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missioner the original credit instrument and the insured mortgage securing the same, provided such mortgage is not in default at the expiration of 20 years from the date it was endorsed for insurance. When such option has been exercised, the obligation of the mortgagee to pay the premium charges shall cease. (b) The mortgagee may exercise its assignment option within 1 year following the twentieth anniversary of the date the mortgage was endorsed for insur

ance.

(c) Upon the exercise of the assignment option the Commissioner shall issue to the assignor mortgagee debentures having a total face value equal to the amount of the original principal obligation of the mortgage which was unpaid on the date of the assignment, plus accrued interest to such date.

(d) The debentures issued pursuant to the exercise of an assignment option shall be dated as of the date the mortgage is assigned to the Commissioner and shall mature 10 years after such date.

(e) The debentures issued pursuant to the exercise of an assignment option shall bear interest at the "going Federal rate" at date of issuance. The "going Federal rate" means the annual rate of interest specified by the Secretary of the Treasury as applicable to the 6month period which includes the issuance date of the debentures. The Secretary of the Treasury shall determine this applicable rate by estimating the average yield to maturity, on the basis of daily closing market bid quotations or prices during the month of May or the month of November, as the case may be, next preceding such 6-month period, on all outstanding marketable obligations of the United States having a maturity date of 8 to 12 years from the first day of May or November, as the case may be. If there should be no outstanding marketable obligations of the United States having the 8 to 12 year maturity at the time the Secretary of the Treasury is required to determine the debenture rate involved, the obligation next shorter than 8 years and the obligation next longer than 12 years respectively, shall be used.

(f) Debentures shall bear interest from the date of issue, payable semiannually on the first day of January and the first day of July of each year at the rate in effect on the issue date, a date which shall be established as provided in § 203.

410 of this chapter. The interest rate shall be established by the Commissioner in an amount not in excess of the annual rate of interest which the Secretary of the Treasury shall specify as applicable to the 6-month period (consisting of January through June, or July through December) which includes the issuance date of such debentures, which applicable rate for each 6-month period shall be determined by the Secretary of the Treasury, at the request of the Commissioner, by estimating the average yield to maturity, on the basis of daily closing market bid quotations or prices during the calendar month next preceding the establishment of such rate of interest, on all outstanding marketable obligations of the United States having a maturity date of 15 years or more from the first day of such next preceding month, and by adjusting such estimated average annual yield to the nearest oneeighth of 1 per centum.

§ 221.256 Interest rate increase and payment of mortgage insurance premiums on mortgages under § 221.60. (a) Where a mortgage meets the special requirements of § 221.60, the mortgagee shall determine, at least annually, whether the mortgagor has continued to occupy the property securing the mortgage. If the mortgagee determines that the mortgagor is not occupying the property or that the mortgagor has sold the property subject to the mortgage to a purchaser determined by the Commissioner to be ineligible for an interest rate established pursuant to § 221.518(b), interest on such mortgage shall thereafter be computed by the mortgagee at the highest rate permissible under the mortgage from the first day of the month following the month in which the mortgagee determines the right to collect interest at the increased rate first accrued.

(b) The mortgagee shall notify the Commissioner, on a form prescribed by the Commissioner, within 30 days of making the determination of the right to compute interest at the higher rate, as provided in paragraph (a) of this section, of:

(1) The date on which such right first accrued, and

(2) The outstanding principal balance of the mortgage on the first day of the month following the date on which such right first accrued.

(c) The liability for payment of mortgage insurance premiums, adjusted mortgage insurance premiums, and voluntary termination charges, if any, shall begin on and be computed from the first day of the month following the date on which the right to compute interest at the higher rate shall have first accrued. [32 F.R. 4279, Mar. 18, 1967]

§ 221.275 Method of paying insurance benefits.

If the application for insurance benefits is acceptable to the Commisioner, all of the insurance claim shall be paid in cash unless the mortgagee files a written request with the application for payment in debentures. If such a request is made, all of the claim shall be paid by issuing debentures and by making a cash payment adjusting any differences between the total amount of the claim and the amount of the debentures issued.

[30 F.R. 10037, Aug. 12, 1965]

§ 221.450 Effective date.

The provisions of this subpart are effective as to all loans and mortgages endorsed for insurance on or after July 7, 1961.

Subpart C-Eligibility Requirements

Moderate Income Projects

SOURCE: The provisions of this Subpart C appear at 26 F.R. 7474, Aug. 12, 1961, unless otherwise noted.

