Such mortgagor shall be regulated by the Commissioner with respect to capital structure, methods of operation, rate of return, user rates and charges, and the terms and conditions of any sale or transfer. This regulation by the Commissioner shall continue for the entire period of private or cooperative ownership or until the Commissioner is satisfied that adequate provision exists, through governmental regulation or other means, to protect the system users as to the methods of operation, rates, charges, and disposition of such system.

ELIGIBLE MORTGAGEES

§ 1000.35 Qualification of lenders.

The provisions of §§ 203.1 through 203.4 and 203.6 through 203.9 of this chapter shall govern the eligibility, qualifications and requirements of mortgagees under this subpart.

ELIGIBLE MORTGAGES

1000.40 Mortgage forms.

(a) Approval of forms. The mortgage shall be executed upon a form approved by the Commissioner for use in the jurisdiction where the project is located.

(b) Changes in form. No changes in the approved form shall be made without the prior written approval of the Commissioner.

§ 1000.42 Eligibility of property.

A mortgage to be eligible for insurance shall be on real estate held:

(a) In fee simple; or

(b) Under a lease for not less than 99 years which is renewable; or

(c) Under a lease having a term which is determined by the Commissioner as sufficient to cover the period for development of the project plus the period necessary to meet the leasehold eligibility requirements for obtaining the FHA financing of the dwelling units to be constructed upon completion of the project. § 1000.45 Mortgage lien.

The mortgagor shall certify at the time application is made for the final insured advance of mortgage proceeds, with respect to that portion of the mortgaged property not released from the lien of the mortgage, that:

(a) The mortgage is the first lien upon that portion of the project upon which the improvements (exclusive of those involving facilities intended for public use that are in public ownership) have been made or constructed.

(b) The property upon which the improvements have been made or constructed is covered by a mortgage which is free and clear of all liens other than the insured mortgage and such other liens as may be approved by the Commissioner; and

(c) There will not be outstanding any other unpaid obligations in connection with the mortgage transaction, the purchase of the mortgaged property, or the improvements which have been made or constructed, except obligations approved by the Commissioner.

§ 1000.47 Maximum mortgage maturity.

The mortgage shall have a maturity not to exceed 7 years from the date of initial endorsement or such longer maturity as the Commissioner deems reasonable in the case of a privately owned system for water or sewerage, and shall contain amortization or sinking fund provisions satisfactory to the Commissioner.

§ 1000.50 Maximum interest rate.

The mortgage may bear interest at such rate as may be agreed upon by the mortgagee and the mortgagor but in no case shall the interest rate exceed 54 percent per annum.

§ 1000.52 Maximum mortgage amount— dollar limitation.

A mortgage or the total principal obligation of all mortgages for any one project shall at no time exceed $10,000,000.

§ 1000.55 Maximum mortgage amount— loan-to-value limitation.

A mortgage shall involve a principal obligation not in excess of the lesser of the following:

(a) 75 percent of the Commissioner's estimated value of the property covered by the mortgage security as of the completion of the development to be financed with assistance under this part; or

(b) 50 percent of the Commissioner's estimated value of the land before development plus 90 percent of the Commissioner's estimated cost of such development.

In the event the mortgage is on a leasehold estate rather than a fee simple holding, the maximum mortgage amount based upon the limitations of this part is subject to reduction by an amount equal to the capitalized value of the ground rent.

§ 1000.60 Application of payments.

The mortgage shall contain a provision satisfactory to the Commissioner, setting forth the manner in which the mortgagee shall apply payments. No prepayment penalty will be permitted.

§ 1000.62 Standard for acceptability.

In order for a mortgage to be acceptable for insurance, the property or project shall represent a good mortgage insurance risk.

§ 1000.65 Zoning, deed or building restrictions.

The project when completed shall not violate any material zoning or deed restrictions applicable to the project site, and shall comply with all applicable building and other governmental regulations and requirements.

§ 1000.67 Issuance of bonds secured by trust indenture.

In the event that bonds or other obligations are to be issued as a part of the insured mortgage transaction, the form of bonds and the form of trust indenture shall be subject to the approval of the Commissioner, and shall be subject to all of the following conditions:

(a) The Trustee shall be an approved mortgagee authorized to act in a fiduciary capacity.

(b) The Trustee shall be the holder of record of the insured mortgage (represented by the trust indenture) and shall be authorized to act on behalf of the holders of the bonds or other obligations in all matters concerning the mortgage insurance contract.

(c) The holders of the bonds shall look solely to the Trustee for the benefits of the contract of mortgage insurance. The trust indenture shall expressly authorize the Commissioner to make payment of any insurance claim to the Trustee, without liability or accountability to the bondholders to see to the application of the mortgage insurance contract benefits.

