PART 266—HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED AFFORDABLE MULTIFAMILY PROJECT LOANS Authority: 12 U.S.C. 1715z-22.; 42 U.S.C. 3535(d). Source: 59 FR 62524, Dec. 5, 1994, unless otherwise noted. Subpart A—General Provisions § 266.1 Purpose and scope. (a) Authority and scope. (2) Section 542(c) of the Housing and Community Development Act of 1992 specifically directs HUD to carry out a program of risk-sharing with qualified State and local housing finance agencies (HFAs). The qualified HFAs are authorized to underwrite and process loans. HUD provides full mortgage insurance on affordable multifamily housing projects processed by such HFAs under this program. Through risk-sharing agreements with HUD, HFAs contract to reimburse HUD for a portion of the loss from any defaults that occur while HUD insurance is in force. (3) The extent to which HUD directs qualified HFAs regarding their underwriting standards, loan terms and conditions, and asset management and servicing procedures is related to the proportion of the risk taken by an HFA. (b) Purpose. i.e., [85 FR 83440, Dec. 22, 2020] § 266.5 Definitions. Act Affordable housing Board and Care/Assisted Living Facility Commissioner Contract of insurance Credit subsidy Debenture Debenture Designated offices Firm approval letter Housing finance agency HFA Insured mortgage Level I participants Level II participants Mortgage Mortgagee Mortgagor Multifamily housing Qualified HFA Risk-Sharing Agreement Secondary financing Single Room Occupancy, or SRO, projects [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, Dec. 22, 2020] § 266.15 Risk-Sharing Agreement. Execution of a Risk-Sharing Agreement is a prerequisite to participation in this program. The Risk-Sharing Agreement shall be in a form acceptable to the Commissioner. [61 FR 7947, Feb. 29, 1996] § 266.20 Effect of amendments. The Commissioner may amend the regulations in this part from time to time. Amendments to the regulations will not adversely affect the interest of a lender under a contract of insurance on any mortgage already insured or on any mortgage to be insured on which HUD has already issued its firm approval letter. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, Dec. 22, 2020] § 266.25 Limitation on HUD insurance liability. The Commissioner shall have no obligation to recognize or deal with anyone other than the HFA in its role as mortgagee of record and as party to a risk-sharing agreement with HUD with respect to the rights, benefits, and obligations of the HFA under the contract of insurance. § 266.30 Nonapplicability of 24 CFR part 246. The regulations at 24 CFR part 246, pertaining to local rent control, do not apply to projects that are security for mortgages insured under this part. [85 FR 83441, Dec. 22, 2020] Subpart B—Housing Finance Agency Requirements § 266.100 Qualified housing finance agency (HFA). (a) Qualifications. (1) Carry an issuer credit rating of “A” or better, or an equivalent as evaluated by Standard and Poor's or any other nationally recognized rating agency; or (2) Receive an overall rating of “A” for the HFA for its general obligation bonds from a nationally recognized rating agency; or (3) Otherwise demonstrate its capacity as a sound and experienced HFA based on, but not limited to, experience in financing multifamily housing, fund balances, administrative capabilities, investment policy, internal controls, financial management, portfolio quality, and State or local support; and (4) Be a HUD-approved multifamily mortgagee in good standing; and (5) Have at least five years experience in multifamily underwriting; and (6) Certify that: (i) The Department of Justice has not brought a civil rights suit against the HFA, and no suit is pending; (ii) There has not been an adjudication of a civil rights violation in a civil action brought against the HFA by a private individual, unless the HFA is operating in compliance with a court order, or implementing a HUD-approved compliance agreement designed to correct the areas of noncompliance; (iii) There are no outstanding findings of noncompliance with civil rights statutes, Executive Orders, or regulations as a result of formal administrative proceedings, or the Secretary has not issued a charge against the HFA under the Fair Housing Act, unless the HFA is operating under a compliance agreement designed to correct the areas of noncompliance. (b) Approval levels. (1) Level I approval to originate, service, and dispose of multifamily mortgages where the HFA uses its own underwriting standards, loan terms and conditions, and asset management and servicing procedures, and assumes 50 to 90 percent of the risk of loss (in 10 percent increments). (2) Level II approval to originate, service, and dispose of multifamily mortgages where the HFA uses underwriting standards, loan terms and conditions, and asset management and servicing procedures approved by HUD, and: (i) When the loan-to-replacement cost ratio for new construction and substantial rehabilitation projects or the loan-to-value ratio for existing projects is greater than or equal to 75 percent, the HFA shall assume 25 percent of the risk of loss. (ii) When the loan-to-replacement cost ratio for new construction and substantial rehabilitation or the loan-to-value ratio for existing projects is less than 75 percent, the HFA shall assume 10 percent, or 25 percent at the HFA's option, of the risk of loss. (3) For HFAs who plan to use Level I and Level II processing, the underwriting standards, loan terms and conditions, and asset management and servicing procedures to be used on Level II loans must be approved by HUD. (4) Every five years, HUD will review the underwriting standards, loan terms and conditions, and asset management and servicing procedures for HFAs with Level II approval. HUD may require changes to these procedures as a condition for continued Level II approval. [59 FR 62524, Dec. 5, 1994, as amended at 62 FR 20088, Apr. 24, 1997; 85 FR 83441, Dec. 22, 2020] § 266.105 Application requirements. (a) Applications for approval as a HUD-approved multifamily mortgagee. (b) Applications for participation in program. [61 FR 7947, Feb. 29, 1996, as amended at 85 FR 83441, Dec. 22, 2020] § 266.110 Reserve requirements. (a) HFAs with an issuer credit rating of “A” or better or overall rating of “A” or better on general obligation bonds. (b) Other HFAs. i.e., (i) $10.00 per $1,000 of the unpaid principal balance that is equal to or less than $50 million; plus (ii) $7.50 per $1,000 of the unpaid principal balance that is greater than $50 million and less than $150 million; plus (iii) $5.00 per $1,000 of the unpaid principal balance that is greater than $150 million. (2) The Commissioner may determine that higher levels of reserves may be necessary. