Federal Register: January 21, 2010 (Volume 75, Number 13)
DOCID: fr21ja10-115 FR Doc 2010-957
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Veterans Affairs Department
Docket ID: [Docket No. FR-5354-N-01]
RIN ID: RIN 2502-AI80
NOTICE: Part II
DOCUMENT ACTION: Notice.
HUD Multifamily Rental Project Closing Documents: Proposed Revisions and Updates and Notice of Information Collection
DATES: Comment Due Date: March 22, 2010.
This notice advises that HUD is issuing for public comment a comprehensive set of revised closing documents for use in Federal Housing Administration (FHA) multifamily rental projects. This notice starts anew the process for updating the multifamily rental project closing documents; that process commenced with an August 2, 2004, notice that presented proposed revised closing documents for public comment. The August 2004 notice was followed by an August 31, 2006, notice in which HUD provided updates on the closing document development process, advised of policy decisions that HUD had made at that time, and announced a September 21, 2006, public meeting at which HUD would take questions on the development process and policy decisions announced in the August 31, 2006, notice.
On June 1, 2009, HUD announced, on its Web site, that it would commence review of the multifamily rental project closing documents as last revised by the prior Administration and welcomed the public to review these documents along with HUD, as well as submit any informal comments on the revised closing documents.
In submitting the comprehensive set of revised multifamily rental closing documents for public comment, this notice also complies with the Paperwork Reduction Act of 1995. While complying with the Paperwork Reduction Act of 1995, this notice provides information beyond that normally provided in such notices by identifying changes HUD has made to the proposed closing documents published on August 2, 2004, and summarizing and responding to issues raised by commenters on the 2004 proposed closing documents, and to those issues informally presented on the revised closing documents recently posted on HUD's Web site.
In revising these forms, HUD identified language and policies that were outdated and needed to be changed to be consistent with modern real estate and mortgage lending laws and practices. By reflecting current terminology and current lending laws and practices, updated multifamily rental project closing documents will better protect and benefit all parties involved in these transactions. The multifamily closing documents are posted on HUD's Web site at http://www.hud.gov/ offices/hsg/mfh/mfhclosingdocuments.cfm.
Housing and Urban Development Department
Table of Contents
II. This Notice
III. Overview of Proposed Policy Determinations and Changes Made to Closing Documents
A. Documents to Which No Changes Were Made
B. AcrosstheBoard Changes and Policy Determinations
C. Changes Made to Specific Documents and Addition of New Document
IV. Discussion of Public Comments
V. Findings and Certifications
VI. Solicitation of Public Comments
On August 2, 2004, HUD published a notice in the Federal Register
(69 FR 46214) that advised that, consistent with the Paperwork
Reduction Act of 1995, it was publishing for public comment a
comprehensive set of revised closing forms and documents (closing
documents) for use in the FHA multifamily rental project and health
care facility (excluding hospitals) programs. In addition to meeting
the requirements of the Paperwork Reduction Act, HUD advised that it
was not solely seeking public comment on burden hours, as is the
primary focus of the Paperwork Reduction Act, but seeking public
comment for the purpose of receiving input from the lending industry
and other interested parties in HUD's development and adoption of a [[Page 3545]]
set of instruments that offer the requisite protection to all parties in these FHAinsured mortgage programs, while also being consistent with modern real estate practice and mortgage lending laws and procedures. The August 2, 2004, notice advised that HUD's closing documents were significantly outdated and needed a thorough review and update to reflect current HUD policies, as well as current practices in real estate and mortgage financing transactions.
The August 2, 2004, notice followed an earlier informal solicitation of public comment on proposed revisions to the closing documents, that were posted on HUD's Web site in March 2000. In response to the many comments received from the 2000 solicitation of public comment, significant revisions were made to the proposed closing documents, and these revised documents were published in the Federal Register on August 2, 2004, for review and public comment.
On August 31, 2006, HUD published a notice in the Federal Register (71 FR 51842) that announced certain policy decisions that had been made with respect to HUD's development of closing documents as of August 2006. HUD issued that notice in response to inquiries about the status of HUD's development of the closing documents. In that notice, HUD also announced that it would hold a meeting on the status of development of the closing documents at HUD Headquarters on September 21, 2006. HUD invited to this meeting the 25 individuals and organizations that submitted comments on the August 2, 2004, notice, welcomed other interested parties to the meeting, and made phone lines available to those unable to participate in person. The purpose of the meeting was to brief the commenters and other interested members of the public on the status of the development of revised closing documents as of AugustSeptember 2006.
In the August 31, 2006, notice and at the meeting, HUD announced that the following decisions had been made as of that date.
1. Health Care Facility (e.g., nursing homes) documents would be published again for public comment (e.g., on issues such as treatment of accounts receivable financing) as proposed documents;
2. Revised documents other than documents pertaining exclusively to health care facilities (e.g., rental projects) would be published as final documents without further comment;
3. All revised documents would be updated periodically (e.g., every 3 years to coincide with renewal of Office of Management and Budget (OMB) numbers under the Paperwork Reductions Act);
4. Updates to revised documents that are needed more frequently than periodic updates will be made on a casebycase basis;
5. Recourse liability for Key Principals would not be a HUD requirement, as proposed in the documents in the August 2, 2004, Federal Register notice;
6. A clear definition of ``HUD Directives'' would be provided; and
7. The effective date for the revised documents would provide time for the processing of pending FHA mortgage insurance applications, as well as for training on the revised documents.
HUD was unable to complete the updating of the closing documents during the prior Administration. On June 1, 2009, HUD announced, on its Web site, that it would commence review of the multifamily rental project closing documents, as last revised by the prior Administration, and welcomed the public to review these documents along with HUD, as well as submit any informal comments on the revised closing documents. (See http://www.hud.gov/offices/hsg/mfh/mfhclosingdocuments.cfm.) The revised closing documents reflected most of the decisions previously made in response to public comments received on the August 2, 2004, proposed closing documents, but not necessarily all of the decisions announced in the August 2006 notice. The June 2009 Internet posting advised that the new HUD Administration had begun its review of the closing documents to consider changes that may be appropriate given policy decisions by a new Administration and in recognition of changes in the multifamily rental housing industry that had occurred since the documents were first proposed for public comment. HUD invited its industry partners, the legal community, and other interested members of the public to review the documents along with HUD and to submit informal comments to a specified email address.
