulations, including without limitation:
(1)
The aggregated loans do not exceed the maximum loan-to-value ratio in §D of this regulation;
(2)
The aggregated loans are all to be secured equably by a first lien deed of trust;
(3)
If the loans are originated by different lenders, each lender has executed an intercreditor agreement in form and substance acceptable to the Fund; and
(4)
The aggregated loans do not exceed the maximum insured loan requirements of Regulation .09 of this chapter.
Regulation .09 Eligible Loans—Maximum Insured Loan.LinkCopy Citation
A.
The maximum insurable loan amount that the Fund can insure is 25 percent of the multifamily insurance reserve, unless:
(1)
Additional collateral is deposited with the Fund in accordance with §B of this regulation; or
(2)
For projects in which the Fund participates in reinsurance, coinsurance, or shared insurance, the Fund's maximum exposure is 25 percent of the multifamily reserve, with adjustments, if any, calculated in accordance with Regulation .15 of this chapter.
B.
A loan may be insured even when the amount of the insurance by the Fund exceeds 25 percent of the multifamily reserve as of the date of making the loan, if the:
(1)
Principal portion of the loan being insured which is in excess of the reserve amount will be supported by collateral or security acceptable to the Fund in an amount equal to or greater than the excess loan amount;
(2)
Collateral or security is deposited with or held by the Fund for its benefit in the event of default for such period of time as determined necessary by the Fund; and
(3)
Acceptable forms of collateral or security are:
(a)
Cash;
(b)
Securities of the following types:
(i)
General obligations of or obligations guaranteed by the federal government,
(ii)
Certificates of deposit or other banking arrangements fully insured by the Federal Deposit Insurance Corporation, or
(iii)
Bonds or other obligations rated in one of the two highest rating categories by a nationally recognized credit rating agency and otherwise acceptable to the Fund;
(c)
Letters of credit which are irrevocable, unconditional, renewable, transferable, and drawable at sight on an investment-grade, rated financial institution with acceptable combined capital and surplus, with a minimum term and all other provisions acceptable to the Fund; or
(d)
Other collateral equivalent to that described in §B(3)(a), (b), or (c) of this regulation and otherwise acceptable to the Fund.
C.
The Fund may insure two or more loans secured by mortgages on adjacent projects which are under common ownership or sponsorship when the combined loans exceed the maximum insurable loan amount, if the Fund determines in writing that the:
(1)
Adjacent projects have substantially different risks of insurance loss evidenced by each project having at least one of the following:
(a)
Federal, State, or local rent subsidies committed to the project for a term of not less than 5 years for not less than 35 percent of the units in the project, or non-rental subsidies which result in at least a 10 percent reduction in the debt service of the loan, or
(b)
Additional collateral or security deposited with the Fund for its benefit in the event of default, in one of the forms set forth in §B(3)(a), (b), (c), or (d) of this regulation, in an amount which, when added to the borrower's equity, equals 22.5 percent of the Fund-determined value for the second project to be insured;
(2)
Loan for each adjacent project contains cross-default provisions providing that upon monetary default of one adjacent project the insured lender would be required, at the Fund's election to:
(a)
Declare a default on either adjacent project, and
(b)
Operate, sell, or transfer the adjacent project rather than assign the project to the Fund unless the adjacent project itself was in monetary default; and
(3)
Likelihood of nonpayment of principal, interest, or other sums agreed to be paid to the mortgagee by the mortgagor is no greater than that of similar projects, taking into consideration all relevant factors, including the financial strength and experience of the developer and builder.
D.
In the event of a default on a loan insured under the provisions of §B or C of this regulation, the terms of the loan are required to give the insured lender the right to call on any collateral or security provided and apply the proceeds to a reduction in the amount of the insurance claim to be paid by the Fund.
Regulation .10 Environmental and Insurance Requirements.LinkCopy Citation
A.
Environmental Review.
(1)
Each loan to be insured by the Fund shall comply with applicable local, State, and federal environmental laws and regulations.
(2)
A lender may be required, at the discretion of the Fund, to have a borrower conduct a screening of the proposed site for environmental conditions, such as man-made hazards, stormwater runoff, underground storage tanks, lead-based paint, radon gas, PCBs, asbestos, or other environmental hazards within the meaning of the environmental laws referred to in this section.
(3)
If the initial screening indicates adverse or potentially adverse environmental conditions, the Fund may require a more detailed physical investigation, review of historic records, testing and treatment, or abatement of the environmental condition as a requirement of the mortgage insurance.
(4)
The Fund may require the borrower to certify to it that no hazardous environmental conditions are present on the property, in addition to the screening required by this section.
B.
Title Insurance.
(1)
The borrower shall provide to the insured lender a standard American Land Title Association Loan Policy — 1970, as amended, for an amount equal to the maximum principal amount of the loan, insuring the lender and the Fund that title to the building and the real property on which the building is located on the date of the loan closing is vested in the borrower, and containing only exceptions and encumbrances approved by the insured lender and the Fund.
(2)
The title policy shall include American Land Title Association endorsement form 100, comprehensive coverage, and American Land Title Association endorsement form 8.1, environmental coverage, and such other endorsements as may be required by the insured lender and the Fund.
(3)
The title insurance policy shall be accompanied by a survey certified in the manner required by the insured lender, the Fund, and the title company issuing the title insurance, showing that there are no easements or encroachments upon or other matters pertaining to the property except those acceptable to the insured lender and the Fund.
C.
Property, Liability, and Other Insurance.
(1)
At or before closing of a loan, and at such other times as required by the Department, the borrower shall provide evidence that the borrower, contractor, and other parties, have obtained and maintained the following insurance:
(a)
Owner's liability;
(b)
Owner's property or hazard or contractor's builder's risk;
(c)
Contractor's liability;
(d)
Architect's errors and omissions;
(e)
Engineer's errors and omissions; and
(f)
Flood insurance, if the project is located in a flood hazard zone.
(2)
All insurance required under §C(1) of this regulation shall meet the following requirements:
(a)
Be written by a company registered with the Maryland Insurance Administration;
(b)
Be in force at the time of closing;
(c)
Not be terminable without prior notification to the Department; and
(d)
Contain such other terms and coverage satisfactory to the Department.
(3)
In addition to the requirements of §C(2) of this regulation, owner's liability insurance shall:
(a)
Name the Department as an additional insured; and
(b)
Remain in force for the duration of the loan.
(4)
In addition to the requirements of §C(2) of this regulation, contractor's liability and contractor's builder's risk insurance shall:
(a)
Name the Department as an additional insured; and
(b)
Remain in place through final closing or such later date as the Department requires.
