Md. Code Regs. 05.03.01.13

Current through Register Vol. 51, No. 24, December 2, 2024

Section 05.03.01.13 - Periodic Review of Household Income; Adjusting the Interest Rate

A. Applicability. This regulation applies to loans made to owners of one-to-four unit properties.

B. Adjustable Interest Rates.

(1) The initial preferred interest rate on the loan may be adjustable.

(2) Loans subject to adjustment shall be made in accordance with the following provisions:

(a) The interest rate adjustment shall be based on increases or decreases in the borrower's household income;

(b) The manner of calculating interest rate adjustments and the frequency of the adjustments shall be fully disclosed to the borrower at the time the loan is made; and

(c) An interest rate adjustment shall take place only after written notice to the borrower.

(3) Except for the reasons set forth in §C(4) of this regulation or Regulation .11A(3) of this chapter, the interest rate may not be adjusted:

(a) Below the initial preferred interest rate described in Regulation .11A of this chapter; or

(b) Above a rate determined by the Program to be the market interest rate at the time the loan is made.

(4) The Program may establish an alternative interest rate for a borrower that is permitted to assume the loan under Regulation .11G of this chapter, but fails to provide the Program with evidence that the borrower meets the income limits in effect at the time the borrower acquires the property or an interest in the property.

C. Adjustable Rate Loans; Review of Income and Adjustment of Rate.

(1) The provisions of this section apply only to adjustable rate loans made under §B of this regulation.

(2) A borrower's household income may be reviewed periodically as required or permitted under the loan documents, upon request of the borrower, or for a new owner permitted to assume the loan as described in §B(4) of this regulation.

(3) For the purposes of reviewing household income, the Program may require the borrower to submit, in a timely manner, copies of income tax returns and other pertinent information for all members of the borrower's household.

(4) If, upon review, the Program determines that the financial circumstances of the borrower have changed and the borrower is:

(a) Eligible for a decrease in the interest rate, then the:

(i) Program may decrease the interest rate to a lower rate which the Program has determined the borrower can afford, based on the decrease in the borrower's income, and

(ii) Decreased interest rate may not drop below the initial preferred interest rate described in Regulation .11A of this chapter, except that in extraordinary individual cases as determined by the Program, the interest rate may be decreased to a lower rate necessitated by the financial circumstances of the borrower;

(b) No longer eligible for the preferred interest rate stated in the borrower's loan documents, then the Program may:

(i) Increase the preferred interest rate to a higher rate which the Program has determined the borrower can afford, based on the increase in the borrower's income, except that the increased interest rate may not exceed the lower of the maximum rate, if any, set forth in the loan documents, or the current prevailing rate for private mortgages, as determined by the Program, or

(ii) Call the loan and declare it due and payable after the first 5 years of the loan if the loan documents so permit.

(5) The Program may increase the preferred rate to the maximum rate set forth in the loan documents, regardless of the prevailing rate for private mortgages, if:

(a) Upon the request of the Program, the borrower fails to provide a current Maryland or federal tax return or other evidence of financial circumstances satisfactory to the Program; or

(b) The borrower does not execute all of the legal documents required by the Program necessary to increase the preferred interest rate.

(6) If, after receiving notice of an adjustment to the loan's interest rate, the borrower believes the interest rate adjustment is unwarranted, then the borrower may request the Program to reconsider the adjustment.

(7) Within 30 days of the date of the notice in §C(5) of this regulation, the borrower requesting reconsideration of an adjustment to the loan's interest rate:

(a) Shall submit to the Program a written statement of reasons why the borrower believes the loan is eligible for a lower interest rate, which statement may be accompanied by any supporting documentation; and

(b) May request a personal interview in connection with the request to reconsider the interest rate adjustment.

(8) The Director of DDF shall designate a review committee composed of at least three employees of the Department, none of whom participate in original decisions about interest rate adjustments.

(9) The review committee shall make a recommendation to the Director of DDF for a request to reconsider an interest rate adjustment, following the procedure described below:

(a) The review committee shall review all requests by borrowers to reconsider an interest rate adjustment;

(b) The review committee shall conduct all personal interviews requested by borrowers, except that only two members of the review committee need to be present at each interview;

(c) If a borrower does not request an interview or fails to appear for an interview, then the review committee shall make its recommendation about the interest rate adjustment based on any written statements and documentation submitted by the borrower, in addition to any other relevant information available;

(d) If a personal interview takes place, then the review committee's recommendation about the interest rate adjustment shall take into account information provided in the interview.

(10) The Director of DDF may:

(a) Make the final decision about requests to reconsider interest rate adjustments; or

(b) Delegate the authority to make the final decisions to the Director or Deputy Director of Homeownership Programs, as long as the designee is not a member of the review committee.

Md. Code Regs. 05.03.01.13

Regulations .13 amended effective September 1, 1974 (1:2 Md. R. 112)
Regulations .13 amended effective July 23, 1975 (2:16 Md. R. 1138)
Regulations .13 amended as an emergency provision effective January 25, 1989 (16:3 Md. R. 334); emergency status expired July 25, 1989; adopted permanently effective August 7, 1989 (16:15 Md. R. 1650)
Regulations .13 under a new chapter, Preferred Interest Rate Loan Program, adopted effective July 22, 1991 (18:14 Md. R. 1609)