noncontiguous parcels of land whenever the Commissioner shall have determined that the parcels are (1) so situated as to comprise a readily marketable real estate entity, and (2) within an area small enough to allow convenient and efficient management.

(c) Compliance with governmental regulations. The property, including improvements, shall comply with any material zoning or deed restrictions applicable to the project site and with all applicable building and other governmental regulations.

(d) Property facilities. The project shall be predominantly residential. It may include such nondwelling facilities as the Commissioner determines will contribute to the economic feasibility of the project and will be desirable and consistent with the urban renewal plan or, where appropriate, with the locally developed strategy for neighborhood improvement, conservation, or preservation. In approving such facilities, the Commissioner shall give due consideration to the possible effect of the project on other business enterprises in the community.

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

§220.506a Smoke detectors.

(a) Performance requirement. After October 30, 1992, each dwelling unit must include at least one battery-operated or hard-wired smoke detector, in proper working condition, on each level of the unit. If the unit is occupied by hearing-impaired persons, smoke detectors must have an alarm system, designed for hearing-impaired persons, in each bedroom occupied by a hearingimpaired person.

(b) Acceptability criteria. The smoke detector must be located, to the extent practicable, in a hallway adjacent to a bedroom, unless the unit is occupied by a hearing-impaired person, in which case each bedroom occupied by a hearing-impaired person must have an alarm system connected to the smoke detector installed in the hallway. [57 FR 33850, July 30, 1992]

§ 220.507 Maximum mortgage amounts.

(a) Dollar limitation-in general. A mortgage may involve a principal obligation not in excess of the following:

(1) For such part of the property or project attributable to dwelling use (excluding exterior land improvements, as defined by the Commissioner), an amount per family unit depending on the number of bedrooms, which may be:

(1) $30,420 without a bedroom. (ii) $33,696 with one bedroom. (iii) $40,248 with two bedrooms. (iv) $49,608 with three bedrooms. (v) $59,160 with four or more bed

rooms.

(2) Where the project involves the rehabilitation of not more than five family units, the mortgage amount per family unit designated in paragraph (a)(1) of this section may be increased by 25 percent, as follows:

(1) $50,310 for a unit with two bed

rooms.

(ii) $62,010 for a unit with three bed

rooms.

(iii) $73,950 for a unit with four or more bedrooms.

(b) Increased mortgage amount-elevator type structure.

(1) In order to compensate for the higher costs incident to construction of elevator type structures of sound standards of construction and design, the Commissioner may increase the dollar amount limitation per family unit as provided in paragraph (a)(2) of this section, to not to exceed: (i) $35,100 without a bedroom. (ii) $39,312 with one bedroom. (iii) $48,204 with two bedrooms. (iv) $60,372 with three bedrooms. (v) $68,262 with four or more bedrooms.

(2) With respect to any elevator type project involving the rehabilitation of not more than five family units, the dollar amount per family unit, as provided in paragraph (b)(1) of this section may be increased by 25 percent, as follows:

(i) $60,255 for a unit with two bedrooms.

(ii) $75,465 for a unit with three bedrooms.

(iii) $85,328 for a unit with four or more bedrooms.

(c) Increased mortgage amounts—highcost areas. (1) The Commissioner may increase any of the dollar amount limitations in paragraphs (a) and (b) of this section

(i) By not to exceed 110 percent in any geographical area in which the Commissioner finds that cost levels so require and

(ii) By not to exceed 140 percent where the Commissioner determines it necessary on a project-by-project basis. In no case, however, may any such increase exceed 90 percent, where the Commissioner determines that there is involved a mortgage purchased or to be purchased by the Government National Mortgage Association (GNMA) in implementing its Special Assistance Functions under section 305 of the National Housing Act (as section 305 existed immediately before its repeal on November 30, 1983).

(2) If the Commissioner finds that because of high costs in Alaska, Guam, Hawaii, or the Virgin Islands it is not feasible to construct dwellings without the sacrifice of sound standards of construction, design, and livability within the limitations of maximum mortgage amounts provided in this section, the principal obligation of mortgages may be increased in such amounts as may be necessary to compensate for such costs, but not to exceed in any event the maximum, including high cost area increases, if any, otherwise applicable by more than one-half thereof.