§ 221.501 Certificate by Secretary to

Commissioner.

(a) Before a mortgage executed by a mortgagor other than a general mortgagor shall be eligible for insurance under this subpart, the Secretary of Housing and Urban Development shall certify to the Commissioner that the community in which the project is to be located nas submitted to the Secretary a workable program which has been approved by the Secretary and which is in effect at the time the Commissioner notifies the sponsor or having completed the preapplication analysis of the proposed project and indicates that a formal application for insurance will be accepted.

(b) The provisions of paragraph (a) of this section shall not be applicable in the following instances:

(1) Where the mortgagor qualifies as a rehabilitation sales mortgagor under the provisions of § 221.510(a) (3).

(2) Where the mortgagor is approved by the Commissioner to receive rent sup

plement payments pursuant to the provisions of §§ 5.1 et seq. of this title, in which case the provisions of § 5.15(c) of this title shall govern.

[32 F.R. 4280, Mar. 18, 1967, and 32 F.R. 20809, Dec. 27, 1967]

§ 221.502 Application.

An application for insurance of a mortgage on a project shall be submitted by a mortgagee and by the sponsors of such project through the local FHA office on an approved FHA application form. No application shall be considered unless accompanied by the exhibits called for by the form. No application for insurance shall be considered in the case of a project, the mortgage of which is to bear interest in accordance with the rate set forth in § 221.518(b), unless there has been issued by the Commissioner a memorandum evidencing allocation of funds to the project.

[28 F.R. 6832, July 3, 1963]

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An application fee of $1.50 per thousand dollars of the amount of the loan applied for shall accompany the application.

§ 221.504 Commitment fee.

A commitment fee which, when added to the application fee, will aggregate $3.00 per thousand dollars of the face amount of the loan set forth in the commitment, shall be paid within 30 days after the date of the commitment. The payment of a commitment fee shall not be required in connection with an insured mortgage involving the sale by the Government of housing or property acquired, held or constructed pursuant to the Atomic Energy Community Act of 1955, as provided in § 221.559(b) (4). [29 F.R. 4090, Mar. 28, 1964] § 221.505 Inspection fee.

The commitment may provide for the payment of an inspection fee in an amount not to exceed $5.00 per thousand dollars of the commitment. If the inspection fee is required, it shall be paid as follows:

(a) If the case involves the insurance of advances, it shall be paid at the time of initial endorsement.

(b) If the case involves insurance upon completion, it shall be paid prior to the date construction is begun. [29 F.R. 4090, Mar. 28, 1964]

§ 221.506 Fees on increases.

(a) Increase in commitment prior to endorsement. Upon an application, filed prior to initial endorsement (or prior to endorsement in a case involving insurance upon completion) for an increase in the amount of an outstanding commitment, an additional application fee of $1.50 per thousand dollars computed upon the amount of the increase requested shall accompany the application. Any increase in the amount of a commitment shall be subject to the payment of an additional commitment fee which, when added to the additional application fee, will aggregate $3.00 per thousand dollars of the amount of the increase. The additional commitment fee shall be paid within 30 days after the date of the issuance of the amended commitment. If the additional commitment fee is not paid within 30 days, the commitment for the increased amount will expire and the previous commitment will be reinstated. If an inspection fee was required in the original commitment, an additional inspection fee shall be paid in an amount not to exceed $5.00 per thousand dollars of the amount of the increase in commitment. Where insurance of advances are involved, the additional inspection fee shall be paid at the time of initial endorsement. Where insurance upon completion is involved, the additional inspection fee shall be paid prior to the date construction is begun or within 30 days after the date of the issuance of the amended commitment, if construction has begun.

(b) Increase in mortgage between initial and final endorsement. Upon an application, filed between initial and final endorsement, for an increase in the amount of the mortgage, either by amendment or by substitution of a new mortgage, an additional application fee of $1.50 per thousand dollars computed on the amount of the increase requested shall accompany the application. The approval of any increase in the amount of the mortgage shall be subject to the payment of an additional commitment fee which, when added to the additional application fee, will aggregate $3.00 per thousand dollars of the amount of the increase granted. If an inspection was required in the original commitment, an additional inspection fee shall be paid in an amount not to exceed $5.00 per thousand dollars of the amount of the increase granted. The additional com

mitment and inspection fees shall be paid within 30 days after the increase is granted.

