costs to the issuer of the mortgages in the pool, whether the issuer acquired the mortgages by origination or purchase. (Sec. 306 (g), 12 U.S.C. 1721) [36 FR 24700, Dec. 22, 1971, as amended at 37 F.R. 9320, May 9, 1972]

§ 390.7 Mortgages.

Each issue of guaranteed securities must be backed by a separate pool of mortgages which:

(a) Are insured under the National Housing Act or title V of the Housing Act of 1949, or insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, United States Code;

(b) Have been insured or guaranteed no longer than 12 months prior to the date on which the Association issues its commitment to guarantee the securities;

(c) Will be replaced by the issuer if found defective by the Association at any time prior to 4 months after the date on which the Association issues its guaranty of the securities; and

(d) Meet such other standards of acceptability as may be prescribed by the Association.

§ 390.9 Pool administration.

The Association will not guarantee securities if the pool arrangement proposed by the issuer does not satisfactorily provide for:

(a) Servicing of the mortgages in the pool;

(b) Segregation of the cash flow from mortgages in the pool from the other assets of the issuer;

(c) Timely payment of principal and interest, in accordance with the terms of the guaranteed securities;

(d) Notification to the Association of an impending default, on the part of the issuer, in adequate time for the Association to make timely payments on the securities; and

(e) Delivery to a designated custodial agent satisfactory to the Association of the mortgage notes or other evidences of indebtedness secured by the mortgages in the pool and protection of the Association's interest in all assets in the pool as collateral for its guaranty.

§ 390.11 Excess collateral.

The issuer shall maintain, for the benefit of the Association, excess collateral in assets acceptable to the Association of 3 percent of the amount of guaranteed securities outstanding. In lieu of

such excess collateral the Association may accept a bond or other assurance of the faithful performance of the fiduciary responsibilities of the issuer.

§ 390.13 Guaranty.

With respect to straight pass-through securities, the Association guarantees the timely payment to the security holder of the proceeds of principal and interest, as collected, as undertaken in the Association's guaranty appearing on the face of the security. With respect to modified pass-through securities, the Association guarantees the timely payment, whether or not collected, of the fixed rate of interest on the outstanding balance and the specified principal installments, as undertaken in the Association's guaranty appearing on the face of the security. As to straight pass-through type securities, any failure or inability of the issuer to make payment as due, to the holders of the securities, from the proceeds from the pool of mortgages which have been collected, or because of failure to make collections, under reasonable and accepted standards of mortgage servicing, shall constitute a default of the issuer. As to modified pass-through securities, any failure or inability of the issuer to make fixed or other payments as due shall be deemed such a default. Upon any default by the issuer and payment under its guaranty by the Association, or any failure of the issuer to comply with the terms of the guaranty transaction, the Association may institute a claim against the excess collateral, or against any assurance in lieu of excess collateral, or may, pursuant to section 306(g) of the National Housing Act, extinguish all the ownership, control, or other interest of the issuer in the pooled mortgages, by letter directed to the issuer and making the mortgages the absolute property of the Association, subject only to unsatisfied rights therein of the holders of the securities, or the Association may do both.

section 306(g) of the National Housing Act, upon such terms and conditions as it may deem appropriate, to guarantee the timely payment of principal of and interest on securities of the "bond-type" which are based on and backed by a trust or pool composed of mortgages which are insured by the Federal Housing Administration or the Farmers' Home Administration, or insured or guaranteed by the Veterans' Administration. The Association's guaranty of mortgagebacked securities is backed by the full faith and credit of the United States.

(b) Sections 390.21 through 390.35 deal with such "bond-type" securities and do not purport to set forth all the procedures and requirements that apply to the issuance and guaranty of such securities. All such transactions are governed by the specific terms and provisions of the contracts entered into by the parties. Further information may be obtained from the Government National Mortgage Association, 451 Seventh Street SW., Washington, D.C. 20414. § 390.23 Eligible issuers.

Any corporation, trust, partnership, or other entity with a net worth in assets acceptable to the Association of $50 million or more, and which has the capability to assemble acceptable and eligible mortgages in sufficient quantity to support required minimum issuances of securities, may be approved for a guaranty by the Association. Further, the Association reserves the right to limit the number of issuers in the interest of conducting an orderly market of securities of this type.

(a) Instruments. Securities to be issued pursuant to the provisions of this subpart may be in registered or bearer form. Each security shall have terms acceptable to the Association and shall specify its principal amount, the interest rate, and the maturity date, and the securities may include call provisions and other characteristics depending on current market conditions.

(b) Issue amount. Until further authorization is given, each issue of guaranteed securities must be in a minimum face amount of $100 million, and no single maturity of an issue may be in face amount less than $100 million unless the total issue exceeds $200 million. The total of the outstanding principal balances of the mortgages

upon which any issue is originally based and backed must be at least equal to 100 percent of the face amount of the issue of guaranteed securities. Such ratio as may be required by the governing trust arrangements, between mortgages and other pooled assets and securities outstanding at any one time, shall be maintained, subject to adjustment with the approval of the Association in accord with such trust arrangements.

(c) Face amount of securities. The face amount of any security cannot be less than $25,000.

(d) Transferability. Securities are transferable but, if registered, are transferable, as to the Association and the issuer, only on the books of a fiscal agent as shall be agreed upon by the Association and the issuer.