II. This Notice
This notice identifies changes HUD has made to the proposed closing
documents since it last published them on August 2, 2004. This notice
also advises the public of changes proposed by the new HUD
Administration, which reviewed those documents in the context of
changed industry conditions since 2004 and 2006, and took into
consideration changes previously decided to be made, and the feedback
received through the June 2009 informal process. This notice summarizes
and responds to issues raised in the 2004 public comments and,
consistent with the Paperwork Reduction Act and HUD's own interest in
receiving further formal comment on the proposed closing documents,
solicits public comment on the revised closing documents. All of the
closing documents, which include the most recent proposed changes, are
posted on HUD's Web site at http://www.hud.gov/offices/hsg/mfh/ mfhclosingdocuments.cfm.
III. Overview of Proposed Policy Determinations and Changes Made to Closing Documents
In addition to identifying changes made to the closing documents to update terminology and improve clarity and comprehension, this section of the preamble highlights some of the more significant changes that were made to those closing documents published for public comment in August 2004.
A. Documents to Which No Changes Were Made
As will also be highlighted below, in the overview of key changes
to the closing documents, no substantive changes to the documents
published on August 2, 2004, were made to the following documents: Agreement of Sponsor to Furnish Additional Funds;
Bond Guaranteeing Sponsors' Performance;
Completion Assurance Agreement;
Escrow Agreement for Incomplete Construction;
Escrow Agreement for Latent Defects;
OffSite BondDual Obligee;
Request for Approval of Advance of Escrow Funds;
Request for Final Endorsement of Credit Instrument;
Residual Receipts Note Limited Dividend;
Residual Receipts Note Nonprofit;
In addition, no comments were received and no changes were made to the Supplement to Building Loan Agreement.
B. AcrosstheBoard Changes and Policy Determinations
Section 232 (Health Care Facility) Documents
As a result of the comments received on the 2004 proposed Section 232 closing documents, HUD has determined to revise these documents and publish them at a future date for additional public comment. [[Page 3546]]
The introduction of certain limited recourse liability for Key Principals in the 2004 proposed closing documents was opposed by several public commenters, and HUD's August 31, 2006, notice stated that HUD had decided not to include provisions for recourse liability of Key Principals. The revised closing documents posted on HUD's Web site on June 1, 2009, however, retained some of those provisions. Some of the informal comments again opposed inclusion of any recourse liability provisions, arguing that inclusion would dissuade individuals from participating in HUD insured multifamily housing transactions.
In light of the consequences that certain insufficiently regulated actions have had on the housing finance markets in recent years, and given that public funds are put at risk in HUD multifamily housing transactions, it is now HUD's position that it is appropriate for principals to have recourse liability for certain ``bad boy acts.'' Accordingly, these provisions continue to be included in the revised closing documents being issued for comment under this notice. Directives
One of the more significant changes made in revising the 2004 closing documents is to clarify the reference to the term
``Directives'' in the closing documents. Concern about the inclusion of this term and its meaning was an issue raised in many of the comments. At HUD's September 21, 2006, meeting to report on the status of the development of the closing documents, HUD advised that it would provide a clear definition of this term. While a clear definition has been provided in the revised closing documents being issued for comment under this notice, on further consideration, HUD has determined to use the term ``Program Obligations'' rather than ``Directives.'' HUD's view is that the term ``Program Obligations'' better captures what was intended by use of the term ``Directives,'' namely, to advise parties to the closing documents of the additional requirements, beyond those included in the documents themselves, to which they are expected to adhere. The language would define ``Program Obligations,'' as follows:
Program Obligations means all applicable statutes and
regulations, including all amendments to such statutes and regulations, as they become effective; and all applicable
requirements in HUD handbooks, notices, and mortgagee letters that apply to the Project, including all updates and changes to such handbooks, notices, and mortgagee letters that apply to the Project, except that updates and changes subject to notice and comment rulemaking shall become effective upon completion of the rulemaking process. Handbooks, notices, and mortgagee letters are available on HUD's official Web site (http://www.hudclips.org or a successor location to that site).
The advantage of this language is that it identifies the specific, longstanding, and familiar types of requirements (those in statutes, regulations, handbooks, notices, and mortgagee letters) to which the parties must adhere. To provide an additional level of assurance to commenters who expressed concern over the possibility that they would be required to comply with any future provision that HUD might issue in any manner, the definition also explicitly states that notice and comment rulemaking will be followed for any requirements that would be subject to such procedures. These procedures address concerns raised about adherence to future directives by the commenters, including concerns about conflicts with existing requirements, retroactive application of new requirements, or lack of time to prepare for transition to new requirements.
For example, the imposition of new or revised information
collection requirements (that is, generally new or revised forms) must
undergo the notice and comment processes required by the Paperwork
Reduction Act of 1995. From time to time, mortgagee letters or other
types of direct notices will be used to announce new binding
requirements. These documents are appropriate for announcements when
new legislation imposes requirements that are effective upon enactment
and leave HUD no discretion in implementation, and it is important for
HUD to relay this information to the industry as quickly as possible.
In such situations, mortgagee letters or other types of direct notices
are the best vehicles to relay this information to the industry and to
advise of implementation dates and provide implementation guidance,
including transition periods where applicable and permitted by statute
that may be helpful to the industry. From time to time, HUD may also
issue mortgagee letters or direct notices to announce clarifications,
interpretations, or certain procedural requirements, such as to which
HUD offices or HUD officials certain types of executed documents must
be submitted. In brief, HUD will follow the applicable procedures, as
directed by statute or regulation, that govern issuance of a document
which may announce additional policies, processes, forms, or standards to which parties to the closing documents must comply.
C. Changes Made to Specific Documents and Addition of New Document
This section C of the preamble describes changes made to the proposed closing documents since they were published for comment on August 2, 2004, including changes in response to formal comments on the August 2, 2004, proposed closing documents, changes in response to informal public comments on the revised closing documents posted on June 1, 2009, and changes proposed by the new HUD Administration, which reviewed the documents in the context of changed industry conditions. Citations to specific sections or paragraphs of the closing documents refer to the versions of documents currently posted on HUD's Web site and may differ from the section or paragraph designation in which the relevant provision appeared in prior versions of the documents.
In addition, this section C of the preamble addresses a new Subordination Agreement that HUD is proposing to require on affordable housing transactions with government subordinate debt. The Subordination Agreement would replace the rider to the subordinate note that HUD presently uses.
Agreement and Certification Changes
1. In section 4, inserted ``managers, managing members, members'' to the Borrower entity which may have an identity of interest with the Architect or General Contractor that must be disclosed to HUD.
