80-001 Code Vt. R. 80-120-001-X - RULES FOR GUARANTEES OF MORTGAGE LOANS

Section 1 Definitions

1.10 "Acquired Property" means any property acquired by a lender through the protection or enforcement of its rights conferred by law in the applicable mortgage loan.

1.11 "Alternative Mortgage Instrument Loan" means:

(i) any mortgage loan secured by a promissory note other than a fixed rate filed term note payable in equal monthly installments of principal and interest throughout the term of the mortgage loan, or

(ii) a mortgage loan secured by a shared appreciation agreement or any mortgage loan which by its terms permits the lender to share in any manner in the equity of the borrower in the security.

1.12 "Board" means the Vermont Home Mortgage Guarantee Board or its successor.

1.13 "Chairperson" means Chairperson of the Vermont Home Mortgage Guarantee Board or its successor, or in his/her absence, the Secretary of the Agency of Development and Community Affairs.

1.14 "Condominium" means a development which is the subject of a Declaration of Condominium within the meaning of the Condominium Ownership Act as amended from time to time, or any substitution thereof which may be adopted as the law of the State of Vermont.

1.15 "Construction Loan" means a loan; the proceeds of which are to be used for the construction, repair, or improvement of a dwelling house, including site acquisition costs.

1.16 "Cooperative Housing Corporation" or "Co-op" means a cooperative housing corporation within the meaning of Chapter 14 of Title 11, Vermont Statutes Annotated, as the same may be amended from time to time.

1.17 "Default" means failure of a borrower to comply with any of the terms of a loan agreement, promissory note, or mortgage securing such promissory note.

1.18 "Delinquency" mean an arrearage of two payments or any portion thereof.

1.19 "Developmentally Disabled Person" means a person with a developmental disability as defined in 42 U.S.C. Sec. 6001.

1.20 "Elderly Person" means a person age 62 or older or the spouse of such person.

1.21 "Gross Annual Income" means federal adjusted gross income plus claimed depreciation less principal payments on 11 business debt.

1.22 "Gross Monthly Income" means borrower's verified gross monthly base earnings from primary employment plus recognizable secondary income, such as without limitation, bonuses, commissions, dividends, overtime, part-time employment, or (where disclosed) alimony and child support payments. Generally, items are counted in secondary income if verified and substantiated for at least six months preceding the date of application and continuation is probable based on foreseeable economic circumstances. In cases of self-employment, gross annual income may be used as the basis of calculating gross monthly income. Generally, the Board will accept a self-employed applicant's Federal Income Tax Return for the most recently concluded tax year as an adequate basis for verification of income, but retains the discretion to require additional verification in appropriate cases.

1.23 "Group Home" means a residential housing unit intended to house three or more elderly, handicapped, or developmentally disabled residents (plus a supervisor's apartment, if provided) in a family-style household.

1.24 "Guarantee" means the obligation of the Board to pay that portion of the indebtedness which is guaranteed by it pursuant to the Act.

1.25 "Handicapped Person" means any person who has a physical or mental impairment which substantially limits or one or more major life activities, such as caring for one's self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.

1.26 "Indebtedness" means the unpaid principal and accrued interest pursuant to a mortgage loan, together with other allowable items of loss as established by the contract required by Section 2.10 of these rules.

1.27 "Lender" means the payee of an obligation at the time it is guaranteed and its assignees and successors.

1.28 "Liquid Assets" means the sum of cash, checking, and savings accounts plus the Liquidation Value of certificates of deposit, money market certificates, and similar instruments, stocks, bonds, debentures and similar instruments, and, where applicable, the applicant's ownership interest in his primary residence at time of application.

1.29 "Liquidation Value" means:

(i) when applied to certificates of deposit, money market certificates, and similar instruments, the face value of the instrument less any applicable liquidation penalty;

(ii) when applied to publicly-traded stocks, bonds, debentures, and similar instruments, the closing price or first bid price as of the date preceding the date of application, less sales costs;

(iii) when applied to non-publicly traded stocks, bonds, debentures, and similar securities, the book value of the security as reasonably estimated by the applicant and accepted by the Board;

(iv) When applied to an applicant's ownership interest in his primary residence (a) the contract price of the primary residence, or (b) where no contract exists, the fair market value of the primary residence as determined or accepted by the Board, less (x) the amount necessary to discharge any and all liens as of the proposed closing date and (y) reasonably estimated closing costs.

