# COMAR Title 05 — Department of Housing and Community Development

## Subtitle 06 — Housing Insurance

### Chapter 04 — Special Housing Facility Projects

**Authority:** Housing and Community Development Article, Title 3, Subtitle 2, Annotated Code of Maryland;Executive Order 01.01.1992.27C

**Administrative History:** Effective date: June 22, 1992 (19:12 Md. R. 1132)

**Administrative History:** Regulation .05C, D amended effective November 7, 1994 (21:22 Md. R. 1874)

**Administrative History:** Regulation .06B amended effective January 2, 1993 (19:26 Md. R. 2283)

**Administrative History:** Regulation .09E—G amended effective November 20, 1995 (22:23 Md. R. 1800)

**Administrative History:** Regulation .10 amended effective January 2, 1994 (20:25 Md. R. 1943); April 5, 1999 (26:7 Md. R. 539)

**Administrative History:** Regulation .10D amended effective June 5, 1995 (22:11 Md. R. 818)

**Administrative History:** Regulation .10H adopted effective November 20, 1995 (22:23 Md. R. 1800)

**Administrative History:** Regulation .12A amended effective January 2, 1994 (20:25 Md. R. 1943)

**Administrative History:** Chapter revised effective March 31, 2003 (30:6 Md. R. 419)

**Administrative History:** Regulation .07C amended effective April 19, 2010 (37:8 Md. R. 614)

#### Regulation .01 General.

*COMAR 05.06.04.01*

A. This chapter sets forth the policies and procedures for insurance by the Maryland Housing Fund of mortgage loans for the refinancing, purchase and rehabilitation, or construction of special housing facility projects.

B. The insurance reserve for this Program is the multifamily reserve fund established in accordance with COMAR 05.06.01.

#### Regulation .02 Objective.

*COMAR 05.06.04.02*

The objective of the Program is to provide insurance of mortgage loans made or purchased by the Community Development Administration to nonprofit organizations for the purpose of financing or refinancing special housing facility projects.

#### Regulation .03 Scope.

*COMAR 05.06.04.03*

This Program is intended to insure loans made or purchased by the Administration under its Special Housing Opportunities Program as contained in COMAR 05.04.11.

#### Regulation .04 Definitions.

*COMAR 05.06.04.04*

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) “Administration” means the Community Development Administration, an agency in the Division of Development Finance of the Department.

  (3) “Default” means the failure of the sponsor to:

    (a) Make required payments under the mortgage loan when due including any applicable grace period; or

    (b) Perform any other obligation under the mortgage loan after the notice, lapse of time, and opportunity to correct, if any, which may be provided in the mortgage.

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

  (5) “Director” means the Director of the Maryland Housing Fund.

  (6) “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated under it.

  (7) “Lender” means the Administration.

  (8) “Maryland Housing Fund” or “the Fund” means the Maryland Housing Fund, an agency within the Division of Credit Assurance of the Department.

  (9) “Nonprofit organization” means an organization:

    (a) Whose organizational documents include among its charitable purposes the provision of housing to special needs populations; and

    (b) Which is currently recognized by the Internal Revenue Service as a tax-exempt organization under §501(c)(3) of the Internal Revenue Code.

  (10) “Program” means the Maryland Housing Fund mortgage insurance program of loans for special housing facility projects.

  (11) “Project” means a special housing facility project within the meaning of the Act

  (12) “Secretary” means the Secretary of Housing and Community Development.

  (13) “Sponsor” means the borrower under a mortgage loan for a project and includes its successors and assigns by operation of law or as approved by the Maryland Housing Fund.

#### Regulation .05 Eligible Loans—Generally.

*COMAR 05.06.04.05*

A. Type of Loans. Loans made or purchased by the Administration under its Special Housing Opportunities Program, the proceeds of which are to be used to refinance, acquire, construct, or rehabilitate a project are eligible for mortgage insurance from the Fund.

B. Interest. Loans shall bear interest at not more than the rate approved by the Fund. The Fund may not insure a loan that provides for an increased interest rate upon default.

C. Payment. A sponsor is required to repay the loan in equal monthly payments of interest and principal in order that the loan is fully amortized over its term, except that if the term exceeds 30 years in accordance with §D of this regulation then, at the direction of the Administration, a sponsor may make initial payments of interest only for up to 18 months after the loan closing.

