(iii) It has a sound financial condition.

(3) As a condition for receiving approval, an investing mortgagee shall agree as follows:

(i) To obtain insured mortgages, not by origination, but only by purchase from other investing mortgagees or from mortgagees authorized by the Commissioner to originate mortgages.

(ii) To arrange with mortgagees which are approved pursuant to § 203.1, § 203.2, or paragraph (b) or (c) of this section to service all mortgages acquired by the investing mortgagee and to hold all escrow funds collected in connection therewith.

(iii) To submit to the Commissioner annual reports of its financial condition so long as it is an approved investing mortgagee.

(iv) To submit at any time to such examination, as the Secretary may require, of that portion of its books and affairs relating to its mortgage investment activities.

(v) To comply with such other requirements as the Commissioner may impose.

Added: March 27, 1968

§ 203.5 Approval of individuals and organizations as investing mortgagees.

[Revoked] March 15, 1962

§ 203.6 Approval of fiduciary invest

ments.

(a) Approval as a mortgagee of a banking institution or trust company which is subject to the inspection and supervision of a governmental agency, shall be deemed to constitute approval of such institution or company when lawfully acting in a fiduciary capacity in investing fiduciary funds which are under its individual or joint control. Upon termination of such fiduciary relationship, whether by revocation or otherwise, any insured mortgages held in the fiduciary estate shall be trans

ferred to a mortgagee approved under this section and the fiduciary relationship must be such as to permit such transfer.

§ 203.7

Withdrawal of approval.

(a) Approval of a mortgagee may be withdrawn at any time by notice from the Commissioner, by reason of:

(1) The transter of an insured mortgage to a nonapproved mortgagee, except pursuant to § 203.433 or 203.435 of this part.

Amended: August 18, 1969

(2) The failure of a non-supervised mortgagee to segregate all escrow funds received from mortgagors on account of ground rents, taxes, assessments and insurance premiums, and to deposit such funds to a special account or accounts with a banking institution whose accounts are insured by the Federal Deposit Insurance Corporation;

(3) The use of escrow funds for any purpose other than that for which they were received;

(4) The failure of a non-supervised mortgagee to conduct its business in accordance with the plan indicated by its application for approval;

(5) The termination of a mortgagee's supervision by a governmental agency; (6) Such other reason as the Commissioner determines to be justified.

(b) Withdrawal of a mortgagee's approval shall not affect the insurance on mortgages accepted for insurance. § 203.8

Financial statements.

All approved mortgagees shall at any time upon request furnish the Commissioner with a copy of their latest periodic financial statement or report. § 203.9

Mortgage servicing.

All approved mortgagees are required to service insured loans in accordance with acceptable mortgage practices of prudent lending institutions. In the event of default, the mortgagee should be able to contact the mortgagor and otherwise exercise diligence in collecting the amounts due. The holder of the mortgage is responsible to the Commissioner for proper servicing, even though

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the actual servicing may be performed by an agent of such holder.

APPLICATION AND COMMITMENT

§ 203.10 Submission of application.

Any approved mortgagee may submit an application for insurance of a mortgage about to be executed, or of a mortgage already executed.

§ 203.11

Form of application.

The application must be made upon a standard form prescribed by the Commissioner.

§ 203.12 Application and commitment extension fees.

(a) Application fee. (1) Amount of fee. The mortgagee shall pay an application fee to cover the cost of processing. The fee shall be as follows:

(i) $35 for an application involving existing construction. Amended: May 1, 1965 (ii) $45 for an application involving proposed construction.

(iii) $10 for an application involving a mortgage of the character described in § 203.43(b) (3) and (4)

(iv) $10 for an application processed under the Certified Agency Program.

(v) $15 for an application filed on or after July 1, 1969, which involves property, which respect to which the Veterans Administration has issued a Certificate of Reasonable Value, if the mortgagee submits with the application evidence, satisfactory to the Commissioner, that such Certificate is outstanding and has not expired. Added: June 23, 1969

(2) Time of fee payment. The application fee shall be due and payable by the mortgagee upon receipt from the FHA of a monthly statement covering the related transactions.

(3) Credit for fee previously charged. A credit may be allowed the mortgagee for an application fee previously charged under such conditions as the Commissioner prescribes.

(4) Fee not required. A mortgagee shall not be required to pay an application fee where:

(i) The application is not accepted for processing; or

(ii) The application is made on behalf of a veteran for the insurance of a mortgage to refinance an existing insured mortgage which is in default by reason of his military service, if the Commissioner finds that the charging of such fee would be inequitable under the circumstances of the transaction. For the purposes of this subdivision the word "veteran" shall mean a person who has served in the active military or naval service of the United States at any time on or after September 16, 1940, and prior to July 26, 1947, or on or after June 27, 1950, and prior to February 1, 1955; or

(iii) The application is in connection with the insurance of a mortgage to finance the purchase of Commissionerheld property.

