(c) Be located in one of the urban renewal areas specified in § 220.5.

[36 FR 24573, Dec. 22, 1971, as amended at 49 FR 12697, Mar. 30, 1984]

identity of interest between the borrower and the contractor.

(d) Any agreement, undertaking, statement or certification required in connection with cost certification shall

A loan for the improvement of a structure which is used, or upon completion of the improvements will be used, as a dwelling for five-to-eleven families shall be subject to the provisions of paragraphs (a) through (c) of this section as follows:

(a) The lender shall submit with the application for insurance an agreement on a form prescribed by the Commissioner, executed by the borrower and the lender, in which:

(1) The borrower agrees to execute upon completion of the improvements a certificate of the actual cost of the improvements.

(2) The borrower and the lender agree that if the actual cost of the improvements is less than the amount authorized in the approval by the Direct Endorsement underwriter, the amount of the loan shall not exceed the actual cost of the improvements, and that the amount of the loan shall be further adjusted to the lowest $50 multiple where the amount is not in excess of $12,000 or adjusted to the lowest $100 multiple where the amount exceeds $12,000.

(b) No loan shall be insured unless in accordance with the agreement between the borrower and the lender.

(1) The required certification of actual cost is made by the borrower; and

(2) The amount of the loan is adjusted to reflect the actual cost of the improvements.

(c) The term actual cost of the improvements shall mean the cost to the borrower of the improvements after deducting the amount of any kickbacks, rebates, or trade discount received in connection with the improvements, and including:

(1) The amounts paid under any contract for the improvements, labor, materials, and for any other items of expense approved by the Commissioner; and

(2) A reasonable allowance for contractor's profit, in an amount approved by the Commissioner, where the Commissioner determines that there is an

made, presented and delivered for the purpose of influencing an official action of the Commissioner and may be relied upon as a true statement of the facts contained therein.

(e) Upon the Commissioner's approval of the borrower's certification, such certification shall be final and incontestable except for fraud or material misrepresentation on the part of the borrower.

or

(f) The borrower shall keep and maintain adequate records of all costs of any construction improvements other cost items not representing work under the general contract and shall require the builder to keep similar records and, upon request by the Commissioner, shall make available for examination such records, including any collateral agreements.

[36 FR 24573, Dec. 22, 1971, as amended at 57 FR 58350, Dec. 9, 1992]

§ 220.105 Use of proceeds.

(a) The proceeds of the loan shall be used only for the following purposes:

(1) To finance improvements that result in or are in connection with the conservation, repair, restoration or refurbishing of the basic livability or utility of an existing structure, including the property on which the structure is located, or in the conversion, alteration, enlargement, remodeling, or expansion of such structure, including a change in the living accommodations or the number of family dwelling units located therein.

(2) To pay that part of the cost of the construction or installation of sidewalks, curbs, gutters, street paving, street lights, sewers, or other public improvements, adjacent to or in the vicinity of the borrower's property, which is assessed against the borrower or for which he is otherwise legally liable as the property owner.

(b) No loan proceeds shall be used to finance individual equipment items except those relating to heating, ventilating or plumbing or those items determined by the Commissioner to be

necessary and incident to improvements as outlined in paragraph (a) of this section.

(c) The structure in connection with which the improvements are to be made shall:

(1) Constitute a structure which is used or will be used upon completion of the improvements, primarily for residential purposes by not more than eleven families; and

(2) Have been constructed not less than ten years prior to the date of the loan unless, as determined by the Commissioner, the proceeds of the loan are or will be used primarily for major structural improvements, or to correct defects which are not known at the time of the completion of the structure or which were caused by fire, flood, windstorm or other casualty.

[36 FR 24573, Dec. 22, 1971, as amended at 57 FR 58350, Dec. 9, 1992]

$220.106 Nature of borrower's ownership.

To be eligible for insurance, the property to be improved shall be owned by the borrower, or be leased by the borrower under a lease for not less than 99 years which is renewable, or be under a lease with an expiration date in excess of 10 years later than the maturity date of the loan.

$220.107 Certification as to outstanding indebtedness relating to the property.

The loan application shall be accompanied by a certificate by the borrower on a form prescribed by the Commissioner setting forth the total amount of outstanding indebtedness relating to the property.

§220.108 Acceptable risk.

The loan transaction shall, in the opinion of the Commissioner, constitute an acceptable risk.

WAIVERS

$220.248 Waivers.

