§ 201.30 Reporting of loans for insurance. (a) Date of reports. The lender shall transmit a loan report on the prescribed form to the Secretary within 31 days from the date of the loan's origination or purchase for any loan to be registered for insurance under this part. Any loan refinanced under § 201.10(f) and § 201.11(c) shall likewise be reported on the prescribed form within 31 days from the date of refinancing. When a loan insured under this part is transferred to another lender without recourse, guaranty, guarantee or repurchase agreement, a report on the prescribed form shall be transmitted to the Secretary within 31 days from the date of the transfer. No report will be required when a loan insured under this part is transferred with recourse or under a guaranty, guarantee or repurchase agreement. If, after it is reported for insurance, a manufactured home purchase loan or combination loan is determined to be uninsurable under § 201.26(b)(6)(iii)(B), the lender shall report to the Secretary within 31 days from determining the loan's uninsurability.

(b) Late reports. The Secretary may accept a late report on a loan where

the lender certifies that the obligation is not in default.

(Approved by the Office of Management and Budget under OMB Control number 2502-0328.

§ 201.31 Insurance charge.

(a) Rate. The lender shall pay to the Secretary an insurance charge equal to 0.50 percent per annum of the net proceeds of any eligible property improvement loan reported and acknowledged for insurance, and 0.54 percent per annum of the net proceeds of any eligible manufactured home loan reported and acknowledged for insurance. In computing the insurance charge, no charge shall be made for a period of 14 days or less, and a charge for a full month shall be made for a period of more than 14 days.

(b) When payable. On loans having a maturity of 25 months or less, payment of the insurance charge for the entire term of the loan is due and shall be received from the lender within 25 days after the date the Secretary acknowledges the loan report. On loans having a maturity in excess of 25 months, the insurance charge is due and payable in annual installments. The first installment shall be received from the lender within 25 days after the date of the Secretary's acknowledgement of the loan report, and the second and succeeding installments shall be received from the lender within 25 days after the date of billing by the Secretary on an annual basis.

(c) Late charge. Insurance charges not received from the lender within the time period specified in paragraph (b) of this section shall be assessed a late charge of four percent of the amount of the payment. Insurance charges received from the lender more than 30 days after the time period specified in paragraph (b) of this section shall also be assessed daily interest at a rate established by the Department of the Treasury (current value of funds rate), as published periodically in the FEDERAL REGISTER. However, no late charge or daily interest shall be assessed if the Secretary fails to acknowledge receipt of the loan report or fails to issue a proper

billing to the lender for the insurance charges.

(d) Adjustment on notes transferred. Where there is a transfer of loan obligations between lenders and the insurance charges on such obligations have already been paid, any adjustment of such charges shall be made by the lenders involved. Any unpaid installments of the insurance charge shall be paid by the purchasing lender.

(e) Refund or abatement of insurance charges. A lender shall be entitled to a refund or abatement of insurance charges only in the following instances:

(1) Where the loan obligation has been refinanced, the unearned portion of the charge on the original obligation shall be credited to the charge on the refinanced loan.

(2) Where the loan obligation is prepaid in full or an insurance claim is filed, charges falling due after such prepayment or claim shall be abated.

(3) When a loan (or portion thereof) is found to be ineligible for insurance, charges paid on the ineligible portion shall be refunded, except where the Secretary determines that there was fraud or misrepresentation by the lender in the loan transaction. Such refund shall be made only if a claim is denied by the Secretary or the ineligibility is reported by the lender promptly upon discovery and confirmed by the Secretary. In no event shall a charge be refunded on the basis of loan ineligibility where the application for refund is made after the loan is paid in full. If a loan or claim has been denied and is subsequently resubmitted, the refunded amount of the insurance charge plus any accrued insurance charge shall be repaid.

(f) Lender passing insurance charge on to borrower. The insurance charge may be passed on to the borrower, proIvided that such charge is fully disclosed to the borrower.

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986]

§ 201.32 Insurance coverage reserve account.

(a) Establishment. The Secretary shall establish an insurance coverage reserve account (formerly known as an "insurance reserve") for each lender

holding a valid Title I Contract of Insurance and approved under HUD regulations at 24 CFR Part 202 and this part to originate and purchase Title I loans. The amount of insurance coverage in the reserve account shall equal 10 percent of the amount disbursed, advanced or expended by the lender in originating or purchasing eligible loans registered for insurance under this part, less the amount of all insurance claims approved for payment in connection with losses of such loans, and less the amount of any annual adjustment made in accordance with paragraph (b) of this section and shall be maintained with no earmarking.

