Chapter 03. Maryland Housing Fund—Revitalization Program
Regulation .01 General.LinkCopy Citation
A.
These regulations set forth the policies, procedures, and authorization for:
(1)
Insurance by the Maryland Housing Fund (M.H.F.) of 100 percent or less of a mortgage loan for the purchase, or purchase and rehabilitation, of an owner-occupied home with four or less units; and
(2)
Agreements with mortgage lenders to share financial risk and insurance fees in connection with certain loans insured by M.H.F.
B.
The insurance reserve fund for this Program is the reserve fund established in COMAR 05.06.01.01C(2) for the Revitalization Program. The ratio of the total outstanding amount of insurance provided through the Revitalization Program, to the total amount of the Revitalization Program Reserve Fund, may not exceed the ratio of 10:1.
C.
The Revitalization Program was formerly known as the Pilot Program which was governed by COMAR 05.06.01.09.
Regulation .02 Purpose.LinkCopy Citation
A.
The Maryland Housing Fund recognizes the important role homeownership plays in stabilizing and revitalizing neighborhoods and communities. The purpose of the Revitalization Program is to provide opportunities to lower the risk of lending by using M.H.F. insurance to stimulate the flow of private mortgage capital into areas which have suffered from decreasing homeownership and associated economic and social instability. In addition, the program makes homeownership possible for those who do not have the resources for a down payment and closing costs, both of which otherwise would be required without M.H.F. insurance.
B.
From 1973 to 1978, the predecessor to the Program operated in Baltimore City only, and was called the Baltimore City Pilot Program. The Program demonstrated that the level of losses can be acceptable for high loan-to-value mortgages in older urban areas, and together with other factors contributed to the decrease of red-lining practices and the resurgence of private conventional mortgage lending in Baltimore City. The experience in Baltimore City also demonstrated the feasibility of extending the Program Statewide. Starting in 1978, the Program has been available Statewide.
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, as amended.
(2)
“Closing costs (financing)” means the credit report fee, survey fee, title examination, loan origination fee, title insurance fee, mortgage application fee, and the cost of the home inspection required in Regulation .04F of this chapter.
(3)
“Closing costs (title)” means the attorney's fee, documentation and preparation fee, recording fee, State and local transfer tax, and documentary stamps.
(4)
“Department” means the Department of Housing and Community Development.
(5)
“Designated revitalization area” means an area within the State designated by the Secretary as a revitalization area, taking into account the operation in that area of a nonprofit housing agency or a nonprofit financial or housing counseling agency.
(6)
“M.H.F.” means the Maryland Housing Fund, and, when appropriate, its authorized officers or personnel.
(7)
Mortgage.
(a)
“Mortgage” means a written instrument evidencing or creating a lien against real property to provide collateral to secure the repayment of a debt.
(b)
“Mortgage” includes a deed of trust.
(8)
“Mortgagee” means the original lender under a mortgage and its successors and assigns.
(9)
“Mortgagor” means the original borrower under a mortgage and the borrower's successors and assigns by operation of law or as approved by the Fund.
(10)
Nonprofit Entity.
(a)
“Nonprofit entity” means any organization exempt from taxation under the Internal Revenue Code of the United States, §501(c).
(b)
“Nonprofit entity” includes local development agencies and local development corporations, as defined in Housing and Community Development Article, §4-201, Annotated Code of Maryland, and organizations exempt by reason of charitable or public purpose.
(c)
“Nonprofit entity” does not include limited dividend corporations or partnerships.
(11)
“Prepaid expenses” means taxes, ground rent, hazard insurance, and M.H.F. premiums to be paid at closing.
(12)
“Property” means an owner-occupied, one- to four-family residential property which meets the applicable standards set forth in Regulation .04B of this chapter.
(13)
“Secretary” means the Secretary of Housing and Community Development or the Secretary's designee.
Regulation .04 General Terms and Provisions for Purchase and Purchase/Rehabilitation Loans.LinkCopy Citation
A.
Insurance Coverage. M.H.F. may insure:
(1)
Up to 100 percent of a mortgage loan that finances the purchase, or the purchase and rehabilitation, of an eligible property, provided that all of the requirements of these regulations are met;
(2)
A mortgage loan on a cooperative unit in accordance with COMAR 05.06.01.10.
B.
Eligible Borrowers and Eligible Properties.
(1)
The applicable standards for eligible borrowers of mortgage loans insured by M.H.F. are set forth in COMAR 05.06.06.06.
(2)
The applicable standards for eligible properties securing mortgage loans insured by M.H.F. are set forth in COMAR 05.06.06.05, except that COMAR 05.06.06.05D does not apply to an insured loan that finances both the purchase and rehabilitation of the property.
