12 U.S.C. § 1715k — Rehabilitation and neighborhood conservation housing insurance

(a) Purpose. This section supplements mortgage insurance under sections 1709 and 1713. Its purpose is to help remove slums and blighted conditions, prevent residential property from deteriorating, finance rehabilitation of existing homes, and finance new homes in the areas described in subsection (d)(1).

(b) Authorization. When a mortgagee applies, the Secretary may insure an eligible mortgage, including construction advances for property described in subsection (d)(3)(B). The Secretary may also commit to insure the mortgage before it is signed or before money is disbursed, on terms and conditions the Secretary sets.

(c) Definitions. This section does not define “mortgage,” “first mortgage,” “mortgagee,” “mortgagor,” “maturity date,” or “State^*.” It gives those terms the meanings in section 1707.

(d) Eligibility, conditions, and limits.
(1) The property must be in one of these places: (A)(i) a slum-clearance or urban-redevelopment project covered by a qualifying Federal-aid contract or prior approval under title I of the Housing Act of 1949 before August 2, 1954; (ii) an urban-renewal area as defined in that title; (iii) an urban-renewal project assisted under section 111 of that Act; (iv) an area where concentrated code-enforcement work is being carried out under section 117 of that Act; or (v) an area the Secretary designates where coordinated housing, physical-development, and public-service work is being or will be carried out under a locally developed neighborhood-improvement, conservation, or preservation strategy. For an area under clauses (i) or (ii), the local governing body and the Secretary of Housing and Urban Development must approve the redevelopment or urban-renewal plan. The Secretary must find that it fits the locality’s general plan and that the needed authority and money exist to complete it. For an area under clause (iii), the local governing body and the Secretary must approve the urban-renewal plan. The Secretary must find that it meets definite local goals for land use, traffic, public transportation, utilities, recreation, community facilities, and other public improvements, and that the needed authority and money exist to complete it. (B) The property must meet the standards and conditions the Secretary sets for acceptable mortgage-insurance property.
(2) The property must be held by (A) a Secretary-approved mortgagor. The Secretary may restrict that mortgagor’s rents or sales, charges, capital structure, return on investment, and operations. To make those restrictions effective, the Secretary may contract with the mortgagor and acquire up to $100 of its stock or interest. The General Insurance Fund pays for that stock or interest, and the mortgagor must redeem it at face value when the Secretary’s insurance obligations end; or (B) a Federal or State instrumentality, a municipal corporation of one or more States, or a limited-dividend, redevelopment, housing, or other legal entity restricted under Federal or State law or State banking or insurance regulations as to rents, charges, capital structure, return on investment, or operations.
(3) The mortgage must (A)(i) have a principal amount, including approved initial service, appraisal, inspection, and other fees, no greater than the applicable area maximum under section 1709(b). For a dwelling mainly for more than four families, it may instead use the four-family maximum plus no more than $9,165 for each additional family unit, up to the number the Secretary allows. It also may not exceed 97 percent of the first $25,000 of the Secretary’s replacement-cost estimate and 95 percent of the amount above $25,000. If the dwelling was not approved before construction began, the first percentage is 90 percent unless construction finished more than one year before the application. For existing property, use estimated repair and rehabilitation cost plus the estimated pre-work value instead of replacement cost. If the mortgagor is a “veteran” and the property has a one-family dwelling, use 100 percent of the first $25,000 and 95 percent above that. This section defines “veteran” as a person^* who served at least 90 days on active duty in the U.S. Armed Forces, or whom the Secretary of Defense certifies performed extremely hazardous service, and was discharged or released under conditions other than dishonorable. A person who enlisted after September 7, 1980, or entered active duty after October 16, 1981, must meet section 5303A(d) of title 38. (ii) For refinancing, the principal may not exceed repair and rehabilitation cost plus the amount the Secretary determines is needed to refinance existing secured debt and existing debt for improving, repairing, or rehabilitating the property. (B)(i) is repealed. (ii) For the property or project’s dwelling portion, the mortgage may not exceed 90 percent of the Secretary’s completed-project replacement-cost estimate. That estimate may include land, improvements, boundary utilities, architect fees, taxes, construction interest, other Secretary-approved construction costs, and a 10-percent builder-and-sponsor profit-and-risk allowance on those items other than land, unless the Secretary certifies that a smaller allowance is reasonable and sets one by regulation. For existing property, use repair-and-rehabilitation cost plus pre-work value. A mortgage may finance purchase of property rehabilitated by a local public agency with Federal assistance under section 110(c)(8) of the Housing Act of 1949; then use the property’s appraised value when accepted for insurance. (iii)(I) The dwelling portion may not exceed $167,310 per unit with no bedroom, $185,328 with one, $221,364 with two, $272,844 with three, or $308,880 with four or more. For elevator buildings, the Secretary may raise those limits to $193,050, $216,216, $265,122, $332,046, and $375,443, respectively. (II) For rehabilitation projects with no more than five units, regulation may raise the two-, three-, and four-or-more-bedroom limits by 25 percent. (III) Regulation may raise the limits by no more than 170 percent for an area where costs require it and by no more than 170 percent, or 215 percent in a high-cost area, for a particular project when necessary. If the project involves a mortgage bought or to be bought by the Government National Mortgage Association for its special-assistance function under section 1720 as it existed immediately before November 30, 1983, the increase may not exceed 90 percent. (IV) This limit does not prevent insurance for existing multifamily housing to be rehabilitated or reconstructed for subsection (a)’s purposes. (V) The Secretary may raise the limits by up to 20 percent for added cost from a solar-energy system or residential energy-conservation measures, if those measures exceed minimum property standards and will be cost-effective over their lives. (iv) The mortgage may include desirable nondwelling facilities consistent with the urban-renewal plan or local strategy. The project must be mainly residential. The Secretary must find that each nondwelling facility helps the project’s economic feasibility and must consider effects on other community businesses.
(4) The mortgage must be completely amortized through periodic payments, unless the Secretary approves otherwise, within the prescribed term. A mortgage under paragraph (3)(A) may not exceed the maximum maturity under section 1709(b)(3). Its interest rate may be agreed by mortgagor and mortgagee. The Secretary may prescribe terms about applying payments to principal, insurance, repairs, alterations, taxes, default reserves, late charges, foreclosure, early maturity, other liens, and other matters.

(e) Release. On terms and conditions the Secretary sets, the Secretary may release a mortgagor from liability under the mortgage or secured credit^* instrument, or release part of the property from the mortgage lien.

(f) Insurance benefits and payment. For a mortgage meeting subsection (d)(3)(A), the mortgagee receives the benefits provided by section 1710(a) for section 1709 mortgages, and the listed provisions of section 1710 apply. References there to the Mutual Mortgage Insurance Fund or the Fund mean the General Insurance Fund, and references to section 1709 mean this section. For a mortgage meeting subsection (d)(3)(B), the mortgagee receives the benefits provided by section 1713(g), and the listed provisions of section 1713 apply; references to the Housing Insurance Fund or Housing Fund mean the General Insurance Fund. For a qualifying mortgage insured or first endorsed on or after June 30, 1961, the Secretary may, under regulations, pay in cash or debentures, or acquire a defaulted mortgage and its security by paying the mortgagee the unpaid principal, accrued interest, and approved advances. After acquisition, the mortgagee has no further rights or duties concerning the loan or security. The applicable mortgagee provisions of sections 1710 and 1713 then apply to the Secretary, with the stated Fund and section substitutions. If payment is in cash, add the interest the debentures would have earned through the regulatory date.

(g) Repealed.

(h) Home-improvement loans. (1) To conserve, improve, repair, and rehabilitate property in an urban-renewal project or a concentrated-code-enforcement area described in subsection (d)(1), the Secretary may commit to insure and insure home-improvement loans made by financial institutions on or after June 30, 1961, including construction or improvement advances. (A) “Home improvement loan” means a loan, credit advance, or purchase of a loan obligation made to improve an existing primarily residential structure built at least ten years earlier, or, even if newer, to make major structural improvements or correct defects unknown at completion or caused by fire, flood, windstorm, or another casualty. It also includes financing a borrower’s share of sidewalks, curbs, gutters, and related improvements connected with a primarily residential structure. (B) The loan may be made only by a financial institution approved by the Secretary. (C) It must be secured by the improved property, except that the Secretary may permit other security. (D) The principal may not exceed the Secretary’s prescribed percentage of the estimated repair-and-rehabilitation cost, with limits for refinancing. (E) It must have a term and payment schedule providing complete amortization, subject to Secretary approval. (F) The Secretary may require the borrower to contribute labor value as equity.
(2) The Secretary may set loan-amount and geographic cost limits, approve the security, and prescribe standards and conditions.
(3) The loan may cover labor, materials, contracts, permits, fees, and other approved costs, including approved refinancing, but not costs the Secretary excludes.
(4) The loan may be insured only if the property and proposed work meet the Secretary’s standards and applicable law.
(5) The financial institution must pay insurance premiums of at least the equivalent of one-half of 1 percent and no more than 1 percent per year of the outstanding principal, ignoring delinquent payments and prepayments. Premiums may be paid in cash or General Insurance Fund debentures. The Secretary may require premiums at insurance, at a discount not above the loan rate. Once the Secretary finds the loan complies and receives the required premium, the loan may be accepted by endorsement or another prescribed method. If paid in full early, the Secretary may refund all or an equitable part of unearned current premiums.
(6) After default notice, the Secretary may acquire the loan and security by paying unpaid principal, accrued interest, approved advances, and approved collection, court, and attorney costs, in cash or debentures. Cash payment also includes equivalent debenture interest through the regulatory date.
(7) Debentures are obligations of the General Insurance Fund, negotiable, transferable in book-entry form, dated when the loan is assigned, and interest-bearing from that date. Interest is set under section 1715o and paid each January 1 and July 1. They mature after ten years, have the tax exemption in section 1713(i), are paid primarily from the Fund, and are unconditionally guaranteed by the United States. If the Fund does not pay when due, the Treasury Secretary must pay the holders from authorized Treasury money and succeeds to their rights to that extent. HUD’s Secretary, with Treasury approval, sets their form, amounts, terms, redemption provisions, and whether they are book-entry, registered, or another regulatory form.
(8) The listed provisions of section 1703 apply to insured home-improvement loans, with references to that section or subchapter treated as references to this subsection.
(9)(A) A rental-accommodation loan for five or more families cannot be insured unless the borrower agrees, after improvement and before final endorsement, to certify whether actual improvement cost equaled or exceeded loan proceeds and to immediately pay any excess proceeds to reduce principal. An approved certification is final except for fraud or material misrepresentation. (B) “Actual cost” includes labor, materials, construction contracts, off-site utilities, streets, organizational and legal expenses, acceptable overhead, other approved expenses, and reasonable builder profit when the borrower is the builder, but excludes kickbacks, rebates, and trade discounts.
(10) The Secretary may spend and advance chapter funds to preserve or protect the United States’ or Secretary’s interest in collateral or lien priority for covered debt, and may bid for, buy, or otherwise acquire property securing that debt at foreclosure or another sale. Section 1710(g)’s last sentence governs this authority.
(11) A loan for the sidewalk, curb, gutter, or related purpose in paragraph (1) cannot be insured if it would cause that borrower’s combined outstanding principal for that purpose under this subsection and section 1709(k) to exceed $10,000, or a higher amount set by regulation for a high-cost area.

(i) Repealed.

(j) Repealed.

(k) Energy costs. For a project insured under subsection (d)(3) or (d)(4), the Secretary may raise the applicable dollar limits by up to 20 percent for added cost from a solar-energy system or residential energy-conservation measures when the measures exceed minimum standards and will be cost-effective over their lives.

(l) Rental charges and eligible multifamily housing. (1) A tenant in eligible multifamily housing whose income exceeds 80 percent of area median income must pay no more than the lower of (A) 30 percent of the family’s adjusted monthly income or (B) the applicable fair-market rent under section 8(b) of the United States Housing Act of 1937. An owner must phase in any resulting rent increase for current tenants. (2) “Eligible multifamily housing” means housing financed by a loan or mortgage that (A) the Secretary insured or holds under subsection (d)(3) and that receives assistance under section 1701s or section 8 of the 1937 Act, or (B) the Secretary insured or holds and that bears interest at the rate set under subsection (d)(5)’s proviso.