(b) Annual adjustment of insurance coverage. (1) Except for deductions for any insurance claim payments to the lender and transfers of insurance coverage amounts pursuant to paragraphs (c) and (d) of this section, the Secretary shall not make any adjustment to a lender's insurance coverage reserve account during the first five years of the Title I contract of insurance issued to a newly approved lender (one not so approved previously, or one formerly approved whose previous Title I contract of insurance was terminated but not reinstated by the Secretary during the five year period preceding the issuance date of the new Title I insurance contract). On the first day of October following the expiration of a period of 60 months after the date a Title I insurance contract is issued to a newly approved lender, and on October 1 of each year thereafter, the Secretary shall adjust the amount of insurance coverage in the lender's reserve account by deducting 10 percent of the amount of insurance coverage contained in the reserve account as of that date, provided that such adjustment shall not reduce the amount of insurance coverage in the reserve account to less than $50,000.

(2) No such annual adjustment to a lender's reserve account shall be made after the termination of the Secretary's authority to insure loans under Section 2 of Title I of the Act, or after the termination by the Secretary of a Title I insurance contract except pursuant to this paragraph.

(3) If within the five year period following the termination of an insur

ance contract the Secretary reinstates the insurance contract or issues a new insurance contract to the lender, the Secretary then shall make any annual adjustments to the lender's insurance coverage reserve account that would have occurred if such previous insurance contract had not been terminated. The amount of insurance coverage accruing thereafter under such a reinstated or new insurance contract shall be subject to the annual adjustment in insurance coverage prescribed by this paragraph.

(4) A sale, assignment or transfer by a lender of any loans held under a terminated but not reinstated insurance contract and a transfer by the Secretary of insurance coverage with respect to such loans shall comply with the applicable requirements of paragraphs (c) and (d) of this section.

(c) Transfer of insured loans. The lender shall not sell, assign or otherwise transfer any insured loan or loan reported for insurance to a transferee lender not approved to originate and purchase Title I loans under a valid Title I contract of insurance. Nothing contained herein shall be construed to prevent the pledging of such a loan as collateral security under a trust agreement, or otherwise, in connection with a bona fide loan transaction.

(d) Transfer of insurance coverage. Not more than $5,000 in insurance coverage shall be transferred to or from a lender's reserve account during any fiscal year (October 1 through September 30) without the prior approval of the Secretary. Except in cases involving the sale, assignment or transfer of loans sold with recourse or under a guaranty, guarantee or repurchase agreement, the Secretary shall transfer insurance coverage to or from a lender's reserve account to accompany the loan transfers reported by lenders under § 201.30.

(1) In all cases involving the sale, assignment or transfer of loans sold without recourse, guaranty, guarantee, or repurchase agreement, the Secretary shall transfer insurance coverage to the reserve account established for the transferee lender in an amount equal to 10 percent of the actual purchase price or the net unpaid principal balance, whichever is lesser, but not to

exceed the amount of insurance coverage in the transferor lender's reserve account prior to the transfer. Insurance coverage shall be transferred without earmarking and shall be added to the existing amount of insurance coverage in the transferee lender's reserve account.

(2) In cases involving the transfer of loans sold with recourse or under a guaranty, guarantee or repurchase agreement, no insurance coverage will be transferred and no reports will be required.

(e) Recovery shall not affect insurance coverage reserve account. Amounts which may be recovered by the Secretary after payment of an insurance claim shall not be added to the amount of insurance coverage remaining in a lender's reserve account.

Subpart E-Loan Administration

§ 201.40 Post-disbursement loan requirements.

(a) Discovery of misstatements of fact. If, after a loan has been made, the lender discovers any material misstatement of fact or that the loan proceeds have been misused by the borrower, dealer or any other party, it shall promptly report this to the Secretary. In such case, the insurance of the loan shall not be affected unless such material misstatement of fact or misuse of loan proceeds was caused by or was knowingly sanctioned by the lender or its employees (see § 201.31(e)(3)), provided that the validity of any lien on the property has not been impaired.

(b) Requirements on property improvement loans. (1) After receiving the proceeds of a direct property improvement loan, and after the work is completed to the borrower's satisfaction, the borrower shall submit a completion certificate to the lender, on a HUD-approved form and signed by the borrower and the contractor or seller, certifying under applicable criminal and civil penalties for fraud and misrepresentation that: (i) The improvements have been completed, (ii) the amount borrowed has been spent on improvements eligible under § 201.20(b) and in accordance with the

contract or cost estimate furnished to the lender prior to disbursement of the loan proceeds, and (iii) the borrower has not obtained and will not receive any cash payment, rebate, cash bonus, sales commission, or anything of value in excess of $10 from the contractor or seller as an inducement for the consummation of the transaction. The borrower shall submit the completion certificate promptly upon the work's completion, but not later than six months after the disbursement of the loan proceeds, with one six-month extension if necessary.

(2) For all loan applications approved on or after the effective date of these regulations, the lender or its agent shall conduct an on-site inspection on any property improvement loan where the principal obligation is $7,500 or more, and on 10 percent of its property improvement loans where the principal obligation is less than $7,500. The inspection shall be conducted after receipt of the completion certificate. If no completion certificate is received for a property improvement loan, the lender or its agent shall conduct an inspection not later than 12 months after the disbursement of the loan proceeds. The purpose of the inspection is to verify the eligibility of the improvements and whether the work has otherwise been completed.

