Sec. 05.06.01.08. Eligible Loans-----Generally

A. To qualify as an eligible loan for a project, a loan shall meet the general terms in B-----J of this regulation.

B. Eligible Lender. The loan shall be originated by a lender who has been determined eligible under Regulation .06 of this chapter.

C. First Lien. The loan shall be secured by a first lien upon the property. The loan shall be evidenced and secured using such documentation as is approved by the Office of the Attorney General, as counsel to the Fund.

D. Insured Loan-to-Value Ratio.

(1) The maximum loan-to-value ratio of a loan insured by the Fund may not exceed 90 percent of the property's appraised value as of completion of the project, except as provided in §D(2)-----(5) of this regulation.

(2) Notwithstanding the maximum insured loan-to-value ratio set forth in §D(1) of this regulation, 15 percent of the multifamily reserve may be used to back the outstanding principal of loans which have a maximum loan-to-value ratio of between 90 and 100 percent if the loan qualifies under §D(3), (4), or (5) of this regulation.

(3) The permitted loan-to-value ratio of an insured project may be over 90 percent if:

(a) A materially significant number of the units in the project are subsidized by federal rent subsidies and the rent subsidy contract extends to or beyond the time when the project is expected to achieve a 90 percent loan-to-value ratio; or

(b) The first 10 percent of the insured loss is covered by a:

(i) Governmental agency other than the Fund,

(ii) Financial institution acceptable to the Fund, or

(iii) Letter of credit from a financial institution acceptable to the Fund; or

(c) The loan being insured is a refinancing of an existing Fund-insured project and the reinsurance or continuation of insurance is essential to bring the loan current or otherwise avoid a claim to the Fund.

(4) A loan may be insured with a loan-to-value ratio up to 100 percent in order to achieve the public purposes of the Fund, if the:

(a) Project meets all other underwriting standards of the Fund; and

(b) Secretary has executed a determination of exceptional public purpose.

(5) The permitted loan-to-value ratio for insurance of a permanent loan for a project with an operating history, but not previously insured by the Fund, may be up to 100 percent of the property's appraised value if the project satisfies the following criteria:

(a) The loan is secured by a completed and occupied project;

(b) The project has a minimum of 5 years' operating history and has positive cash flow for a minimum of 3 years immediately before the application for insurance;

(c) The project has no greater than 5 percent annual average vacancy rate during the 3 years immediately before the application for insurance;

(d) The project has been assessed by an independent construction analyst or building engineer and requires no major systems or structural rehabilitation; and

(e) The borrower will not be receiving any cash or other return on equity from the project at the time the loan is insured.

E. Interest. The loan shall bear interest at the rate agreed upon by the insured lender and the borrower and acceptable to the Fund.

F. Proceeds. The proceeds of an insured loan shall be:

(1) Used for the financing or refinancing of acquisition, construction, or rehabilitation of a multifamily project; and

(2) Evidenced by a promissory note and secured by a mortgage.

G. Amortization.

(1) Permanent loans shall contain amortization provisions satisfactory to the Fund for the complete amortization of the loan in monthly installments.

(2) The Fund may not insure a permanent loan that comes due before the expiration of its full term of years, which loan may be otherwise known as a balloon loan.

H. Loan Term. The Fund may insure a permanent loan for a period of up to 40 years.

I. Transfer of Property Insured. The loan shall provide that any transfer of the property, except by operation of law, shall require prior approval of the Fund for the insurance to remain in effect. The Fund's coverage will not be impaired by reason of a transfer in violation of covenants of the mortgage, unless the insured lender had actual advance knowledge of the transfer and is considered to have consented to it.

J. Multiple Insured Loans. The Fund may insure more than one loan on any project if all insured loans, in the aggregate, comply with these regulations, including without limitation:

(1) The aggregated loans do not exceed the maximum loan-to-value ratio in §D of this regulation;

(2) The aggregated loans are all to be secured equably by a first lien deed of trust;

(3) If the loans are originated by different lenders, each lender has executed an intercreditor agreement in form and substance acceptable to the Fund; and

(4) The aggregated loans do not exceed the maximum insured loan requirements of Regulation .09 of this chapter.