(d) Adjusted mortgage amount-rehabilitation projects. A mortgage having a principal amount computed in compliance with the applicable provisions of paragraphs (a) through (c) of this section, and which involves a project to be repaired or rehabilitated, shall be subject to the following additional limitations:

(1) Property held in fee. If the mortgagor is the fee simple owner of the project, the maximum mortgage amount shall not exceed 100 percent of the Commissioner's estimate of the cost of the proposed repairs or rehabilitation; or

(2) Property subject to existing mortgage. If the mortgagor owns the project subject to an outstanding indebtedness that is to be refinanced with part of the insured mortgage, the maximum

mortgage amount shall not exceed 90 percent of:

(1) The Commissioner's estimate of the cost of the repair or rehabilitation; and

(ii) The Commissioner's estimate of the value of the property before repair or rehabilitation; or

(3) Property to be acquired. If the project is to be acquired by the mortgagor and the purchase price is to be financed with a part of the insured mortgage, the maximum mortgage amount shall not exceed 90 percent of: (1) The Commissioner's estimate of the cost of the repair or rehabilitation and (ii) the actual purchase price of the land and improvements, but not in excess of the Commissioner's estimate of the fair market value of such land and improvements prior to the repair or rehabilitation.

The dollar limitation set forth in this section is in addition to the loan-tovalue limitation as set forth in $220.508.

(e) Loans to cover 2-year operating loss (1) Operating loss determination. When the Commissioner determines that an operating loss has occurred during the first 2 years following completion of the project, he may, in his discretion, accept for insurance under this part, a loan to cover such loss. For the purposes of this section, an operating loss shall occur when the Commissioner determines that the total of the taxes, interest on the mortgage debt, mortgage insurance premiums, hazard insurance premiums, and the expense of maintenance and operation of the project (excluding depreciation) exceeds the project income.

(2) Security instrument. The loan shall be secured by an instrument in a form approved by the Commissioner for use in the jurisdiction in which the project is located.

(3) Interest rate. The loan may bear interest at such rate as may be agreed upon by the mortgagee and the mortgagor. Interest shall be payable in monthly installments on the principal then outstanding.

(4) Maturity. The loan shall be limited to a term not exceeding the unexpired term of the original mortgage.

(f) In addition to the insurance of loans to cover two-year operating losses under paragraph (e) of this section, the Commissioner may also insure any operating loss loan that meets the following conditions:

(1) The existing project mortgage:

(i) Shall have been insured by the Commissioner at any time before or after the date of enactment of the Housing and Community Development Act of 1987;

(ii) Shall cover any property, other than a property upon which there is located a 1- to 4-family dwelling; and

(iii) Shall not cover a subsidized project. For purposes of this paragraph (f)(1)(iii), subsidized projects are:

(A) Projects insured under section 236.

(B) Projects insured under the section 221(d)(3) Below Market Interest Rate (BMIR) program.

(C) Insured projects with Rent Supplement contracts.

(D) Insured projects with Rental Assistance Payments (RAP).

(E) Insured projects with projectbased section 8 assistance (e.g., new/sub rehab, mod rehab, project-based certificates, LMSA, Property Disposition).

(2) The principal amount of the loan shall not exceed the lesser of:

(i) 80 percent of the unreimbursed cash contributions made on or after March 18, 1987, by the project owner for the use of the project, to cover operating losses as defined in paragraph (e) of this section incurred during any period of consecutive months (not exceeding 24 months) in the first 10 years after the date of completion of the project, as determined by the Commissioner; or (ii) An amount which, when added to the outstanding indebtedness relating to the property, does not exceed the maximum amount insurable under section 220 of the Act.

(3) The loan shall be made within 10 years after the end of the period of consecutive months referred to in paragraph (f)(2) of this section.

(4) The project shall meet all applicable underwriting and other requirements of the Commissioner at the time the loan is to be made.

(5) Any loan insured under this paragraph (f) shall:

(i) Bear interest at a rate agreed upon by the mortgagor and mortgagee; (ii) Be secured in such manner as the Commissioner shall require;

(iii) Be limited to a term not exceeding the unexpired term of the original mortgage; and

(iv) Be insured under the same part of this chapter as the original mortgage.

