4400.1 CHG

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CHAPTER 1. PROJECT MORTGAGE INSURANCE,

BASIC SECTION 207 INSTRUCTIONS

1-1. PURPOSE AND OBJECTIVES. The primary purpose of the Section 207

program is to provide good quality housing that will serve the

needs of a broad cross section of the rental housing market. Its

further purpose is to facilitate the rehabilitation and

modernization of residential structures regardless of whether or

not they are located in or near blighted areas or slums. In many

neighborhoods desirable both as to location and convenience

obsolescence can be avoided by upgrading, especially when identified

with progressive efforts on the part of other owners in the

immediate vicinity. HUD-FHA requires such repair or rehabilitation

work as is determined necessary to remove conditions

detrimental to safety, health or morals.

1-2. AUTHORITY. The basic rental housing program is authorized by

Section 207 of the National Housing Act as amended. Public Law

75-424, 12 U.S.C. 1713. Applicable regulations appear in the

Federal Register, 24 CFR 207 et seq.

1-3. NATURE AND USE. HUD-FHA insures lenders against losses on

mortgages up to \$20 million for private mortgagors and up to

\$50 million for public mortgagors. Insured mortgages may be used

to finance the construction or rehabilitation of rental projects

with 8 or more dwelling units. Whether in urban or suburban areas

the rental accommodations should be suitable for family living,

that is, families with or without children, and should be available

at reasonable rents. The unit mortgage limits for non-elevator

\* projects begin at \$13,000 for an efficiency apartment and

increase progressively to \$30,000 for an apartment with 4 or more

bedrooms. Limits per family unit are somewhat higher for elevator

apartments. In areas where cost levels so require, limits per

family unit may be increased up to 75 percent. In addition to \*

the foregoing dollar limitations there is a loan-to-value

limitation on the maximum mortgage amount equal, in most cases,

to 90 percent of the estimated value of the project.

1-4. ELIGIBILITY REQUIREMENTS.

a\. Applicant Eligibility. Eligible mortgagors include investors,

builders, developers and others who meet HUD-FHA requirements

for mortgagors.

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4400.1 CHG

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b\. Beneficiary Eligibility. All families, subject to normal

tenant selection, are eligible to occupy a dwelling in a

structure on which a mortgage is insured under the program.

c\. Property Eligibility. The mortgaged property to be insured

must be located in an area approved by HUD-FHA for rental

housing and in which market conditions show a need for such

housing. The mortgage accepted for insurance must cover a

property or project which is economically sound. The term of

the mortgage on the eligible property is 40 years, or not

appreciably in excess of three-fourths of its economic life,

whichever is less.

d\. Documentation and Credentials. Documentation regarding the

characteristics of the property and qualification of the

mortgagor are assembled by the mortgagee and submitted with

the application for mortgage insurance.

1-5. FEES AND CHARGES. The application fee plus the commitment fee is

\$3 per \$1000 of the amount of the mortgage applied for and the

HUD-FHA inspection fee may not exceed \$5 per \$1000 of such amount.

The maximum permissible current interest rate is 7 percent plus

1/2 percent for the mortgage insurance premium.

1-6. APPLICATION AND PROCESSING.

a\. Preapplication Coordination. The sponsor has a preapplication

conference with the local Field Office serving the area in

which the property or project is to be located.

b Application Procedure. The sponsor submits a formal

application, through an HUD-FHA-approved mortgagee, to the local

Field Office serving the area in which the property or project

is to be located.

c\. Commitment. If the project meets the Section 207 program

requirements the Field Office issues, to the lender or

mortgage, a commitment to insure.

d\. Deadlines. Deadlines are established on a case-by-case basis

by the local Field Office and mutually agreed to by the sponsor

at the preapplication conference.

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4400.1

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e\. Processing Time. The time needed for processing an application

will range from 3 to 9 months depending on the work load

in the Field Office and the degree of preparation by the

sponsor.

f\. Appeals. If an application for mortgage insurance is refused

HUD-FHA will state the reason for such refusal. If

reapplication is desired, the applicant may reapply subject to

concurrence of the lender and payment of the appropriate fee.

g\. Renewals. The term of a commitment to insure may be extended

if more time is required for good cause shown.

1-7. REQUIREMENTS SUBSEQUENT TO QUALIFICATION.

a\. Reports. Any change of the mortgagor during the period of

mortgage insurance must be approved by HUD-FHA and any defaults

in meeting the mortgage terms must be reported to the agency.

HUD-FHA requires all mortgagors, and mortgagees to submit

financial statements. Mortgagors submit statements annually

and mortgagees submit statements upon request.

b\. Audits. HUD-FHA reserves the right to audit the accounts Of

the mortgagor or mortgagee to determine compliance with the

statue and HUD-FHA regulations and standards.

c\. Records. Mortgagees are requested to service and maintain

records in accordance with acceptable mortgage practices of

prudent lending institutions and the HUD-FHA regulations.

1-8. ADMINISTERING OFFICES.

a\. Regional and Field Offices. Persons interested in the

Section 207 program should communicate with the nearest local

Field Office.

b\. Headquarters Office. Matters within the purview of the

Washington Office should be addressed to: Director, Office

of Unsubsidized Insured Housing Programs, Housing Production

and Mortgage Credit-FHA, Department of Housing and Urban

Development, Washington, D. C., 20410.

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