1.30 "Monthly Installment Obligations" means the actual or average monthly payment obligation on any debt, other than business debt, payable in periodic installments and as to which more than six installments remain to be paid as of the date of application.

1.31 "Mortgage" means a mortgage deed, deed of trust, or other instrument which shall constitute a first lien on owner-occupied residential housing or a group home for elderly, handicapped or developmentally disabled persons, held by the borrower in fee simple or held under a lease, the term of which shall be for a period of not less than two times that of the mortgage loan term and provided that the interest of the lessee shall be freely assignable.

1.32 "Mortgage Loan" means an interest bearing obligation secured by a mortgage.

1.33 "Planned Residential Development" or "PRD" means an area of land controlled by a landowner, developed or to be developed as a single entity for a number of residences, and which is not a condominium.

1.34 "Purchase Price" means the entire consideration paid or payable upon or on account of the purchase of property, exclusive of customary closing costs. Provided, however, when no sale is contemplated, as in the case of a refinance, purchase price shall mean appraised value.

1.35 "Residential Housing" means residential housing units designed primarily to provide principal dwelling accommodations whether on a permanent or temporary basis for persons or families, which may include the land and improvements thereon and such non-housing facilities or services considered necessary or convenient by the Board. Residential Housing includes, but is not limited to, single or multi-family dwellings comprised of not more than four (4) dwelling units, cooperative interests, congregate homes, residential care homes as defined in 33 V.S.A. § 7102, nursing homes, mobile homes, and group homes for elderly, handicapped, or developmentally disabled persons. Also, to qualify as residential housing, only that land that is sufficient to support the basic livability of the residence may be the subject of a guarantee.

1.36 "Seasoned Loan" means any currently outstanding mortgage loan upon which no less than 12 monthly payments have been made.

1.37 "Value" means the lesser of (i) the total purchase price of the property, or (ii) the fair market value of the property as of the date of application for loan guarantee as determined by an appraiser or another individual acceptable to the Board under a policy established by resolution of the Board.

Section 2 Application Procedure for Home Loan Guarantee

2.10 No lender shall be eligible to make application to the Board for any guarantee until it has signed and executed a contract with the Board providing for the rights and duties of the parties with respect to guarantees issued by the Board. Such contract may incorporate the Board's operating policy manual.

2.11 The Board may prescribe standard forms for "application for home loan guarantee", "Appraisal Report", "Certificate of Commitment", "Certificate of Loan Disbursement", "Loan Guarantee Certificate", "Payment of Claims", and at its discretion, note, mortgage, verification of income and employment, verification of liquid assets, and credit report which shall be completed to the satisfaction of the Board.

2.12 With respect to alternative mortgage instrument loans, the Board reserves the right to establish underwriting requirements which vary from the underwriting standards otherwise set forth in these rules.

Such requirements may vary on a case by case basis in response to the specific terms of these loans and to the extent necessary to satisfy the Board that the issuance of the guarantee would be prudent in a particular case.

2.13 The lender shall forward to the Board the required application for a current guarantee together with such other documents and material as may be required by the Board. Portions of this section may not be applicable for guarantee of seasoned loans.

2.14 The principal amount of any mortgage loan shall not exceed the maximum eligible loan amount established by the Board with the concurrence of the Joint Fiscal Committee which amount may vary from time to time.

2.15 The Board shall consider each application having regard among other things to property condition and value, local economic conditions, borrower's credit and employment history, financial resources, income stability and earning power, and such maximum housing debt and total debt-to-income ratios or guidelines for the same as the Board may establish from time to time.

2.16 The appraisal shall specify any condition observed by the appraiser which requires correction in order to make the property livable according to generally accepted standards in the community in which the property is located.

2.17 An applicant's liquid assets (reduced by reasonably estimated closing costs) may not exceed 35% of the purchase price of the property. This section may not be applicable for guarantee of certain seasoned loans.

2.18 The Board may, by resolution, and from time to time, establish a minimum equity requirement not to exceed 5% of the Value of the property.

2.19 No mortgage loan shall be eligible for a guarantee until the borrower has relinquished any and all rights, title and interest which he may have in any property that was his primary residence at the date of application to the Board for a guarantee. In hardship cases where there is clear evidence that the borrower is actively attempting to sell his primary residence but has not been successful in doing so, the Board may waive the above requirement.