2. Removed section 14 that required the General Contractor and Borrower to certify that there were no undisclosed side agreements. Borrower's Oath Changes
1. Added a new section 4 to require the Borrower to certify that it has not and will not enter into any agreement with any party other than the Lender that allows perfection of any security interest in the Uniform Commercial Code (UCC) Collateral through control under the UCC. This change is in accordance with revisions to Article 9 of the UCC.
2. In response to informal public comment, added a new provision
regarding knowledge of proposed laws and ordinances that would affect
the project. This provision has been removed from Opinion of Counsel to
Borrower and added to the Borrower's Oath, because the Borrower is in a better position to have the relevant knowledge.
Building Loan Agreement Changes
1. Clarified paragraph 4(c) by inserting language related to ``over and above'' funds.
2. Removed paragraph 19 because it contained references to personal liability of Borrower.
3. Revised paragraph 5 to change the reference to a new Exhibit B, which will list applicable charges or items to which advanced funds are to be applied.
4. Revised paragraph 9 to provide that the covered acts constitute abandonment, and to define more precisely what acts constitute abandonment.
Construction Contract Changes
1. Inserted a subsection (11) to Article 2 that adds any HUD approved change orders.
2. Inserted the following parenthetical, instructional language into Article 4(d): ``(Insert that portion of the sum of interest, taxes, insurance, and Mortgage Insurance Premium that appears in section G of HUD92264 attributable to the construction period. If there has been a change in the interest rate charged for the construction period (see footnote designated \(**)\ on page 1 of HUD 92443), the dollar amount included in section G of HUD92264 must be adjusted. The adjusted amount must be reflected in the savings computation.) Furthermore, the procedures set forth in footnote designated \(**)\ on page 1 of HUD92443 must be followed.''
3. Added language to Article 6(d) that this section is applicable only if ``permitted under state law.''
4. Added language to Article 7(c) that the land survey map must be prepared in accordance with American Land Title Association/American Congress on Surveying and Mapping (ALTA/ACSM) standards and the HUD Surveyor's Report. Language is also added in the same section that if the Contractor has deviated from the Plans and Specifications, the Contractor will be responsible, at its own expense, for correcting any such deviations.
5. In Article 2(9), revised the designation for the wage determination number and date to include the modification number and date.
6. In Article 2, added a new paragraph 12 to add ``any side
agreements disclosed to HUD'' to the list of Contract Documents. Escrow Agreement for Operating Deficit Changes
1. Changed the term ``sponsor'' to ``maker.''
2. In accordance with a request in an informal public comment, revised section 4 to provide a definition of Sustaining Occupancy, which provides that Sustaining Occupancy must have been maintained for 10 of the prior 12 months.
3. In response to an informal public comment, revised section 5 to permit the Lender to draw upon a letter of credit in escrow and convert it to cash, provided that interest accrues to the relevant account. Escrow Agreement for Noncritical Deferred Repairs Changes
1. Inserted a new section 4 to clarify how disbursements from the escrow are to be authorized by HUD.
2. Inserted a new section 11 that Lender will hold and disburse the escrow at HUD's direction.
Escrow Agreement for Working Capital Changes
1. In section 1, added ``and/or'' after the checkbox for ``cash'' to show HUD's new policy of allowing a mixture of cash and a letter of credit.
2. In section 3, removed the language that interest earned on the escrow deposit would be returned to Borrower.
3. Modified section 3 to indicate that the remaining balance of the escrow funds would be returned to Borrower after the date of sustaining occupancy.
4. Removed section 4, in accordance with section 2834 of the Housing and Economic Recovery Act of 2008 (Pub. L. 110289, approved July 30, 2008), which prohibits HUD from requiring the deposit into escrow of equity from Low Income Housing Tax Credits. The remaining sections have been renumbered accordingly.
5. In section 6, removed the language ``together with interest'' to be consistent with the changes in section 3.
Guide for Opinion of Borrower's Counsel Changes
In connection with HUD's effort to revise the closing documents, HUD also analyzed considerable public comment upon the Guide, as well as ongoing comments by users and the public in the years that the Guide has been in use. The public comment has been invaluable in an effort to bring the Guide into compliance with more modern opinion practice, while simultaneously recognizing the singular and unique role of an attorney representing a Borrower in a HUD mortgage insurance transaction in the areas indicated above.
1. In the introductory section, removed the sentence that describes how the loan is to be funded.
2. In section G, added language that HUD should be listed as secured party, as its interest appears.
3. In section LL, added language to include financing from ``other third party sources.''
4. Removed section ``NN,'' which required review by counsel of the architect's certificate.
5. In new section ``NN'' (old section ``OO''), added ``managing member, or similar person or entity of Borrower'' to subsection (iii).
6. In section 2, removed language that has counsel opining as to
whether Borrower possesses all necessary governmental certificates,
permits, licenses, qualifications, and approvals to own and operate the Property.
7. Removed section 4.
8. Removed section 9.
9. In section 13 (now new section 11), added ``as its interest appears'' with respect to HUD and Lender.
10. Removed section 14 and moved it to the Lender's Certificate (formerly the Mortgagee's Certificate), because it is more appropriate to have the Lender certify that the Loan does not violate usury laws than to have counsel to Borrower certify this item.
11. In the last portion of the Guide, where counsel certifies certain items, removed sections (e) and (g) and added in (d) a reference to interests disclosed and ``approved.''
12. In response to informal public comments, removed opinions that are more appropriately rendered by other parties. For example, the Lender, rather than Mortgagor's counsel, is responsible for UCC filings, so the relevant provisions have been added to the Lender's Certificate. Additionally, section 6, regarding proposed laws and ordinances that would affect the project, has been removed and added to the Borrower's Oath.
13. Moved the substance of section 9, regarding pending litigation and claims, to confirmations section (h), since it pertains to a factual matter rather than a legal opinion.
14. Provided for signature of the opinion by an authorized partner of the law firm.
Instructions to Guide for Opinion of Borrower's Counsel
Revised the instructions in accordance with changes to the Guide for Opinion of Borrower's Counsel, which are described above. Exhibit ACertification of Borrower
1. Changed section 3 to be in conformity with revised Article 9 of the Uniform Commercial Code (UCC).
2. Added a new section 4 identifying the state where Borrower was formed.
3. Moved section originally designated as 7 (before addition of new section 4, noted immediately above), which contained certification for sources of funds, to section 20(e) of the Lender's Certificate. HUD Amendment to AIA Document B181 Between Owner and Architect Changes
In former section 10, now section 11, inserted ``partners, managers or member'' to explain where an identity of interest could exist. Lease Addendum Changes
Clarified the document to show that this Lease Addendum is to be used for a transaction where the mortgage is secured by a ground lease and is not to be used for the lease of commercial space.