The Secretary in any individual case may waive any requirement of this subpart not required by statute if the Secretary finds that application of such requirement would adversely affect achievement of the purposes of the

203.425 Finality of determination. 203.438 Mortgages on Indian land insured pursuant to section 248 of the National Housing Act.

203.439 Mortgages on Hawaiian home lands insured pursuant to section 247 of the National Housing Act.

203.439a Mortgages on property in Allegany Reservation of Seneca Nation of Indians authorized by section 203(q) of the National Housing Act.

(b) For the purposes of this subpart, all references in part 203 of this chapter to section 203 of the act shall be construed to refer to section 220 of the act, and all references to the Mutual Mortgage Insurance Fund shall be construed to refer to the General Insurance Fund. [36 FR 24573, Dec. 22, 1971, as amended at 42 FR 29304, June 8, 1977; 48 FR 28807, June 23, 1983; 51 FR 21874, June 16, 1986; 52 FR 8069, Mar. 16, 1987; 52 FR 28470, July 30, 1987; 52 FR 48203, Dec. 21, 1987; 53 FR 9869, Mar. 28, 1988; 55 FR 34808, Aug. 24, 1990]

$220.252 Forbearance of foreclosure

and assignment of mortgage.

All of the provisions of §§ 203.340 through 203.342, 203.350, 203.352 and 203.353 of this chapter shall apply to mortgages insured under this subpart, except that the provisions relating to forbearance of foreclosure, recasting of the mortgage and assignment of a defaulted mortgage, shall be applicable only to a mortgage covering a property having not more than four dwelling units.

$220.253 Substitute mortgagors.

(a) Selling mortgagor. The mortgagee may effect the release of a mortgagor from personal liability on the mortgage note only if it obtains the Commissioner's approval of a substitute mortgagor, as provided by this section.

(b) Purchasing mortgagor. (1) The Commissioner may approve a substitute mortgagor with respect to any mortgage insured under subpart A of this part, if the substitute mortgagor is to occupy the dwelling as a principal residence or a secondary residence (as these terms are defined in § 220.30(d)).

(2) The Commissioner may approve as a substitute mortgagor an eligible nonoccupant mortgagor (as defined in §220.30(d)) with respect to any mortgage insured under this part, only if the outstanding balance of the mort

gage does not exceed the Commissioner's estimate of:

(i) The replacement cost of the property as of the date the mortgage was originally accepted for insurance, or the date the substitute mortgagor is approved by the Commissioner, which ever is greater, in the case of a dwelling described in §220.30(a) (1) or (2); or (ii) The cost of repair or rehabilitation, plus the Commissioner's estimate of the replacement cost of the property as of either the date the mortgage was originally accepted for insurance, or the date the substitute mortgagor is approved by the Commissioner, whichever is greater, in the case of a dwelling described in § 220.30(a) (3) or (4).

(c) Applicability—current mortgagor. Paragraph (b) of this section applies to the Commissioner's approval of a substitute mortgagor, only if the mortgage executed by the original mortgagor met the conditions of § 203.258(c) of this chapter. (d)

Applicability—earlier mortgagor. The occupancy and similar requirements set forth in §203.258(d) of this chapter apply to mortgages insured under subpart A of this part.

(e) Mortgagees approved for participation in the Direct Endorsement program under §203.3 may, subject to limitations established by the Commissioner, themselves approve an appropriate substitute mortgagor under this section for mortgages which they own or service, and need not obtain further specific approval from the Commissioner.

(f) Definition. As used in this section, the term substitute mortgagor includes: (1) Persons who, upon the release by a mortgagee of a previous mortgagor from personal liability on the mortgage note, assume this liability and agree to pay the mortgage debts; and (2) persons who purchase without assuming liability on the mortgage note, or purchase where no release is given by the mortgagee to the previous mortgagor.

[55 FR 34808, Aug. 24, 1990, as amended at 57 FR 58351, Dec. 9, 1992]

§ 220.275 Method of paying insurance benefits.

If the application for insurance benefits is acceptable to the Commissioner,

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.

INSURED HOME IMPROVEMENT LOANS

$220.350 Cross-reference.

(a) All of the provisions of §§ 203.440 through 203.495 of this chapter covering insured home improvement loans under section 203(k) of the Act shall apply to home improvement loans on one-tofour family dwellings under section 220(h) of the Act, except as set out in paragraph (b).

(b) The provisions of §§ 203.473(a) shall not be applicable to home improvement loans on one-to-four family dwellings under section 220(h) of the Act.