2.20 Normally, no mortgage loan shall be eligible for guarantee until the borrower has relinquished any and all right, title, and interest which he/she may have in any investment property other than that property which is used solely for the borrower's livelihood. The ownership of rental properties is prohibited.

2.21 The Board may issue its written commitment to issue a Guarantee and such commitment may be absolute or conditional by its terms. A commitment to issue a Guarantee shall expire up to six (6) months from the date of the commitment unless a written request for extension of the commitment by the lender is approved by the Board.

2.22 At the time of the closing, the lender shall forward to the Board the applicable fee together with a Certificate of Loan Disbursement and a loan settlement statement, and either (1), a warranty that any outstanding conditions of the Board's commitment have been satisfied or (2), documentary evidence showing satisfaction of any such conditions.

2.23 Upon review and acceptance of the warranty or documentation required by Section 2.22 of these Rules, the Board shall issue its Guarantee and deliver it to the lender by facsimile or otherwise.

2.24 The Board will not guarantee "construction loans"; however, it may issue conditional commitments based upon the plans and specifications for the construction, and any other documents the Board may require, and the appraiser's estimate of value subject to final completion of construction. The lender's notice to the Board regarding satisfactory completion of construction according to the plans and specifications and approval of the construction by an appraiser must precede the issuance of the Loan Guarantee Certificate. However, the guarantee may, at the discretion of the Board, be issued after substantial completion of construction provided the funds for final completion are placed in an escrow fund pending inspection and acceptance of the construction by the lender.

Section 3 Guarantee of loans pertaining to units in Condominiums, Planned Residential Developments, and Developments owned by Cooperative Housing Corporations

3.10 The percentage of individual units in any condominium, PRD, or co-op eligible for loan guarantee shall not exceed that percentage established from time to time by resolution of the Board.

3.11 No loan pertaining to a unit in a condominium, PRD, or co-op shall be eligible for guarantee unless the Board has reviewed and approved documentation sufficient to satisfy the Board that the development and its ownership entity are organized in compliance with state law.

Section 4 Guarantee of Seasoned Loans

4.10 Two types of seasoned loans may be eligible for guarantee: previously uninsured mortgages and previously insured mortgages.

4.11 Application procedure for home loan guarantee previously set out shall apply to seasoned loans with the following exceptions: For previously uninsured mortgages, the lender shall forward to the Board the required application for a current guarantee together withsuch additional documentation as may be required. For previously insured mortgages, the lender shall forward to the Board the required application for a current guarantee and such additional documentation as may be required.

4.12 All other previously adopted sections for Application Procedure for Home Loan Guarantee shall be effective for guarantee of seasoned loans.

Section 5 Guarantee of Loans for Group Homes

5.10 Except in the case of a group home owned by a non-profit corporation organized under the laws of the State of Vermont, no group home loan shall be eligible for guarantee unless one or more credit-worthy natural persons are personally liable for repayment and compliance with all of the terms and conditions of the mortgage loan.

Section 6 Servicing and Reporting of Guaranteed Loans

6.10 Lenders shall keep complete and accurate records of all loans guaranteed by the Board. All records shall be available for inspection by the Board at the office of the lender or its agents during normal business hours.

6.11 Not less than forty-five (45) days prior to the sale, assignment or transfer of a loan's servicing, the lender shall give notice of the loan's sale, assignment or transfer on forms prescribed by the Board. Loan Guarantee Certificates may be assigned to the new servicer if the servicer has been approved, in writing, by the Board.

6.12 Lenders shall file with the Board, within a time limit set by the Board, a notice of delinquency for each and any delinquent loan when it becomes two payments in arrears. In addition, the lender shall provide to the Board, monthly delinquency reports on forms prescribed by the Board; further, lenders shall file such forms as the Board may prescribe to notify the Board of loans in default by reason of breach of any covenant or obligation required by the loan guarantee.

6.13 Upon failure of the lender to file the written reports required by Section 6.12, the loan guarantee may, at the option of the Board, be terminated and void and [shall] may be released from any obligations which it may have had. Notwithstanding the foregoing, unless the Board can show that a material impairment of the security has resulted from the lender's failure to file said written reports, no loan guarantees shall be terminated or voided by reason of such failure except after thirty (30) days written notice to the lender and an opportunity to cure the reporting deficiency within that time.

6.14 Upon receipt of notice, the lender shall investigate and report to the Board any deterioration or waste of any property which is the subject of a guarantee and any material breach of any term or condition of a guaranteed mortgage loan. The Board may then direct the lender to proceed with whatever steps are necessary to protect the security.