Mortgagee's Certificate Changes
1. Changed the title of the document from ``Mortgagee's Certificate'' to ``Lender's Certificate,'' to be consistent with the change in all documents that provides for using the term ``Lender'' instead of ``Mortgagee.''
2. Added language to section 1 and a new section 3 that make all successors and assigns of the Lender bound by the Lender's Certificate. Succeeding sections have been renumbered accordingly.
3. Removed first checkbox item in section 11, which has been redesignated as section 12.
4. Added language in section 13 that Borrower represents and warrants to Lender that no UCC filings have been made against Borrower prior to the initial or initial/final endorsement of the Note by HUD.
5. Changed language in section 14 to allow other investments approved in writing by HUD.
6. Revised section 16 to indicate that Lender agrees to obtain HUD's approval and consent when needed, as set forth in the Security Instrument, and to furnish HUD with all reports and data as set forth in the Security Instrument.
7. Revised section 20(f) to require the lender to disclose the amount of any trade profit that is to be collected in a transaction. Trade profit, also known as a ``premium'' or ``marketing gain,'' is the amount of additional funds, over and above the mortgage amount, paid by the purchaser of the mortgage backed securities that are used to fund the HUDinsured loan. The funds are paid in recognition of the difference between the mortgage interest rate used in the HUDinsured loan and what would generally be available at par in the market at any given time.
8. Added, as section 30, a new certification of Lender that Borrower possesses all necessary governmental certificates, permits, licenses, qualifications, and approval to own and operate the Property. This provision was formerly a part of the Opinion of Counsel to the Borrower.
9. Added, as section 31, a new certification of Lender that Borrower has furnished Lender with copies of all authorizations, consents, approvals, and permits from all necessary jurisdictions and courts.
10. Added, as section 32, a new certification of Lender that Lender has reviewed the title policy for any liens not reflected as exceptions to coverage in the title policy.
11. Added, as section 33, Lender's agreement that violations under the Regulatory Agreement will be treated as a default under the Security Instrument only when HUD requires Lender to do so and that Lender may accelerate the debt only upon the direction of HUD when there is a default under the Regulatory Agreement.
12. Added a section that Lender agrees to require Borrower to keep the Mortgaged Property insured at all times.
13. Added a section that Lender certifies that the insured loan does not violate usury laws.
14. Added a section that Lender certifies that, if there is a sale or transfer of all or a partial interest in the Note or a change in the Service Provider, Lender shall ensure that Borrower is given notice of this change.
Multifamily Regulatory Agreement Changes
1. Changed definitions of Fixtures, Mortgaged Property, Personalty, and Principals to be consistent with the Security Instrument definition.
2. Changed definition of Elderly person to be consistent with the definition in the current Regulatory Agreement.
3. Changed the definition of Mortgaged Property to add items (6) insurance policies and (16) deposits and escrows under collateral agreements.
4. Subject to the additional change described below in item number
21, changed the definition of Reasonable Operating Expense to include routine repairs.
5. Changed definition for Rents.
6. Added definition for Waste consistent with the Security Instrument.
7. Added provision to section 13, ``Property and Operation;
Encumbrances'' that Borrower must notify HUD of any bankruptcy filing
or insolvency or reorganization or the retention of any attorneys,
consultants, or other professionals in anticipation of such a filing
(versus an absolute prohibitionHUD is merely giving them notification
requirements), that Borrower must notify HUD of all payments received
from an insurer and that tax penalties shall not be charged to the Project.
8. Removed section 17.
9. Added provision to section 23 (now designated section 22), ``Management Agreement,'' that a management agreement cannot be assigned without prior written HUD approval.
10. Changed section 26 (now designated section 25) to require that contracts for goods, materials, supplies, and services be obtained at costs, amounts, and terms that do not exceed reasonable and necessary levels and those customarily paid in the vicinity, and that the purchase price is based on quality, durability, and scope of work and shall be most advantageous terms to Project operation.
11. Removed the thirdparty beneficiary provision from section 28 (now designated section 27).
12. Revised and combined sections 34, 35, 36, and 37 into one section.
13. In section 37(k) (previously designated section 42(k)), changed the litigation costs from $25,000 to $100,000 and qualified its application to situations not funded by proceeds from professional liability insurance.
14. Section 44 has been redesignated section 39, and previous section 44(g), allowing HUD under certain circumstances to direct Borrower to replace certain parties, has been removed.
15. Changed section 46, now designated section 41, to revise references to personal liability of any entity or person and to provide for personal liability of listed Key Principals under the stated circumstances.
16. In section 47, now designated section 43, removed language at end of section regarding tenant protection rights.
17. Revised section I.1.a to define ``Affiliate,'' by cross referencing to the definition of ``Affiliate'' in 24 CFR 200.215(a).
18. In section I.1.s, revised the definition for NonProfit
Borrower, to provide that the term means an entity that is treated
under the firm commitment as an entity organized for purposes other
than for profit or gain, pursuant to section 501(c)(3) or other
applicable provisions of the Internal Revenue Code of 1986. This change
responds to an informal public comment and recognizes that in most cases a borrower that meets the
requirements of the Internal Revenue Service (IRS) for notforprofit entities will also meet HUD's requirements, but that there are some circumstances in which a notforprofit entity will not be treated as a NonProfit Borrower.
19. In section I.1.w, revised the definition of ``Principal,'' to cross reference to the definition of ``Principal'' in 24 CFR 200.215(e). This change is consistent with that made to the Security Agreement, discussed above.
20. In section I.1.x, revised the definition for ``Project Assets''. This change responds to informal public comments and provides a clearer distinction between funds that are subject to HUD requirements and funds that are not.
21. In section I.1.bb, revised the definition for ``Reasonable Operating Expenses'' to crossreference Program Obligations.
22. Revised section 11.c to clarify that the Borrower must provide for investment of Reserve for Replacement funds in accordance with Program Obligations. This change responds to an informal public comment stating that the Borrower does not have direct control over funds that remain in the possession of the Lender.
23. In response to an informal public comment, revised section 11(e) to clarify that the reference is to ``this Agreement'' and to remove the word ``charter.''
24. Added a section 11.f to clarify that upon satisfaction of all HUD obligations, the Borrower shall receive any remaining Reserve for Replacement funds, so long as HUD has determined that all other obligations have been paid. This change responds to an informal public comment requesting that the disposition of such funds be clarified.