D. Term.

  (1) Loans for permanent financing of projects shall contain amortization provisions satisfactory to the Fund for the complete amortization of the loan in monthly installments in 30 years or less, except that if the project is funded initially from a source other than proceeds of revenue bonds, then, at the direction of the Administration, a sponsor may make initial monthly payments of interest only for up to 18 months after the loan closing, followed by monthly principal and interest payments that will fully amortize the loan over a term of 30 years.

  (2) Loans for construction or rehabilitation financing of projects are eligible for insurance of advances by the Fund. Insurance of construction loans is conditioned upon the existence of a commitment for permanent financing which is acceptable to the Fund.

E. Liens.

  (1) The loan shall be secured by a mortgage or deed of trust. The mortgage shall be a first lien on:

    (a) The land and improvements; or

    (b) A leasehold interest in the land and improvements which extends at least 25 years beyond the term of the loan.

  (2) The Administration may permit subordinate liens for other loans made by the Department or other lenders.

F. Additional Security. The Fund may require the following additional instruments or guarantees securing an insured loan:

  (1) For projects involving new construction or substantial rehabilitation:

    (a) Payment and performance bonds each in an amount equal to 100 percent of the contract price,

    (b) Cash or an irrevocable letter of credit equal to 50 percent of the contract price; or

    (c) Other completion assurance as may be acceptable to the Fund; and

  (2) Such other sureties or guarantees of the loan as may be determined necessary by the Fund.

G. Assumption and Prepayment. Loans insured by the Fund under the Program may not be assumed by another sponsor without the prior written approval of the Fund. Loans may be prepaid only to the extent permitted in the loan documents.

#### Regulation .06 Eligible Loans—Maximum Loan Amount.

*COMAR 05.06.04.06*

A. For acquisition, construction, or rehabilitation loans, the maximum amount of any loan that may be insured by the Fund under the Program may not exceed the lesser of:

  (1) 75 percent of the appraised market value of the project; or

  (2) The total cost of the project.

B. For loans to refinance existing debt, the maximum loan amount that may be insured by the Fund under the Program may not exceed the lesser of:

  (1) 75 percent of the appraised market value of the project; or

  (2) The sum of the following:

    (a) The amount of existing principal debt secured by the property;

    (b) Improvements to be financed with the proceeds of the loan;

    (c) Costs associated with closing the loan, including lender prepayment fees and charges;

    (d) Legal, processing, packaging, title, and other closing fees;

    (e) Other fees and charges relating to the existing debt to be paid off with proceeds of the loan; and

    (f) Any other costs approved by the Fund.

#### Regulation .07 Eligible Loans — Environmental and Insurance Conditions.

*COMAR 05.06.04.07*

A. Environmental Conditions.

  (1) Compliance with Law. The lender shall require the sponsor to certify that each mortgage loan to be insured by the Fund is in compliance with applicable local, State, and federal environmental laws and regulations.

  (2) Permits. Before loan closing, the sponsor shall secure any required permits from the Department of Natural Resources and the political subdivision in which the project is located.

  (3) Screening and Investigation.

    (a) The lender may be required, at the discretion of the Fund, to require a sponsor to have a screening of the proposed site conducted for environmental conditions, such as man-made hazards, storm water runoff, underground storage tanks, lead-based paint, radon gas, PCBs, asbestos, and other environmental hazards within the meaning of the environmental laws referred to in §A(1) of this regulation.

    (b) If the initial screening indicates adverse or potentially adverse environmental conditions, the Fund may require a more detailed physical investigation, review of historical records, testing and treatment, or abatement of the environmental condition as a requirement of the mortgage insurance.

  (4) Registration. For properties built before 1950, the sponsor shall keep the property registered with the Maryland Department of the Environment under Environment Article, Title 6, Subtitle 8, Annotated Code of Maryland.

B. Title Insurance.

  (1) The sponsor shall provide to the lender a standard American Land Title Association Loan Policy or other form of title insurance policy approved by the Administration and the Office of the Attorney General 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 sponsor and containing only exceptions and encumbrances approved by the lender, the Fund, and the Office of the Attorney General.