(3)
An eligible property shall be located in a designated revitalization area as defined in Regulation .03B(5) of this chapter.
C.
Eligible Uses of the Insured Mortgage Loan.
(1)
The insured mortgage loan may be used to pay for the following costs and expenses:
(a)
Purchase price of the property;
(b)
Closing costs (financing);
(c)
Closing costs (title);
(d)
Prepaid expenses; and
(e)
Rehabilitation costs permitted in §C(2), below.
(2)
If the mortgage loan is for the rehabilitation as well as the purchase of an eligible property, then the mortgage loan also may be used for the following rehabilitation costs if the conditions set forth in §C(3) of this regulation are fulfilled:
(a)
The reasonable cost of correcting major structural defects;
(b)
The reasonable cost of repairing or replacing plumbing, HVAC, or electrical systems;
(c)
The reasonable cost of correcting any violations of local planning, zoning, or building codes, or other applicable laws;
(d)
The reasonable cost of inspections performed in accordance with Regulation .05E, below; and
(e)
Other reasonable rehabilitation costs, including the cost of cosmetic repairs, which are approved by M.H.F.
(3)
In order for a mortgage loan for rehabilitation as well as purchase costs to be eligible for insurance, a nonprofit housing agency or nonprofit financial or housing counseling agency active in the applicable designated revitalization area shall certify that:
(a)
The acquisition and rehabilitation of the property will stabilize or improve the neighborhood;
(b)
Other resources are currently being targeted to the neighborhood; and
(c)
The acquisition and rehabilitation of the property represents a significant public purpose action.
D.
Agreement with Mortgage Lender Required. A loan insured under this chapter shall be made by:
(1)
A mortgage lender under an agreement with M.H.F described in Regulation .08 of this chapter; or
(2)
The Department.
E.
Equity Capital.
(1)
A borrower whose mortgage is to be insured by M.H.F. under the Revitalization Program shall meet M.H.F.'s requirement for equity capital in the mortgage loan transaction as set forth in §E(2)—(6) of this regulation.
(2)
The borrower is required to pay in cash at least 2 percent of the first mortgage loan amount.
(3)
Equity capital may be applied to one, a combination, or all of the following items:
(a)
Purchase price of the property;
(b)
Closing costs (financing);
(c)
Closing costs (title); or
(d)
Prepaid expenses.
(4)
Equity capital may include gifts, except for those from:
(a)
The realtor for the transaction;
(b)
The seller of the property; or
(c)
Any other party having an interest in the contract.
(5)
Equity capital may not include loans, except for a loan secured by a 401(k) or other retirement account that is subject to a penalty for early withdrawal under the federal tax code.
(6)
Once the equity capital amount has been satisfied in accordance with §E(2)—(5) of this regulation, the balance of funds necessary for settlement of the loan may include gifts, including seller concessions.
F.
Purchase Contract Inspection Contingency. M.H.F. may require that a home inspection be conducted before closing by a home inspector acceptable to the purchaser and lender. The inspection may be required by the purchaser as a contingency to the purchase contract. The purchaser shall obtain the inspection report, although the cost to the purchaser may be reimbursed by the seller. A copy of the inspection shall be supplied to M.H.F. by a lender with the application required in COMAR 05.06.06.09A.
G.
Appraisals.
(1)
There shall be an appraisal of the property securing the loan to be insured by M.H.F.
(2)
The appraisal shall:
(a)
Establish an “as is” value for the property; and
(b)
Be performed by an appraiser acceptable to M.H.F.
Regulation .05 Special Terms and Provisions for Purchase/Rehabilitation Mortgage Loans.LinkCopy Citation
A.
In addition to the general terms and provisions required under Regulation .04 of this chapter, the terms and provisions in §§B—E of this regulation apply to M.H.F. insured mortgage loans that finance both the purchase and the rehabilitation of the property.
B.
Standards for Rehabilitation Work. The rehabilitated property shall satisfy the:
(1)
State and local planning, zoning, and building codes, and other applicable laws; and
(2)
Standards established by M.H.F.
C.
Unless an alternative process is approved by M.H.F., all rehabilitation work shall be supervised by a licensed general contractor, a local government agency, or a nonprofit corporation approved by M.H.F.
D.
Work Write-Up.
(1)
The work write-up describing the rehabilitation work shall:
(a)
Be prepared by the party undertaking or supervising the work;
(b)
Be approved by M.H.F.;
(c)
Include only those rehabilitation costs permitted under Regulation .04C(2) of this chapter; and
(d)
Include both a draw schedule and a plan for implementing the work write-up.
