SUMMARY: This rule sets forth standards governing the
administration of the Indian Housing Mortgage Insurance Program. The purpose of
the Program is to make mortgage loans available to Indians living on
reservations on the same terms as they are available to persons not living on
reservations. Due to the restrictions on the use and ownership of land which
are peculiar to some of the tribal reservations, financial institutions have
been historically reluctant to provide loans to Indians living on reservations.
Mortgage insurance provided under the Program offers greater assurance to
lenders by removing some of the marketability risks to collateral posed by
these restrictions. The Rule sets forth eligibility standards and application,
closing, default, and insurance claim procedures.
BASIS AND BACKGROUND STATEMENT: In
November, 1971, Maine voters approved an amendment to the Maine Constitution
which added Article IX, Section 14-D. This section permits the State to insure
payment of mortgage loans secured by housing on Maine's three Indian
reservations. Statutes enabling the Indian Housing Mortgage Insurance Program (
30 MRSA §4784, et seq.) were enacted in 1973.
Regulations were adopted in 1974. In 1977, the section of regulations governing
defaults was amended. Statutory amendments were made in late 1980 as part of
the Maine Indian Claims Settlement Act. Among other things, the amendments
created the Indian Housing Mortgage Insurance Committee and clarified
procedures enabling the State Treasurer to obtain funds to make insurance
payments. Regulations were prepared in late 1981 and a public hearing was held
on the proposed regulations in April, 1982.
Representative comments received during the 1982 rulemaking
process and the Authority's rationale for adopting or failing to adopt
suggested changes are set forth below.
Due to the high rate of defaults under the Program (over 50% of
the loans have been paid off by insurance), a number of changes were made in
order to give banks and homeowners a greater incentive to maintain the loans. A
downpayment requirement of 20% and insurance coverage of 90% were proposed.
Commenters stated that the downpayment requirement would make the Program
unaffordable to most Indians and that banks would not participate without 100%
insurance (see Section
3) . For the reasons given by the
commenters, the Authority provided for a 5% downpayment with 100% insurance.
Because of these changes, the Authority did not restore, as requested, the
provision contained in the 1974 regulations allowing up to $350 of closing
costs to be paid from loan proceeds. It is not standard lending practice to
permit payment of closing costs from loan proceeds.
The Authority did not extend the 15-day grace period for making
loan payments because there are adequate provisions for time to work out
problems in the event of default beyond the 15-day period (see Section
3) .
The proposed rule prohibited an Indian Housing Authority from
leasing property acquired on default to the defaulting borrower or a member of
his family. A commenter stated that this would be unfair in the case where the
default was due to illness. For this reason, the rule was changed to require
that the monthly rental payment be in an amount no less than the monthly
mortgage payment under the defaulted loan (see Section 8.F.1).
The rule requires repayment to the State of funds received by
an Indian Housing Authority from sale or lease of a property acquired on
default and allows the Indian Housing Authority to recover certain expenses
from proceeds of the sale or lease. Formerly, there was an allowance for actual
legal fees and costs plus other expenses up to 10% of the proceeds. The rule
allows more itemized costs but limits the unspecified category to 5%. The
Authority did not restore the original rule provision as requested because the
Authority believes that the current rule provides better cost control while
still permitting reasonable costs to be paid for out of proceeds of sale or
lease of the property (see Section 8.G and H).
By emergency rulemaking the Authority has amended Section 3.F
of this rule in order to allow Banks offering loans under this program to
charge market interest rates at times when they are not offering to the general
public loans which are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. The adoption of this amendment as an
emergency rule change will enable loans to be made under the program before the
end of the current construction season. Effective October 26, 1982; Adopted as
permanent February 17, 1983.
On January 27, 1983, in response to the request of a potential
participating lender, the Authority amended this Rule so as to 1) impose the
cost of loan application-related investigative procedures on the applicant
(§ 4.D), 2) clarify the extent of the Bank's obligation in relation to
property insurance, i.e., confirmation of its existence (§ 5.F), 3) reduce
the number of days the IHA can grant a Borrower to cure a default from 120 to
90 (§ 8.C), and 4) empower the Authority to approve a transfer of the Loan
Insurance Certificate to another financial institution (§ 7.D). The
Authority believes these amendments to be appropriate in light of its policy of
encouraging maximum private lender participation consistent with the overall
intent of the Legislature in establishing the program. No comments were
submitted on these amendments as originally proposed.
On January 27, 1983, the Authority amended § 10.B of this
Rule in order to limit mobile homes eligible for mortgage insurance under the
program to those 1) constructed in accordance with standards promulgated under
either the National Manufactured Housing Construction and Safety Standards Act
of 1974 or the Maine Industrialized Housing Law, and 2) meeting certain size
requirements. The Authority believes this change to be necessary in order to
bring this aspect of the program into conformance with reasonably prudent
standards of program administration. No comments were submitted on this
amendment as originally proposed.
AUTHORITY: 30 MRSA §4789
EFFECTIVE DATE: July 17, 1982
AMENDED: October 26, 1982
AMENDED: February 9, 1983
BASIS STATEMENT: By emergency rulemaking the Authority has
amended Section 3.F of this rule in order to allow Banks offering loans under
this program to charge market interest rates at times when they are not
offering to the general public loans which are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. The
adoption of this amendment as an emergency rule change will enable loans to be
made under the program before the end of the current construction season. No
comments were submitted on this amendment when the Authority proposed to adopt
it permanently.
EFFECTIVE DATE: March 20, 1983
BASIS STATEMENT: Many of the provisions of the current Indian
Housing Mortgage Insurance Program Rule are obsolete and do not reflect current
practice in the residential mortgage insurance market. The Board of
Commissioners of the Maine State Housing Authority wish to repeal the Rule and
replace it with one that reflects current market practices and otherwise,
facilitates the efficient administration of the Indian Housing Mortgage
Insurance Program. This repeal and replacement of the Rule sets forth revised
standards governing the administration of the Indian Housing Mortgage Insurance
Program. The purpose of the Program is to make mortgage loans available to
Indians living on reservations on the same terms as they are available to
persons not living on reservations. Due to the restrictions on the use and
ownership of land which are peculiar to some of the tribal reservations,
financial institutions have been historically reluctant to provide loans to
Indians living on reservations. Mortgage insurance provided under the Program
offers greater assurance to lenders by removing some of the marketability risks
to collateral posed by these restrictions. The Rule sets forth eligibility
standards and application, closing, default, and insurance claim
procedures.
One written comment was received from Mr. Richard H. Mitchell,
Executive Director of the Penobscot Tribal Reservation Housing Authority. Mr.
Mitchell raises two concerns: (1) the premium charge for mortgage insurance is
excessive and (2) the Rule does not authorize the Insurance Committee to
delegate all or some of its powers.
Section
6(A)(2) of the Rule has
been clarified to state that the premium is a one-time charge. The Rule also
states that the amount will fluctuate based on the most recent premium charged
in the public and private mortgage insurance markets. The statute authorizing
the Rule does not allow the Authority to delegate the functions of the
Insurance Committee. If and when the statute is amended to allow a delegation,
the Authority will accordingly amend the Rule.
Other changes to the rule were made for grammatical and
stylistic reasons.