(b) Commitment extension fee-(1) Amount of fee. The mortgagee shall pay a commitment extension fee for extending an outstanding commitment or for reopening and extending an expired commitment within two months after such expiration. The fee shall be as follows:

(i) $25 where the commitment involves existing construction or proposed construction.

(ii) $10 where the commitment involves a mortgage of the character described in § 203.43 (b) (3) and (4).

(2) Time of fee payment. The commitment extension fee shall be due and payable by the mortgagee upon receipt from the FHA of a monthly statement covering the related transactions.

(3) Credit for fee previously charged. A credit may be allowed the mortgagee for a commitment extension fee previously charged under such conditions as the Commissioner prescribes.

(4) Fee not required. A mortgagee shall not be required to pay a commitment extension fee where:

(i) The commitment to be extended or reopened is in connection with an application made on behalf of a veteran under circumstances set forth in paragraph (a) (4) (ii) of this section; or

(ii) The commitment is in connection with the insurance of a mortgage to finance the purchase of Commissionerheld property. Amended: December 29, 196 1 April 9, 1963; May 1, 1963

With respect to commitments issued on or after October 1, 1954, applications relating to proposed construction must be accompanied by an agreement in form satisfactory to the Commissioner executed by the seller or builder or such other person as the Commissioner may require agreeing that in the event of any sale or conveyance of the dwelling within a period of one year beginning with the date of initial occupancy, the seller, builder, or such other person will at the time of such sale or conveyance deliver to the purchaser or owner of such property a warranty in form satisfactory to the Commissioner warranting that the dwelling is constructed in substantial conformity with the plans and specifications (including amendments thereof or changes and variations therein which have been approved in writing by the Commissioner) on which the Commissioner has based his valuation of the dwelling. Such agreement must provide that upon the sale or conveyance of the dwelling and delivery of the warranty, the seller, builder or such other person will promptly furnish the Commissioner with a conformed copy of the warranty establishing by the purchaser's receipt thereon that the original warranty has been delivered to the purchaser in accordance with this section.

§ 203.15 Certification of appraisal

amount.

An application with respect to insurance of mortgages on one- or twofamily dwellings must be accompanied by an agreement satisfactory to the Commissioner, executed by the seller, builder or such other person as may be required by the Commissioner whereby such person agrees that prior to any sale of the dwelling the said person will deliver to the purchaser of such property a written statement in form satis

factory to the Commissioner setting forth the amount of the appraised value of the property as determined by the Commissioner.

§ 203.16 Certificate and contract regarding use of dwelling for transient or hotel purposes.

Every application filed with respect to insurance of mortgages on a two-, three-, or four-family dwelling, or a single-family dwelling which is one of a group of 5 or more single-family dwellings held by the same mortgagor, must be accompanied by a contract in form satisfactory to the Commissioner. signed by the proposed mortgagor covenanting and agreeing that so long as the proposed mortgage is insured by the Commissioner the mortgagor will not rent the housing or any part thereof covered by the mortgage for transient or hotel purposes, together with the mortgagor's certification under oath that the housing or any part thereof covered by the proposed mortgage will not be rented for transient or hotel purposes. For the purpose of this subchapter rental for transient or hotel purposes shall mean (a) rental for any period less than 30 days or (b) 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 linen, and bellboy service.

§ 203.17

ELIGIBLE MORTGAGES

Mortgage provisions.

(a) Mortgage form. The mortgage shall be executed upon a form approved by the Commissioner for use in the jurisdiction in which the property covered by the mortgage is situated and shall be a first lien upon property that conforms with property standards prescribed by the Commissioner. The entire principal amount of the mortgage must have been disbursed to the mortgagor or to his creditors for his account and with his consent.

(b) Mortgage multiples. The mortgage shall involve a principal obligation in an amount of $100 or multiples thereof. A mortgage having a principal obligation not in excess of $15,000 and an

amortization period of either 20, 25, 30, or 35 years may be in an amount of $50 or multiples thereof.

(c) Payments. The mortgage shall: (1) Come due on the first of the month. (2) Have an amortization period of either 10, 15, 20, 25, 30, or 35 years by providing for either 120, 180, 240, 300, 360, or 420 monthly amortization payments.

(3) Provide for payments to principal and interest to begin not later than the first day of the month following 60 days from the date the mortgagee's certificate on the commitment was executed.

(d) Maturity. (1) The mortgage shall have a maturity as set forth in subparagraph (2) or (3) of this paragraph, whichever is the lesser.

(2) The mortgage shall have a maturity not in excess of three-quarters of the remaining economic life of the building improvements.