(d) The bonds or other obligations shall be issued only to holders meeting one of the following qualifications:

(1) A mortgagee approved by the Commissioner.

(2) A pension or retirement fund or a profit-sharing plan, having lawful authority to acquire the bonds or other obligations, which fund is maintained and administered by a corporation or by a governmental agency or by a trustee or trustees.

(3) A charitable or nonprofit organization.

COMMITMENT TO INSURE

§ 1000.70 Issuance 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.

§ 1000.72 Types of commitment.

The commitment may provide for the insurance of advances during construction or for insurance upon completion. § 1000.73 Term of commitment.

If the commitment fee is paid as required, a commitment shall have a term which is determined as follows:

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

(b) 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.

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

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

§ 1000.75 Reopening of expired commitment.

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. If the reopening request is not received by the Commissioner within the required 90-day period, a new application, accompanied by an application fee, shall be submitted. If a commitment for an increased 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.

§ 1000.77 Extension of commitment.

Where the mortgagee has failed to take action within the period of time required in order to prevent the expiration of a commitment or in order to reopen an expired commitment, the Commissioner may extend such period and may retroactively reinstate or reopen such commitment.

INSURANCE OF ADVANCES

§ 1000.80 Building loan agreement.

Prior to the initial endorsement of the mortgage for insurance, the mortgagor and mortgagee shall execute a building loan agreement approved by the Commissioner setting forth the terms and conditions on which progress payments may be advanced during construction. § 1000.82 Assurance of completion.

(a) Assurance of completion satisfactory to the Commissioner shall be furnished in one of the following forms:

(1) A bond of a surety company satisfactory to the Commissioner on a form approved by the Commissioner.

The

bond shall be in the amount of 100 percent (or such lesser amount as approved by the Commissioner) of the cost of the improvements as estimated by the Commissioner.

(2) An escrow deposit with the mortgagee (or with a depository satisfactory to the mortgagee and the Commissioner) of cash or securities of, or fully guaranteed as to principal and interest by, the United States of America in such amount and under a completion assurance agreement acceptable to the Commissioner.

(b) The mortgagee may accept, in lieu of a cash deposit required by paragraph (a) (2) of this section, an unconditional irrevocable letter of credit issued to the mortgagee by a banking institution. In the event a demand under the letter of credit is not immediately met, the mortgagee shall forthwith provide cash equivalent to the undrawn balance thereunder.

§ 1000.85

SPECIAL REQUIREMENTS

Land development criteria. (a) The land shall be developed in accordance with a plan that:

(1) Is acceptable to the Commissioner as providing reasonable assurance that the land development will contribute to good living conditions in the area being developed;

(2) Is consistent with a comprehensive plan which covers, or with comprehensive planning being carried on for, the area in which the land is situated and which meets criteria set forth by the Commissioner.

(b) The Commissioner shall receive assurances satisfactory to him that the area being developed will:

(1) Have a sound economic base and a long economic life;

(2) Be characterized by sound land use patterns; and

(3) Include or be served by such shopping, school, recreational, transportation, and other facilities as the Commissioner deems adequate or necessary.

(c) The land development shall be undertaken and carried out pursuant to a schedule that will assure the use of such land for the purpose for which it is developed within the shortest reasonable period of time consistent with the objectives of sound and economic community growth or urban development. The schedule shall provide specific information as to the proposed period of time in which the sale or other use of the developed land shall take place, and in which construction of residential or other buildings shall commence on the developed land.

§ 1000.87 Equity requirements.

(a) Funds and finances-insured advances. If the commitment provides for insurance of advances during construction, the following requirements shall be met:

(1) The mortgagor shall deposit with the mortgagee, prior to initial endorsement, an amount deemed by the Commissioner to be sufficient (when added to the proceeds of the insured mortgage) to defray during the course of construction, payments for accrued taxes, hazard insurance premiums, and assessments required by the terms of the mortgage.

The

(2) The mortgagor shall deposit with the mortgagee, prior to initial endorsement, cash deemed by the Commissioner to be sufficient (when added to the proceeds of the insured mortgage) to assure completion of the project and to pay the initial service charge, the carrying charges, and the legal and organization expenses incident to the project. cash shall be held by the mortgagee under an appropriate agreement, approved by the Commissioner, requiring that prior to the advance of any mortgage money, all such cash be disbursed for work and material on the physical improvements, and for any other charges and expenses which are payable.

(3) All fees and charges to be paid by the mortgagor in connection with financing which are in excess of the initial service charge and which have been approved by the Commissioner shall be deposited with the mortgagee in cash, prior to initial endorsement, unless other arrangements acceptable to the Commissioner are made.

