Md. Code Regs. 05.03.05.07

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

Section 05.03.05.07 - Loan Terms and Requirements

A. Each loan shall be made subject to the requirements of this regulation.

B. Equity in the Home. The equity in the home shall be determined by subtracting any existing indebtedness on the home from the value of the home. At the time of application, the value of the home may be established by using the current assessed value of the home, or, at the request and expense of the borrower and with Program approval, by using an appraisal submitted in a form and manner and by an appraiser acceptable to the Program.

C. Line of Credit.

(1) Scale of Equity Percentages.

(a) The Secretary shall determine, from time to time, a scale of equity percentages representing the percentage of equity in the home which may be used to calculate the borrower's maximum line of credit. The scale of equity percentages shall vary inversely in relation to the age of the borrower.

(b) The scale of equity percentages determined in accordance with §C(1)(a) of this regulation is set forth in the table below:

Age of the Borrower Equity Percentage 65-69 30 percent 70-74 40 percent 75-79 50 percent 80-84 60 percent 85 or more 75 percent

(c) The scale of equity percentages may be adjusted from time to time by determination of the Secretary to:

(i) Respond to changes in property values;

(ii) Take into account Program experience in making loans and receiving repayments of loans; and

(iii) Take into account other factors relevant to the Program and considered appropriate by the Secretary to periodic adjustment of the scale.

(2) Borrower's Maximum Line of Credit.

(a) A borrower's maximum line of credit shall be calculated by multiplying the equity in the home by the appropriate equity percentage.

(b) In the case of joint borrowers, the youngest borrower's age as of the date of the loan application shall be used to determine the appropriate equity percentage.

(c) The total amount of equity payments disbursed to the borrower, less any repayment of principal, may not exceed the borrower's maximum line of credit.

(3) Program Maximum Line of Credit. The maximum line of credit available under the Program is $50,000. A borrower's maximum line of credit may not exceed this Program maximum line of credit.

(4) Borrower's Minimum Line of Credit. The Program may reject an application for a loan if the requested line of credit is less than $5,000.

(5) Increasing the Borrower's Maximum Line of Credit. The borrower may request an increase in the borrower's maximum line of credit if the borrower has drawn at least 90 percent of the existing line of credit and if the equity in the home has increased by at least $10,000. The new maximum line of credit shall be calculated in the manner set forth in §C(1), above, taking into account the current age of the individual borrower or youngest joint borrower. In order to determine the increase in equity, the Program may require from the borrower, at the Program's sole option, either evidence of the current tax assessment or an appraisal submitted in a form and manner and by an appraiser acceptable to the Program. The borrower shall pay the cost of the appraisal, a title and lien search, the costs associated with recording additional loan documents evidencing the increase in the line of credit, and increased insurance premiums. These costs may be financed by the loan upon approval from the Program.

D. Annual Maximum of Equity Payments.

(1) The Secretary shall determine from time to time the total amount of equity payments which can be disbursed to a borrower during the fiscal year, considering factors such as the availability of Program funds, the demand for new Program loans, and the demand for funds for other homeownership programs.

(2) The annual maximum of equity payments shall be $5,000, subject to revision by determination of the Secretary from time to time in accordance with the factors set forth in §D(1) of this regulation.

(3) The annual maximum of equity payments shall be subject to:

(a) The availability of Program funds; and

(b) A borrower's maximum line of credit.

E. Emergency Equity Payments.

(1) The Program may increase the annual maximum of equity payments by not more than $5,000, subject to the borrower's maximum line of credit, in the case of a borrower whom the Program determines in its sole discretion:

(a) Is in imminent danger of losing title to the home or of having to vacate the home for medical or safety reasons;

(b) Has no other source of funds to alleviate the problem; and

(c) Whose problem can be alleviated by additional Program funds.

(2) The borrower shall comply with the Program's terms and conditions, including payment of the cost of a title and lien search, the cost of recording additional loan documents, and increased insurance premiums. These costs may be financed by the loan upon approval from the Program.

F. Interest Rate. The Program shall establish, from time to time, the interest rate for the loans.

G. Maturity of the Loan. The loan shall become due and payable at the earliest occurrence of:

(1) The death of an individual borrower, or in the case of joint borrowers, after the death of the last surviving borrower;

(2) Failure by an individual borrower or all of the joint borrowers to occupy the home as the principal residence during any continuous period exceeding 1 year, unless the borrower has received the prior written approval of the Program;

(3) Transfer of title to the home, including a transfer of any interest in the home, except that the borrower may lease a room or a portion of the home if the borrower continues to reside in the home and obtains the prior written approval of the Program; or

(4) Any of the events of default which are enumerated in the deed of trust or other loan documents executed by the borrower.

H. Payments.

(1) Payment on the loan is not required of a borrower until the loan matures as described in §G, above. Full or partial payment of principal or interest, or both, may be made at any time without penalty.

(2) All accrued principal and interest shall be paid at maturity to the extent of equity in the home at that time. At the sole option of the Program, the equity in the home at that time may be established by using:

(a) The sale price of the home, if applicable, less a reasonable real estate agent or broker commission not exceeding 7 percent;

(b) The current assessed value of the home; or

(c) An appraisal to be submitted in a form and manner and by an appraiser acceptable to the Program.