(c) Increase in mortgage after final endorsement to cover operating loss. Upon application for an increase in the amount of an insured mortgage under the provisions of § 221.514(e) relating to operating loss, a combined application and commitment fee of $3.00 per thousand dollars shall be paid on the amount of the increase granted. The combined application and commitment fee shall be paid within 30 days after the issuance of the commitment to insure such increase. No inspection fee is required. [29 F.R. 4090, Mar. 28, 1964]

§ 221.506a Transfer fee.

Upon application for approval of a case involving the transfer of physical assets or involving the substitution of mortgagor, a transfer fee of 50 cents per thousand dollars shall be paid on the original face amount of the mortgage. [29 F.R. 4090, Mar. 28, 1964]

§ 221.507 Refund of fees.

If an application is rejected before it is assigned for processing, or in such other instances as the Commissioner may determine, the entire application fee or any portion thereof may be returned to the applicant. Commitment, inspection and reopening fees may be refunded, in whole or in part, if it is determined by the Commissioner that there is a lack of need for the housing or that the construction or financing of the project has been prevented because of condemnation proceedings or other type of legal action taken by a governmental body or public agency, or in such other instances as the Commissioner may determine. A transfer fee may be refunded only in such instances as the Commissioner may determine.

[29 F.R. 4090, Mar. 28, 1964]

§ 221.508 Maximum fees and charges by mortgagee.

The mortgagee may collect from the mortgagor the amount of the fees provided for in this subpart. The mortgagee may also collect from the mortgagor an initial service charge in an amount not to exceed 2 percent of the original principal amount of the mortgage, to reimburse the mortgagee for the cost of closing the transaction. Any ad

ditional charges or fees collected from the mortgagor shall be subject to prior approval of the Commissioner.

[31 F.R. 10317, July 30, 1966]

§ 221.509

COMMITMENT

Issuance of commitment.

(a) Conditions of commitment. Upon approval of an application for insurance, a commitment shall be issued by the Commissioner setting forth the terms and conditions upon which the mortgage will be insured.

(b) Types of commitments. The commitment may provide for the insurance of advances of mortgage money made during construction or may provide for the insurance of the mortgage after completion of the improvements.

(c) Terms of commitment. (1) If the commitment fee is paid as required, a commitment shall have a term which is determined as follows:

(i) A commitment to insure advances shall be effective for a period of not more than 180 days from the date of issuance.

(ii) A commitment to insure upon completion shall be effective for a designated term within which the mortgagor is required to begin construction, and if construction is begun as required, the commitment shall be effective for such additional period, estimated by the Commissioner, as will allow for completion of construction.

(2) The term of a commitment may be extended in such manner as the Commissioner may, from time to time, prescribe.

(3) If the payment of a commitment fee is not received by the Commissioner within 30 days after the issuance of a commitment, the commitment shall expire on the 30th day.

(d) Reopening of expired commitments. An expired commitment may be reopened if a request for reopening is received by the Commissioner within 90 days of the expiration of the commitment.

The reopening request shall be accompanied by a fee of 50 cents per thousand dollars of the amount of the expired commitment. A commitment which has expired because of failure to pay the commitment fee may be reopened only upon payment of the commitment fee and the reopening fee. the reopening request is not received by the Commissioner within the required 90-day period, a new application, accompanied by an application fee, must be submitted. If a commitment for an in

If

creased amount has expired because of failure to pay an additional commitment fee based on the amount of the increase, the reopening fee shall be computed on the basis of the amount of the commitment increase rather than on the amount of the original commitment. [29 F.R. 4090, Mar. 28, 1964]

ELIGIBLE MORTGAGORS § 221.510 Eligible mortgagors.

A mortgage shall be executed by a mortgagor meeting the following qualifications:

(a) Nonprofit, builder-seller, and rehabilitation sales mortgagors. (1) The nonprofit mortgagor shall be a corporation or association organized for purposes other than the making of profit or gain for itself or persons identified therewith and which the Commissioner finds is in no manner controlled by nor under the direction of persons or firms seeking to derive profit or gain therefrom. Such a mortgagor shall be regulated or supervised under federal or state laws or by political subdivisions of states or agencies thereof, or the Federal Housing Commissioner, as to rents, charges, and methods of operation. The regulation or supervision of the mortgagor shall be in such manner as, in the opinion of the Commissioner, will effectuate the purposes of this subpart.

(2) The builder-seller mortgagor shall be a special type of mortgagor approved by the Commissioner which is organized:

(i) To construct or rehabilitate a multifamily project, and which has entered into a written agreement with a private nonprofit corporation, meeting the qualifications of subparagraph (1) of this paragraph, to sell the project (upon final endorsement) to the nonprofit corporation at a purchase price not to exceed the certified actual cost of the project pursuant to § 221.550.