(6) The Commissioner may provide insurance in accordance with §220.507(e) or under this paragraph (f), or under both paragraphs (e) and (f) of this section, in connection with an existing project mortgage, except that the Commissioner may not provide insurance under both paragraphs (e) and (f) of this section in connection with the same period of months referred to in paragraph (f)(2) of this section.

(7) Where the Commissioner has already provided insurance under §220.507(e), no more than one additional loan may be insured under this paragraph (f). Where no previous insurance has been provided under §220.507(e), a maximum of two loans may be insured under this paragraph (f).

[36 FR 24573, Dec. 22, 1971, as amended at 41 FR 41880, Sept. 23, 1976; 48 FR 16669, Apr. 19, 1983; 49 FR 12697, Mar. 30, 1984; 49 FR 19458, May 8, 1984; 53 FR 8883, Mar. 18, 1988; 56 FR 18949, Apr. 24, 1991; 58 FR 16775, Mar. 31, 1993; 58 FR 43075, Aug. 13, 1993]

$220.508 Maximum

mortgage amount-loan-to-value limitation.

In addition to meeting the dollar limitation set forth in §220.507, the mortgage shall be in an amount not to exceed:

(a) Approved new construction. 90 percent of the Commissioner's estimate of the replacement cost of the property or project when the proposed improvements are completed, if the project is approved for mortgage insurance prior to the beginning of construction. The replacement cost of the property or project may include the land, the proposed physical improvements, utilities within the boundaries of the property or project, architect's fees, taxes, interest during construction, and other miscellaneous charges incident to construction and approved by the Commissioner; and shall include an allownace for builder's and sponsor's profit and

risk to be determined by totaling the foregoing items, with the exception of the land, and apply the percentage or percentages specified in § 220.513.

(b) Nonapproved new construction. 90 percent of the Commissioner's estimate of the value of the property or project when the proposed improvements are completed, if the project is under construction and was not approved for mortgage insurance prior to the beginning of construction.

(c) Repair and rehabilitation. 90 percent of the sum of the estimated cost of repair and rehabilitation and the Commissioner's estimate of the value of the property or project before repair and rehabilitation.

(d) [Reserved]

(e) Limitations on purchase from local public agency. If the mortgage involves the financing of the purchase of property which has been rehabilitated by a local public agency with federal assistance pursuant to section 110(c)(8) of the Housing Act of 1949, the mortgage shall not exceed the lesser of the following amounts:

(1) 90 percent of the Commissioner's estimate of the appraised value of the property, as of the date the mortgage is accepted for insurance.

(2) 90 percent of the actual cost of acquisition, as approved by the Commissioner.

In the event the mortgage is secured by a leasehold estate rather than a fee simple estate, the value or replacement cost of the property described in the mortgage shall be the value or replacement cost of the leasehold estate (as determined by the Commissioner) which shall in all cases be less than the value or replacement cost of the property in fee simple.

[41 FR 11286, Mar. 18, 1976]

$220.511 Supervision of mortgagors.

(a) All of the provisions of § 207.19 of this chapter apply, except that: (1) §207.19(e) shall not apply, except as specifically referenced in this section; and (2) in the case of a mortgage covering

property on which there is located a dwelling or dwellings designed principally for residential use for two to 11 families, §207.19(d), relating to labor standards and prevailing wage requirements, shall not apply.

(b) Except as otherwise provided in paragraphs (c), (d), and (e) of this section, the mortgagor shall determine the charges for accommodations (rents), facilities, and services offered by the project.

(c) (1) For units occupied by tenants assisted under the programs referred to in paragraphs (c)(2) and (c)(3) of this section, the mortgagor may charge for facilities and services only as the Housing Assistance Payments (HAP) contract, applicable regulations, and

HUD's administrative instructions permit. The mortgagor may not impose lesser charges for facilities or services on unassisted tenants than those imposed on assisted tenants.

(2) Rent adjustments for units occupied by tenants assisted under a Section 8 HAP contract part 880 (Section 8 Housing Assistance Payments Program for New Construction), part 881 (Section 8 Housing Assistance Payments Program for Substantial Rehabilitation), or part 883 (Section 8 Housing Assistance Payments Program-State Housing Agencies) of this title shall be determined in accordance with the HAP contract, applicable regulations, and HUD's administrative instructions, and shall not, without the prior approval of the Commissioner, exceed rents charged for comparable, unassisted units in the project.