(Approved by the Office of Management and Budget under OMB control number 2502-0328)

§ 201.41 Loan servicing.

(a) Generally. The lender shall service loans in accordance with accepted practices of prudent lending institutions. It shall have adequate facilities for contacting the borrower in the event of default, and shall otherwise exercise diligence in collecting the amount due. The lender shall remain responsible to the Secretary for proper collection efforts, even though actual loan servicing and collection may be performed by an agent of the lender. The lender shall have an organized means of identifying, on a periodic basis, the payment status of delinquent loans to enable collection personnel to initiate and follow-up on collection activities, and shall document

its records to reflect its collection activities on delinquent loans.

(b) Partial payments. The lender shall accept any partial payment (inclusive of late charges) under an executed modification agreement or an acceptable repayment plan, and either apply it to the borrower's account or hold it in a trust account pending disposition. When partial payments held for disposition aggregate a full monthly installment, they shall be applied to the borrower's account, thus advancing the date of the oldest unpaid installment. If a partial payment is received more than 60 days after the date of default and was not submitted under a repayment plan or a modification agreement, the partial payment may be returned to the borrower, with a letter of explanation.

§ 201.42 Bankruptcy, insolvency or death of borrower.

The lender shall file a proof of claim with the court having jurisdiction in cases where the lender has timely information that a borrower is involved in bankruptcy or insolvency proceedings, or is deceased, and the loan is in default and subject to acceleration. Documentation of such proof of claim shall be retained in the lender's loan file. In addition, where a borrower has declared bankruptcy, the notice of bankruptcy shall be retained in the loan file.

serviced the loan with diligence in accordance with the requirements of this part, and has taken all reasonable and prudent measures to induce the borrower to bring the loan account current. Prior to taking action to accelerate the maturity of the loan in the event of default, the lender or its agent shall arrange for a face-to-face meeting with the borrower, or make a reasonable effort to do so, so as to assist the borrower either to cure the default by bringing the loan account current immediately or to agree to a modification agreement or repayment plan for bringing the loan account current by a later date. If the lender is unable to arrange for a face-to-face meeting, it may discuss the default with the borrower by telephone and attempt to secure the borrower's agreement to curing the default, executing a modification agreement, or agreeing to an acceptable repayment plan. If the borrower cannot be located or indicates a refusal to meet or discuss the default, or refuses to consent to its cure, or to a modification agreement or repayment plan, the lender may proceed with actions under paragraphs (b) and (c) of this section. The lender shall document its actions, including in the file a copy of any modification agreement or any letter to the borrower reflecting an acceptable repayment plan.

(b) Notice of default and acceleration. Unless the borrower brings the loan account current or agrees to a modification agreement or repayment plan, the lender shall provide the borrower with written notice that the loan is in default and that the loan maturity is accelerated, under this paragraph. In addition to complying with applicable State or local notice requirements, the notice shall be sent by registered or certified mail and shall contain:

(1) A description of the obligation or security interest held by the lender; (2) The nature of the default claimed;

(3) A demand upon the borrower to cure the default by making full payment to the lender of the unpaid principal and earned interest due on the note as of the date 30 days from the date of the notice in a stated amount,

or otherwise to agree to a modification agreement or repayment plan by such date;

(4) A statement that if the borrower fails to cure the default, or refuses by such date to agree to a modification agreement or repayment plan, the maturity of the loan is accelerated and payment of all amounts due under the loan is required as of the date 30 days from the date of the notice;

(5) A statement that if the default persists the lender will report the default to an appropriate credit reporting agency; and

(6) Any other requirements prescribed by the Secretary.

(c) Reinstatement of the loan. After the loan maturity is accelerated, if the borrower requests that the loan be reinstated, the lender may agree to rescind the acceleration upon receipt of a full payment from the borrower to cure the default or upon the borrower's execution of a modification agreement or agreement to an acceptable repayment plan.

(d) Notice to credit reporting agency. If the loan maturity is accelerated and the loan is not reinstated, the lender shall report the default to an appropriate credit reporting agency.

(Approved by the Office of Management and Budget under OMB control number 2502-0328)

[50 FR 43523, Oct. 25, 1985, as amended at 51 FR 32060, Sept. 9, 1986]

§ 201.51 Proceeding against the loan security.

(a) Property improvement loans. (1) After acceleration of maturity on a defaulted secured property improvement loan, the lender may either proceed against the loan security under its Title I security instrument or make claim under its contract of insurance. If the lender proceeds against the loan security, the lender may not submit an insurance claim.

(2) If a lender holds one or more mortgages or other security instruments senior to a secured property improvement loan, and if the borrower defaults on any such instrument or on the property improvement loan, the lender may both proceed against the secured property under such senior se