Chapter 04. Capital Access Program

The objectives of the Capital Access Program as set forth in Housing and Community Development Article, Title 6, Subtitle 3, Annotated Code of Maryland, are to foster economic growth and development in the State by:

Loans made under the Program are to be slightly riskier than conventional loans, but will still offer a high degree of soundness in connection with the Program.

In this chapter, the following words have the meanings indicated, and also as defined in Housing and Community Development Article, Title 6, Subtitle 3, Annotated Code of Maryland.

Terms Defined.

A lender is eligible to participate in the Program upon entering into a participation agreement with the Department that governs the duties of the Department and the lender under the Program. Each participation agreement shall specify that the enrollment of the lender's loans under the Program does not pledge the faith, credit, or taxing power of the State, the Department, the Program, or the Fund.

The lender shall provide the Department with the information regarding the lender's participation in the Program that the Department reasonably requires. Upon notice to the lender, and during normal business hours of the lender, the Department may inspect the files of the lender relating to any loans enrolled under the Program.

Required premium charges to be paid by the lender and the borrower;

Transfers made by the Department under this chapter.

All money deposited or otherwise credited to the reserve account is under the exclusive control of the Department. The Department may not withdraw money from the reserve account, except as specifically provided in this chapter.

If money in the reserve account is not deposited by the Department in a federally insured account with the lender, the money shall be invested or reinvested by the Department in one of the following:

If the reserve account for a given lender is not maintained with that lender, the Department shall provide to the lender quarterly transaction reports indicating the following:

The records of the Department are available to the lender at the offices of the Department, during normal business hours of the Department, with respect to:

All interest earned in a reserve account shall be credited to that account. Fifty percent of the interest earned may be withdrawn by the Department from that account and used for any purpose.

The Department shall pledge the following to the lender:

Assurances, guarantees, or other credit enhancements provided under the Program do not pledge the faith, credit, or taxing power of the State, the Department, the Program, or the Fund, and hence are payable only to the extent of the reserve account established for any given lender.

An applicant shall meet the following minimum requirements to be an eligible borrower for loans made under the Program:

A borrower shall meet the following minimum requirements:

The following types of loans are eligible loans under the Program:

Eligible loans shall meet the following criteria:

The proceeds of an eligible loan may not be used for the furtherance of sectarian religious instruction, or in connection with the design, acquisition, or construction of any building used or to be used as a place of sectarian religious worship or instruction, or in connection with any program or department of divinity for any religious denomination, including but not limited to religious services, religious instruction, or other activities that have an explicitly religious content.

An eligible loan may provide for an interest rate, fees, security, and other terms and conditions agreed to by the lender and the borrower. If the loan amount to be borrowed is determined by a commitment agreement that establishes a line of credit, the amount of the loan is the maximum amount available to the borrower under the agreement.

The project is located within a priority funding area in the State;

Upon completion, the project will be in compliance with all applicable zoning requirements and standards as well as the applicable building code of the local jurisdiction in which the project is located; and

If the project is a mixed use project, it has a commercial or retail use at street level.

To enroll a loan under the Program, the lender shall file a completed loan enrollment form with the Department. The lender shall also certify the following to the Department as part of the filing:

The lender shall file the enrollment form not later than 45 business days after the lender makes the loan.

The date on which the lender makes a loan is the earlier of:

The filing date of a loan enrollment form is the date on which the lender does any of the following:

When filing a loan enrollment form, the lender shall specify an amount to be covered under the Program. The amount may be less than, but not greater than, the total principal amount of the loan.

In the case of a loan to refinance a loan that was previously made by the lender to the borrower but that was not enrolled under the Program, the lender may obtain coverage under the Program for an amount not exceeding the amount of additional financing.

If an enrolled loan is refinanced and the total amount to be covered under the Program does not exceed the covered amount of the loan as previously enrolled, the refinanced loan may continue as an enrolled loan without payment of additional premium charges or transfers by the Department to the reserve account.

If an enrolled loan is refinanced in an amount that exceeds the amount of the loan as previously enrolled, the lender may obtain coverage of the amount that exceeds the amount covered when the loan was previously enrolled by refiling the loan for enrollment under Regulation .12 of this chapter.

Fluctuations in the outstanding balance of a line of credit, without increasing the enrolled amount under the Program, are not a refinancing of the loan.