25. Revised section 15 to provide that upon completion of all repairs, HUD may permit escrowing of Distributions, pending inspection of the Project.
26. Revised section 22 to remove the requirement for management agreements to be approved in writing by HUD, but provides that they must be consistent with Program Obligations.
27. Revised section 32(a) to permit the Borrower to exclude children in certain projects, in accordance with Fair Housing Act requirements and as approved in writing by HUD. This change responds to an informal public comment stating that the previous language seemed to prohibit housing designated exclusively for elderly persons.
28. Revised section 37(j) to provide a nonexhaustive list of amendments to the organizational documents that require prior HUD approval, and to require copies of all amendments to the organizational amendments that must submitted to HUD within specified time frames. This change responds to an informal public comment suggesting that some changes to organizational documents are immaterial to HUD and should not require prior HUD approval.
29. Revised and consolidated the signature block and certification so that the Borrower's principals are required to sign the Regulatory Agreement only once. Although HUD disagrees with an informal public comment that the certification serves to expand upon standard recourse carveouts, HUD agrees that the signature block should be consolidated so that multiple signatures are not required.
Note: 1. The reference to Healthcare Facility has been dropped from the title of the document.
2. Added new section 8(d) regarding Borrower's obligation to indemnify under section 51, now designated section 49, of the Security Instrument.
3. An alternative section 9(a)(1) has been added to provide that the prepayment lockout language will be included in a rider to the Note that will provide appropriate language for the particular transaction involved because it is not possible to include all forms of lockout provisions in the Note.
4. Revised section 7, Late Charge, to provide that the late
charge applies when the lender does not receive payment within 10
days after the payment is due. The change responds to an informal
public comment that suggested that standardizing the time when the
late fee applies would facilitate compliance by Ginnie Mae issuers with their obligation to make payments to investors.
Request for Endorsement of Credit Instrument Changes
I. Certificate of Lender:
1. Redesignated section 14, in which Lender certifies that the insured loan does not violate usury laws, as section D.13.
2. Removed section 28 related to offsite components and the filing of UCC financing statements.
3. Redesignated section 32 as new section A.14.
4. Redesignated section 33 as new section A.13.
5. Redesignated section 34 as new section A.9.
6. Redesignated section 35, which states that if the Security Instrument is assigned to HUD, HUD is not bound by the requirements of this document, as section A.12.
7. Revised section 13 to reflect additional lender responsibilities and required representations related to UCC security interests, including performance of UCC searches and the perfection and maintenance of UCC security interests. The provisions have been removed from the Guide for Opinion of Borrower's Counsel to reflect that the Lender, rather than Mortgagor's counsel, is responsible for these UCC matters.
8. Revised section 15 to remove the requirement for the Lender to notify HUD when it knows that the Borrower is not in compliance with Program Obligations with respect to Residual Receipts. The change responds to an informal public comment stating that the Lender is not likely to know whether or not the Borrower has deposited the correct amounts with the Lender.
9. Revised section 38 to clarify the definition of Finance Charges.
10. Added section 40, in which the Lender certifies that a
perfected first lien security interest has been established in favor of the Lender and HUD.
II. Certificate of Borrower:
1. Removed sections 1, 3, and 5.
2. Added a new section B.4 regarding UCC filings. Security Agreement Changes
1. Changed title from ``Multifamily/Health Care (Mortgage, Deed of Trust, or Other Designation as Appropriate in Jurisdiction) Assignment of Rents and Security Agreement'' to ``Multifamily (Mortgage, Deed of Trust, or Other Designation as Appropriate in Jurisdiction) Assignment of Leases and Rents and Security Agreement.''
2. Replaced the term ``Directives'' with ``Program Obligations'' and provided a definition for ``Program Obligations.'' (Please see discussion of ``Directives'' and ``Principal Obligations'' earlier in this preamble.)
3. Changed the definition of ``Mortgaged Property'', now designated section 1(y), to add insurance policies to section 1(y)(6).
4. Added as section 1(y)(16) in the definition of ``Mortgaged Property,'' that all deposits and/or escrows held by or on behalf of the Lender under collateral agreements are part of the Mortgaged Property.
5. Changed the definitions of ``Fixtures'' and ``Personalty'' to be consistent with the revised Article 9 of the UCC.
6. Changed definition of ``Waste.''
7. Changed section 6, ``Exculpation,'' to indicate that no personal liability is being imposed on Borrower except such judgment or decree as may be necessary to foreclose or bar Borrower's interest in the Mortgaged Property and all other property mortgaged, pledged, conveyed, or assigned to secure payment of the Indebtedness.
8. Removed section 9 dealing with collateral agreements, moved text to section 7(c), and renumbered remaining sections.
9. Added ``upon reasonable notice'' to the notice provision in section 14, which previously was designated as section 15.
10. Revised the introductory language of section 15(b) (section 15 was previously designated as section 16) to clarify that Borrower provides the listed information for review by Lender, added new section 15(e) and redesignated section (e) as section (f), and redesignated remaining section accordingly.
11. Removed section 20 (Management Contracts) and renumbered remaining sections.
12. Added to section 23 (renumbered as section 21) new sections (d) and (e) to address ownership changes due to corporate restructuring and firstuser syndications, respectively.
13. Removed section 22(b)(5) (section 22 was previously designated section 24), which included bankruptcy as a Class B Event of Default.
14. Removed from section 40, previously designated as section 42, the waiver of Borrower rights concerning disclosures of information.
15. Removed section 51(b)(i) and (ii) (section 51 is now redesignated as section 48) and renumbered remaining sections. Additional changes to the environmental requirements in section 51, now redesignated section 48, are discussed in the responses to the public comments on these requirements that appear below in this preamble.
16. In section 1, revised the definition of Principal to cross reference to the definition of this word in 24 CFR 200.215(e). This change responds to an informal public comment that expressed concern about uncertainty that might arise from inconsistent definitions.
17. In section 2, updated provisions governing the perfection of security interests, in accordance revised Article 9 of the UCC.
18. Removed section 4(f)(3), which set forth provisions that must be included in telecommunications leases. This change responds to an informal public comment stating that the conditions were too prescriptive, and allows approval of any proposed nonresidential lease to be considered by HUD on a casebycase basis.
19. Revised section 21 to permit the Lender to charge the Borrower a fee, in accordance with Program Obligations, for the Lender's increased responsibilities in reviewing a proposed transfer of physical assets. This change responds to informal public comments expressing concern that a Lender should not be expected to perform additional responsibilities without reasonable compensation.