  (2) The Fund, in its discretion, may require the title insurance policy to include ALTA endorsement form 100, comprehensive coverage, and ALTA endorsement form 8.1, environmental coverage, and such other endorsements as may be required by the lender and the Fund.

  (3) The title insurance policy shall be accompanied by a survey certified in the manner required by the 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 lender, the Fund, and the Office of the Attorney General. The title insurance policy may not contain any survey exceptions.

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 sponsor shall provide evidence that the sponsor, 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 .08 Eligible Sponsors.

*COMAR 05.06.04.08*

A sponsor shall meet all of the following requirements to qualify as an eligible sponsor of an insured mortgage:

A. Be a nonprofit organization;

B. Be in good standing and qualified to do business in Maryland;

C. Own, or upon closing of the loan will own, the property that secures the loan for which mortgage insurance is intended, and continue to own the property as long as the Maryland Housing Fund mortgage insurance is in force;

D. Have all necessary legal and corporate authority to incur the obligations of the loan;

E. Either:

  (1) Be licensed to operate the project by the appropriate State agency, to the extent required by State law; or

  (2) Have an agreement acceptable to the Fund, with a manager who:

    (a) Is acceptable to the Fund,

    (b) Is licensed in accordance with the requirements of §E(1) of this regulation, and

    (c) Meets the requirements of §§A, B, F, G, H, and I of this regulation;

F. Either:

  (1) Have a contract, acceptable to the Fund, with a State agency or county government; or

  (2) Have an agreement acceptable to the Fund, with a manager who is acceptable to the Fund and has a contract that meets the requirements of §F(1)(a) and (b) of this regulation;

G. Demonstrate:

  (1) Financial credibility and stability,

  (2) The capability to undertake the project, and

  (3) Either the ability:

    (a) To manage the project as evidenced by at least 2 years of prior management of the project or comparable projects by the sponsor or an entity with an affiliation to the sponsor which is acceptable to the Fund, or

    (b) Of a manager, acceptable to the Fund, with whom the fund has an agreement acceptable to the Fund, to manage the project as required in §G(3)(a) of this regulation;

H. Not be under an order suspending or debarring the sponsor from participating in the Department's programs under COMAR 05.01.05, or under any similar order from any other State or federal agency;

I. Agree and certify that it will 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) Article 49B, Annotated Code of Maryland;

  (5) The Department's Minority Business Enterprise Program, as amended, and

  (6) Executive Order 01.01.1989.18 relating to Drug and Alcohol Free Work Places, and any Departmental regulations adopted to carry out more specifically the requirements of the order; and

J. Not have defaulted under a Department or other governmental loan.

#### Regulation .09 Eligible Projects.

*COMAR 05.06.04.09*

The lender may apply for mortgage insurance under the Program if the project meets the following minimum requirements:

A. The project is located in Maryland;

B. Title to the project is acceptable to the Fund;

C. The project:

  (1) Conforms to applicable State and local building, zoning, health, and housing codes, or in cases of proposed construction or rehabilitation, will conform to those codes when completed, and

  (2) Is in compliance with the requirements of any State agency or local government where the project is located governing special housing facility projects;

D. The project, in the determination of the Fund, has a useful life of a length satisfactory to the Fund;

E. Upon closing of the loan, the project will be owned by the sponsor;

F. The project is, or will be upon closing of the loan, subject to a contract with an agency of State or local government under terms and conditions, acceptable to the Fund;

G. The project is a single family dwelling unit; and

H. The project, if a condominium unit, is part of a condominium regime approved by the Federal Housing Administration, as required by the Fund.

#### Regulation .10 Schedules of Premiums and Fees.

*COMAR 05.06.04.10*

The Director, with the approval of the Secretary, shall establish schedules of premiums and fees for insurance of loans under the Program, as required by the Act.

#### Regulation .11 Mortgage Insurance Conditions.

*COMAR 05.06.04.11*

A. Appraisal.

  (1) The Fund requires an appraisal report acceptable to the Fund, in its sole discretion, prepared by a qualified appraiser, before approval of any loan for mortgage insurance.

