Md. Code Regs. 05.03.08.09

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

Section 05.03.08.09 - Credit Enhancement

A. The Department may provide credit enhancement on a loan made by a lender for a project that meets the requirements of Regulation .04 of this chapter.

B. A project financed by a loan that is credit-enhanced by the Department shall:

(1) Be a net-zero home or a low-energy home upon completion;

(2) Have clear and merchantable title acceptable to the Department;

(3) Conform to all applicable federal, State, and local building, zoning, environmental, health, and housing codes;

(4) Be insured with hazard insurance issued by a company that is approved by the State Insurance Commissioner and, when applicable, flood insurance;

(5) Have an appraised value that is satisfactory to the Department;

(6) Be secured by a lien against the mortgaged property; and

(7) Meet any other standards of the Department.

C. A borrower shall establish to the satisfaction of the Department the capacity to meet the financial obligations of the loan and complete the project.

D. Application.

(1) A lender shall submit an application, in the form prescribed by the Department, which shall contain a complete credit package and any other documentation required by the Department.

(2) Applications will be reviewed on a loan-by-loan basis by the Department.

(3) The Department will consider the following factors when deciding whether it will approve an application for credit enhancement:

(a) Amount of loss coverage being requested;

(b) The terms of the loan;

(c) Financial capability and credit rating of the borrower;

(d) Condition and value of property securing loan;

(e) Capability of borrower to successfully construct and sell a project; and

(f) Any other factors related to the Department's risk in providing credit enhancement.

E. Scope of Credit Enhancement.

(1) The Department may offer the following types of credit enhancement:

(a) Mortgage insurance;

(b) Guarantee;

(c) Risk sharing agreement; or

(d) Any other form of credit enhancement.

(2) Credit enhancement is limited to economic loss due to a monetary default and does not include loss due to casualty or title risk.

(3) Expenses incurred for property repair resulting from casualty loss, including losses due to negligence, flood, fire, termites, vandalism, and defective construction, are not eligible for credit enhancement coverage.

(4) Expenses incurred by the lender in the preservation and normal maintenance of a defaulted project may be covered in accordance with the terms and conditions of the credit enhancement agreement with the Department.

F. Premiums for credit enhancement shall be determined by the Department from time to time for various programs and types of coverage.

G. Premiums may be set at different levels for different categories of loans and loan programs depending on the risk factors, which may include the:

(1) Amount of loss coverage being requested;

(2) Terms of the loan;

(3) Financial capability and credit rating of the borrower;

(4) Condition and value of property securing the loan;

(5) Capability of borrower to successfully construct and sell a project; and

(6) Any other factors related to the Department's risk in providing credit enhancement.

H. The lender shall follow the procedures contained in the credit enhancement agreement with the Department upon default of a loan.

I. The right of the Department to pursue a borrower for deficiency or loss exists in every case to the extent allowed by law and may be enforced at the discretion of the Department.

J. The Department may refuse payment of a claim on the basis of fraud, misrepresentation, or material error or omission with respect to any claim.

Md. Code Regs. 05.03.08.09

Regulation .09 adopted effective 44:15 Md. R. 759, eff. 7/31/2017