(5)
In addition to the requirements of §C(2) of this regulation, owner's property or hazard insurance shall:
(a)
Name the Department as an additional insured, loss payee, and mortgagee; and
(b)
Remain in force for the duration of the loan.
Regulation .11 Valuation.LinkCopy Citation
A.
Appraisal Requirement.
(1)
The Fund shall, at its option, either obtain, or have the lender obtain, an independent appraisal of any project for which insurance is sought, or require the borrower to submit an appraisal.
(2)
Appraisal Report.
(a)
The appraisal report shall be prepared by a certified appraiser and submitted by the borrower or an independent appraiser before initial insurance endorsement of a loan. The appraisal shall include the income, cost, and market comparable approaches to valuation.
(b)
The Fund may determine in its sole discretion those projects for which an independent appraisal will be required, based upon the risk of insurance loss to the Fund and the project's cost, location, and market.
(c)
An independent appraisal may be obtained by the Fund at its expense, but the cost shall be reimbursed to the Fund at the time the loan is endorsed for insurance.
B.
Appraisal Review.
(1)
The Fund shall review each appraisal, whether provided by the borrower or an independent appraiser, to determine its accuracy, completeness, and adherence to accepted standards of appraisal practice. The Fund review shall consider the extent of research and methods used and shall otherwise determine that the appraisal was done in accordance with appropriate appraisal practice and standards.
(2)
The Fund also may evaluate appraisals whether provided by the borrower or obtained independently by the Fund, and the valuation given by the Fund review appraiser doing the evaluation shall be used by the Fund in considering an application for mortgage insurance.
Regulation .12 Special Criteria for Construction Advances.LinkCopy Citation
A.
This regulation is applicable to any construction advances under a mortgage insured by the Fund. This regulation applies to all construction advances, and in the case of a conflict between the provisions of this regulation and Regulations .08 — .10 of this chapter, the provisions of this regulation shall control.
B.
Insurance of Construction Advances. Loans to finance construction of multifamily projects are eligible for the insurance of advances by the Fund if either:
(1)
The Fund also insures the permanent loan for the project; or
(2)
At the time the construction loan is endorsed for insurance by the Fund:
(a)
There is a commitment for a permanent loan for the projects,
(b)
Terms and conditions on the commitment are acceptable to the Fund, and
(c)
The lender is acceptable to the Fund.
C.
Construction Term.
(1)
The Fund may insure construction advances for a period of 24 months. Depending on the size and complexity of a project, the Fund may extend the period of insurance for construction advances for up to an additional 12 months.
(2)
For the purposes of this chapter, the construction period shall begin at initial endorsement of the insured loan, and shall end at the final endorsement of the insured loan for permanent mortgage insurance.
D.
Construction Period Disbursement. The insured lender shall:
(1)
Conduct or contract for regular independent on-site inspections of the construction;
(2)
Make construction loan disbursements on the basis of work in place, plus materials acceptably stored on site, less a retention of 10 percent of the construction contract amount; and
(3)
Make disbursement for materials acceptably stored off site, if the materials are:
(a)
In a bonded warehouse,
(b)
Set aside and labeled with the project's name,
(c)
Inspected by the insured lender or its contract inspector, and
(d)
Documented by evidence of payment for the materials.
E.
Each construction draw shall be approved and endorsed by the Fund before its disbursement. Approval is based on:
(1)
An acceptable title endorsement;
(2)
Evidence of waivers of mechanics' liens; and
(3)
At the option of the Fund, an on-site inspection to:
(a)
Verify that the project is proceeding on schedule, and
(b)
Confirm that there are sufficient funds in the construction budget to complete the project.
F.
In addition to the requirements of §E of this regulation, the final construction draw is subject to review and approval of certificates of completion and cost certification.
G.
If at any time during construction the Fund determines from its reconciliation of the project budget, in accordance with §E of this regulation, that the project does not have sufficient funds in the construction budget to complete the project, the Fund may refuse to endorse further construction advances until the construction budget is returned to balance through approved budget adjustments or contributions by the borrower.
H.
Disbursement records are subject to review by the Fund at any time, with or without notice. The Fund may also, at any time and with or without notice, conduct inspections of the project.
Regulation .13 Insurance Coverage Ratios.LinkCopy Citation
A.
Public Agency Lenders. For loans made by public agency lenders to a borrower, the Fund may insure up to 100 percent of the loan amount for an initial premium of 1 percent of the insured loan amount for 12-month coverage. The premium and fee schedule for all insurance is more fully set forth in Regulation .14 of this chapter.
B.
Private Lenders.
(1)
For loans made by private lenders to nonprofit borrowers, the Fund may insure up to the top 25 percent of the loan amount for an initial premium of 1 percent of the insured loan amount for 12-month coverage, or additional coverage in accordance with §C of this regulation.
(2)
For loans made by private lenders to for-profit borrowers, the Fund may insure up to the top 20 percent of the loan amount for an initial premium of 1 percent of the insured loan amount for 12-month coverage, or additional coverage in accordance with §C of this regulation.
C.
Additional Coverage for Private Lenders. The Fund may insure loans made by private lenders with more than a 25 percent loan to insurance coverage ratio, under Regulation .08C or D of this chapter, up to a maximum of 100 percent of the loan amount, upon the payment of higher initial and annual premiums as determined on a case-by-case basis by the Fund.
Regulation .14 Fees and Premiums.LinkCopy Citation
A.
Application Fee.
(1)
The sponsor shall pay an application fee equal to the greater of:
(a)
1/10 of 1 percent (0.1 percent) of the loan amount for which insurance is requested; or
(b)
$1,000.
(2)
The application fee shall be paid to the Fund at the time the application for insurance is submitted by the lender. The Secretary may waive or postpone the time for payment of an application fee in the Secretary's sole discretion.
(3)
The application fee shall be calculated at the time of application on the amount of the loan or part of it for which insurance is requested. Any adjustment for overpayment or underpayment shall be paid by or credited to the borrower at initial endorsement, provided that, at the sole discretion of the Fund, any overpayment may be credited towards the initial mortgage insurance premium.
(4)
The application fee for an existing insured loan being refinanced out of refunding bonds is the greater of:
(a)
$500; or
(b)
1 percent of any increase to the insured loan amount.
(5)
Refund.
(a)
Up to 1/2 of the application fee may be refunded within 60 days of the sponsor's submission of an application if the:
(i)
Fund rejects the application upon initial review; or
(ii)
Sponsor submits a written request to withdraw the application.