  (2) An appraisal shall show the:

    (a) Current market value of the property; and

    (b) Expected value of the property after completion of the proposed improvements, if any.

B. Types of Insurance Coverage.

  (1) The Fund may insure a construction loan for a period of 12 months and, depending upon the size and complexity of a project, may renew the insurance for one additional 12-month term.

  (2) The Fund may insure a permanent loan for up to 30 years, except that, if the Administration elects to fund the project initially from a source other than proceeds of tax-exempt bonds, then the term may not exceed 31 years and 6 months.

  (3) The Fund may not insure construction advances only, without also insuring the permanent mortgage.

C. Processing and Closing Fees.

  (1) The sponsor shall pay a processing fee in an amount to be determined in accordance with the schedule of premiums and fees established under Regulation .10 of this chapter. The processing fee shall be paid to the Fund at or before closing. The Fund may waive or postpone the payment of the processing fee at its sole discretion.

  (2) The sponsor shall pay a closing fee at or before the initial endorsement of the loan for insurance, in an amount to be determined in accordance with the schedule of premiums and fees established under Regulation .10 of this chapter.

D. Insurance Premiums.

  (1) Permanent Financing.

    (a) The initial and annual renewal premiums for a mortgage loan for permanent financing shall be determined in accordance with the schedule of premiums and fees established under Regulation .10 of this chapter.

    (b) When a permanent loan is insured by the Fund following Fund insurance of a construction loan, the annual renewal rather than initial premium for the permanent loan shall be charged.

  (2) Construction or Rehabilitation Financing.

    (a) The premium for insurance of a mortgage loan for construction or rehabilitation advances shall be determined in accordance with the schedule of premiums and fees established under Regulation .10 of this chapter.

    (b) For public lenders, construction insurance may be renewed for one period of 6 months. The renewal premium shall be determined in accordance with the schedule of premiums and fees established under Regulation .10 of this chapter.

    (c) There may not be refunds or credits for completion of construction in less than the initial 12 months or any renewal period.

  (3) Refund of Mortgage Premium. The premium, or any portion of it, is not refundable except when an insured mortgage is prepaid in full. In those cases, no further premiums are due and a portion of the premium paid for the year shall be refunded in accordance with the short rate cancellation schedule.

E. Effective Date.

  (1) The mortgage insurance is effective as of the date the loan is closed if the:

    (a) Fund has received payment of the required premium and fees; and

    (b) Lender has certified to the Fund that all conditions of the loan and insurance commitments have been fulfilled.

  (2) Insurance extends only to the amount of funds disbursed under a construction or rehabilitation loan.

F. Incontestability. Any evidence of insurance issued by the Fund under the Act is conclusive evidence of the eligibility of the mortgage loan for insurance, and this insurance is incontestable, except as to defenses based on fraud or misrepresentation.

G. Loan Assignment.

  (1) Assignment by the lender of a loan insured by the Fund does not impair insurance coverage, if the:

    (a) New lender is determined to be an eligible lender under the requirements in Regulation .08 of this chapter; and

    (b) Fund is advised in writing of the:

      (i) Assignment,

      (ii) Name of the assignor and its address,

      (iii) Name of the assignee and its address,

      (iv) Proposed date of the assignment, and

      (v) Policy number of loans to be assigned.

  (2) Loan servicing by the lender may not be transferred without the approval of the Fund.

H. Insurance Termination. Insurance coverage may be terminated, at the sole option of the Fund and without liability to the Fund, if:

  (1) The lender requests cancellation;

  (2) A claim is satisfied by the Fund;

  (3) The mortgage loan is paid in full;

  (4) A renewal premium is not paid by the lender or sponsor after receipt of a notice from the Fund;

  (5) The loan terms are modified without the prior written consent of the Fund;

  (6) There is any change in the identity of the sponsor without the prior written consent of the Fund;

  (7) The property is transferred, sold, conveyed, or encumbered other than by operation of law, without the prior written approval of the Fund; or

  (8) The lender assigns the loan in contravention of the requirements under §G of this regulation.

#### Regulation .12 Processing Procedures.

*COMAR 05.06.04.12*

A. Application.

B. Review.

  (1) The Fund may review each application for a loan for which mortgage insurance is intended to determine whether it complies with this chapter and the insurance guidelines of the Fund.