(3) Rent adjustments for projects with units assisted under part 886 of this title (Section 8 Housing Assistance Payments Program-Special Allocations) shall be determined under §207.19(e)(2)(ii)(A) of this chapter, or the mortgagor may, with the prior approval of the Commissioner, determine the rents, except that the rents for units occupied by assisted tenants shall be determined in accordance with the HAP Contract, applicable regulations, and HUD's administrative instructions.

(4) The Commissioner will approve rents for units in a project not occupied by tenants receiving Section 8 assistance if the mortgagor and the Com

missioner determine that such approval is necessary for the project to comply with the requirements of the Internal Revenue Code or State law. If such a determination is made, the Commissioner will approve rents in the amount provided in §207.19(e)(2)(ii) (A) or (B) of this chapter, at the option of the mortgagor.

(5) The Commissioner will approve rental adjustments, in the amount provided in §207.19(e)(2)(ii) (A) or (B) of this chapter, at the election of the mortgagor, if the Commissioner determines that the following conditions are applicable:

(i) The firm commitment to insure the mortgage under this part was issued before June 1, 1983;

(ii) At the time that the mortgagor (or its predecessor in title) (A) obtained a firm commitment to insure the mortgage under this part, or (B) acquired title to the project subject to a mortgage insured under this part, the project would be (or would become upon completion) subject to regulation under a State or local rent control law, but for an exclusion contained in the State or local law based upon regulation of the project rents by the Commissioner; and

(iii) The exclusion continues in effect, so that authorizing the mortgagor to determine rents would have the effect of subjecting the project to regulation under the State or local rent control law.

(d) (1) The Commissioner will regulate, as provided in paragraph (d)(2) of this section, the charges that a mortgagor may make for accommodations (rents), facilities, or services offered by a project insured under this part, if:

(i) As of December 1, 1987, the mortgagor and the Commissioner had not executed (or the mortgagor had not filed a written request with the Commissioner to enter into) an amendment to the regulatory agreement to the project, under which the mortgagor could elect to determine:

(A) The maximum charges for accommodations (rents), facilities, and services offered by the project under paragraph (b) of this section for mortgages insured pursuant to a firm commitment to insure issued before June 1, 1983.

(B) The maximum project rents on the basis of the alternative formula contained in paragraph (c)(3) of this section for mortgages insured before July 21, 1986, where the project contained units assisted under 24 CFR part 886 (Section 8 Housing Assistance Payments Program, Special Allocations).

(ii) (A) As of December 1, 1987, the project was receiving assistance under a Section 8 Housing Assistance Payments (HAP) Contract under part 880 (Section 8 Housing Assistance Payments Program for New Construction), part 881 (Section 8 Housing Assistance Payment Program for Substantial Rehabilitation), part 882, subparts D and E (Section 8 Housing Assistance Payments Program for Moderate Rehabilitation), part 883 (Section 8 Housing Assistance Payments Program-State Housing Agencies), or part 886 (Section 8 Housing Assistance Payments Program-Special Allocations); or

(B) Not less than 50 percent of the units in the project are occupied by low-income families (as defined in 24 CFR 813.102), based upon tenant income data supplied to the Commissioner by the project owner as part of a submission to amend the regulatory agreement to decontrol project rentals under paragraph (b) of the section or to use the alternative formula for determining project rentals under paragraph (c)(3) of this section.

(2) For projects that meet the criteria in paragraph (d)(1) of this section, the mortgagor may make no charges for the accommodations (rents), facilities, or services offered by the project in excess of those that the Commissioner approve in writing before the project opened for rental. In approving these charges and later rent adjustments, the Commissioner will give consideration to providing for rental income necessary to maintain the economic soundness of the project and a reasonable return on investment, consistent with reasonable rents to tenants. The Commissioner will approved these charges and later rent adjustments on the same basis and in the same manner as they were approved immediately before June 1983, except that mortgagors may use the forwardbased budgeting provision in 24 CFR