(b)
Refunds may not be made after 60 days from application submission.
B.
Commitment Extension Fees. A nonrefundable commitment extension fee of 1/20 of 1 percent (0.05 percent) of the loan amount for which insurance is requested may be charged by the Fund for each extension by the Fund of its commitment to insure a loan, under Regulation .18H of this chapter.
C.
Closing Fees. The Fund may charge fees to cover costs of closing a loan, including administrative and legal costs associated with endorsement of a loan for insurance. The closing fees may be paid at loan closing and may be paid with proceeds of the loan.
D.
Insurance Premiums.
(1)
Construction Advances.
(a)
The premium for insurance of a loan for construction advances is 1 percent of the total loan amount for each year or partial year within the construction period, and shall be paid to the Fund in full at the time of initial endorsement.
(b)
If the construction period is less than 24 months, that portion of the prepaid construction premium for each full calendar month after the final endorsement of the insured loan shall be credited to the initial permanent mortgage insurance premium.
(c)
If the construction period is extended after the initial 24 months, the premium for insurance of the loan for construction advances during the extension period is 1 percent of the insured loan amount, and shall be paid to the Fund in full before the extension period.
(2)
Permanent Loans.
(a)
The initial mortgage insurance premium is 1/2 of 1 percent (0.5 percent) of the insured permanent loan and shall be paid to the Fund at the time of endorsement of the insured loan for permanent mortgage insurance.
(b)
The annual renewal premium is 1/2 of 1 percent (0.5 percent) of the outstanding principal balance of the insured permanent loan.
(c)
When a permanent loan is insured by the Fund following Fund insurance of a construction loan:
(i)
The construction period shall continue until the final endorsement of the insured loan for permanent mortgage insurance; and
(ii)
Only the annual renewal premium, not the initial premium, for the permanent mortgage insurance shall be charged.
E.
Modification of Premium Rates.
(1)
The Fund may participate in a plan of shared insurance, coinsurance, or reinsurance under this regulation. In each of these instances, the Fund may charge an initial premium and annual renewal premium which is in excess of the standard mortgage insurance premiums set forth in §D(2) of this regulation. The Fund shall determine the amount of the excess premium in its sole discretion based on its analysis of the insurance risks.
(2)
If the Fund insures a loan when a portion of the insurance provided is supported by collateral deposited with the Fund, including loans in excess of the maximum insurable amount under Regulation .09B of this chapter, the Fund may charge an increased premium under §E(1) of this regulation, or may in its sole discretion reduce the annual mortgage insurance premium based on its analysis of the insurance risks. The Fund may reduce the annual mortgage insurance premium payable on the entire insured loan by not more than the product of 1/2 of the collateral deposited for the annual period, multiplied by the percentage rate for the applicable insurance premium.
F.
The premium, or any portion of it, is not refundable except when an insured loan is paid in full. If a loan is prepaid in full, no further premium is due and a portion of the premium paid for the year shall be refunded, as prorated on a monthly basis.
G.
Insurance Fees and Premiums.
Regulation .15 Reinsurance, Coinsurance, and Shared Insurance.LinkCopy Citation
A.
Loans insured by the Fund may be reinsured or coinsured, or insurance may be shared by and with public or private mortgage insurers, or through federal guarantees, when available. Portions of risk on any loan insured by the Fund may be assigned to other eligible mortgage insurers on a participating basis. Any reinsurance, coinsurance, or shared insurance shall be made on terms and conditions satisfactory to the Fund.
B.
The reinsurer, coinsurer, or shared insurer shall be reputable and financially sound in the judgment of the Fund.
C.
The Fund may not retain contingent liability to pay an entire claim in the event of nonpayment of a claim by a reinsurer or coinsurer, except in exceptional circumstances by written determination of the Secretary that a heightened public purpose is served by the retention of the contingent insurance risk.
D.
The total of multifamily insurance considered standing for purposes of calculating the leverage ratios permitted may not be decreased by the amount of any reinsurance, coinsurance, or shared insurance with respect to which the Fund retains contingent liability.
Regulation .16 Property Improvement and Energy Loans.LinkCopy Citation
A.
Property improvement loans or energy loans made or purchased by the Community Development Administration under its Home and Energy Loan Program, or by any other public agency mortgagee operating a similar program, the proceeds of which are to be used for the general improvement or rehabilitation of any multifamily project or for energy-conserving improvements to any multifamily project, may be insured by the Fund under the requirements of this section instead of Regulation .08B—D of this chapter.
B.
The loans shall be secured by a first or second mortgage upon the land and improvements.
C.
The maximum amount of the total of any mortgage loan to be insured and the then outstanding balance of any existing prior liens on the multifamily project may not exceed 85 percent of the property's appraised value as of completion of the improvements. The insurance coverage may be 100 percent of the mortgage loan to be insured.
D.
The total amount of liens on the property, including the mortgage loan to be insured, may not exceed 25 percent of the amount in the multifamily reserve.
E.
In the case of loans secured by a second mortgage, the:
(1)
Fund shall examine any existing first mortgage and shall determine that the lender of the first mortgage meets the requirements of Regulation .06A of this chapter or, if the first lender is an individual or individuals, that the lender is financially responsible and has evidenced responsible management of the mortgage;
(2)
Proposed second lender shall determine whether the first mortgage contains any restrictions upon second mortgages, and, if the first mortgage prohibits second mortgages or the first mortgage requires the mortgagor of the second borrower to obtain approval of the first lender before executing a second mortgage, the borrower shall obtain, in form and substance satisfactory to the Fund, a waiver of any prohibition against second mortgages or the approval by the first lender of the second mortgage;
(3)
Borrower shall agree, and the first mortgage shall permit or the first lender shall agree, that:
(a)
The Fund may have an opportunity to cure any defaults under the first mortgage, and
(b)
Any defaults that the Fund is unable to cure shall be suspended, if the Fund keeps current any payments due under the first mortgage;
(4)
Fund shall determine whether the borrower has made all payments of principal, interest, and escrows for expenses, if applicable, in compliance with the terms and conditions of the first mortgage;
(5)
Borrower shall notify the first lender of the existence of the second mortgage, and the borrower and the first lender shall agree in writing to notify the second lender of any events of default under the first mortgage by the borrower; and
(6)
Fund may not insure any loan if the first mortgage requires a mandatory payment before full amortization unless the:
(a)
Loan to be insured has a term less than the remaining term of the first mortgage, and
(b)
Fund determines, in its sole discretion, that the requirement of the mandatory payment does not jeopardize the borrower's ability to repay in full the second mortgage.
Regulation .17 Special Programs under Multifamily Reserves.LinkCopy Citation
A.
Community Development Single-Family Projects Insured Under Multifamily Reserves.
(1)
The Secretary has authorized an additional plan for community development projects, financed by the Community Development Administration, consisting of single-family or condominium residential units, when a mortgage for the project has been insured by the Fund under the reserve fund designated for the insurance of mortgages insured by multifamily properties.
(2)
The Fund may insure 100 percent of a mortgage loan made by the Community Development Administration for a one-family unit, including a condominium unit. The mortgage shall satisfy all requirements of the Fund's single-family regulations under COMAR 05.06.06.
(3)
The amount of the loan may not exceed the total sale price of the unit, including extras or options selected by the purchasers, but not including prepaid expenses and closing costs. Initial premium fees shall be based on the ratio of the amount of the mortgage to this sale price.
(4)
The fee schedule is:
(5)
The multifamily reserve fund, rather than the revitalization program reserve fund, applies to insurance provided under this regulation, and also to any insurance provided for a single-family community development project before November 9, 1977.
(6)
The Fund's single-family regulations under COMAR 05.06.06 govern insurance under this regulation, when not inconsistent with this regulation.
B.
Additional Coverage for Bond-Financed Mortgages.
(1)
The Fund may provide additional coverage with respect to mortgage loans:
(a)
Which are made by a public agency lender;
(b)
The principal and interest of which are pledged to the repayment of revenue bonds issued by a public agency;
(c)
Which are insured to the extent of 100 percent under the multifamily program; and
(d)
Which are secured by a multifamily rental project.
(2)
The purpose of the additional coverage is to prevent imminent or prospective default on bonds, issued by a public agency, following a default on an insured mortgage which could result in a loss of revenues which had been expected to be derived from the insured mortgage loan for payment on the bonds. Eligible insureds are the Community Development Administration, upon the terms set forth here, and other public agencies, for which terms may be adopted by agreement in the future.
(3)
The additional insurance shall be payable upon a:
(a)
Default in the insured mortgage; and
(b)
Certification by an authorized officer of the Administration that:
(i)
Proceeds of the Fund's claim payment under its standard multifamily coverage shall be used to redeem bonds,
(ii)
After the redemption of the bonds as certified in §B(3)(b)(i) of this regulation, the Administration is unable to file a positive statement of projected net revenues, as defined in Regulation .03 of this chapter, for the current and all subsequent bond years, unless additional bonds are redeemed, due to the loss of revenues from the defaulted loan,
(iii)
The amount of the additional bonds which need to be redeemed to permit the Administration to file a positive statement of projected net revenues and the amount of money required to redeem these additional bonds, including interest on the additional bonds until they can be redeemed and any premium payable on the redemption and any expenses of the redemption,
(iv)
The amount of money then available to the Administration which is not pledged to the repayment of the bonds or to the repayment of any other obligations of the Administration or which, if so pledged, may be withdrawn free of the pledge and expended for any lawful purpose of the Administration, and which is not reasonably required to provide for operating costs, or other obligations and commitments of the Administration, in the current and next subsequent fiscal years.
(4)
The amount of the additional insurance claim shall be the lesser of the:
(a)
Excess of the amount certified in §B(3)(b)(iii) of this regulation, over the amount certified in §B(3)(b)(iv) of this regulation, or
(b)
Sum of:
(i)
Interest on the mortgage up to the bond redemption date,
(ii)
Any redemption premium payable on any redemption,
(iii)
The expenses of the redemption, and
(iv)
The amount, if any, by which the unpaid aggregate principal amount of the mortgage loan is less than the allocable unamortized principal amount of the bonds issued to finance the mortgage, or the bonds issued to refinance the bonds which financed the mortgage.
(5)
The premium payable by the Community Development Administration to the Fund is an amount whose present value equivalent is 10 percent of the estimated maximum exposure of the Fund for this additional insurance, determined as of the time the bonds are issued. The premium shall be paid in equal annual installments over the term of the bonds issued to finance the insured mortgages, or the term of the bonds issued to refinance the bonds.
(6)
The reserves applicable for the additional insurance are the multifamily insurance reserve.
Regulation .18 Processing Procedures.LinkCopy Citation
A.
Guidelines for underwriting applications for insurance of multifamily loans are those set forth by the Maryland Housing Fund.
B.
Application.
(1)
Applications for insurance shall:
(a)
Be submitted by lenders on forms acceptable to or prescribed by the Fund;
(b)
Be accompanied by all supporting documentation specified in the multifamily application checklist and the Fund's operating manual; and
(c)
Include sufficient information and documentation to determine the extent, if any, to which the project will change the type of use or increase the intensity of the existing use of the property.
(2)
Applications are not required for continuing insurance or re-endorsement for insurance of an existing Fund-insured loan after a refunding of the revenue bonds which provided the source of funds for the loan.
(3)
Each application for insurance shall have a maximum processing period of 18 months from the date the application and fee are received to the date the commitment is issued. If the application cannot satisfy commitment requirements by the end of the 18-month period, the application expires unless the period is extended in writing at the sole discretion of the Fund. If the application expires and is not extended, a new application is required to be submitted and a new application fee paid before renewed consideration by the Fund.
C.
Review. Upon delivery of an application for insurance and all requisite documentation and payment of the required application fee, the Fund shall review the application to determine whether it complies with these regulations and underwriting guidelines, so as to determine the insurance amount, conditions, and terms.
D.
Eligibility.
(1)
The Fund may, in its sole discretion, participate in particular projects and decline to participate in otherwise eligible projects based on its assessment of each project's overall risks and merits and each project's risks and merits relative to competing alternatives.
(2)
The Fund may issue a written notice of eligibility, but all notices of eligibility shall state that it is within the discretion of the Fund to not participate in an eligible loan, and the notice of eligibility is not in any way a commitment to insure a particular loan.
(3)
If the Fund determines that a project, a borrower, or a loan is not eligible for insurance, the Fund shall issue a written notice of ineligibility.
(4)
The Fund shall provide the Housing Finance Review Committee with a report listing all insurance applications rejected during the month preceding each committee meeting.
(5)
A borrower may request reconsideration of a rejection of an application due to ineligibility, or a rejection at the discretion of the Fund, by making written request for reconsideration to the Secretary within 30 days of the notice of rejection. An initial decision or reconsideration of a decision is not a contested case within the meaning of the Administrative Procedure Act or COMAR 05.01.02.
