Sec. 05.06.02.03. Risks Insured

A. The Fund may insure bridge loans to the extent of defaults on the bridge loan, including failure to make payments on the bridge loan, by the borrower which arise when an investor fails to make the capital contributions required to make timely payments on the bridge loan by reason of:

(1) A direct reduction or elimination of tax credits due to a change in the provision of the Internal Revenue Code authorizing the credit, issuance of regulations under that provision, or a ruling interpreting that provision. A reduction in the amount of the tax credit shall only be insured to the extent of the reduction.

(2) The borrower's failure to qualify for low-income housing credits because it failed, for reasons other than failure to complete construction in the time anticipated at loan closing, to rent a sufficient number of units in the project to qualified tenants with low incomes.

(3) The borrower's failure to complete construction or rehabilitation of a project in the time anticipated at closing of the bridge loan. Under most circumstances the Fund will require the bridge loan lender to retain the construction risk, but may insure some construction risk under the following circumstances:

(a) The Fund may insure construction risk in an amount not to exceed 75 percent of the insured amount of the bridge loan if the insured amount of the bridge loan, when added to the amount of any superior liens on the project, equals or exceeds:

(i) 85 percent of the project's appraised value as of completion of the improvements, taking into consideration the value of the tax credits for a for-profit borrower; or

(ii) 90 percent of the project's appraised value as of completion of the improvements, taking into consideration the value of the tax credits for a borrower which is either wholly owned by a nonprofit entity or whose general partner is a nonprofit entity; or

(b) The Fund may insure construction risk in an amount up to the insured amount of the bridge loan if the insured amount of the bridge loan, when added to the amount of any superior liens on the project, is less than:

(i) 85 percent of the project's appraised value as of completion of the improvements, taking into consideration the value of the tax credits for a for-profit borrower; or

(ii) 90 percent of the project's appraised value as of completion of the improvements, taking into consideration the value of the tax credits for a borrower which is either wholly owned by a nonprofit entity or whose general partner is a nonprofit entity.

(4) The inability of the borrower to claim an historic investment tax credit if:

(a) Upon completion of construction, the United States Department of the Interior notifies the borrower that it will not certify the project for historic tax credit purposes; and

(b) The borrower has secured:

(i) Preliminary approval of Parts I and II of the Certificate of Rehabilitation by the National Park Service before beginning construction, and

(ii) Approval by the National Park Service of all change orders which the Fund determines will affect historic elements of the building.

B. The Fund may not insure a general failure to pay by the investor (for example, insolvency or bankruptcy of the investor limited partner).