(2)
Rehabilitation work shall be performed:
(a)
In accordance with the work write-up; and
(b)
By State-licensed contractors or other entities approved by M.H.F.
E.
Inspections. Rehabilitation work shall be inspected in accordance with all of the requirements described below:
(1)
Inspectors performing the inspections:
(a)
Shall be knowledgeable and experienced about rehabilitation or construction work,
(b)
Shall be acceptable to M.H.F. and the mortgage lender making the insured loan, and
(c)
May be appraisers;
(2)
The inspector shall prepare an inspection report for each inspection performed;
(3)
The inspection report in §E(2), above, shall include:
(a)
A description of the property,
(b)
Name of the contractor,
(c)
Name of the mortgage lender,
(d)
Date of the inspection,
(e)
Stage in the draw schedule,
(f)
Work to be inspected, as described in the work write-up, and
(g)
Whether the work performed was acceptable and complete;
(4)
The final inspection report shall state whether all of the work done was:
(a)
Acceptable and complete,
(b)
Performed in a workmanlike manner, and
(c)
In accordance with all applicable planning, zoning, and building codes, or other applicable laws;
(5)
M.H.F. shall receive a copy of each inspection report.
F.
Draws. The mortgage lender may not permit a draw of mortgage money to pay for rehabilitation costs unless the requirements of §E, above, are fulfilled.
G.
Appraisal Requirements. When the loan insured by M.H.F. finances both purchase and rehabilitation, the appraisal shall establish the following two values in addition to the “as is” value established under Regulation .04E of this chapter:
(1)
Predominant Neighborhood Value. The predominant neighborhood value:
(a)
Is the value determined by an appraiser to best represent property value in the area surrounding the property being purchased and rehabilitated based on recent sales within that area;
(b)
Is based primarily on sales when 90 percent or more of the purchase price was financed, and the first mortgage was a VA or FHA mortgage or was made by an institutional mortgage lender; and
(c)
Excludes investor sales with depressed sales prices or sales involving assumptions or creative financing which artificially inflate the sales price.
(2)
Value After Rehabilitation.
(a)
The value after rehabilitation is the value estimated by the appraiser to be the value of the property securing the insured loan, once the rehabilitation work is complete.
(b)
In order to be acceptable to M.H.F., the value after rehabilitation may not exceed 120 percent of the predominant value.
Regulation .06 Loans for Purchase and Purchase/Rehabilitation—Maximum Mortgage Amount.LinkCopy Citation
A.
Maximum Mortgage—General Limit.
(1)
The maximum mortgage loan amounts insured by M.H.F. under the Revitalization Program shall be within limits set from time to time by the Secretary.
(2)
If the mortgage covers either acquisition only, or acquisition and minor cosmetic improvements excluding rehabilitation costs set forth in Regulation .04C(2) of this chapter, then the maximum mortgage may not exceed the maximum loan amount for a single family dwelling unit under the Maryland Mortgage Program (MMP) of the Community Development Administration.
(3)
If the mortgage covers permitted rehabilitation costs, the maximum mortgage may not exceed the following limits:
(a)
For a property containing one dwelling unit, the limit is 150 percent of the maximum loan amount for a single family dwelling unit under the Maryland Mortgage Program (MMP) of the Community Development Administration;
(b)
For a property containing two dwelling units, the limit is 175 percent of the MMP limit for a single family dwelling unit;
(c)
For a property containing three or four units, limits shall be determined by the Secretary on a case-by-case basis, taking into account:
(i)
The public purpose being served,
(ii)
Regional costs for this housing, and
(iii)
Other factors considered appropriate by the Secretary.
(4)
Maximum loan amounts may be adjusted periodically by determination of the Secretary to:
(a)
Reflect the annual rate of inflation;
(b)
Reflect the number of dwelling units in the property;
(c)
Reflect the differing area property values;
(d)
Respond to changes in average sales prices;
(e)
Support State agency economic or community development initiatives; or
(f)
Encourage innovative programs of M.H.F.
B.
Purchase-Only Mortgage Limit. A mortgage loan insured by M.H.F. which finances only the purchase of the property may not exceed the lesser of either the:
(1)
Appraised “as is” value or the purchase price of the property, whichever is less, plus the:
(a)
Sum of the:
(i)
Closing costs (financing),
(ii)
Closing costs (title), and
(iii)
Prepaid expenses; minus
(b)
Equity capital described in Regulation .04E of this chapter; or
(2)
Maximum mortgage limit set forth in §A of this regulation.
C.