(b) Deposit and use of funds. Unless other arrangements acceptable to the Commissioner are made, the funds referred to in paragraph (a) of this section shall be deposited with and held by the mortgagee in a special account or by an acceptable depository, designated by the mortgagee, under an appropriate agreement approved by the Commissioner.

(c) Letter of credit. The mortgagee may accept, in lieu of a cash deposit required by paragraphs (a) (1) and (3) of this section, an unconditional irrevocable letter of credit issued to the mortgagee by a banking institution. In the event a demand under the letter of credit is not immediately met, the mortgagee shall forthwith provide cash equivalent to the undrawn balance thereunder. § 1000.90 Escrow for offsite utilities and streets.

(a) The Commissioner may require the deposit with the mortgagee or with

an acceptable trustee or escrow agent designated by the mortgagee, under an appropriate agreement, of such cash as may be required for the completion of offsite public utilities and streets.

(b) The mortgagee may accept, in lieu of a cash deposit required by paragraph (a) of this section, an unconditional irrevocable letter of credit issued to the mortgagee by a banking institution. In the event a demand under the letter of credit is not immediately met, the mortgagee shall forthwith provide cash equivalent to the undrawn balance thereunder. § 1000.92 Water and sewerage facilities.

The project after development shall be served by public systems for water supply and sewerage disposal consistent with other existing or prospective systems in the area. The Commissioner may, however, approve an adequate privately or cooperatively owned system which is consistent with other existing or prospective systems in the area and is regulated, in a manner acceptable to the Commissioner, with respect to user rates and charges, capital structure, methods of operation, rate of return, and conditions and terms of any sale or transfer.

Any contract, subcontract, or building loan agreement executed for the performance of construction of the project shall comply with all applicable standards and provisions of the Regulations of the Secretary of Labor, published in Title 29, Code of Federal Regulations, as Part 5 of Subtitle A thereof, and as amended from time to time. § 1000.97

Ineligible contractors.

No land development contract shall be entered into with a general contractor or a subcontractor if such contractor or subcontractor (or any firm, corporation, partnership or association in which such contractor or subcontractor has a substantial interest) is on the ineligible list of contractors or subcontractors established by the Commissioner or by the Comptroller General pursuant to the Regulations of the Secretary of Labor (29 CFR 5.6(b)).

Unless approved by the Commissioner, no advance under the mortgage shall be eligible for insurance after notification from the Commissioner that the general contractor or any subcontractor (or any firm, corporation, partnership, or association in which such contractor or subcontractor has a substantial interest) was, on the date the contract or subcontract was executed, on the ineligible list established by the Commissioner or by the Comptroller General pursuant to the provisions of the Regulations of the Secretary of Labor (29 CFR 5.6(b)).

§ 1000.102 Wage certificate.

No advance under the mortgage shall be eligible for insurance unless there is filed with the application for such advance a certificate as required by the Commissioner. The certificate shall state that the laborers and mechanics employed in the construction of the project have been paid not less than the wages prevailing in the locality for the corresponding classes of laborers and mechanics employed on construction of similar character. The prevailing wage determination shall be made by the Secretary of Labor prior to the beginning of construction and after the date of filing of the application for insurance.

(1) Disclose its relationship with the general contractor, including any collateral agreement, and with subcontractors and suppliers;

(2) Enter into a development contract the terms of which shall depend on whether or not there exists an identity of interest between the mortgagor and the contractor;

(3) Execute a certificate prior to each insured advance showing actual amounts disbursed prior to the initial endorsement of the mortgage for insurance or since the last insured advance; and

(4) Apply any excess of mortgage proceeds over the amounts specified in § 1000.132 to reduction of the outstanding balance of the principal of the mortgage, as and when directed by the Commissioner.

(b) The provisions of subparagraphs (1) and (2) of paragraph (a) of this section shall not apply where the mortgagor is the general contractor.

The form of contract between the mortgagor and the general contractor shall be in accordance with the following:

(a) Lump sum contract. If the Commissioner determines that neither the mortgagor nor any of the officers, directors, stockholders, partners or beneficiaries of the mortgagor have any interest in the general contractor, there may be used a lump sum form of contract providing for payment of a specified amount.

(b) Fixed fee contract. If the Commissioner determines that the mortgagor, its officers, directors, stockholders, partners or beneficiaries have any interest, financial or otherwise, in the general contractor, the form of contract shall provide for payment of the actual cost of land development not to exceed an upset price and may provide for payment of a fixed fee to the general contractor which shall not exceed a reasonable allowance as established by the Commissioner, in accordance with customary practices in the area.

§ 1000.115 Certificate as to subcontracts.

If the Commissioner determines that the mortgagor, its officers, directors, stockholders, partners or beneficiaries