When the Department receives a loan enrollment form, the Department shall enroll the loan if the information provided under Regulation .12 of this chapter indicates that the loan is an eligible loan. Within 10 business days after receipt of a loan enrollment form for an eligible loan, the Department shall deliver to the lender an acknowledgment of enrollment signed by the Secretary or the Secretary's designee, including documentation of the amount being transferred by the Department into the reserve account under this chapter.

The enrollment of a loan under the Program does not pledge the faith, credit, or taxing power of the State or of the Department with respect to that loan.

The Secretary may, from time to time, by written determination, establish minimum and maximum premium charges payable by borrowers in connection with loans filed for enrollment.

Lender Premium Deposit Into the Reserve Account.

When enrolling a loan, the Department shall transfer from the Fund into the reserve account a premium amount equal to the combined premiums paid into the reserve account by the borrower and the lender for each enrolled loan.

The Secretary may, from time to time, by written determination, designate one or more areas lying within priority funding areas as CAP targeted areas, and may authorize the Department to make an increased premium payment for an enrolled loan made with respect to a project located in a CAP targeted area. The increased premium payment may, in the discretion of the Secretary, be in addition to, or in lieu of, the premium paid by the borrower under §B of this regulation.

Unless money is paid out of the reserve account according to the specific terms of this chapter, all money paid into the reserve account by the lender shall remain in that account.

Minimum and Maximum Amount of Financial Assistance.

For purposes of §A(2) of this regulation, the term “common enterprise” has the meaning stated in 12 CFR 32.

Effect of Outstanding Balance of Zero.

Notwithstanding §A of this regulation, any amount recovered from a lender by a trustee in bankruptcy, or a similar representative of creditors, as a preference under 11 U.S.C. §547, remains an enrolled loan for the purpose of filing a claim against the reserve account.

If the lender charges off all or part of an enrolled loan, the lender may file a claim with the Department. If the lender files a claim, it shall be filed contemporaneously with the charge off, and must be received by the Department within 30 days after the charge off.

The lender's claim may include, in addition to the amount of principal charged off plus accrued interest, 1/2 of the reasonable and documented out-of-pocket expenses incurred in pursuing collection efforts, including preservation of collateral. The amount of principal included in the claim may not exceed the amount of principal covered under the Program. The amount of accrued interest included in the claim may not exceed the amount of accrued interest attributable to the covered principal amount.

The lender shall determine when and how much to charge off on an enrolled loan in a manner consistent with the lender's normal method for making these determinations on similar loans that are not enrolled loans.

If the lender files two or more claims contemporaneously and there are insufficient funds in the reserve account at that time to cover the entire amount of the claims, the lender may designate the order of priority in which the Department shall pay the claims, except that a claim made with respect to an early loan always has priority of payment over all other claims that are not made with respect to an early loan or loans.

Upon receipt by the Department of a claim filed by the lender, the Department shall, within 10 business days, pay from the reserve account, or authorize the lender to withdraw from the reserve account, the amount of the claim as submitted, unless the Department reasonably determines that the lender:

Result of Insufficient Money in Reserve Account.

The Department and the Fund are not liable for any claim if there is insufficient money in the reserve account to cover the entire amount of the claim.

If the recovered amount, when added to the claim previously paid by the Department in connection with an enrolled loan, exceeds the lender's loss on that enrolled loan, the lender shall promptly pay to the Department for deposit in the reserve account the amount of the excess; and

For the purposes of §A of this regulation and Regulation .22 of this chapter, the lender's loss on an enrolled loan is the amount of principal charged off by the lender plus accrued interest plus 1/2 of the reasonable and documented out-of-pocket expenses incurred by the lender in pursuing collection efforts.

If the payment of a claim has fully covered the lender's loss on an enrolled loan, or if the payment of a claim when combined with any recovery from the borrower has fully covered the lender's loss, the Department, upon its own request, is subrogated to the rights of the lender with respect to any collateral, security, or other right of recovery in connection with the loan that has not been realized by the lender. The lender thereafter shall assign to the Department any right, title, or interest in or to any collateral, security, or other right of recovery in connection with the loan.

If an assignment has been made under §A of this regulation, the Department is not required to undertake the obligations of the lender under the lender's loan documents, except for obligations directly related to the Department's assigned rights of recovery in connection with the loan. The lender shall fulfill any other obligations the lender has under the loan documents in the same manner and to the same degree as would be required if the assignment had not been made. The lender shall provide the Department with all reasonable assistance the Department requests in proceeding with respect to any collateral, security, or other right of recovery, except that the lender does not need to incur any out-of-pocket expenses.