E.
Withdrawal of Application.
(1)
A lender may withdraw an application for mortgage insurance at any time before the initial endorsement of the loan by providing written notice to the Fund.
(2)
The borrower shall bear any costs incurred by the Fund for items other than internal processing including, without limitation, title examinations, credit reports, and appraisals.
F.
Approval. The Fund shall submit all proposed insurance commitments to the Housing Finance Review Committee for review and recommendation to the Secretary, except for those applications for mortgage insurance in an amount below the minimum amount established by the Housing Finance Review Committee, or in the case of an emergency when urgent action is required.
G.
Secretarial Determination.
(1)
Applications for mortgage insurance in an amount below any minimum amount established by the Housing Finance Review Committee need not be submitted for review and recommendation.
(2)
The Secretary shall consider the recommendation of the Housing Finance Review Committee and approve, disapprove, or approve with modifications the mortgage insurance and its terms. In an emergency when urgent action is required, the Secretary may act on an insurance request without the recommendation of the Housing Finance Review Committee.
(3)
The Secretary shall execute a written determination that the insurance of the loan for the project is authorized by the Act and approve the insurance as recommended or with modifications before the issuance by the Fund of a commitment to insure a loan.
(4)
A written Secretarial determination is required for the refinancing of an existing insured loan.
H.
Commitment.
(1)
Upon approval of the insurance and execution of a determination by the Secretary, the Fund shall issue a commitment letter to the lender setting forth the:
(a)
Terms of the insured loan;
(b)
Terms and conditions of the insurance by the Fund; and
(c)
Requirements to be satisfied before the insurance of the loan by the Fund.
(2)
The commitment may remain valid for a period not to exceed 12 months, unless renewed at the discretion of the Fund. The Fund may renew a commitment one or more times, and each renewal may not exceed 6 months. If the Fund insures a permanent mortgage only, the Fund may issue the commitment at any time during the construction period, and the commitment may remain valid for up to 6 months following the anticipated date for completion of the project unless renewed at the discretion of the Fund.
(3)
The insurance commitment may not be assigned without the prior written approval of the Fund.
(4)
The Secretary's determination and an approval letter signed by the Director setting forth any conditions the Fund requires before a continuation of insurance or re-endorsement for insurance by the Fund shall be issued when a Fund-insured loan is refinanced.
I.
Effective Date of Insurance. At any time before the end of the commitment period and upon satisfaction of all conditions to the commitment, the Fund shall insure the loan. The insurance is effective as of the time the insured loan is endorsed for insurance, and upon receipt of the required premium by the Fund and certification by the lender that all conditions of the lender's loan commitment have been fulfilled.
Regulation .19 Claims Procedures.LinkCopy Citation
A.
Notification. In the event of a default on an insured loan, the lender shall notify the Fund in writing within 30 days of the default. For insured lenders other than the Community Development Administration, all notices shall be sent by certified mail addressed to the Director.
B.
Preclaim Period—Public Agency Lenders.
(1)
The provisions of this section apply to all public agency insured lenders.
(2)
During the first 6 months after an insured loan is in default, the insured lender may not assign the insured loan and its rights under the mortgage to the Fund and make a claim for insurance unless it receives the prior written consent of the Fund.
(3)
After the insured loan has been in default for 6 months, either the Fund or the insured lender may, without the written consent of the other, require the filing of a claim and the assignment of the insured loan to the Fund.
C.
Preclaim Period—Private Lenders.
(1)
At the sole discretion of the Fund, the provisions of §B of this regulation may apply to private insured lenders.
(2)
If the provisions of §B of this regulation are not applicable to a private insured lender, then at any time after 30 days after the insured lender has notified the Fund of a default in accordance with §A of this regulation, either the Fund or the insured lender may, without the written consent of the other, require the filing of a claim and the assignment of the insured loan to the Fund.
D.
Preclaim Action. Upon default and before assignment of the defaulted insured loan to the Fund:
(1)
The Fund may require the insured lender to exercise any or all rights under the loan instruments or at law or in equity including, but not limited to:
(a)
The appointment of a receiver,
(b)
The assignment of rents and rent subsidies,
(c)
The exercise of any or all remedies to enforce or collect the indebtedness against the collateral security, or exercising of any rights of offset,
(d)
The exercise of any or all rights or the filing of any claims under the collateral project documents, including without limitation policies of title or casualty insurance,
(e)
The enforcement of guarantees,
(f)
An attempt to obtain a voluntary conveyance by means of a deed in lieu of foreclosure, and
(g)
Any other actions as to the project, the borrower, and the insured loan as the loan documents permit and as the Fund may direct;
(2)
The insured lender may not take any actions to foreclose, forbear, suspend payment, modify loan terms, or otherwise exercise any of the lender's rights upon default, without the prior written approval of the Fund;
(3)
The lender shall:
(a)
Advise the Fund as to the possibility of loan modification agreements, suspension of payments to escrows or reserve accounts, or other methods of forbearance or restructuring of the insured loans which would be helpful or appropriate,
(b)
Consult with the Fund at all stages, advise the Fund of any possibility of contested proceedings, provide the Fund with monthly operating and management reports on the project, and notify the Fund in writing of all actions taken or proposed to be taken with regard to the project or the loan, and
(c)
Propose alternative solutions to cure a default before assigning the insured loan to the Fund;
(4)
If the lender fails to comply with §D(1) or (2) of this regulation, then in addition to the right of the Fund to terminate the insurance coverage as provided in Regulation .23B of this chapter, the lender shall pay to the Fund all costs incurred by or losses suffered by the Fund which arise directly or indirectly out of the lender's failure.
E.
Foreclosure.
(1)
If the lender's actions under §D of this regulation are unsuccessful and it has not made an assignment of the mortgage to the Fund under §B, C, or F of this regulation, the Fund may direct the lender in writing to proceed with a foreclosure action.
(2)
The insured lender may not proceed with any foreclosure action without the prior written approval of the Fund. The insured lender shall consult with the Fund at all stages of the foreclosure proceeding, including without limitation any anticipated acquisition of the project by the lender in satisfaction of its debt and the management and final disposition of a project which is acquired by the lender at foreclosure.
(3)
The lender shall notify the Fund in writing when a foreclosure sale occurs, which notice shall include the identity of the party that acquires title to the property through foreclosure and the purchase price of the foreclosed project.
F.
Assignment of Mortgage to the Fund.