(3) The mortgage shall have a term of not less than 10 nor more than:

(i) Thirty years from the date of the beginning of amortization; or

(ii) Thirty-five years from the date of the beginning of amortization if the following requirements are met:

(a) The mortgagor is an owner occupant of the property and is not able, as determined by the Commissioner, to make the required payments under a mortgage having a shorter amortization period; Amended: August 10, 1965 (b) The dwelling was approved for mortgage insurance by the Commissioner prior to the beginning of construction or approved for guaranty, insurance, or direct loan by the Administrator of Veterans Affairs prior to such construction; Amended: January 22, 1962;

and

(1) Dollar limitation. A dollar limitation of:

(1) $30,000 for a one-family residence. (ii) $32,500 for a two-family residence.

(iii) $32,500 for a three-family residence.

(iv) $37,500 for a four-family residence.

(2) Loan-to-value limitation-approval prior to construction. If the mortgage covers a dwelling approved for mortgage insurance (or for guaranty, insurance, or a direct loan by the Administrator of Veterans Affairs) prior to the beginning of construction or a dwelling which was completed more than 1 year preceding the date of the application for mortgage insurance, the sum of the following percentages of the Commissioner's appraised value of the property, as of the date the mortgage is accepted for insurance:

(i) 97 percent of the first $15,000 of such value (100 percent of $15,000 of such value or the sum of such value not in excess of $15,000 and the items of prepaid expense approved by the Commissioner minus $200, whichever appraisal amount or sum is the lesser, in the case of a mortgagor qualifying as a veteran).

(ii) 90 percent of such value in excess of $15,000, but not in excess of $20,000.

(iii) 80 percent (85 percent in the case of a mortgagor qualifying as a veteran) of such value in excess of $20.000.

(3) Loan-to-value limitation—no prior approval. A loan-to-value limitation of value of the property, as of the date the 90 percent of $20,000 of the appraised mortgage is accepted for insurance, and 80 percent (85 percent in the case of a mortgagor qualifying as a veteran) of such value in excess of $20,000, if the dwelling does not meet the requirements in the introductory text of subparagraph (2) of this paragraph.

(b) Veteran qualifications. The special veteran terms provided in paragraph (a) of this section shall only be applicable to a mortgage covering a single family dwelling executed by a mortgagor who submits to the Commissioner one of the following certifications:

(1) A Certificate of Veteran Status from the Veterans Administration estab

A

(c) Nonoccupant mortgagors. mortgage executed by a mortgagor who is not the occupant of the property shall not exceed:

(1) 85 percent of any amount computed under paragraph (a) of this section: or

(2) The full amount computed under paragraph (a) of this section if the mortgage covers a one- or two-family residence and the Commissioner is furnished with certificates indicating that: (i) [Reserved]

(ii) The mortgagor will not rent (except for a rental term of not less than 30 days and not more than 60 days), sell (except where the insured mortgage is paid in full as an incident of the sale), or occupy the property prior to the 18th amortization payment of the mortgage except with the prior written approval of the Commissioner;

(iii) Not less than 15 percent of the original principal amount of the mortgage proceeds has been deposited in an escrow, trust, or special account;

(iv) The mortgagor agrees that, if the property is not sold prior to the due date of the 18th amortization payment of the mortgage to a purchaser acceptable to the Commissioner who will occupy the property, assume, and agree to pay the mortgage indebtedness, the amount held in escrow, trust, or special account will be applied in reduction of the outstanding principal amount of the mortgage as of the due date of the 18th amortization payment of the mortgage; (v) [Reserved]

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(vi) The mortgagee agrees that any portion of the fund held in escrow, trust, or special account, not applied to the mortgage in accordance with the provisions of this paragraph, shall be deducted from the amount of debentures to which the mortgagee would otherwise be entitled if a claim for debentures is filed.

(d) Outlying area properties. A mortgage covering a single-family residence located in an area where the Commissioner finds it is not practicable to obtain conformity with many of the requirements essential to insurance of mortgages in built up urban areas, or to be used as a farm home on a plot of land, five or more acres in size, adjacent to a public highway, shall not exceed: (1) $13.500;

Amended: August 1, 1968

(2) 97 percent of the appraised value of the property as of the date the mortgage is accepted for insurance, if:

(i) The dwelling was approved for insurance by the Commissioner prior to the beginning of construction; or

(ii) Construction was completed more than one year preceding the date of the application for insurance; or

(iii) The dwelling was approved for guaranty, insurance, or direct loan by the Administrator of Veterans Affairs prior to the beginning of construction.

(3) 90 percent of the appraised value of the property as of the date the mortgage is accepted for insurance in the case of all properties not meeting the requirements of subparagraph (2) of this paragraph; and

(4) 85 percent of the appraised value of the property if the mortgagor is not an occupant thereof.