Reports by Lender.

If a year-end report filed under §A of this regulation indicates that, for the immediately preceding 12-month period ending on June 30, the balance in the reserve account continuously exceeded 100 percent of the aggregate outstanding balance of all enrolled loans, including unfunded portions of enrolled loans that are lines of credit, the Department may make a withdrawal from the reserve account. The amount of the withdrawal may not be greater than the minimum amount of any excess as continuously maintained over the immediately preceding 12-month period ending on June 30. Withdrawals of excess sums by the Department under this section may be used for any purpose.

If a year-end report is not filed within 30 days of the original due date of the report, the Department may make a withdrawal from the reserve account on the basis of the Department's determination from an inspection of the lender's files that, for the immediately preceding 12-month period ending on June 30, the balance in the reserve account continuously exceeded 100 percent of the aggregate outstanding balance of all enrolled loans, including unfunded portions of enrolled loans that are lines of credit. If the lender fails or refuses to make all or any part of its files available to the Department for inspection for this purpose, the Department may make a withdrawal from the reserve account on the basis of the Department's determination from a review of the Department's own records that, for the immediately preceding 12-month period ending on June 30, the balance in the reserve account continuously exceeded 100 percent of the aggregate outstanding balance of all enrolled loans, including unfunded portions of enrolled loans that are lines of credit. The amount of the withdrawal may not be greater than the minimum amount of any excess as continuously maintained over the immediately preceding 12-month period ending on June 30. Withdrawals of excess sums by the Department under this section may be used for any purpose.

The right of the Department to make a withdrawal from the reserve account under §B or C of this regulation is subject to the following provisions:

A lender or borrower under the Program may not discriminate on the basis of race, color, religion, national origin, sex, marital status, physical or mental disability, sexual orientation, or age, except with regard to age as permitted under the federal Housing for Older Persons Act, as amended from time to time, or other similar federal laws, in any aspect of the Program, or in any aspect of employment by any borrower in connection with any project financed or assisted under the Program.

A lender or borrower shall comply with all applicable federal, State, and local laws and Department policies and programs regarding discrimination and equal opportunity in employment, housing, credit practices, and drug and alcohol free workplaces, including:

Covenants implementing the requirements of this regulation, including affirmative action measures, shall be included in appropriate agreements between the Department and other parties, and between lenders and other parties.

The Department shall manage, supervise, and administer the Program.

The Department shall market the Program to businesses and other persons in the State in cooperation with financial institutions and Statewide associations representing financial institutions.

The Department shall make every effort to ensure that loans under the Program are reasonably available to qualified borrowers throughout the State.

Reserve Accounts.

The Department shall develop the Program, in cooperation with financial institutions and Statewide associations representing financial institutions, so that the degree of flexibility for the Department and the participating lenders is maximized, the State oversight of individual loans is minimized, and the fiscal integrity of the Program is maintained.

The Department shall enter into any contracts necessary to carry out the Program.

The Department shall take any action reasonably necessary to ensure compliance with the Program.

The Program shall be operated with moneys in the Neighborhood Business Development Fund, which is a continuing, nonlapsing special fund consisting of those items as provided for in Housing and Community Development Article, Title 6, Subtitle 3, Annotated Code of Maryland.

In connection with the Program, the Department may use moneys from the Fund to make premium payments under the Program and to pay expenses of the Program.

At any time following the first 8 months of a fiscal year, the Department may transfer, subject to approval of the Legislative Policy Committee and subject to the provisions of State Finance and Procurement Article, §7-209, Annotated Code of Maryland, unencumbered moneys in the Fund to any other fund under Housing and Community Development Article, Title 4, Annotated Code of Maryland.

To the extent that the waiver or variance is consistent with Housing and Community Development Article, Title 6, Subtitle 3, Annotated Code of Maryland; and

If, in the written determination of the Secretary, the application of a regulation in a specific case or in an emergency situation would be inequitable or contrary to the purposes of Housing and Community Development Article, Title 6, Subtitle 3, Annotated Code of Maryland.

A person may not knowingly make or cause to be made a false statement or report in any document required to be furnished to the Department in connection with a loan under the Program.

A person applying for or benefiting from a loan under the Program may not knowingly make or cause to be made a false statement or report for the purpose of influencing the action of the Department on an application or for the purpose of influencing the action of the Department affecting financial assistance already provided.

A person who violates §A or B of this regulation is subject to the following penalties: