(1) Underwriting analysis. Upon the receipt of the mortgagee's application for insurance at the FHA insuring office, an underwriting analysis of the proposed loan is made by the technical staff. This includes all procedures and analyses after the recordation of the application until a rating is given to the proposed mortgage transaction and underwriting recommendation is made to the Director. Underwriting processing includes architectural analysis, cost estimation, valuation and mortgage credit analysis, rating the risks involved and the making of compliance inspections. Requirements and standards pertaining to real estate, are published in separate publications covering the following subjects. Subdivision Standards including Minimum Street Improvement Requirements; Minimum Property Requirements for Properties of One or Two Living Units; Minimum Property Requirements for Properties of Three or more Living Units; Minimum Requirements for Individual Water Supply and Sewage Disposal Systems, and may be obtained from any FHA insuring office or from the central office in Washington, D. C.

(2) Commitment for insurance. (i) Upon determination that the mortgagor and the property offered as security conforms with the standards and requirements prescribed by the Commissioner, a commitment for insurance is issued to the applicant mortgagee setting forth the terms and conditions under which the loan will be endorsed for insurance.

(ii) In those cases in which the commitment requires compliance inspections, the mortgagee will submit, at the proper time, Request for Compliance Inspection, FHA Form 2289. These forms may be obtained from the insuring office which issues the commitment. Compliance inspections are made for the benefit of the FHA to determine the acceptability of the construction under the FHA standards and requirements.

(3) Amendment after commitment. Request for the amendment of an outstanding commitment as to any of the terms thereof of the parties hereto, except as to increase in amount, may be filed with the insuring office having jurisdiction. Request for increase in amount may be filed with the insuring office having jurisdiction, but will require the issuance of a new commitment.

(4) Endorsement for insurance. Upon the return of the original commitment properly executed, together with the documents specified therein, the original credit instrument is endorsed for insurance by the execution of the endorsement panel, in the name of the Commissioner by an authorized agent. The original credit instrument is then returned to the mortgagee.

(5) Amendment after insurance-(i) Consent to substitution of mortgagor. A mortgagee desiring to release the present mortgagor from liability and accept a new mortgagor may request the Commissioner's consent. The request is made on FHA Form 2210 and is filed with the FHA insuring office having jurisdiction and accompnaied by Mortgagor's Statement on FHA Form 2004. After analysis and if acceptable the Commissioner gives his consent by executing and returning Form 2210 to the mortgagee.

(ii) Extension of term. Subject to legal maximum maturity limitation, the Commissioner may consent to increase of term upon written request by mortgagee to insuring office having jurisdiction.

(iii) Decrease of term. Commissioner's consent required if higher monthly payment results. Approval obtained by mortgagee making written request to insuring office having jurisdiction.

(iv) Release of part of mortgage property. Commissioner's consent required and may be obtained by making written request to insuring office having jurisdiction.

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(v) Reduction in interest rate. missioner's consent not required and no notice to FHA necessary.

(vi) Appeals. In the event the underwriting analysis determines that the Application for Mortgage Insurance should be rejected as not complying with the standards prescribed by the Commissioner, the applicant is notified on FHA Form 2026 "Report on Application" which sets forth the reasons for rejection. The mortgagee may request a reconsideration of the findings or resubmit the application for insurance when it considers that the conditions which caused the rejection have been remedied or changed.

(c) Prepayment in full prior to maturity. Notice to FHA required within 30 days from date of prepayment on FHA Form 2344, together with fees required by Administrative Regulations, if any. This form should be sent to FHA

central office in Washington, D. C. Copies can be obtained from any insuring office or the central office.

(d) Assignment of insured mortgage. Insured mortgages may be assigned or transferred only to a mortgagee approved by the Commissioner. Notice of the transfer, executed by the transferor and transferee, must be filed with the central office on Form 2080, copies of which can be obtained from any insuring office or the central office.

(e) Procedures after default. Notification of default must be filed with the central FHA office, Washington, D. C., in accordance with the requirements of the insurance contract. FHA Form 2068, Notice of Default Status, is used for this purpose and may be procured from any insuring office or from the central office in Washington, D. C.

(f) Claim for payment under insurance contract. (1) Upon default and completion of foreclosure, the mortgagee notifies the Commissioner by letter addressed to the General Counsel, Federal Housing Administration, Washington 25, D. C., of its intention to tender title and possession of the property to the Commissioner in exchange for debentures. Application for debentures is then filled on FHA Form 2205, copies of which are sent to the mortgagee from the office of the General Counsel, Washington, D. C., accompanied by full instructions. This form provides for submission of data required by the act and regulations in order to compute the amount of payment under the insurance contract.

(2) Upon approval of title and conveyance of title and delivery of possession of the property to the Commissioner, the amount to which the mortgagee is entitled is paid in debentures and a Certificate of Claim as provided in the act and regulations.

(g) Insured note lost or destroyed. When an insured note has been lost or destroyed, the Commissioner will endorse for insurance an identical substitute note upon the mortgagee holder giving an indemnity bond in the full face amount of the original note. A standard indemnity bond form is furnished for this purpose and is procurable from all FHA insuring offices.

(h) War Housing Insurance under section 603. The application procedure for this type of insurance is the same as the application procedure under section 203

as described above except that in case of refinancing of a section 603 mortgage, the certificate of refinancing is not required. FHA Form 2004 "Mortgagee's Application for Mortgage Insurance" is used in applying for War Housing Insurance.

§ 200.5 Rental housing mortgage insurance under section 207-(a) Application for mortgage insurance, Form 2013. This form is used by an approved mortgagee in applying for mortgage insurance covering a rental housing project and must be signed by the mortgagee and by the mortgagor. The purpose of this form is to permit the mortagee to specify the amount and terms of a mortgage loan it is willing to make and provides for the mortgagor to set forth, in a preliminary manner, financial structure and a brief description of the project to be built.

The application for mortgage insurance is divided into six (6) sections. Section I is the mortgagee's application where the mortgagee specifies the amount of loan which it is willing to make at a specified interest payable over a specified period of time. The mortgagee also indicates whether it is desired to repay the loan by level annuity payments or declining annuity payments. This section of the application is signed by the mortgagee. Section II is the mortgagor's application stating the amount of the mortgage which he wishes to insure and disclosing the names and addresses of the proposed mortgagors as well as the architect and attorney. Section III of the application consists of "Explanatory Notes" which describe the exhibits which are required to be submitted along with the application as well as the proper information to be supplied in completing the application. Section IV of the application provides for supplementary schedules concerning information with regard to sources of equity, information concerning land, information concerning cost of new utilities and extra foundations, information on cost of landscape construction, estimate of annual operating expenses. Section V sets forth the proposed financial set-up disclosing the necessary resources, estimated requirements for all improvements to the property including carrying charges, etc., estimated annual operating statement, and provides for space to list the accompanied exhibits. Section VI provides for the scheduling of the various unit rents

and is signed by the sponsor of the proposed project.

(1) Who may apply. Any mortgagee, approved by the Commissioner under the National Housing Act, may submit an application for mortgage insurance for a rental housing project under section 207.

(2) Who may be a sponsor or mortgagor. A private corporation, association, cooperative society which is a legal agent of the owner occupants, or trust, formed or created with the approval of the Commissioner. A model form of certificate of Incorporation is furnished to sponsors for their use in preparing a certificate of incorporation. This model form of certificate of incorporation is self-explanatory and is based on Maryland law and may be altered only so as to comply with the corporate law of the jurisdiction in which the project is to be located or so as to be converted into a Trust Agreement.

(3) On what form. Application for mortgage insurance must be submitted on FHA Form 2013 as described above. This form may be obtained from any FHA insuring office.

(4) Where filed. The Application for Mortgage Insurance is filed with the insuring office having jurisdiction over the territory in which the proposed project is to be located.