20. In response to informal public comment, clarified section 22(a), by replacing the potentially confusing term ``grace period'' with the term ``period.''
Surplus Cash Note
1. In response to an informal public comment, revised the introductory paragraph to provide for the possibility of semiannual payment.
2. In response to an informal public comment, revised paragraph 7 to clarify that the Surplus Cash Note shall not be prepaid, except from nonProject sources and with written approval from HUD.
HUD Survey Instructions and Report Changes
Changed reference to the land Title Surveys standards of the ALTA and ACSM from the 1999 version to the 2005 version.
Supplementary Conditions of the Contract for Construction
Changed article 1.B.3(ii) regarding the required submission of
payroll records without individuals' Social Security numbers and
addresses. The change conforms to revisions to Department of Labor regulations at 29 CFR 5.5.
Additional Proposed Closing Document: Subordination Agreement
HUD is also proposing to require a new Subordination Agreement on affordable housing transactions with government subordinate debt. The Subordination Agreement would replace the rider to the subordinate note that HUD presently uses. Use of a HUDproscribed form of Subordination Agreement is consistent with the established practice in the wider lending industry and better protects HUD's security in the real estate. The Subordination Agreement contains specific conditions on allowing the subordinate debt in order to protect HUD's first lien security. The Subordination Agreement is more expansive than the Rider, and it addresses a variety of legal issues that arise in the relationship between senior and subordinate lenders. Finally, the Subordination Agreement is a recorded instrument that appears in the chain of title and is easily located and amended to accommodate unique loan issues that may be important to the subordinate lender and acceptable to HUD. IV. Discussion of Public Comments
The public comment period on the August 2, 2004, notice closed on
October 1, 2004. HUD received 25 comments on the notice. Comments were received from law firms, mortgage companies, and industry
organizations. In addition, five comments were submitted after the close of the comment period. Although submitted after the comment period, HUD reviewed these comments to determine whether issues were raised that had not been raised by the timely submitted comments.
The following discussion presents the significant issues, questions, and suggestions submitted by the public commenters and HUD's response to these issues, questions, and suggestions. The discussion first addresses general comments, then comments that address particular documents. The section or paragraph of a document addressed by the comment is also identified. For consistency, the term ``section'' rather than ``paragraph'' is used throughout the discussion. This discussion addresses comments received in response to the closing documents when they were published for public comment on August 2, 2004, but does not provide individual responses to informal public comments on the revised closing documents posted on June 1, 2009. Citations to specific sections of the closing documents in the summaries of public comments, below, refer to the versions of closing documents originally published for public comment on August 2, 2004. HUD's responses to the public comments below reflect the versions of closing documents currently posted on HUD's Web site. Section designations and substantive provisions may differ from versions of the closing documents previously published in the Federal Register; discussed in the August 31, 2006, Federal Register notice or at the September 21, 2006, public meeting; or posted on HUD's Web site on June 1, 2009.
As noted above in the discussion of HUD's August 31, 2006, notice
and September 21, 2006, meeting, the Section 232 Health Care Facility
documents will be published again for public comment. The comments
received on the Health Care Facility documents will be discussed when these documents are published again for public comment.
Comment: While some commenters commended HUD for providing a notice and comment opportunity on the
revised documents, other commenters wrote that the 60day comment period was not a fair and reasonable response time frame considering the magnitude of the changes proposed. Commenters asserted that there had been virtually no private sector discussion on matters that FHA must have known would raise serious industry concerns and expressed concern that while many of the changes may be appropriate, without careful coordination, there will be unplanned consequences and conflicts with existing HUD documents, many of which may be to HUD's detriment. Several commenters requested additional time for consideration of the documents and the submission of comments.
HUD response: Since HUD is issuing revised closing documents once again for public comment and allowed for informal comment in 2009, the concern raised by the commenters is no longer relevant. Clearly, to date, HUD has provided more than 60 days to review revised closing documents. Nevertheless, HUD found this concern not to be accurate as applied to HUD's 2004 notice soliciting comment on revised closing documents. When HUD published revised closing documents for comment in 2004, HUD's plans to revise these documents were already well known in the private sector for a considerable period of time before the publication of the 2004 revised documents. This was recognized by several commenters who noted, in their comments on the 2004 documents, the long gestation period for revised closing documents to be issued. As the preamble to the proposed revised documents published in 2004 noted, HUD determined how the forms could be revised with input from HUD attorneys, FHA multifamily lenders, and counsel to parties to HUD insured transactions. Drafts of proposed revised closing documents were first posted on a HUD Web site at the end of March 2000, and comments were solicited from the public and industry representatives. In response to the many comments received at that time, significant changes were made to several of the draft documents, and those changes were incorporated in the proposed closing documents published for comment on August 2, 2004.
With issuance once again of revised closing documents with a 60day period to public comment, and given the opportunity in June 2009 to further comment on revised closing documents, HUD believes that the adequacy of opportunity to review and comment on revised closing documents should no longer be an issue. Given the breadth of the public comments received, it does not appear that any significant issue has been overlooked. With respect to the careful coordination of changes to the documents to avoid unplanned consequences and conflicts, HUD has strived to assure clarity and consistency throughout the documents. As part of this assurance, it is HUD's intent to undertake regular, periodic review of the documents to revise and update them. Proposed Documents Contain Profound Policy Changes That Have Not Been Adequately Debated
Comment: Commenters stated that the documents contain major and minor changes in policy and requirements; that there are dozens, perhaps hundreds, of changes not related to modernization. The commenters stated that certain regulations and several major closing documents are being so radically changed that successful, longstanding HUD policy and practice are being reversed with little or no justification and without apparent consideration for the practical impact on affordable housing production, lenders, borrowers, and residents. The commenters stated that there is little or no evidence that these changes are necessary to reduce the level of insurance claims and HUD's losses on claims, and that the tone created by the documents is one of great distrust. Other commenters stated that it may be the inadvertent result of trying to fit the Freddie Mac loan documents to the HUD programs, or a deliberate focus on the complete elimination of any risk to HUD without regard to the impact on the market. The commenters stated that if there is no difference between the programs of HUD and Government Sponsored Enterprises (GSEs), it could be argued there is no need for HUD programs at all.
HUD response: The programs that HUD administers must be conducted in accordance with statutory and regulatory requirements that govern such programs, and in that way HUD's programs will always differ from the lending programs offered by private entities. One of the primary differences between HUD programs and those of private lenders is demonstrated by the opportunity for review and public comment on significant changes made to HUD programs, including changes that HUD makes after consideration of the comments before adopting changes in final rules.
While HUD studied the Freddie Mac closing documents as a current and widelyused model, HUD's revised closing documents differ from that model. Within the parameters of its statutory and regulatory mandates, HUD's goal in revising its multifamily housing closing documents is to develop forms that are consistent with existing HUD administrative policy and that are also consistent with modern lending and credit enhancement practices. The forms currently in use and that are proposed to be replaced by the revised closing documents have not been changed in any significant fashion since the 1960s. The tone of distrust perceived by some of the comments may reflect, in part, the changes in lending practices over the more than 40 years since the documents have been revised. The issue from HUD's perspective is not one of trust or distrust, but recognition of responsible practices in which the reasonable expectations of the parties are informed by the transparency of the transaction, and in which obligations and outcomes are clear.
Comment: Several commenters wrote that Fannie Mae and Freddie Mac regularly negotiate, modify, and waive certain provisions in their form documents, to tailor them to the deal at hand, and asked if HUD is equipped to negotiate these documents to any extent.
HUD response: HUD is not a lending entity and does not negotiate
directly with Borrowers. However, the revised closing documents are not
absolute in their requirements. The documents often make reference to
actions or events that are subject to HUD approval. Some documents also
contain instructions about permitted transactional changes. To that
extent, the documents provide a degree of direction with respect to modification or waiver.
Proposed Documents Add Significant Expense and Administrative Burden
Comment: Commenters wrote that among many new obligations, the
proposed modifications would require the mortgagee to notify HUD of
Regulatory Agreement violations and to review Transfer of Physical
Asset requests; the proposed Security Instrument would require the
borrower to provide and the mortgagee to collect extensive books,
records and financial data; the proposed modifications to the
Regulatory Agreement would impose new categories of actions that a
borrower cannot take without obtaining HUD approval; and the proposed
modifications to the Escrow Agreement impose new responsibility upon
the mortgagee for approving escrow advances. The commenters stated that
these additional burdens are imposed without any mechanism for compensation for the added expense
and without any staffing increases at HUD. The commenters further stated that additional monitoring and processing requirements are not needed to protect or preserve the properties.
HUD response: HUD has made a deliberate effort to include, in the revised closing documents, provisions that specify the oversight and diligence that a reasonable, prudent lender would observe in the usual course of business, that reflect current policy, and that do not add significantly greater burdens. As such, HUD is not requiring extraordinary measures that impose extraordinary costs, but is only memorializing good practice in a uniform template to provide clarity of expectation and a level playing field to all lenders.
Comment: Several commenters wrote that they believed that current HUD staffing, structure, and resources are not adequate to accommodate the everyday demands and consequences of the proposed documents and regulations.
HUD response: HUD has considered that there will likely be at least an initial increase in the demands upon its resources as a result of the revised documents and regulations, and will allocate the resources necessary to address them.
Comment: The documents lack standards for HUD staff to apply in considering various approval requests.
HUD response: HUD will apply the standards of reasonableness and good cause, as it does in considering regulatory waivers (see 24 CFR 5.110). Where more particularized standards become necessary, HUD will provide for them in handbooks or regulations, as appropriate.
Comment: Several commenters wrote that HUD insurance programs could well become solely an ``option of last resort.'' Increased operations oversight and regulation on unsubsidized projects will further frustrate profitmotivated owners and discourage use of the program. As the quality of the HUD portfolio diminishes, there will be a higher percentage of defaults.
HUD response: HUD does not consider that any owners will be
discouraged from participating in HUD's programs, particularly after
the changes made to the revised closing documents in response to public comment. HUD expects that the resulting consolidation and
simplification of requirements will not only encourage increased participation, but will result in better supervision of loans and a reduction in claims. In addition, as this preamble and changes to the revised closing documents reflect, HUD has responded favorably to numerous public comments. One of the main objections was in the area of the regulation of healthcare facilities. As stated earlier in this preamble, HUD has separated those closing documents pertaining exclusively to healthcare facilities from the rental housing documents for further analysis and later public comment.
Comment: Commenters stated that potential borrowers like the long term, fixedrate, noncallable programs at very competitive rates and limited recourse that HUD programs offer. Commenters stated that they are willing to tolerate nontraditional costs and impediments/irritants such as annual audits, extra origination expenses, restricted profit payments, inspections by HUD's Real Estate Assessment Center (REAC), management review, and inconsistent timeliness and processing requirements. The commenters stated that advantages of longterm, fixedrate noncallable programs will be overcome by the detrimental consequences of the proposed recourse liability for Borrowers, Principals, and yettobe defined Key Principals; increased liability issues; increased potential for HUD micromanagement; additional duties with no further remuneration; and the opportunity to be sued more often.
The commenters stated that proposed changes will render HUD programs uncompetitive and unworkable for many Borrowers, including Low income Housing Tax Credits (LIHTCs) and nonprofit Borrowers, thereby reducing the number of new construction projects, which will drastically reduce the current job and tax base growth across the country.
HUD response: Please see the immediately preceding comment and HUD response. As discussed above, HUD has determined not to include broad recourse liability in the revised proposed closing document but has retained recourse liability for certain ``bad boy acts.''
Residual Receipts and Nonprofit Sponsors
Comment: No public purpose is served by limiting nonprofit sponsor access to project surplus cash, which discriminates against this sector and only makes nonprofit sponsor operations more confusing and problematic.
HUD response: Consistent with current practice, a nonprofit entity may elect to be treated as a forprofit entity. Nonprofits may elect to utilize certain programs that are limited to nonprofit and/or limited distribution mortgagors because of the benefits provided to such mortgagors, e.g., 100 percent mortgages versus the 90 percent mortgages typically available to profitmotivated entities. An example of such a program is the section 221(d)(3) program (section 221(d)(3) refers to section 221(d)(3) of the National Housing Act). In section 221(d)(3) transactions, HUD must regulate such nonprofit entities to a greater extent than HUD regulates profitmotivated or general mortgagors. If, on the other hand, a nonprofit elects to utilize a program designed for profitmotivated or general mortgagors, e.g., the section 221(d)(4) program, the nonprofit would be regulated in the same fashion as the profitmotivated entity. In such instances, the nonprofit entity would be entitled to distributions under the HUD regulations. HUD has always added the caveat that nonprofits still would be subject to any Internal Revenue Service (IRS) regulations as to distributions.