Purchase/Rehabilitation Mortgages Limit. The amount of the mortgage loan insured by M.H.F. may not exceed the lesser of the following:
(1)
The sum of:
(a)
The purchase price, plus
(b)
Rehabilitation costs permitted in accordance with Regulation .04C(2) of this chapter, plus
(c)
A contingency cost override of 10 percent of the permitted rehabilitation costs, plus
(d)
The cost of construction period interest if approved by M.H.F., plus
(e)
The sum of closing costs (financing), closing costs (title), and prepaid expenses, minus
(f)
Equity capital required by Regulation .04E of this chapter;
(2)
The sum of:
(a)
The value after rehabilitation determined by the appraiser in accordance with Regulation .05G(2) of this chapter, plus
(b)
Closing costs (financing), plus
(c)
Closing costs (title), plus
(d)
Prepaid expenses, minus
(e)
Equity capital required by Regulation .04E of this chapter; or
(3)
The maximum mortgage amount set forth in §A of this regulation.
Regulation .07 Premiums.LinkCopy Citation
Insurance fees for the Revitalization Program are as follows:
A.
An initial premium of 2 percent of the initial loan balance; and
B.
A renewal premium of:
(1)
0.65 percent of the initial loan balance for 9 annual renewals, and
(2)
0.325 percent annually from year 10 to maturity.
Regulation .08 Agreements with Mortgage Lenders.LinkCopy Citation
A.
Under conditions set forth in this regulation, M.H.F. may enter into agreements with mortgage lenders who wish to make insured mortgage loans under the Revitalization Program.
B.
Each mortgage lender shall:
(1)
Be an eligible mortgagee approved by M.H.F. under COMAR 05.06.01.04; and
(2)
Establish the Revitalization Program as a priority as evidenced by the mortgage lender's endorsement of the Program in its Community Reinvestment Act statement.
C.
Each agreement:
(1)
Shall include such terms and conditions as M.H.F. determines are necessary to balance the risk factors which exist in connection with the proposed agreement;
(2)
Shall be approved by the Secretary;
(3)
May provide for M.H.F. and the mortgage lender to share up to 1/2 of the insurance fees and a commensurate degree of financial risk of subsequent default in connection with mortgage loans made by the mortgage lender and insured by M.H.F.; and
(4)
Shall require all borrowers receiving loans insured by M.H.F. to participate in a counseling program, administered by a counseling agency acceptable to M.H.F., which shall provide:
(a)
Counseling on credit issues as required by M.H.F.,
(b)
At least one pre-purchase meeting and one post-purchase meeting, and
(c)
Additional meetings as required by M.H.F.
Regulation .09 Applicability of Other M.H.F. Regulations Under COMAR 05.06.06LinkCopy Citation
The following regulations under COMAR 05.06.06 apply to the Revitalization Program to the extent that their provisions do not conflict with these regulations for the Revitalization Program:
A.
COMAR 05.06.06.03, .06—.08, .10, .11, .15, and .16;
B.
COMAR 05.06.06.05, except that COMAR 05.06.06.05D does not apply to an insured mortgage that finances both the purchase and rehabilitation of the property securing the mortgage; and
C.
COMAR 05.06.06.09, except that COMAR 05.06.06.09C(6) is subject to agreements between the Fund and insurers under the Revitalization Program.
Chapter annotations
Authority: Housing and Community Development Article, Title 3, Subtitle 2, Annotated Code of Maryland
History: Effective date: March 4, 1991 (18:4 Md. R. 446)
History: Regulation .01B amended effective February 28, 1994 (21:4 Md. R. 273)
History: Regulations .02—.05 and .08 amended effective August 3, 1992 (19:15 Md. R. 1388)
History: Regulations .03B and .04 amended effective June 7, 1993 (20:11 Md. R. 912)
History: Regulation .03B amended effective November 7, 1994 (21:22 Md. R. 1873)
History: Regulation .03B amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2025); amended permanently effective July 1, 1996 (23:13 Md. R. 939)
History: Regulation .04 amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2025); amended permanently effective July 1, 1996 (23:13 Md. R. 939)
History: Regulation .04C amended effective November 7, 1994 (21:22 Md. R. 1873)
History: Regulations .06 and .07 repealed and new Regulations .06 and .07 adopted
History: effective August 3, 1992 (19:15 Md. R. 1388)
History: Regulation .06A amended effective November 7, 1994 (21:22 Md. R. 1873)
History: Regulation .06B, C amended effective June 7, 1993 (20:11 Md. R. 912)
History: Regulation .06B, C amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2025); amended permanently effective July 1, 1996 (23:13 Md. R. 939)
History: Regulation .09 amended as an emergency provision effective December 8, 1995 (22:26 Md. R. 2025); amended permanently effective July 1, 1996 (23:13 Md. R. 939)