  (2) The Fund may delegate to the Administration authority to review one or more applications for insurance.

C. Approval.

  (1) Except in the case of an emergency when urgent action is required, the Administration, with concurrence of the Fund, shall submit insurance applications to the Housing Finance Review Committee of the Department for review and recommendation to the Secretary.

  (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.

  (3) Applications for mortgage insurance in an amount below the minimum amount established by the Housing Finance Review Committee need not be submitted to the Committee for review and recommendation.

D. Insurance Determination. The Secretary shall execute a written determination that the mortgage insurance of the loan for the project is authorized by the Act and approved before the issuance by the Fund of a commitment to insure a loan.

E. Commitment. Upon approval of the insurance and execution of a determination by the Secretary, the Fund shall issue a commitment letter setting forth:

  (a) The amount of the insured loan;

  (b) The maximum interest rate on the insured loan;

  (c) The term of the insured loan; and

  (d) Other terms and conditions that the Fund considers appropriate for the insurance of the loan.

F. Rejection of Applications.

  (1) If the Fund determines that a project or sponsor is not eligible for insurance, the Fund shall notify the lender.

  (2) An applicant may request reconsideration of a rejection in accordance with the procedures contained in the Program guidelines. 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.

G. Withdrawal of Application.

  (1) The lender may withdraw an application or request for mortgage insurance at any time before closing of the loan by written notice to the Fund.

  (2) The sponsor shall bear any costs incurred for items other than internal processing, including, but not limited to, title examinations, credit reports, and appraisals.

  (3) There is no refund of a processing fee if the insured loan fails to close.

#### Regulation .13 Claims Procedures.

*COMAR 05.06.04.13*

A. Notification. In the event of a default on an insured mortgage, the lender shall notify the Fund in writing within 30 days of the default.

B. Preclaim Period.

  (1) During the first 6 months after the loan is in default, the lender may not assign the mortgage 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.

  (2) After the loan has been in default for 6 months, either the Fund or the lender may, without the written consent of the other, require filing of a claim and assignment of the loan to the Fund.

C. Preclaim Actions. Upon default and before assignment of the defaulted mortgage loan to the Fund:

  (1) The Fund may require the lender to exercise any or all rights under the loan instruments including, but not limited to:

    (a) The appointment of a receiver;

    (b) Assignment of rents;

    (c) Realization of collateral security, or rights of offset; and

    (d) Enforcements of guarantees;

  (2) Action of forbearance may not be taken by the lender without the prior written approval of the Fund;

  (3) The lender shall:

    (a) Advise the Fund as to the possibility of loan modification agreements, recasting, or other methods of forbearance which would be helpful or appropriate; and

    (b) Make a reasonable effort to cure a default before:

      (i) Assigning the loan to the Fund,

      (ii) Beginning foreclosure action, or

      (iii) Accepting a deed instead of foreclosure.

D. Preclaim Payments.

  (1) After receipt of notice of default, the Fund, upon request of the lender, shall make those periodic payments to the lender that are due under the terms of the insured mortgage, except late charges and mortgage insurance premiums.

  (2) These periodic payments shall continue:

    (a) From the later of the:

      (i) Time of default, or

      (ii) First day of the calendar month the lender notifies the Fund of the default;

    (b) To the date:

      (i) The insurance claim settlement is paid, or

      (ii) All monetary events of default have been remedied.

  (3) The Fund has the right of subrogation with respect to all periodic payments made by it under §D of this regulation, including mortgage insurance premiums not paid to the Fund by the lender on behalf of the sponsor. That right is additional to and cumulative with all rights arising from an assignment of an insured mortgage to the Fund and the rights specified in §C(1) of this regulation.

  (4) Preclaim payments made to the lender by the Fund may not be considered a remedy of the sponsor's default under the terms of the insured mortgage or any collateral agreements.

E. Assignment.

  (1) The assignment of the mortgage shall be in writing and in a form suitable for recording among the land records in the county where the project is located.

  (2) The assignment shall include:

    (a) An assignment to the Fund of all claims of the lender against the sponsor;

    (b) An assignment of all State and local government contracts for reimbursement of operating costs; and

    (c) All policies of title or other insurance or surety bonds or other guarantees and all claims under them.