(5) What supporting documents are required. The required exhibits, which are to be submitted along with the Application for Mortgage Insurance, include a legal description of the site by which it can be identified; a statement of ownership which shows that the site is either owned by the sponsors or that they have valid option to buy the site; photographs of the proposed site and its surrounding neighborhood, together with sufficient descriptive matter typed on the photographs to indicate from which point and direction the photographs were taken; a city map marked to indicate the proposed site, schools, churches, shopping and business districts-industrial and commercial, and recreational centers, main traffic arteries showing available means of transportation to and from the proposed site to such centers; if a zoning map and zoning ordinances are available, they must be furnished. If they are not available, such information shall be indicated on the topographical survey of the proposed site. In either event the sponsors must submit

definite assurance that the proposal will not violate existing zoning restrictions; Form FH-21a which is to be submitted to the Labor Department for determination of prevailing wages to be paid in the construction of the proposed project; detailed personal financial statements of each sponsor submitted on FHA Form 2417; architectural exhibits including a topographical survey of the site and preliminary drawings and outline specifications sufficient to show design planning, material and construction in sufficient detail for an accurate cost estimate.

(b) Commissioner determination. After submission of FHA Form 2013, application for mortgage insurance, the application and supporting exhibits are processed in order to determine that the project is economically sound, whether or not the architectural planning and specifications meet with the requirements established by the Commissioner for the construction of a rental housing project, whether the site for the proposed project is desirable from the standpoint of need for housing and in line with the present residential developments within the particular area. The proposed project must also meet the requirements set forth in the National Housing Act and the Administrative Rules Regulations.

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(1) Approval of application for mortgage insurance. Upon approval of the application for mortgage insurance a commitment is issued to the mortgagee in accordance with the mortgagee's desire that this commitment will be in one of two forms, either on FHA Form 2432, commitment for insurance, which provides for the insurance of construction advances or on FHA Form 2453, commitment to insure upon completion, which does not provide for construction advances, but provides that the FHA will insure the loan upon completion in the event the mortgagor complies with the terms of the commitment.

(2) Disapproval of application for mortgage insurance. In the event the application for mortgage insurance is rejected, the applicant will be advised, together with the reason therefor. A rejected application may be reconsidered upon written request to the Insuring Office which rejected the application.

(c) Commitment for insurance, Form 2432. This is the commitment form which is used after favorable underwriting determinations have been made and

the commitment for insurance is issued to the mortgagee, specifying that the Administration will insure construction advances provided the mortgagee agrees to the terms and conditions of the commitment. The commitment is self-explanatory and is signed by an authorized agent.

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(1) Assignment of commitment. case the mortgagee desire to assign the commitment, such assignment must be to an approved mortgagee, the assignor will be required to release its rights in writing and the assignee to state the acceptance in writing.

(d) Closing the mortgage and execution of the insurance contract. In accordance with the Regulations, transfer or pledge of the mortgage will not be permitted except with the prior written approval of the Commissioner and not until full disbursements of the mortgage proceeds.

(1) Commencement of construction. Construction may not commence prior to formal closing of the transaction and recordation of the insured mortgage. Commencement of construction is defined as the commencing of excavation.

(2) The credit instrument. The credit instrument will be on Federal Housing Administration printed form.

(3) The mortgage form. The mortgage will be on Federal Housing Administration printed form and must not be altered except to provide for such additional charges as may be agreed upon between the mortgagor and mortgagee in the event of prepayment in excess of 15 percent of the original principal amount of the mortgage in any one calendar year.

(4) Title evidence. Marketable title must be vested in the mortgagor as of the date the mortgage is filed for record, and the mortgagee must furnish a policy of title insurance. In the event the mortgagee is unable to furnish such policy for reasons satisfactory to the Commissioner, evidence of title may be in the form of (i) abstract of title, and legal opinion from an attorney experienced in the examination of titles or, (ii) Torrens certificate, or (iii) evidence of title conforming to the standards of a supervising branch of the Federal Government or of any State or Territory.

(5) Survey instructions and certiflcate, Form 2457. This form must be furnished at closing and a lot-line of the

survey of the property to be covered by the insured mortgage. This form will be required to be submitted with surveys made during the course of construction. This form is self-explanatory and is prepared by a civil engineer or surveyor.

(6) Minutes of meetings of stockholders and directors of mortgagor. The mortgagor is required to submit at closing copies of the minutes of all meetings of its corporate bodies, particularly of its organization meeting and the meeting authorizing the insured mortgage transaction, held prior to closing.

(7) Bylaws of the mortgagor corporation. The form of bylaws is not prescribed but must contain provisions that the mortgagor may not alter the bylaws subsequent to their adoption, except with the consent of the holders of preferred stock and that must contain no provision which is in conflict with the certificate of incorporation, the rights of the Commissioner, or any of the closing instruments.