Comment: A theme through most of the new closing documents is the requirement to comply with HUD ``Directives.'' At a minimum, commenters urged that HUD expressly limit the definition of applicable Directives to those that do not conflict with regulations in effect at the time of commitment issuance and establish a protocol to ensure that any such Directives are: (a) Developed with adequate notice and comment and (b) widely disseminated and published by HUD in a manner reasonably calculated to ensure that the entire HUD Multifamily Accelerated Processing (MAP) lender community, current and prospective borrowers, and the general public have affirmative notice. Commenters stated that mere posting of such proposals or changes on HUD's Web site would not be sufficient.
HUD response: As discussed above under the heading of ``Across the Board Changes,'' HUD's use of ``Directives,'' now called ``Program Obligations,'' is defined in a manner to address the commenters' concerns and assure that adequate notice and comment is provided. Definition of New Terms
Comment: Several new and material terms (for example, ``Directive,'' ``Affiliate,'' and ``Key Principal'') lack clear definition, which can result in uncertainty and unfairness.
HUD response: As noted in the discussion of article definitions,
HUD has revised many definitions in response to the public comments
received. HUD will continue to clarify the terms used, as may be necessary, in
the course of HUD's periodic review of these documents.
Exhibits To Be Removed From Closing Checklist
Comment: The following application exhibits should be removed from the HUD closing checklist, as redundant: HUD 2010; Title VI Certification; LIHTC Certification; Byrd Amendment Certification; Owner's Certification Regarding Architectural and Engineering Fees; and Identity of Interest Certification (other than HUD93306M).
HUD response: The HUD closing checklist was not one of the documents published in the Federal Register for notice and comment in 2004, and it is not being published under this notice for comment. This is a document that is tailored to the needs of each closing. HUD Multifamily Security Instrument HUD94000M
Comment: One commenter wrote that the necessary statespecific components of the Security Instrument also demand notice and comment. Another commenter asked if there are any provisions giving the beneficiary the right to appoint a successor trustee or requiring the borrower to receive, at the address shown in the Deed of Trust, a Notice of Default from the beneficiary.
HUD response: The statespecific components are imposed by state law, not by HUD, and are not subject to HUD's notice and comment requirements. Similarly, the provisions that are the subject of the commenter's inquiry are governed by state law and would be covered, as necessary, by the statespecific components.
Comment: The definition of Building Loan Agreement in section 1(b) should provide that references to the Building Loan Agreement may be removed if not applicable, for example, in refinancing transactions.
HUD response: Redesignated Section 47 (section 50 in the proposed document), the only section of the Security Instrument in which the term Building Loan Agreement is used, has been qualified by adding, ``(If Applicable)'' to the heading of that section. Therefore, a determination of whether the section applies will be made on a caseby case basis.
Comment: A definition should be added for ``Business Day'' as ``any day other than a Saturday, a Sunday or any other day on which Lender or HUD is not open for business.''
HUD response: Business Day is added as a new definition at section 1(c) with a crossreference to section 31, which includes the definition suggested by the commenter; it is the only section in which the term Business Day is used.
Comment: A commenter wrote that under section 1(c), agreements of Lenders and Borrowers that are proprietary in nature should not be included in the definition of ``Collateral Agreement.''
HUD response: HUD does not agree that proprietary, or any other, agreements should be excluded from the definition of Collateral Agreement, because HUD needs to have access to all documents to understand the risk that it is underwriting. The definition of Collateral Agreement has been moved to section 1(e).
Comment: Collateral Agreement should be defined as ``any separate agreement between Borrower and Lender (excluding the Note, this Security Instrument and the Building Loan Agreement, if any) for the purpose of establishing and/or maintaining any reserves, escrows and/or funds that are required by Lender and/or HUD in connection with the Mortgaged Property (including, but not limited to, reserves, escrows and funds for repairs, replacements, improvements, offsite improvements, demolition, assurance of completion, working capital, minor moveable equipment, operating deficits, debt service reserves and/or sinking funds), as the same may be amended, modified, renewed, extended, replaced and/or supplemented from time to time.'' This definition better harmonizes with the scheme of insurance closings and documentation, and it is broadened to eliminate the need to identify specifically the agreements that are captured within this definition.
HUD response: This suggested revision broadens the definition of Collateral Agreement by providing a greater number of examples of agreements that may be covered by the definition, but it also narrows the scope of the definition by limiting the covered agreements to reserves or escrows ``required by Lender and/or HUD.'' The current language is broader in scope in that it is ``not limited to those reserves and escrows required by HUD.'' The suggested revision is not consistent with the goal of full disclosure of, and approval for, all agreements executed in connection with the Mortgaged Property, which is necessary for HUD to make valid judgments about the risk it is underwriting. The original proposed language has, therefore, been retained.
Comment: A definition should be added to state, ``Condemnation has the meaning ascribed thereto in section 22(a).''
HUD response: HUD believes the term ``Condemnation'' is widely understood and thus unnecessary to define.
Comment: A definition should be added to state, ``Contract of Insurance means the contract between the Lender and HUD whereby HUD insures the Borrower's repayment of the Loan to Lender pursuant to the National Housing Act, as amended, the Department of Housing and Urban Development Act, as amended, and all other federal laws and regulations pertaining to HUD's insurance of the Loan, all applicable Directives, and HUD's commitment to insure the Loan.''
HUD response: HUD has added Contract of Insurance as section 1(g), with a crossreference to section 3(e), which refers to the Contract of Insurance, ``as set forth in applicable HUD regulations.'' HUD considers this longused reference to be sufficient to identify the Contract of Insurance for purposes of the Security Instrument.
Comment: A definition should be added for ``Loan means the loan made by the Lender to Borrower in connection with the Mortgaged property which is evidenced by the Note and secured by this Security Instrument.''
HUD response: A definition of ``Loan'' has been added as section 1(u), which references ``the opening paragraphs of this Security Instrument,'' and a parenthetical reference to Loan has been added to the opening paragraphs following the space provided for entering the principal amount of the Loan.
Comment: A definition should be added that ``Loan Application'' means the application for mortgage insurance made to HUD in connection with the Loan, together with all supporting exhibits, schedules, and reports.
HUD response: ``Loan Application'' has been added as section
FOR FURTHER INFORMATION CONTACT
John J. Daly, Office of the General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 9226, Washington, DC 204100500; telephone number 202708 1274 (this is not a tollfree number). Persons with speech or hearing impairments may access this number through TTY by calling the tollfree Federal Information Relay Service at 8008778339.