(e) Treasury approval. Issues of $100 million or larger will be subject to approval of the Secretary of the Treasury.

§ 390.27 Mortgages.

Guaranteed securities issued under these provisions must be based on and backed by mortgages pooled under trust arrangements satisfactory to the Association. Such mortgages must:

(a) Be insured under the National Housing Act or title V of the Housing Act of 1949, or insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, United States Code.

(b) Have been insured or guaranteed no longer than 12 months prior to the date on which the Association issues its commitment to guarantee the securities;

and

(c) Meet such other standards of acceptability and eligibility as may be prescribed by the Association from time to time for the issue of mortgage-backed securities of the bond type. But with respect to any particular issue of securities, the related mortgages shall meet only such standards as may be in effect or imposed at the time of the issuance of the related commitment to guarantee. § 390.29 Trust arrangements.

(a) The pool of mortgages, together with all proceeds thereof and all other assets backing each issue of "bond-type" securities, shall be held and administered by a corporate trustee which is subject to Federal or State regulation and which is acceptable to the Association. The issuer of the securities may qualify as trustee;

(b) The trust agreement which will be executed by the issuer, the trustee and the Association and which may be reopened subject to the approval of the Association, will provide for:

(1) The issuance of the securities, including the size or other ceilings of the issuance or issuances, the nature and provisions of the securities, the principles and methods of sale and distribution, and other material matters pertaining to issuance;

(2) Conveyance of the pooled mortgages to the trustee, in trust, to provide the base and backing for the securities and otherwise for purposes of the trust arrangements, and custody of mortgage documents;

(3) Administration of the trust, to include servicing and retirement of the securities, and servicing of the mortgages through their payment or other liquidation;

(4) Principles and methods with respect to reporting requirements, the handling of losses realized from the pooled mortgages, defaults by the issuer, and other appropriate matters;

(5) Timely payment of principal and interest in accord with the terms of securities issued;

(6) Segregation of the cash and other assets flowing or resulting from the pooled mortgages;

(7) Reinvestment of accumulations of proceeds from the pooled mortgages and other assets to the extent necessary to provide adequately for the payment of securities;

(8) Notification to the Association of any impending default of any payment of the securities, in order that the Association may make timely payments thereon;

(9) It is expected that the trustee and issuer or issuers, together of separately,

With respect to bond-type securities, the Association will guarantee the timely payment of principal of and interest on such securities, subject to the terms and conditions thereof. The agreements and contracts among the parties will provide upon default of the issuer for the right of the Association, pursuant to section 306(g) of the National Housing Act, to take title to the mortgages and other assets that are subject to the trust arrangements, and to proceed against other assets of the issuer to the extent necessary to satisfy its own claims and the right of the holders of securities then outstanding. Such action by the Association shall be taken subject to an accounting to the issuer.

The Association may impose application and guaranty fees, which may vary with relation to the size or risk of the guaranty transaction undertaken. Subpart C-Miscellaneous Provisions § 390.35 Audits and reports.

The Association may at any time audit the books and examine the records of any issuer, mortgage servicer, trustee, or agent or other person bearing on its guaranty of mortgage-backed securities, and may require periodic reports from such persons.

§ 390.37 Applications.

Applications for guaranty should be submitted to the Association's home office located at 451 Seventh Street SW., Washington, D.C. 20414.

420.1 Purpose and definitions.

420.2 Mortgagor's required recertification. 420.3 Mortgagor's optional recertification. 420.4 Adjustments in assistance payments. 420.5 Mortgagee records.

420.6 Effect of assignment of mortgage with an assistance payments contract. 420.7 Termination, suspension or reinstatement of the assistance payments contract.

420.8 Effect of amendments.

AUTHORITY: The provisions of this Part 420 issued under sec. 211, 52 Stat. 23, as amended, sec. 235, 82 Stat. 477, as amended; 12 U.S.C. 1715b, 1715z.

SOURCE: The provisions of this Part 420 appear at 37 F.R. 9320, May 9, 1972, unless otherwise noted.

in

(b) The definitions contained 235.5 of this title shall apply to this part. In addition, the term "assistance payment" means that portion of a homeowner's or cooperative member's monthly mortgage payment which HUD becomes obligated to pay under an assistance payment contract.

§ 420.2 Mortgagor's required recertification.

The mortgagee shall obtain from the homeowner (or from the cooperative association on behalf of the cooperative member), on a form prescribed by the Assistant Secretary for Housing Management (hereinafter referred to as the Assistant Secretary), a recertification as

to occupancy, employment, income, and family composition whenever one of the following events takes place:

(a) Annually, no earlier than 60 days before and no later than 30 days after the anniversary date of the mortgage or at such other anniversary date as set by the Assistant Secretary;

(b) No more than 30 days after the mortgagee is notified by the mortgagor or learns from any source, that the mortgagor or any adult (21 years or older) member of the family residing in the household changes or begins employment which results in an increase in the family income reported in the original application for assistance or the most recent recertification;

(c) At such other times as the Assistant Secretary may require.

The mortgagee shall make appropriate adjustments in the amount of the requested assistance payments to reflect changes in family income reported in any required or optional recertification of the homeowner or cooperative member. The adjustment shall not be retroactive except at the discretion of the Assistant Secretary. The adjustment shall apply only to assistance payments beginning with the payment due no earlier than the first day of the month following and no later than the first day of the second month following the date the mortgagor's