(1)
If the lender assigns the insured loan to the Fund, it shall assign all documents evidencing or securing the insured loan. The assignment of the mortgage shall be in writing in a form suitable for recordation among the land records of the jurisdiction in which the project is located.
(2)
The assignment shall include:
(a)
An assignment to the Fund of all claims of the lender against the borrower;
(b)
An assignment of all collateral agreements affecting the financing, construction, use, or operation of the project, including without limitation any leases, rents, federal, State, or local contracts for rent or operating subsidies, letters of credit, bonds, warranties, guarantees, and escrow accounts; and
(c)
All policies of title or other insurance or surety bonds or other guarantees and all claims under them.
Regulation .20 Preclaim Payments and Insurance Coverage.LinkCopy Citation
A.
Preclaim Payments.
(1)
The provisions of this section apply to all public agency insured lenders, and to private insured lenders only at the sole discretion of the Fund.
(2)
After receipt of notice of default, the Fund, upon request of an insured lender, shall make the periodic payments to the lender that are due under the terms of the insured mortgage, except late charges and mortgage insurance premiums.
(3)
The periodic payments shall be made for all missed debt service payments beginning with the default for which the Fund is given notice in accordance with Regulation .19A of this chapter. The periodic payments shall continue until the default is cured or the insured loan is foreclosed upon by the lender or assigned to the Fund.
(4)
If the default is cured, the amount of periodic payments made shall be reimbursed by the lender to the Fund. If the insured loan is foreclosed upon by the lender, the amount of periodic payments shall be excluded from the loss computed to the lender. If the loan is assigned to the Fund, the amount of periodic payments shall be included in the claim paid by the Fund in accordance with Regulation .21C(4) of this chapter.
(5)
If the Fund makes periodic payments under this section, then it shall be considered to obtain from the lender the right to recover from the property or the borrower, as may be permitted under the loan documents, the total of all periodic payments plus that amount which equals the mortgage insurance premiums not paid to the Fund by the lender on behalf of the borrower. This right of recovery of payments is additional to and cumulative with all other rights arising from an assignment of an insured mortgage to the Fund.
(6)
Periodic payments made to the lender by the Fund may not be considered a remedy of the borrower's default under the terms of the insured loan or any collateral agreements.
B.
Insurance Coverage.
(1)
Inclusions. The Fund insures only monetary losses, as computed in accordance with Regulation .21C or D of this chapter.
(2)
Exclusions. The Fund does not insure property losses, including without limitation title risk, the risk of loss from defective construction, casualty risk, or any other reduction in project value due to insurable risk or force majeure.
(3)
Preclaim Property Loss. If any reduction in value due to casualty, title loss, act of God, or other damage to or destruction of the property occurs before the assignment of a loan to the Fund, the Fund has the option, at its sole discretion, to:
(a)
Reduce the claim by the amount of the reduction in property value or anticipated loss and permit the lender to enforce its rights under any applicable insurance policies or at law or in equity; or
(b)
Require the lender to assign to the Fund its rights, whether under insurance policies or at law or in equity, to be compensated for the loss, without reduction in the claim by reason of the reduced property value or anticipated loss.
Regulation .21 Claims Payment.LinkCopy Citation
A.
Claims Payment—General. The Fund shall pay the claims of the lender with interest at the interest rate of the loan from the date the claim is submitted until the date the claim is paid. Claims shall be paid in cash under §C of this regulation or by delivery of a promissory claim note in accordance with §D of this regulation.
B.
Claims Payment Without Assignment to the Fund.
(1)
If the project is foreclosed upon by the insured lender, the amount of the claim to be paid by the Fund shall be calculated after the project is sold at foreclosure sale, as follows:
(a)
If, at the foreclosure sale, the property is sold to a third party purchaser, the Fund shall pay to the insured lender the net loss after crediting gross proceeds of the sale;
(b)
If the insured lender takes title to the property at the foreclosure sale, the Fund shall continue to direct the insured lender in its disposition of the property, and, in calculating the loss, the Fund may elect either to:
(i)
Take title to the property and pay the full loss to the insured lender, or
(ii)
After sale or disposition of the property by the insured lender, pay the net loss after crediting gross proceeds of the disposition.
(2)
For projects which have less than 100 percent coverage, the Fund may elect at any time to pay its declared percentage of the loss and waive any interest in the property.
(3)
For any project, the Fund may elect at any time to take an assignment of the insured loan and pay the full claim.
C.
Claims Payment After Assignment—By Cash. If a claim is paid after an assignment of the insured loan to the Fund, then the claim shall be paid either in cash or by a claim note. If a claim is paid in cash, the amount of payment is calculated as follows:
(1)
The lesser of:
(a)
The unamortized principal balance of the insured loan at the time of default, or
(b)
The unamortized principal balance of the insured loan on the date of the notice from the insured lender to the Fund; plus
(2)
Interest at the mortgage rate on the unamortized principal balance of the insured loan from the date of:
(a)
Default, through the date of claims settlement if notice was timely given under Regulation .19A of this chapter, or
(b)
The notice under Regulation .19A of this chapter through the date of claim settlement, if notice was not timely given under Regulation .19A of this chapter; plus
(3)
Expenses paid by the insured lender during the period of default in connection with preserving the project, including:
(a)
Property taxes,
(b)
Property and liability insurance premiums,
(c)
Other customary and reasonable expenses of operating the project paid by the lender with the prior written approval of the Fund; plus
(4)
Any periodic payments which the lender would have been entitled to under Regulation .20A of this chapter but for which no request was made; less
(5)
All amounts received by the lender after default, or retained for the account of the borrower and not applied in reduction of the principal balance or interest due on the insured loan from:
(a)
Any source, for the account of the borrower, and
(b)
Rents or other income, after deducting actual and reasonable expenses for operating the property; less
(6)
The amount of any expired or lapsed letters of credit, bonds, or collateralized guarantees in effect and held by the lender for the benefit of the project as of the date of the default but before an assignment to the Fund, that were intended or required by the terms of the loan documents to remain in effect but that are allowed to expire by the lender without prior written approval of the Fund.
D.
Claims Payment After Assignment—by Promissory Claim Note.
(1)
The provisions of this section apply to all public agency insured lenders, but apply to private insured lenders only at the sole discretion of the Fund.
(2)
A claim may be paid by delivery of a promissory claim note if all of the following conditions are satisfied:
(a)
The lender consents;
(b)
The Fund makes a cash payment to the lender equal to all delinquent principal and interest due on the loan through the date of claim settlement, plus or minus the amounts set forth in §C of this regulation; and
(c)
The principal amount of the claim note, when aggregated with the outstanding principal amounts of all other claim notes issued by the Fund, does not exceed 25 percent of the multifamily insurance reserve.