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441, Dec. 22, 2020] § 266.115 Program monitoring and evaluation. (a) HFA certifications. (b) Monitoring and evaluation. (c) Responsibility for monitoring and evaluation. (d) HFA submissions. (2) The HFA must submit semi-annual reports setting forth the original mortgage amounts and outstanding principal balances on mortgages the HFA has underwritten, and the status of all projects insured under this part (e.g., current, in default, acquired, under workout agreement, in bankruptcy). For projects where the mortgagor has declared bankruptcy, the HFA must submit information containing the date the bankruptcy was filed and the date the HFA requested the Court to dismiss the bankruptcy proceedings. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441, Dec. 22, 2020] § 266.120 Actions for which sanctions may be imposed. Results of monitoring or other reviews may serve as the basis for the Commissioner's imposing sanctions on the HFA. Violations for which sanctions may be imposed include, but are not limited to: (a) Commission of fraud or making a material misrepresentation by the HFA with respect to any mortgage insured or to any other matter under this part. (b) Assignment or transfer of interest in any insured mortgage not in accord with the requirements of this part. (c) Engagement in business practices that do not conform to generally accepted practices of prudent lenders or that demonstrate irresponsibility. (d) Actions or conduct for which sanctions may be imposed against the HFA by HUD's Mortgagee Review Board under 24 CFR 25.9, which pertains to “notice of administrative action”. (e) Failure to: (1) Reveal in its application for participation in the program all the information required by this part; (2) Notify HUD in a timely manner of any pending or actual changes that would adversely affect HFA operations or financial status; (3) Comply with all eligibility requirements for participation in the program; (4) Issue debentures in the event of an initial claim payment by HUD, or to reimburse HUD for payment of a claim; (5) Maintain an issuer credit rating of “A” or better, or an equivalent designation, or overall rating of “A” on general obligation bonds (or if such rating is lost, comply with paragraph (e)(6) of this section); (6) Establish and maintain a dedicated account, if required, or meet other financial obligations under this program; (7) Perform underwriting, insurance of advances, cost certification, management, servicing or property disposition functions in a prudent and acceptable manner based on the standards incorporated by reference into the Risk-sharing Agreement; (8) Submit financial and other reports required by this part; (9) Comply with any regulatory requirement or with the Risk-Sharing Agreement; (10) Maintain any other standards HUD may establish for participation in this program; (11) Enforce the regulatory agreement provisions with respect to individual projects; (12) Maintain a default ratio acceptable to HUD relative to the HFA's own portfolio and the defaults experienced under this part by other program participants; (13) Consider adequately special risk circumstances without compensating for the higher risks of such transactions ( e.g., (14) Remit mortgage insurance premiums on a timely basis or failure to refund or credit mortgagor's accounts with overpaid mortgage insurance premiums. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441, Dec. 22, 2020] § 266.125 Scope and nature of sanctions. (a) Actions by Designated Office. (1) Require that the HFA execute a trust agreement, establish a trust account in accordance with such agreement, and fund such account which may be drawn upon by HUD for purposes of meeting the HFA's risk-sharing obligations; (2) Require the HFA to assume a higher portion of risk for the subject and future mortgages; (3) Recommend to the Commissioner that the HFA be required to contract its loan servicing or property disposition functions to a third party; (4) Recommend to the Commissioner that the mortgage insurance be terminated in cases of fraud or material misrepresentation by the HFA, or transfer of interest in an insured mortgage or assignment of the mortgage not in accord with the requirements of this part; (5) Recommend to the Commissioner that approval for the HFA to participate in the program be suspended or withdrawn; (6) Recommend to the Commissioner that the HFA's mortgagee approval be withdrawn pursuant to 24 CFR part 25 (regulations of the Mortgagee Review Board) and/or that penalties be imposed pursuant to 24 CFR part 30 (regulations pertaining to Civil Money Penalties; Certain Prohibited Contact); (7) Require additional financial or other reports as may be necessary to monitor the activities of the HFA more closely. (8) Require the HFA to revise any or all of its underwriting, processing, asset management, or servicing policies and procedures as directed by the Commissioner. (b) Actions by Headquarters. (c) Effect of suspension or withdrawal. (d) HFA right to informal hearing. (2) Sanctions imposed by Headquarters will be handled in a similar manner, except that the informal hearing shall be before the Commissioner or his or her designee. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441, Dec. 22, 2020] § 266.130 Reinsurance. Reinsurance will be permitted for the portion of the HFA risk, subject to the following requirements: (a) Neither HUD's nor the HFA's position shall be subordinated; (b) The reinsurance may not be used to reduce any reserve or fund balance requirements; and (c) Such reinsurance does not incur an obligation to the Federal Government. Subpart C—Program Requirements § 266.200 Eligible projects. (a) Minimum project size. (b) New construction or substantial rehabilitation. (1) New construction (2) Substantial rehabilitation Replacement (c) Existing projects. (1) If the financing will result in the preservation of affordable housing, where the property will be maintained as affordable housing for a period of at least 20 years, regardless of whether the loan is prepaid; and (2) Project occupancy is not less than 93 percent (to include consideration of rent in arrears), based on the average occupancy in the project over the most recent 12 months; and (3) The loan to be refinanced has not been in default within the 12 months prior to the date of the application for refinancing; and (4) A capital needs assessment is performed, and funds escrowed for all necessary repairs and replacement reserves funded for future capital repairs; and (5) If the project is subject to a Housing Assistance Payment (HAP) contract, and is not a project financed under section 202 of the Housing Act of 1959 (12 U.S.C. 1701q) by a Level I participant, then: (i) The owner of the property agrees to renew the HAP contract for a 20-year term; (ii) Existing and post-refinance HAP residual receipts are set aside to be used to reduce future HAP payments; and (iii) The HUD-insured mortgage does not exceed an amount supportable by the lower of the unit rents being collected under the rental assistance agreement or the unit rents being collected at unassisted projects in the market area that are similar in amenities and location to the project for which insurance is being requested; and (6) For Level II participants only, the HUD-insured mortgage may not exceed the sum of the existing indebtedness, cost of refinancing, or acquisition, the cost of repairs and reasonable transaction costs as determined by the Commissioner. (This paragraph does not apply to Level I participants.) (d) Projects receiving section 8 rental subsidies or other rental subsidies. (e) SRO projects. (f) Board and care/assisted living facilities. (g) Elderly projects. (h) Housing for older persons. (i) Zoning requirements. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441, Dec. 22, 2020] § 266.205 Ineligible projects. The following projects and facilities are not eligible for insurance under this part: (a) Transient housing or hotels. (1) Rental for any period less than 30 calendar days, or (2) Any rental, if the occupants of the housing accommodations are provided customary hotel services such as room service for food and beverages, maid service, furnishing and laundering of linens, or valet service. (b) Projects in military impact areas. (1) Military-connected households comprise 25 percent or more of the total households in the market area. Military-connected households include active duty military personnel, civilian employees of the military service (Department of Defense) or other Federal agency at or in support of the installation, and employees of contractors and sub-contractors directly associated with the military installation, and their dependents. Unaccompanied active duty military personnel housed in military-controlled group quarters housing (barracks, BOQ's) are excluded; and (2) There is concern about the continued stability of the current level of military strength and mission at the installation based on public announcements from the U.S. Department of Defense or the military service of impending changes; and (3) The complete reduction of military-connected households living in nonmilitary rental housing over a 5 year period, at an annual average decline of 20 percent, would, taking into account growth in the civilian economy and normal changes in the housing inventory, cause an adverse impact on the private rental market resulting in an increase in the rental vacancy rate in the housing market of 10 percent or more at the end of that period. (c) Retirement service centers. (d) Nursing homes or intermediate care facilities. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83442, Dec. 22, 2020] § 266.210 HUD-retained review functions. Certain functions are retained by the Commissioner. The HFA must submit any information or certification required by the Commissioner to permit determination of compliance with requirements concerning: (a) Previous participation of principals. (b) Intergovernmental review. (c) Subsidy layering. (d) Davis-Bacon Act. [59 FR 62524, Dec. 5, 1994, as amended at 60 FR 16573, Mar. 31, 1995; 85 FR 83442, Dec. 22, 2020] § 266.215 Functions delegated by HUD to HFAs. The following functions are delegated by HUD to the HFAs: (a) Affirmative Fair Housing Marketing Plan (AFHMP). (b) Labor standards and prevailing wage requirements. (c) Insurance of advances. (d) Cost certification. (e) Lead-based paint. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83442, Dec. 22, 2020] § 266.217 Environmental review requirements. The responsible entity, as defined in 24 CFR part 58 (Environmental Review Procedures for Entities Assuming HUD Environmental Responsibilities), assumes legal responsibility for compliance with the requirements of the National Environmental Policy Act of 1969 and related laws and authorities. The responsible entity will visit each project site proposed for insurance under this part and prepare the applicable environmental reviews as set forth in 24 CFR part 58. HUD may make a finding in accordance with 24 CFR 58.11, Legal Capacity and Performance, and may perform the environmental review itself under 24 CFR part 50 (Protection and Enhancement of Environmental Quality). In all cases the environmental review must be completed before HUD may issue the firm approval letter. [85 FR 83442, Dec. 22, 2020] § 266.220 Nondiscrimination in housing and employment. The mortgagor must certify to the HFA that, so long as the mortgage is insured under this part, the mortgagor will: (a) Not use tenant selection procedures that discriminate against families with children, except in the case of a project qualifying for and complying with the requirements of the “housing for older persons” exemption, as defined in section 807(b)(2) of the Fair Housing Act (42 U.S.C. 3607(b)) and further described in 24 CFR part 100, subpart E. Projects receiving Federal financial assistance in which elderly families include minor children may not avail themselves of the housing for older persons exemption; (b) Determine eligibility for admission and continued occupancy without regard to actual or perceived sexual orientation, gender identity, or marital status and refrain from inquiries about sexual orientation and gender identity in accordance with 24 CFR 5.105(a)(2); (c)(1) Comply with: (i) The Fair Housing Act (42 U.S.C. 3601 through 3619), as implemented by 24 CFR part 100; (ii) Titles II and III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 through 12213), as implemented by 28 CFR part 35; (iii) Section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701u), as implemented by 24 CFR part 135; (iv) The Equal Credit Opportunity Act (15 U.S.C. 1691-1691f), as implemented by 12 CFR part 202; (v) Executive Order 11063, as amended by Executive Order 12259 (3 CFR 1958-1963 Comp., p. 652 and 3 CFR 1980 Comp., p. 307), and implemented by 24 CFR part 107; (vi) Executive Order 11246 (3 CFR 1964-1965 Comp., p. 339), as implemented by 41 CFR part 60; and (vii) Other applicable Federal laws and regulations issued pursuant to these authorities; and applicable State and local fair housing and equal opportunity laws. (2) In addition to the authorities listed in paragraph (c)(1) of this section, a mortgagor that receives Federal financial assistance must also certify to the HFA that, so long as the mortgage is insured under this part, it will comply with: (i) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d), as implemented by 24 CFR part 1; (ii) The Age Discrimination Act of 1975 (42 U.S.C. 6101 through 6107), as implemented by 24 CFR part 146; and (iii) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), as implemented by 24 CFR part 8. [85 FR 83442, Dec. 22, 2020] § 266.225 Labor standards. (a) Applicability of Davis-Bacon. et seq. (i) Advances for construction of the project are insured under this part; (ii) The project involves new construction or substantial rehabilitation; and (iii) The project will contain 12 or more dwelling units. (2) Projects that do not meet these conditions are not subject to Davis-Bacon wage rates except to the extent required as a condition of other Federal assistance to the project. (b) Volunteers. (c) Labor standards. (d) Advances. (2) No advance under any mortgage on a project subject to Davis-Bacon wage rates under paragraph (a) of this section shall be insured under this part unless there is filed with the application for the advance, and no such mortgage shall be insured under this part unless there is filed with the HFA after completion of the construction or substantial rehabilitation, a certificate or certificates in the form required by the Commissioner, supported by such other information as the Commissioner may prescribe, certifying that the laborers and mechanics employed in the construction of the project involved have been paid not less than the wages determined by the Secretary of Labor to be prevailing in accordance with paragraph (a) of this section. (e) Responsibility for enforcement and administration. e.g., [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83443, Dec. 22, 2020] Subpart D—Processing, Development, and Approval § 266.300 HFAs accepting 50 percent or more of risk. (a) Underwriting standards. (b) HFA responsibilities. (1) Determine that a market for the project exists, taking into consideration any comments from the local HUD office relative to the potential adverse impact the project will have on existing or proposed Federally insured and assisted projects in the area. (2) Establish the maximum insurable mortgage and review plans and specifications for compliance with HFA standards; (3) Arrange for the performance of an environmental review in accordance with § 266.217; (4) Determine the acceptability of the proposed mortgagor and management agent; (5) Approve the Affirmative Fair Housing Marketing Plan, required by § 266.215(a); and (6) Make any other determinations necessary to ensure acceptability of the proposed project. (c) HUD-retained reviews. (d) Inspections and other reviews. (e) Endorsement of mortgage note for insurance. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83443, Dec. 22, 2020] § 266.305 HFAs accepting less than 50 percent of risk. (a) Underwriting standards. (b) HFA responsibilities. (1) Determine that a market for the project exists, taking into consideration any comments from the local HUD office relative to the potential adverse impact the project will have on existing or proposed Federally insured and assisted projects in the area; (2) Establish the maximum insurable mortgage, and review plans and specifications for compliance with HFA standards as approved by HUD; (3) Arrange for the performance of an environmental review in accordance with § 266.217; (4) Determine the acceptability of the proposed mortgagor and management agent; (5) Approve the Affirmative Fair Housing Marketing Plan, required by § 266.215(a); and (6) Make any other determinations necessary to ensure acceptability of the proposed project. (c) HUD-retained reviews. (d) Inspections and other reviews. (e) Endorsement of mortgage note for insurance. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83443, Dec. 22, 2020] § 266.310 Insurance of advances or insurance upon completion; applicability of requirements. (a) General. (b) Insurance of advances. (c) Insurance upon completion New construction and substantial rehabilitation. (2) Existing projects with no substantial rehabilitation. (d) Requirements applicable to both periodic advances and insurance upon completion cases Inspections. (2) Approval of advances. (3) Cost certification. (i) The mortgagor (and general contractor, if there is an identity of interest with the mortgagor) must execute a certificate of actual costs, in a form acceptable to the HFA, when all physical improvements are completed to the satisfaction of the HFA and before final endorsement; and (ii) The cost certification provided by the mortgagor must be audited by an independent public accountant. (4) Contestability. (5) Assurance of completion. (6) Latent defects escrow. (e) Mortgagee of record. § 266.315 Recordkeeping requirements. The mortgagor and the builder, if there is an identity of interest with the mortgagor, shall keep and maintain records of all costs of any construction or other cost items not representing work under the general contract and to make available such records for review by the HFA or HUD, if requested. Subpart E—Mortgage and Closing Requirements; HUD Endorsement § 266.400 Property requirements—real estate. The mortgage must be on real estate held: (a) In fee simple; (b) Under a renewable lease of not less than 99 years; or (c) Under a lease executed by a governmental agency, or other lessor approved by the HFA, that has a term at least 10 years beyond the end of the mortgage term. § 266.402 Recordation. At the time of initial endorsement in the case of insurance of advances or at the time of final endorsement in the case of insurance upon completion, the HFA shall make certain that the mortgage and the regulatory agreement are recorded. § 266.405 Title. (a) Eligibility of title. (b) Title evidence. § 266.410 Mortgage provisions. (a) Form. (b) Mortgagor. (c) First lien. (d) Single asset mortgagor. (e) Amortization. i.e., (1) Construction loans, or (2) Level I participants where the loan has a minimum term of 17 years that would amortize over a maximum period of 40 years and the HFA's underwriting standards, loan terms and conditions, and asset management and servicing procedures have been approved by HUD. (f) Use restrictions. (g) Hazard insurance. (h) Modification of terms. e.g., (i) Regulatory Agreement. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83444, Dec. 22, 2020] § 266.415 Mortgage lien and other obligations. (a) Liens. (b) Contractual obligations. § 266.417 Authority to adjust mortgage insurance amount. In order to protect the mortgage insurance funds, the Commissioner has authority in his or her sole discretion, at any time prior to and including final endorsement, to adjust the amount of the mortgage insurance. § 266.420 Closing and endorsement by the Commissioner. (a) Closing. i.e., (b) Closing docket. (1) Information concerning the mortgage amount and term, location, number and type of units, income and expenses, rents, projects and market occupancy percentages, value/replacement cost, interest rate, and similar statistical information in accordance with the Commissioner's administrative procedures. (2) Copies of the amortization schedule, Note and Risk-Sharing Agreement. (3) Certification that the loan has been processed, prudently underwritten (including a determination that a market exists for the project), cost certified (if the project is being submitted for final endorsement) and closed in full compliance with the HFA's standards and requirements (or where the mortgage is insured under Level II, in full compliance with the underwriting standards, loan terms and conditions, and asset management and servicing procedures, as approved by HUD). (4) At the time of final endorsement, for periodic advances cases, a certification that the advances were made in accordance with the mortgage pursuant to § 266.310. (5) A copy of the HFA-approved cost certification if the project is submitted for final endorsement. (6) A certification that equal employment requirements are followed. (7) A certification that the HFA has reviewed and approved the Affirmative Fair Housing Marketing Plan, required by § 266.215(a), and found it acceptable. (8) A certification that a dedicated account, if required, has been increased in accordance with § 266.110(b). (9) Certifications required under § 266.415 concerning liens and contractual obligations. (10) Copies of the Hazard Insurance Policy with a clause making the loss payable to the HFA. (11) For projects subject to Davis-Bacon prevailing requirements under § 266.225, the certification and information concerning payment of prevailing wage rates required by § 266.225(d). (12) Certified copies of mortgage (deed of trust) with attached regulatory agreement, and note for HUD files. (13) Certification that housing claiming the housing for older persons exemption is eligible for and complies with 42 U.S.C. 3607(b) and 24 CFR part 100, subpart E. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83444, Dec. 22, 2020] Subpart F—Project Management and Servicing § 266.500 General. (a) HFA responsibility for monitoring project owners. (b) HUD review of procedures for HFAs with Level II approval. [85 FR 83444, Dec. 22, 2020] § 266.505 Regulatory agreement requirements. (a) General. (2) The Regulatory Agreement executed between the HFA and the mortgagor must be binding upon the mortgagor and any of its successors and assigns and upon the HFA and any of its successors for so long as the mortgage is insured by HUD or HUD holds an HFA debenture issued in connection with a claim arising from the insured mortgage. The HFA may not assign the Regulatory Agreement. (3) The HFA will enforce the Regulatory Agreement and take actions against any mortgagors who violate its provisions. Such actions may involve a declaration of default and application to any court for specific performance of the agreement. (b) Requirements. (1) Make all payments due under the mortgage and note/bond. (2) Where necessary, establish a sinking fund for future capital needs. (3) Maintain the project as affordable housing, as defined in § 266.5. (4) Continue to use dwelling units for their original purposes. (5) Comply with such other requirements as may be established by the HFA and set forth in the Regulatory Agreement. (6) [Reserved] (7) Maintain complete books and records established solely for the project. (8) Comply with the Affirmative Fair Housing Marketing Plan, required by § 266.215(a), and all other fair housing and equal opportunity requirements. (9) Operate as a single asset mortgagor. (10) Make books and records available for HUD or U.S. Government Accountability Office (GAO) review with appropriate notification. (11) Permit HUD officials or employees to inspect the project upon request by the Commissioner. (c) Enforcement. [59 FR 62524, Dec. 5, 1994, as amended at 63 FR 46578, 46593, Sept. 1, 1998; 65 FR 16296, Mar. 27, 2000; 85 FR 83444, Dec. 22, 2020] § 266.507 Maintenance requirements. The mortgagor must maintain the project in accordance with the physical condition standards in 24 CFR part 5, subpart G (Physical Condition Standards and Inspection Requirements). [85 FR 83444, Dec. 22, 2020] § 266.510 HFA responsibilities. (a) Inspections. (b) Annual audits of projects. (c) HFA's annual financial statement. [59 FR 62524, Dec. 5, 1994, as amended at 63 FR 46578, Sept. 1, 1998; 65 FR 16296, Mar. 27, 2000; 80 FR 75936, Dec. 7, 2015; 85 FR 83444, Dec. 22, 2020] § 266.515 Record retention. (a) Loan origination and servicing. (b) Defaults and claims. § 266.520 Program monitoring and compliance. HUD will monitor the performance of the HFA in accordance with the provisions covered under this subpart. Subpart G—Contract Rights and Obligations Mortgage Insurance Premiums § 266.600 Mortgage insurance premium: Insurance upon completion. (a) Initial premium. (b) Premium payable with first payment of principal. (c) Subsequent premiums. [85 FR 83444, Dec. 22, 2020] § 266.602 Mortgage insurance premium: Insured advances. (a) Initial premium. (b) Interim premium. (c) Premium payable with first payment of principal. (d) Subsequent premiums. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83444, Dec. 22, 2020] § 266.604 Mortgage insurance premium: Other requirements. (a) Premium calculations on or after first principal payment. Federal Register (b) Future premium changes. Federal Register. (c) Closing information. (d) Due date for premium payments. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83444, Dec. 22, 2020] § 266.606 Mortgage insurance premium: Duration and method of paying. (a) Duration of payments. (1) The mortgage is paid in full; (2) A deed to the HFA is filed for record; (3) An application for initial claim payment is received by the Commissioner; or (4) The contract of insurance is otherwise terminated. (b) Method of payment. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, Dec. 22, 2020] § 266.608 Mortgage insurance premium: Pro rata refund. If the contract of insurance is terminated by payment in full or is terminated by the HFA on a form prescribed by the Commissioner, after the date of the first payment to principal, the Commissioner shall refund any mortgage insurance premium for the period after the effective date of the termination of insurance. The refund shall be mailed to the HFA for credit to the mortgagor's account. In computing the pro rata portion of the annual mortgage insurance premium, the date of termination of insurance shall be the last day of the month in which the mortgage is prepaid or the Commissioner receives a notification of termination, whichever is later. No refund shall be made if the insurance was terminated because of the submission of an application for initial claim payment or if the termination occurs before the date of the first payment to principal. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, Dec. 22, 2020] § 266.610 Method of payment of mortgage insurance premiums. In the cases that the Commissioner deems appropriate, the Commissioner may require, by means of instructions communicated to all affected mortgagees, that mortgage insurance premiums be remitted electronically. [63 FR 1303, Jan. 8, 1998] Insurance Endorsement § 266.612 Insurance endorsement. (a) Initial endorsement. (b) Final endorsement. (c) Effect of endorsement. Assignments § 266.616 Transfer of partial interest under participation agreement. The HFA may not assign the mortgage. However, a partial interest in an insured mortgage or pool of insured mortgages may be transferred under a participation agreement or arrangement (such as a declaration of trust or the issuance of pass-through certificates), without obtaining the approval of the Commissioner, if the following conditions are met: (a) Legal title to the insured mortgage or mortgages shall be held by the HFA; and (b) The participation agreement, declaration of trust or other instrument under which the partial interest is transferred shall provide that: (1) The HFA shall remain mortgagee of record under the contract of mortgage insurance; (2) The Commissioner shall have no obligation to recognize or deal with anyone other than the HFA with respect to the rights, benefits, and obligations of the mortgagee under the contract of insurance; and (3) The mortgagor shall have no obligation