(3) The borrower may not be personally liable for the loan, and in order to satisfy the debt, the Department shall look only to the equity in the home and may not seek payment from the borrower's personal assets or estate, other than from the home, except:

(a) In the case of borrower's fraud or misrepresentation;

(b) In the case of borrower's willful neglect or abuse of the home; or

(c) Under other conditions determined by the Program and set forth in the loan documents.

I. Outstanding Indebtedness. At least once a year, the borrower shall receive a statement of the outstanding indebtedness on the loan. The outstanding indebtedness shall be the total of equity payments disbursed to the borrower plus the simple interest accrued on the sums disbursed, less any repayments of principal or interest. Accrued interest and repayments of principal or interest shall be indicated on the statement.

J. Security for Loans. Each loan shall be secured by a mortgage or deed of trust, in the form required by the Program, and recorded in the land records of the county in which the home is located. Subordinate liens may not be placed on the home without the prior written consent of the Program. The mortgage or deed of trust securing the loan may be subordinate to not more than one other recorded mortgage lien which:

(1) Shall secure a remaining mortgage debt of not more than 25 percent of the equity in the home, equity being determined in accordance with §B of this regulation; and

(2) May not secure a line of credit loan.

K. Insurance.

(1) Hazard Insurance. The borrower shall maintain fire and extended coverage insurance at the owner's expense in an amount not less than the replacement value of the home. The hazard insurance policy shall:

(a) Be written by companies authorized to transact business in Maryland;

(b) Be in force at the time of loan closing;

(c) Name the Department as loss payee as its interest may appear in the standard mortgagee endorsement attached to or printed in the policy; and

(d) Contain terms and coverage satisfactory to the Program.

(2) Flood Insurance. If the home is in the 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the:

(a) Home shall be covered by a flood plain insurance policy naming the Department as a beneficiary, in an amount equal to the borrower's maximum line of credit, up to the federal limit, plus any other indebtedness secured by the home; and

(b) Flood plain insurance policy may not be terminated without prior notification to the Department.

L. Disbursements.

(1) The Program shall establish procedures for requesting equity payments, and shall establish limits for:

(a) Minimum and maximum dollar amounts for the initial and any succeeding equity payment requests during any fiscal year; and

(b) The maximum frequency of requests per year.

(2) Equity payments will be made to the borrower only upon borrower's request, which shall be in accordance with Program procedures.

(3) The borrower is responsible for making payments for real estate taxes, insurance, ground rent, and any other fees or payments relating to the home. The borrower may use loan disbursements to make these payments. If any of these payments become delinquent, the Program, in its sole discretion and without any obligation to do so, may make immediate and direct payment of these expenses and increase the outstanding loan balance by the amount of the payment. In making this payment, the Program may override the borrower's maximum line of credit, the Program maximum line of credit, or the maximum in equity payments available to the borrower for that fiscal year. Any direct payment by the Program may not be construed as a waiver of the borrower's obligation, and the borrower's loan still may be declared in default.

(4) The borrower may not be entitled to disbursements of equity payments if there are any uncured defaults under the deed of trust or any other loan documents.

M. Change of Ownership or Occupancy of the Home or of Borrower Eligibility. The Program shall establish policies and procedures to monitor the continued ownership and occupancy of the home and eligibility of the borrower for the loan, including an annual borrower recertification procedure. The Program may at its option terminate the right to any future borrowing against the line of credit or may accelerate the loan if:

(1) The borrower fails to meet the standards for occupancy or use of the loan proceeds;

(2) An interest in the home has been transferred, except that the borrower may lease a room or portion of the home if the borrower continues to reside in the home and obtains the prior written approval of the Program;

(3) There is an unpermitted lien or encumbrance on the home; or

(4) The borrower fails to respond to the recertification request within a reasonable time.

N. Taxes, Insurance, and Other Assessments.

(1) Real estate taxes, ground rent, water and sewer fees, condominium or homeownership fees, insurance coverage required under §K, and other assessments shall be paid when due by the borrower. If the borrower fails to make the payments or to provide the Program with evidence of payment, the Program may at its option take one or more of the following actions:

(a) Make these payments directly as described in §L(3), above;

(b) Refuse to make further disbursements requested by the borrower; or

(c) Foreclose on the home.

(2) Escrow Account. If there is no prior mortgage requiring the payment of expenses to a mortgagee, the Program may establish an escrow account for the borrower at the loan closing and may require the borrower to make monthly expense payments consisting of 1/12 of annual real estate taxes, ground rent, property insurance premiums and, when appropriate, other items for which payments are required by the Program. Instead of an escrow account, the Program may require evidence of payment of the taxes, insurance, and assessments described in §N(1), above.

O. Maintaining the Home. The borrower shall maintain the home in good repair, and the Program shall have the right to inspect the home. If the Program determines that repairs are necessary, the Program shall have the right but not the obligation to cause the repairs to be made and to charge the cost of the repairs against the borrower's line of credit as an equity payment. In this event, the Program may override the borrower's maximum line of credit, the Program maximum line of credit, or the maximum of equity payments available to the borrower for that fiscal year. These actions by the Program may not be construed as a waiver of borrower's obligation to maintain the home, and the borrower's loan may still be declared in default.

Md. Code Regs. 05.03.05.07

Regulations .07 adopted as an emergency provision effective May 16, 1989 (16:11 Md. R. 1212); emergency status expired November 15, 1989
Regulations .07 adopted effective December 11, 1989 (16:24 Md. R. 2616)
Regulation .07C and D amended effective February 1, 1993 (20:2 Md. R. 110)