(3)
If payment by claim note is permitted under §D(2) of this regulation:
(a)
The principal amount of the claim note may not be more than the principal balance of the insured loan which would have been outstanding at the date of the claim settlement, had all payments of principal and interest been timely made;
(b)
The claim note shall require principal and interest payments equal to those required by the insured loan payable at the times payments were to have been made under the insured loan;
(c)
The fund shall restrict an amount equal to the principal amount of the claim note in one or more of the unallocated reserve, the multifamily insurance reserve, or the cash operating account;
(d)
The Fund's obligation to repay the claim note shall be backed generally by the multifamily insurance reserve and the unrestricted portion of the unallocated reserve; and
(e)
Funds restricted in the multifamily insurance reserve under this section are not considered part of the multifamily insurance reserve for purposes of computing the leverage ratio under the amended and restated multifamily insurance agreement.
(4)
A note issued in payment of a claim shall mature and be paid upon the first to occur of the following:
(a)
Sale of the project financed by the loan;
(b)
Maturity of the loan;
(c)
7 years from the date of issuance of the claim note; or
(d)
The date on which the unrestricted amount of the multifamily insurance reserve is less than 75 percent of the unrestricted amount of the multifamily insurance reserve at the time the claim note was issued.
Regulation .22 Partial Claims.LinkCopy Citation
A.
The Fund may accept and make payment on a partial claim if all of the following conditions are satisfied:
(1)
The lender requests approval to file a partial claim;
(2)
At the time the claim is paid the:
(a)
Partial claim payment is applied by the lender to reduce the unamortized principal balance of the insured loan, or
(b)
Fund receives collateral of the type described in Regulation .09B of this chapter in an amount equal to the partial claim payment;
(3)
The loan balance remaining on the insured loan after application of the partial claim payment can be amortized over its remaining term of years on terms that are feasible and the loan will otherwise conform to the initial insurance requirements of these regulations;
(4)
Payment of the partial claim will cure the default and the lender will withdraw the notice of default issued; and
(5)
The borrower shall give a promissory note to the Fund, secured by a subordinate lien on the project for the full amount of the partial claim payment, that provides for repayment to the Fund over the remaining term of the insured loan or from a sale or refinancing of the project, at an interest rate not less than the rate on the insured loan or on terms otherwise acceptable to the Fund.
B.
Instead of the Fund making payment for the amount of the partial claim, the lender may make an additional loan to the borrower to bring the original insured loan current and accept a note from the borrower, which the Fund may insure, if:
(1)
The additional loan is secured equably with the original insured loan;
(2)
The maximum insurable loan amount permitted under Regulation .09 of this chapter is not exceeded; and
(3)
All other requirements of these regulations are satisfied.
Regulation .23 Insurance Termination.LinkCopy Citation
A.
Maryland Housing Fund insurance coverage shall be terminated if:
(1)
The lender requests cancellation;
(2)
A claim is satisfied by the Fund; or
(3)
The loan is paid in full.
B.
At the Fund's sole option, Maryland Housing Fund insurance coverage may be terminated if:
(1)
A renewal mortgage insurance premium is not paid by the lender after its receipt of final demand for same from the Fund;
(2)
Mortgage or loan terms are modified without prior written approval of the Fund;
(3)
The insured lender permits noncompliance with the loan documents without the prior written consent of the Fund;
(4)
The mortgage is assigned by the lender without prior written approval of the Fund;
(5)
Without prior written approval of the Fund, the project's borrower, lender, general contractor, or management agent, as approved by the Fund at the time of loan closing, is substituted with the knowledge or consent of the lender;
(6)
The property is transferred, conveyed, or encumbered in violation of the provisions of these regulations;
(7)
The lender fails to fulfill its obligations under Regulation .19D of this chapter after demand to do so has been made by the Fund;
(8)
The lender fails to fulfill its obligations under the loan documents, the underwriting guidelines, or these regulations, including, without limitation, its obligation to provide periodic project information to the Fund, after demand to do so has been made by the Fund; or
(9)
The lender is debarred from participating in the Department's programs under COMAR 05.01.05.
Regulation .24 General Provisions.LinkCopy Citation
A.
Lender Assignments.
(1)
Insured loans may not be assigned to another lender without prior written notice to and approval of the Fund. A request for assignment of an insured loan shall be accompanied by submission of an application fee and supporting documentation as may be required by the Fund.
(2)
Servicing of insured loans may not be transferred by the insured lender to another servicer without prior written notice to and approval of the Fund.
B.
Changes in Identity of Borrower, General Contractor, or Management Agent. The identity of the borrower or, if a partnership, the managing project's general partner, the identity of the general contractor, and the identity of the management agent may not be changed or substituted after the initial endorsement of an insured loan without prior written notice to and approval of the Fund.
C.
Incontestability. Evidence of insurance issued by the Fund under the Act is conclusive evidence of the eligibility of the insured loan for insurance. This insurance is incontestable except as to defenses based on fraud or misrepresentation.
D.
Books and Accounts.
(1)
The lender shall require the borrower and its contractors, subcontractors, representatives, accountants, record keepers, and management agents to maintain such books, accounts, and records as the Fund may require. The borrower shall file with the lender such financial, operating, and other reports as the Fund may require.
(2)
The books, accounts, and records required to be maintained are open to the inspection of representatives of the Fund or other agencies of the State during reasonable working hours.
(3)
Books, accounts, and records of:
(a)
The lender shall be maintained and made available for inspection for 3 years past the date of termination of the contractual relationship between the lender and the Fund;
(b)
The lender shall, with respect to each specific insured loan, be maintained and made available for inspection for 3 years past the date of termination of the contractual relationship between the borrower and the lender; and
(c)
Contractors and subcontractors shall be maintained and made available for inspection for 3 years past the date of termination of the contractual relationships between the contractor or subcontractor and the borrower.
E.
Specific information regarding the qualification of lenders, borrowers, and projects, the underwriting of insurance, and claims procedures is provided by the Fund.
F.
Waiver. The Secretary may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act or with agreements to which the Fund may be subject if:
(1)
Conformance to the requirements of any federal agency for any project with respect to which federal assistance is sought necessitates a waiver or variance of a regulation; or
(2)
In the written determination of the Secretary:
(a)
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,
(b)
A waiver would not be materially adverse to bondholders or others relying on the multifamily insurance reserve of the Fund, and
(c)
The Office of the Attorney General has approved the form and legal sufficiency of the waiver.
