[Code of Federal Regulations]

[Title 24, Volume 2]

[Revised as of April 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR203.32]



[Page 162-163]

 

                 TITLE 24--HOUSING AND URBAN DEVELOPMENT

 

 CHAPTER II--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING 

        COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

 

PART 203_SINGLE FAMILY MORTGAGE INSURANCE--Table of Contents

 

     Subpart A_Eligibility Requirements and Underwriting Procedures

 

Sec.  203.32  Mortgage lien.



    (a) Except as otherwise provided in this section, a mortgagor must 

establish that, after the mortgage offered for insurance has been 

recorded, the mortgaged property will be free and clear of all liens 

other than such mortgage, and that there will not be outstanding any 

other unpaid obligations contracted in connection with the mortgage 

transaction or the purchase of the mortgaged property, except 

obligations that are secured by property or collateral owned by the 

mortgagor independently of the mortgaged property.

    (b) With prior approval of the Secretary, the mortgaged property may 

be subject to a secondary mortgage or loan made or insured, or other 

secondary lien held, by a Federal, State, or local government agency or 

instrumentality, or an entity designated in the homeownership plan 

submitted by an applicant for an implementation grant under the 

Homeownership and Opportunity for People Everywhere (HOPE) program, or 

an eligible nonprofit organization as defined in Sec.  203.41(a)(5) of 

this part, provided that the required monthly payments under the insured 

mortgage and the secondary mortgage or lien shall not exceed the 

mortgagor's reasonable ability to pay as determined by the Secretary.

    (c) With the prior approval of the Secretary, the mortgaged property 

may be subject to a second mortgage held by a mortgagee not described in 

paragraph (b) of this section. Unless the mortgage is for the purpose 

described in paragraph (d) of this section, it shall meet the following 

requirements:

    (1) The required monthly payments under the insured mortgage and the 

second mortgage shall not exceed the mortgagor's reasonable ability to 

pay, as determined by the Commissioner;



[[Page 163]]



    (2) Periodic payments, if any, shall be collected monthly and be 

substantially the same;

    (3) The sum of the principal amount of the insured mortgage and the 

second mortgage shall not exceed the loan-to-value limitation applicable 

to the insured mortgage, and shall not exceed the maximum mortgage limit 

for the area;

    (4) The repayment terms shall not provide for a balloon payment 

before ten years, or for such other term as the Commissioner may 

approve, except that the mortgage may become due and payable on sale or 

refinancing of the secured property covered by the insured mortgage; and

    (5) The mortgage shall contain a provision permitting the mortgagor 

to prepay the mortgage in whole or in part at any time, and shall not 

provide for the payment of any charge on account of such prepayment.

    (d)(1) With the prior approval of the Commissioner, the mortgaged 

property may be subject to a junior (second or third) mortgage securing 

the repayment of funds advanced to reduce the mortgagor's monthly 

payments on the insured mortgage following the date it is insured, if 

the junior mortgage meets the following requirements:

    (i) The junior mortgage shall not provide for any payment of 

principal or interest until the property securing the junior mortgage is 

sold or the insured mortgage is refinanced, at which time the junior 

mortgage shall become due and payable;

    (ii) The total amount of repayments under the junior mortgage shall 

not exceed the least of:

    (A) One-half of the mortgagor's equity interest in the property at 

the time of sale or refinancing;

    (B) Three times the amount of funds advanced to effect the interest 

rate buy-down; or

    (C) The sum of the original loan amount plus the total accrued 

interest on the junior mortgage at the time of repayment; and

    (iii) The junior mortgage shall contain a provision permitting the 

mortgagor to prepay the mortgage in whole or in part at any time, and 

shall not provide for the payment of any charge on account of such 

prepayment. Any full or partial prepayment will not be recoverable by 

the mortgagor if, by application of paragraph (d)(1)(ii) on sale or 

refinancing of the property, a lesser amount than the amount prepaid 

would have been due.

    (2) The sum of the principal amount of the insured mortgage, any 

second mortgage made under paragraph (b) or (c) of this section, and the 

mortgage securing the repayment of funds advanced to reduce the 

borrower's monthly payments (whether a second or third mortgage) may 

exceed the loan-to-value limitation applicable to the insured mortgage, 

but such sum may not exceed the maximum mortgage limit for the area.



[45 FR 19223, Mar. 25, 1980, as amended at 50 FR 20906, May 21, 1985; 56 

FR 4477, Feb. 4, 1991; 58 FR 42647, Aug. 11, 1993]