(ii) To operate the project until the conveyance to the nonprofit mortgagor, subject to special controls and requirements of the Commissioner as to rents, charges, rates of return and method of operation.

(iii) To operate the project, in the event of failure to convey to a nonprofit mortgagor at final endorsement, or within such additional period as may be agreed to in writing by the Commissioner, as a limited distribution mortgagor subject to the supervision, controls and requirements prescribed by the Commissioner for such mortgagor.

(3) The rehabilitation sales mortgagor shall be a special type of nonprofit mortgagor which shall:

(i) Meet the qualifications of subparagraph (1) of this paragraph.

(ii) Undertake to purchase and rehabilitate deteriorating or substandard housing.

(iii) Under an agreement with the Commissioner, undertake to sell the rehabilitated housing to individuals or families meeting the income criteria for receiving rent supplement payments.

(b) Public mortgagors. A federal instrumentality, a state or political subdivision thereof, or an instrumentality of a state or of a political subdivision thereof, which certifies that it is not receiving financial assistance from the United States exclusively pursuant to the U.S. Housing Act of 1937 and which is acceptable to the Commissioner. Such a mortgagor shall be regulated or supervised as to rents, charges and methods of operation in such manner as, in the opinion of the Commissioner, will effectuate the purposes of this subpart.

(c) Limited distribution mortgagor. The mortgagor shall be a corporation restricted as to distributions of income by the laws of the State of its incorporation (or by the Commissioner) or it shall be a trust, partnership, association, individual, or other entity restricted by law or by the Commissioner as to distributions of income, formed exclusively for the purpose of providing housing, and regulated as to rents, charges, rate of return, and methods of operation in such form and manner as is satisfactory to the Commissioner to effectuate the purposes of this subpart.

(d) Cooperative and investor sponsor mortgagors. (1) The cooperative mortgagor shall be a nonprofit cooperative ownership housing corporation approved by the Commissioner which restricts permanent occupancy of the project to the members of the corporation and which requires membership eligibility and transfers of membership in a manner approved by the Commissioner.

(2) The investor-sponsor mortgagor shall be a special type of mortgagor approved by the Commissioner which is organized to:

(i) Construct or rehabilitate a multifamily project, and transfer the project to a cooperative mortgagor within two years from the date of completion;

(ii) Operate the project until two years from the date of completion or

until the conveyance to the cooperative mortgagor, whichever occurs sooner, subject to special controls and requirements of the Commissioner, including but not limited to, the disposition of net income;

(iii) Operate the project, in the event of failure to convey to a cooperative mortgagor within the two-year period as a limited distribution mortgagor subject to the controls and requirements of the Commissioner.

(3) Such a mortgagor will be regulated or restricted by the Commissioner as to rents or sales, charges, rate of return, and methods of operation in such manner as, in the opinion of the Commissioner, will effectuate the purposes of this subpart and protect the consumer interest.

(e) General mortgagors. Any mortgagor, approved by the Commissioner, not meeting the eligibility requirements of paragraphs (a) through (d) of this section which until the termination of all obligations of the Commissioner under the insurance contract and during such further period of time as the Commissioner shall be the owner, holder, or reinsurer of the mortgage, is regulated or restricted by the Commissioner as to rents or sales, charges, capital structure, rate of return, and methods of operation, in such manner as, in the opinion of the Commissioner, will effectuate the purposes of this subpart.

[26 F.R. 7474, Aug. 12, 1961, as amended at 26 F.R. 9316, Oct. 3, 1961; 29 F.R. 12633, Sept. 5, 1964; 29 F.R. 17895, Dec. 17, 1964; 32 F.R. 4280, Mar. 18, 1967; 32 F.R. 11526, Aug. 10, 1967]

§ 221.511

ELIGIBLE MORTGAGES
Mortgage form.

The mortgage shall be:

(a) Executed on a form approved by the Commissioner for use in the jurisdiction in which the property covered by the mortgage is situated, which form shall not be changed without the prior written approval of the Commissioner.

(b) In the case of cooperative and investor sponsor mortgagors, the mortgage shall provide that the mortgagor will not arrange for management of the property except in the manner and under an agreement approved by the mortgagee and the Commissioner in writing. § 221.512

gage.

Disbursement of the mort

The mortgagee shall be obligated, as a part of the mortgage transaction, to

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