G.
False Statements. A borrower or lender 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, is subject to cancellation of insurance, in addition to the criminal penalties authorized by the Act.
H.
Delegation. The Secretary may delegate to the Director of the Fund or to any other official or employee of the Department or the Fund the authority to execute or approve any program documents or loan documents, including commitments and letters of intent.
Chapter annotations
Authority: Housing and Community Development Article, Title 3, Subtitle 2, Annotated Code of Maryland
History: Effective date: November 15, 1972
History: Regulations .07A, .09A, B, and .17A amended as an emergency provision effective January 20, 1977 (4:4 Md. R. 276); emergency status expired June 14, 1977
History: Regulation .07A, B amended effective June 25, 1977 (4:13 Md. R. 1027)
History: Regulation .07D amended effective August 4, 1976 (3:16 Md. R. 848)
History: Regulation .07F amended effective October 27, 1976 (3:3 Md. R. 1249)
History: Regulation .07 amended effective October 29, 1975 (2:27 Md. R. 1626)
History: Regulation .09 amended effective June 25, 1977 (4:13 Md. R. 1027)
History: Regulation .09A amended effective April 13, 1977 (4:8 Md. R. 632)
History: Regulations .10—.20 amended effective August 20, 1975 (2:18 Md. R. 123)
History: Regulations .10 and .16 amended effective October 29, 1975 (2:27 Md. R. 16)
History: Regulations .10, .11C, .14—.16 amended effective August 30, 1974 (1:1 Md. R. 13)
History: Regulation .17 amended effective January 31, 1976 (3:4 Md. R. 214) and June 25, 1977 (4:13 Md. R. 1027)
History: Chapter revised as an emergency provision effective November 9, 1977 (4:22 Md. R. 1666); adopted permanently effective November 18, 1977 (4:24 Md. R. 1804)
History: Regulation .01C amended effective December 5, 1983 (10:24 Md. R. 2184)
History: Regulation .03E amended effective June 29, 1979 (6:13 Md. R. 1124)
History: Regulations .06A, .07A, and .09A amended effective October 20, 1978 (5:21 Md. R. 1585)
History: Regulations .06B, .09C, .10 adopted effective March 24, 1978 (5:6 Md. R. 464)
History: Regulation .06C adopted effective October 20, 1978 (5:21 Md. R. 1585)
History: Regulation .09A amended effective June 29, 1979 (6:13 Md. R. 1124); September 5, 1980 (7:18 Md. R. 1735)
History: Regulation .10 amended effective June 29, 1979 (6:13 Md. R. 1124)
History: Regulations .11K and .15N adopted as an emergency provision effective October 15, 1983 (10:22 Md. R. 1962); adopted permanently effective March 26, 1984 (11:6 Md. R. 548)
History: Regulation .15B amended effective September 5, 1980 (7:18 Md. R. 1735)
History: Regulation .15B amended as an emergency provision effective April 25, 1983 (10:15 Md. R. 1341); emergency status expired October 25, 1983
History: Regulation .17C repealed effective October 8, 1984 (11:20 Md. R. 1741)
History: Regulation .18 adopted as an emergency provision effective March 22, 1979 (6:7 Md. R. 574); emergency status expired October 3, 1979
History: Regulation .18 adopted effective June 29, 1979 (6:13 Md. R. 1124)
History: Regulation .18C adopted effective December 12, 1980 (7:25 Md. R. 2332)
History: Regulation .18D adopted as an emergency provision effective April 25, 1983 (10:15 Md. R. 1341); emergency status expired October 25, 1983; adopted permanently effective November 7, 1983 (10:22 Md. R. 1965)
History: Regulation .19 adopted as an emergency provision effective June 1, 1983 (10:12 Md. R. 1063); emergency status extended at 10:25 Md. R. 2262; adopted permanently effective December 5, 1983 (10:24 Md. R. 2184)
History: Chapter recodified from COMAR 05.01.02 to COMAR 05.06.01
History: Regulation .01C amended effective March 4, 1991 (18:4 Md. R. 446)
History: Regulation .02 amended effective November 14, 1988 (15:23 Md. R. 2657)
History: Regulations .02, .07, and .18 amended as an emergency provision effective April 30, 1991 (18:10 Md. R. 1114)
History: Regulation .02B amended effective September 16, 1991 (18:18 Md. R. 2003)
History: Regulations .03—.08 repealed effective May 23, 1994 (21:10 Md. R. 841)
History: Regulation .06 amended effective January 8, 1990 (16:26 Md. R. 2786)
History: Regulation .06D amended effective March 4, 1991 (18:4 Md. R. 446)
History: Regulation .07 amended effective September 16, 1991 (18:18 Md. R. 2003)
History: Regulation .09 repealed and new Regulation .09 adopted effective March 4, 1991 (18:4 Md. R. 446)
History: Regulation .10A amended effective March 4, 1991 (18:4 Md. R. 446)
History: Regulation .11C amended effective November 14, 1988 (15:23 Md. R. 2657)
History: Regulation .11L adopted effective November 14, 1988 (15:23 Md. R. 2657)
History: Regulation .15B and E amended effective November 14, 1988 (15:23 Md. R. 2657)
History: Regulation .16A amended effective April 30, 1990 (17:8 Md. R. 975)
History: Regulation .16F amended and G adopted effective October 28, 1991 (18:21 Md. R. 2304)
History: Regulation .16G amended effective June 22, 1992 (19:12 Md. R. 1132)
History: Regulation .18A amended as an emergency provision effective June 28, 1989 (16:14 Md. R. 1562); adopted permanently effective October 30, 1989 (16:21 Md. R. 2260)
History: Regulation .18 repealed and new Regulation .18 adopted effective September 16, 1991 (18:18 Md. R. 2003)
History: Regulation .18 repealed effective May 23, 1994 (21:10 Md. R. 841)
History: Chapter, Maryland Housing Fund, repealed and Regulations .01—.24, Maryland Housing Fund—Multifamily Program, adopted effective December 5, 1994 (21:24 Md. R. 1987)
History: Regulation .02B amended effective September 29, 2014 (41:19 Md. R. 1076)
History: Regulation .04A amended effective November 3, 2008 (35:22 Md. R. 1956)
History: Regulation .04A, C amended effective March 26, 2018 (45:6 Md. R. 317)
History: Regulation .05 amended effective April 5, 1999 (26:7 Md. R. 539)
History: Regulation .10C amended effective April 19, 2010 (37:8 Md. R. 614)