[52 FR 1330, Jan. 13, 1987]

207.33 Eligibility of mortgages on trailer courts or parks for trailer coach mobile dwellings.

(b) For the purposes of this subpart all references in part 207 of this chapter to section 207 of the National Housing Act shall be deemed to refer to section 220 of the National Housing Act.

[36 FR 24573, Dec. 22, 1971, as amended at 40 FR 10177, Mar. 5, 1975]

$220.502 Location of property.

The mortgaged property must be located in:

(a) The area of an existing slum clearance and urban redevelopment project covered by a Federal-aid contract executed or a prior approval granted (pursuant to title I of the Housing Act of 1949, as amended), before the effective date of the Housing Act of 1954, or

(b) An urban renewal area (as defined in title I of the Housing Act of 1949, as amended) or

(c) The area of an urban renewal project assisted under section 111 of the Housing Act of 1949, as amended, providing for redevelopment or rehabilitation of urban areas made necessary as the result of a disaster, or

(d) An area in which a program of concentrated code enforcement activities is being carried out pursuant to section 117 of the Housing Act of 1949;

or

(e) An area in which concentrated housing, physical development, and public service activities are being or will be carried out in a coordinated manner, pursuant to a locally developed strategy for neighborhood improvement, conservation or preservation. The locally developed strategy shall:

(1) Provide for a combination of physical improvements, necessary public facilities and services, housing programs, private investment and citizen selfhelp activities appropriate to the needs of the area;

(2) Coordinate public and private development efforts;

(3) Provide sufficient resources to produce substantial long-term improvements in the area within a reasonable period of time, taking into ac

count the severity of the area's problems.

[36 FR 24573, Dec. 22, 1971, as amended at 45 FR 38356, June 6, 1980; 48 FR 35395, Aug. 4, 1983; 49 FR 11161, Mar. 26, 1984]

$220.503 Certificate by Secretary to Commissioner or Designation by Secretary.

(a) Urban renewal area. No mortgage may be insured in an area described in §220.502 (a), (b) or (c) until a redevelopment or urban renewal plan has been approved for the area by the governing body of the locality involved and by the Secretary of Housing and Urban Development, and the Secretary has certified to the Commissioner that:

(1) The redevelopment plan or the urban renewal plan conforms to a general plan for the locality as a whole, and

(2) There exists the necessary authority and financial capacity to assure the completion of such redevelopment or urban renewal plan, or

(3) There exists an urban renewal plan as required for projects assisted under section 111 of the Housing Act of 1949, as amended, which plan conforms to definite local objectives respecting appropriate land uses, improved traffic, public transportation, public utilities, recreational and community facilities and other public improvements, and there exists the necessary authority and financial capacity to insure completion of such urban renewal plan.

(b) Area with concentrated activities. No mortgage may be insured in an area described in §220.502(e) until the Secretary has designated the area as meeting the requirements of that section.

[48 FR 35395, Aug. 4, 1983, and 49 FR 11161, Mar. 26, 1984]

$220.504 Standards and conditions of acceptability.

The mortgaged property must meet such standards and conditions as the Commissioner shall prescribe to establish the acceptability of such property for mortgage insurance. These will include standards and conditions designed to restore the quality of the area to a condition which would justify mortgage insurance.

$220.505 Eligible mortgagors.

In order to be eligible under this subpart, the mortgagor shall be one of the following types:

(a) Private mortgagors. Any mortgagor approved by the Commissioner 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.

(b) Public mortgagors. A Federal or State instrumentality, a municipal corporate instrumentality of one or more States, or a limited dividend or redevelopment or housing corporation or other legal entity restricted by or under Federal or State laws or regulations of State banking or insurance departments as to rents, charges, capital structure, rate of return, or methods of operation.

(c) Mortgagors with projects assisted through the Low-Income Housing Tax Credit program or receiving other government assistance. Mortgagors with projects assisted through the Low-Income Housing Tax Credit program or receiving other government assistance (as defined in 24 CFR 12.30) may be regulated by the Commissioner as limited distribution mortgagors.

[36 FR 24573, Dec. 22, 1971, as amended at 56 FR 11050, Mar. 14, 1991]

$220.506 Development of property.

(a) Obligation of mortgagor to construct project. At the time the mortgage is insured, the mortgagor shall be obligated to construct and complete new housing accommodations on the mortgaged property or to rehabilitate existing housing accommodations thereon. The Commissioner may insure a mortgage on a completed project constructed pursuant to a commitment to insure upon completion.

(b) Minimum number of units. The project shall consist of not less than two rental dwelling units on one site and may be detached, semidetached, or row houses, or a multifamily structure. The site may consist of two or more