to recognize or do business with any one other than the HFA or, if applicable, its servicing agent with respect to rights, benefits, and obligations of the mortgagor or the mortgagee under the mortgage. Termination § 266.620 Termination of contract of insurance and indemnification. (a) The contract of insurance shall terminate if any of the following occurs: (1) The mortgage is paid in full; (2) The HFA acquires the mortgaged property and notifies the Commissioner that it will not file an insurance claim; (3) A party other than HFA acquires the property at a foreclosure sale; (4) The HFA notifies the Commissioner of Termination of Insurance (voluntary termination); (5) The HFA or its successors commit fraud or make a material misrepresentation to the Commissioner with respect to information culminating in the contract of insurance on the mortgage or while the contract of insurance is in existence; (6) The receipt by the Commissioner of an Application for Final Claims Settlement; (7) If the HFA acquires the mortgaged property and fails to make an initial claim. (b) In lieu of termination of the mortgage insurance contract pursuant to paragraph (a)(5) of this section, the Commissioner may, in his or her full discretion, permit a Level I participant rated “A” or higher to indemnify HUD, or otherwise reimburse HUD in a manner acceptable to the Commissioner, for the full amount of the mortgage claim. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, 83445, Dec. 22, 2020] § 266.622 Notice and date of termination by the Commissioner. The Commissioner shall notify the HFA that the contract of insurance has been terminated and shall establish the effective date of termination. The termination shall be the last day of the month in which one of the events specified in § 266.620 occurs. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83440, Dec. 22, 2020] Claim Procedures § 266.626 Notice of default and filing an insurance claim. (a) Definition of default. (2) A covenant default exists when the mortgagor fails to perform any other covenant under the provision of the mortgage or the regulatory agreement, which is incorporated by reference in the mortgage. An HFA becomes eligible for insurance benefits on the basis of a covenant default only after the HFA has accelerated the debt and the owner has failed to pay the full amount due, thus converting a covenant default into a monetary default. (b) Date of default. (1) The date of the first uncorrected failure to perform a mortgage covenant or obligation; or (2) The date of the first failure to make a monthly payment that is not covered by subsequent payments, when such subsequent payments are applied to the overdue monthly payments in the order in which they were due. (c) Notice of default. (d) Timing of claim filing. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.628 Initial claim payments. (a) Determination of initial claim amount. (2) HUD shall make an initial claim payment to the HFA that is equal to the initial claim amount, less any delinquent mortgage insurance premiums, late charges and interest, assessed under § 266.604(d). (3) The HFA must use the proceeds of the initial claim payment to retire any bonds or any other financing mechanisms securing the mortgage within 30 calendar days of the initial claim payment. Any excess funds resulting from such retirement or repayment shall be returned to HUD within 30 calendar days of the retirement. (b) Curtailment of interest for late filings. (c) Method of payment. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.630 Partial payment of claims. (a) General. (b) HFA submission. (1) The amount by which the HFA will reduce the principal on the insured mortgage and the amount of delinquent interest on the insured mortgage that the HFA will defer based on the anticipated closing date; and (2) A certification that: (i) The amount of the principal reduction of the insured first mortgage does not exceed 50 percent of the unpaid principal balance; (ii) The relief resulting from the partial claim payment when considered with other resources available to the project are sufficient to restore the financial viability of the project; (iii) The project is or can (at reasonable cost) be made structurally sound; (iv) The management of the project is satisfactory; (v) The default under the insured mortgage was beyond the control of the mortgagor. (c) Claim processing Acceptable application. (2) Unacceptable application. (d) Requirements One partial claim payment. (2) Partial claim payment amount. (3) HFA second mortgage. (4) Partial claim repayment by HFA. (5) Certified statements of amounts collected. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.632 Withdrawal of claim. In case of a default and subsequent filing of claim, the HFA shall determine the form of workout or modification and will inform HUD of the type of mortgage relief determined to be appropriate. If the default is cured after the claim is made but before the initial claim payment is paid by HUD, the HFA may, in writing, withdraw the claim, and insurance will continue as if the default had not occurred. § 266.634 Reinstatement of the contract of insurance. (a) Conditions for reinstatement. (1) The HFA has not acquired the project; (2) The mortgagor has cured the default; and (3) The HFA requests that HUD reinstate the contract of insurance. (b) Notification of reinstatement. (c) Payment. (d) Cancellation of debenture. (e) Continuation of contract of insurance. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.636 Insuring new loans for defaulted projects. The HFA may not make another loan that is insured under this part to the same owner in the same project if HUD has paid a claim under this part. § 266.638 Issuance of HFA Debenture. (a) Condition to initial claim payment. (b) Term of HFA Debenture. (c) HFA Debenture amount. (2) The full amount of the HFA Debenture shall be payable to HUD upon maturity, unless the HFA Debenture is canceled because of: (i) A reinstatement of the contract of insurance under § 266.634; or (ii) Final claim settlement under § 266.654. (d) HFA Debenture interest rate. (e) Form of HFA Debenture. (f) Debenture registration. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.640 Foreclosure and acquisition. The HFA is not required to foreclose the insured mortgage. It may accept a deed-in-lieu of foreclosure. § 266.642 Appraisals. Where actions taken or caused to be taken by the HFA have the effect of the recovery of less than the face amount of the HFA Debenture held by HUD, an appraisal should be made to determine the value of the project. The appraisal should assume a willing buyer and a willing seller. The appraisal must be done within the 45-calendar-day period immediately preceding the date when the HFA files an application for final claim settlement. If at the time of final claim settlement the HFA has not sold the project, an appraisal should be made to determine the value of the project at its highest and best use. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.644 Application for final claim settlement. The HFA shall file an application for final settlement in accordance with the Commissioner's administrative procedures not later than 30 calendar days after any of the following: (a) Sale of the property after foreclosure or after acquisition by deed-in-lieu of foreclosure; or (b) Expiration of the term of the HFA debenture. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.646 Determining the amount of loss. The amount of the total loss to be shared by HUD and the HFA is equal to: (a) The amount of the initial claim payment; (b) Plus all items set forth in § 266.648; and (c) Less all items set forth in § 266.650. § 266.648 Items included in total loss. In computing the total loss, the following items are added to the amount described in § 266.646(a): (a) The amount of all payments that the HFA made from its own funds and not from project income for: (1) Taxes, special assessments, and water bills that are liens before the Mortgage; and (2) Fire and hazard insurance on the property. (b) A reasonable amount of acquisition costs actually paid by the HFA. These costs may not include loss or damage resulting from the invalidity or unenforceability of the Mortgage lien or the unmarketability of the Mortgagor's title. (c) Reasonable payments that the HFA made from its own funds and not from project income for: (1) Preservation, operation and maintenance of the property; (2) Repairs necessary to meet the requirements of local laws; (3) Expenses in connection with the sale of property; and (4) Bankruptcy expenses approved by HUD. (d) The amount of HFA Debenture interest paid by the HFA to HUD. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.650 Items deducted from total loss. In computing insurance benefits, the following items are deducted from the amounts described in § 266.646(a) and (b): (a) All amounts received by the HFA on account of the mortgage after the date of default, including any partial payment of claim paid by HUD in the event a full claim follows a partial payment of claim; (b) All cash, and/or funds related to the mortgaged property, including deposits and escrows made for the account of the mortgagor that the HFA holds (or to which it is entitled); (c) The amount of any undrawn balance under a letter of credit that the HFA accepted in lieu of a cash deposit for an escrow agreement; (d) Any net income from the mortgaged property/project that the HFA received after the date of default. (e) The proceeds from the sale of the project or the appraised value of the project as provided in § 266.642 as follows: (1) If the HFA disposes of the project through a negotiated sale, the amount deducted shall be the higher of the sales price or the appraised value. (2) If the HFA disposes of the project through a competitive bid procedure approved by the Commissioner, the amount deducted shall be the sales price, even if it is lower than the appraised value. (3) If the HFA has not disposed of the project within 5 years from the date of issuance of the HFA Debentures (unless an extension has been granted pursuant to § 266.638), the amount deducted shall be the appraised value. (f) Any and all claims that the HFA has acquired in connection with the acquisition and sale of the property. Claims include but are not limited to returned premiums from canceled insurance policies, interest on investments of reserve for replacement funds, tax refunds, refunds of deposits left with utility companies, and amounts received as proceeds of a receivership. (g) The amount of daily HFA Debenture interest accrued but not paid from the anniversary date of the last HFA Debenture interest payment to the date an application for final claim payment is received by the Commissioner. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83445, Dec. 22, 2020] § 266.652 Determining share of loss. The total loss computed in § 266.646 shall be shared by HUD and the HFA in accordance with their respective percentage of risk as specified in the note and the addendum to the Risk-Sharing Agreement between HUD and the HFA. § 266.654 Final claim settlement and HFA Debenture redemption. (a) Final claim payment. (b) HFA reimbursement payment. (c) Losses. e.g., (d) Supplemental claim. [59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83446, Dec. 22, 2020] § 266.656 Recovery of costs after final claim settlement. If, after final claim settlement, the HFA recovers additional sums as the result of the sale of the project or otherwise, the total amount of such recovery shall be shared by HUD and the HFA in accordance with the prescribed percentage of shared risk. § 266.658 Program monitoring and compliance. HUD will monitor the performance of the HFA for compliance with the provisions of this subpart.