(8) Stock subscription agreements. The mortgagor must present at closing certified copies of stock subscription agreements.

(9) Evidence of Commissioner's beneficial interest in mortgagor. The Commissioner's control over the mortgagor corporation will be exercised by preferred stock, or other special form of stock, or in the case of a Trust, other evidence of beneficial interest. Upon receipt thereof the proper representative of the mortgagor will execute Standard Form 1034, Public Voucher for Purchases and Services other Than Personal. The price to be paid for such stock or beneficial interest will be $100.

(10) Building loan agreement, Form 2441. Building Loan Agreement shall be entered into between the "borrower" "lender" setting forth the terms and conditions under which the mortgage proceeds will be advanced and insured during the course of construction. To this agreement there must be attached a legal description of land to be covered by the insured mortgage and a copy of the Trade Payment Breakdown.

(11) Construction contract. The owner and contractor will be required to execute Form 2442, "Construction Contract-Lump Sum", which transaction covers scope of work, time of completion, contract, sum, schedule of payments, cessation of work, contract documents,

waiver of liens, receipt and release of liens and assurance of completion. The construction contract must have attached to it a copy of the Trade Payment Breakdown.

(12) Architect's contract. There is no Federal Housing Administration printed form for the architect's contract. However, the owner and the architect are required to enter into a contract using the standard American Institute of Architects form. The architect's total cash fee shall not exceed the cash available for such fee.

(13) Assurance of completion. Assurance of completion of the project shall be either (i) standard American Institute of Architects construction bond; or (ii) Contract Bond-Dual Obligee, Form 2452; or (iii) escrow of cash or securities. These bonds are performance bonds and guarantee performance of the construction contract as written only to the extent of damages not in excess of the penal sum stated in the bonds. The bonds carry direct liability not only to the obligee named but also to the contractors and materialmen subject to the priority of the named obligees.

(a) The American Institute of Architects bond must be in a penal sum not less than 10 percent of the construction contract and must include the mortgagee as a co-obligee.

(b) The Contract Bond-Dual Obligee, Form 2452 must be in a penal sum not less than 10 percent of the construction contract and must include the mortgagee as co-obligee.

(c) The Completion Assurance Agreement, Form 2450, is in the form of an escrow deposit and such escrow must be an amount not less than 10 percent of the construction contract, and the escrow must consist of cash or securities of or fully guaranteed as to principal and interest by the United States of America. This agreement must be executed by the mortgagee, the mortgagor and the contractor. The form requires that there be retained in the escrow account for a period of at least one year subsequent to completion of project an amount equal to not less than 21⁄2 percent of the total amount of the construction contract as a guarantee against latent defects, faulty workmanship and material.

laws and regulations will not be violated by the proposed project.

(15) Building permits. The mortgagor must submit at closing satisfactory evidence that the public authorities with jurisdiction have granted the necessary building permit.

(16) Assurance of installation and completion of offsite facilities. The Commissioner may require an escrow deposit with the mortgagee or with an acceptable trustee or an escrow agent designated by the mortgagee of such cash as may be necessary for the completion of offsite facilities, such as public utilities, streets, sidewalks, curbs, gutters and landscaping offsite. In lieu of the requirements of a cash escrow, other forms of assurance of installation and completion of offsite facilities, will be acceptable.

(i) Assurance from public authorities or public utility companies that the required offsite facilities will be installed and completed at the time of completion of the project and without cost to the mortgagor.

(ii) A contract by the principal sponsor or sponsors collectively and individually, and a contractor satisfactory to the Administration assuring the completion and installation of offsite facilities without cost to the mortgagor.

(iii) A cash escrow in an amount equal to the Federal Housing Administration's estimate of cost of such offsite facilities and such escrow will be deposited with the mortgagee or under the control of the mortgagee with a depository satisfactory to the Administration and the mortgagee. Such escrow agreement will be prepared on Form 2446, Escrow Agreement for Offsite Facilities.

(iv) Regardless of the form of assurance of completion it must require installation and completion of offsite facilities in accordance with satisfactory drawings and specifications, if necessary, and without cost to or assessment against the mortgagor.