6.15 The Board may require each lender to submit reports to the Board from time to time containing full information which the Board deems necessary for the purpose of determining its outstanding guarantee liability.

Section 7 Default, Foreclosure and Liquidation of Security

7.10 The lender shall do all things prudent and necessary to enforce the terms and conditions of any mortgage loan guaranteed by the Board and to protect the security therefor.

7.11 Upon default the Board may:

(a) pay the lender the outstanding indebtedness and take the mortgage and note by assignment; or

(b) order the lender to foreclose or otherwise seek to acquire title in accordance with Vermont law on the terms specified in such order and the lender shall comply therewith, or

(c) direct the lender to take such other action as the Board deems appropriate; provided, however, that where the lender is an instrumentality of the State of Vermont, no order or direction of the Board shall be inconsistent with the default procedures of that instrumentality, and the instrumentality may proceed according to its procedures in the absence of any order from the Board.

In any situation where foreclosure has been ordered, and where legally possible, the lender shall proceed by strict foreclosure and not by power of sale. Upon taking title to the property through foreclosure or otherwise, the lender shall have the property appraised by an appraiser or another individual acceptable to the Board under a policy determined by resolution of the Board; the lender shall then offer the property for sale in a commercially, reasonable manner, preferably by listing it with several licensed area real estate brokers at a price equal to the then current appraised value of the property or at another price if authorized by the Board. Lenders may not accept an offer for any property which is less than an amount acceptable within guidelines established from time to time by the Board without specific authorization from the Board.

7.12 If the proceeds of any sale of an acquired property are insufficient to extinguish the indebtedness, then the Board, after receipt of the lender's validly documented claim, shall pay to the lender the difference between the indebtedness and said proceeds subject to the limitation on the face of the Loan Guarantee Certificate.

7.13 Whenever the Board pays to a lender any sum in discharge of its liability as guarantor, the Board shall be to that extent subrogated to the lender's right, title, and interest in any securities, legal remedies, or recoveries incidental to the loan in respect to which the guarantee is issued.

7.14 Any loss which is caused by title to the property described in a Mortgage being other than good and marketable shall be sustained by the lender.

7.15 Within thirty (30) days after termination of a guaranteed mortgage loan or a change in the terms thereof, unless otherwise specifically approved in writing by an authorized representative of the Board, the lender shall mark the actual Loan Guarantee Certificate delivered to it as cancelled, sign it with the lender's legal signature, date it, and return it to the Board or make a written request for cancellation to the Board. In the event the Board has issued a Certificate of Guarantee Commitment but the loan is ultimately not closed, the lender shall return the cancelled certificate to the Board or make a written request for cancellation to the Board. With respect to each loan guarantee, if any lender fails to comply with any requirements of this section, the Board may impose a fee for each month of such non-compliance.

7.16 In the event the Board cancels or rescinds coverage due to misrepresentations as provided in the Board's master policy with a Lender, the Board shall return to the borrower, within a reasonable time, a portion of premiums paid according to a schedule for return of guarantee fees published by the Board.

7.17 In the event of a guarantee fee paid on a periodic basis, the Board may establish, by contract or otherwise, procedures for termination of certificates for non-payment of a periodic guarantee fee.

Section 8 Miscellaneous

8.10 With respect to determination of eligibility, issuance of a guarantee, monitoring of delinquent loans, or review of claims, the Board or its duly authorized agent may rely solely on information provided in and submitted with the application for loan guarantee or may require additional documents or information as may be deemed necessary under the circumstances.

8.11 The Board, in it best judgment and for good cause, may waive any of the Rules herein promulgated if it finds such waiver necessary or desirable to meet the legislative purposes of 10 V.S.A. Chapter 18.

8.12 The Board may adopt an operating policy manual which shall establish underwriting guidelines and other policies necessary or incidental to the effective day-to-day operation of the Board's programs. Such manual may be amended from time to time by the Board, and may be incorporated in any contract with a lender.Authority: 10 V.S.A. § 391

Notes

80-001 Code Vt. R. 80-120-001-X

EFFECTIVE DATE: October 1, 1992 (Secretary of State Rule Log # 92-48)
AMENDED: March 1, 1995 (Secretary of State Rule Log # 95-16)
June 30, 1997 (Secretary of State Rule Log # 97-24)