#### Regulation .14 Claims Payment.

*COMAR 05.06.04.14*

A. Limits.

  (1) Coverage by the Fund does not include loss from:

    (a) Casualty losses;

    (b) Impaired title losses; or

    (c) Default due to loss of tax-exempt status of the loan.

  (2) Expenses incurred for property repair resulting from insurable causes including, but not limited to, negligence, flood, fire, infestation, vandalism, and defective construction are not eligible for claim payment.

  (3) The repair of any damaged property by the lender is not a condition to payment of the lender's mortgage insurance claim by the Fund.

B. Form of Payment. The Fund shall pay the claims of the lender in cash in accordance with §C of this regulation, or by delivery of a promissory claim note in accordance with §D of this regulation.

C. Cash Payments. If a claim is paid in cash, the payment is calculated as follows:

  (1) The principal amount of the insured mortgage loan at the time of default; plus

  (2) Interest at the mortgage rate from the date of assignment or claim through the date of claim settlement; plus

  (3) Expenses paid by the lender during the period of default in connection with preserving the mortgaged premises, including:

    (a) Property taxes,

    (b) Insurance premiums,

    (c) Other customary expenses; plus

  (4) Any periodic payments, not including principal payments, which the lender would have been entitled to under Regulation .13D of this chapter, but for which no request was made; minus

  (5) All amounts:

    (a) Received by the lender after default from any source on behalf of the sponsor or the project, including all rental receipts or other income, after deducting actual and reasonable expenses for operating the mortgaged property, and

    (b) Retained for the account of the sponsor from any source including undisbursed loan proceeds.

D. Promissory Claim Note Payments.

  (1) A claim may be paid by delivery of a promissory claim note if all of the following conditions are satisfied:

    (a) The insured mortgagee consents;

    (b) The Fund makes a cash payment to the insured mortgagee equal to all delinquent principal and interest 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.

  (2) If payment by claim note is permitted under §D(1) of this regulation:

    (a) The principal amount of the claim note may not be more than the insured principal balance of the loan which would have been outstanding at the date of claim settlement had all payments of principal and interest been made timely;

    (b) The claim note shall require principal and interest payments equal to those required by the loan payable at the times payments were to have been made under the loan;

    (c) The Fund's obligation to repay the claim note shall be backed generally by the multifamily insurance reserve and the unrestricted unallocated reserve;

    (d) The Fund shall restrict an amount equal to the principal amount of the claim note in one or more of the following accounts:

      (i) The cash operating account,

      (ii) The unallocated reserve, or

      (iii) The multifamily insurance reserve;

    (e) Funds restricted in the unallocated reserve or the cash operating account are not considered part of the multifamily insurance reserve for purposes of computing the leverage ratio under the Amended and Restated Multifamily Insurance Agreement dated August 30, 1988.

  (3) 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 .15 Books and Accounts.

*COMAR 05.06.04.15*

A. The lender shall require the sponsor and its contractors and subcontractors to maintain such books, accounts, and records, and shall file with the lender such financial and other reports as the Fund from time to time may require.

B. The books, accounts, and records required by §A of this regulation to be maintained shall be open to the inspection of representatives of the Fund or other agencies of the State during reasonable working hours.

C. Books, accounts, and records of the sponsor shall 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. Books, accounts, and records of contractors and subcontractors shall be maintained and made available for inspection for 3 years past the date of termination of the contractual relationships between them and the sponsor.

#### Regulation .16 General Provisions.

*COMAR 05.06.04.16*

A. Reinsurance. Mortgage loans insured by the Fund may be reinsured or coinsured by and with public or private mortgage insurers, or through federal guarantees, when available. Portions of risk on any mortgage loan insured by the Fund may be assigned to other eligible mortgage insurers on a participating basis.

B. 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 in connection with 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, the:

    (a) 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) Waiver would not be materially adverse to bondholders or others relying on the same reserves of the Fund, and

    (c) Office of the Attorney General has approved the form and legal sufficiency of the waiver.

C. False Statements. A sponsor 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.

D. Delegation. The Secretary may delegate to the Director 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.