96-30764. Multifamily Mortgage InsuranceRisk-Sharing for Hospitals  

  • [Federal Register Volume 61, Number 234 (Wednesday, December 4, 1996)]
    [Proposed Rules]
    [Pages 64414-64422]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-30764]
    
    
          
    
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    _______________________________________________________________________
    
    Part II
    
    
    
    
    
    Department of Housing and Urban Development
    
    
    
    
    
    _______________________________________________________________________
    
    
    
    24 CFR Part 242
    
    
    
    Multifamily Mortgage Insurance--Risk-Sharing for Hospitals; Proposed 
    Rule
    
    Federal Register / Vol. 61, No. 234 / Wednesday, December 4, 1996 / 
    Proposed Rules
    
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    DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
    
    24 CFR Part 242
    
    [Docket No. FR-3914-P-01]
    RIN 2502-AB53
    
    
    Multifamily Mortgage Insurance--Risk-Sharing for Hospitals
    
    AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
    Commissioner, HUD.
    
    ACTION: Proposed rule.
    
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    SUMMARY: The Department is proposing to expand the concept of risk-
    sharing to insuring mortgages to finance the new construction or 
    rehabilitation of hospitals or improvement of hospitals. This program 
    is structured under existing mortgage insurance authority. The program 
    would provide a new form of credit enhancement for constructing and 
    rehabilitating hospitals.
    
    DATES: Comments must be submitted on or before February 3, 1997.
    
    ADDRESSES: Interested persons are invited to submit comments regarding 
    this proposed rule to the Rules Docket Clerk, Office of General 
    Counsel, Room 10276, Department of Housing and Urban Development, 451 
    Seventh Street, S.W., Washington, D.C. 20410. Communications should 
    refer to the above docket number and title. A copy of each 
    communication submitted will be available for public inspection and 
    copying between 7:30 a.m. and 5:30 p.m. weekdays at the above address. 
    FAXED comments will not be accepted.
    
    FOR FURTHER INFORMATION CONTACT: John U. Sepulveda, Director, Hospital 
    Mortgage Insurance Staff, Office of Housing, 451 Seventh Street, S.W., 
    Washington, D.C. 20410, telephone (202) 708-0599. The above telephone 
    number may be accessed through TTY by calling the Federal Relay Service 
    at (202) 708-9300 or 1-800-877-8339). (Except for the ``800'' number, 
    these are not toll-free numbers.)
    
    SUPPLEMENTARY INFORMATION:
    
    Background
    
        HUD is reviewing all its mortgage insurance programs in an effort 
    to make them more accessible and responsive to end-users.
        Risk-sharing has already been successfully implemented for 
    multifamily mortgage insurance and has been recently proposed for 
    single family mortgage insurance. Thus, the proposed rule for hospitals 
    represents a continuation of the Department's efforts to ``partner'' 
    effectively with State finance agencies and others to improve the 
    delivery of credit enhancement.
        HUD recognizes the need for many of the market-driven, cost-saving 
    reforms which are sweeping hospitals and the health care industry, such 
    as: (1) The shift from inpatient hospital care to outpatient 
    (ambulatory) care; (2) the shift from fee-for-service to managed care; 
    and (3) the shift from independent stand-alone hospitals to vertically 
    and horizontally integrated health care systems. HUD expects to seek 
    statutory authority to give FHA greater flexibility to design and 
    implement products which will be responsive to these changes. The 
    proposed risk-sharing program represents what we can do NOW under 
    existing statutory authority. Implementing risk-sharing now for the 
    Section 242 program will enable the Department to build a partnering 
    infrastructure involving State health care facility financing agencies, 
    private mortgage and bond insurers and investment and mortgage bankers, 
    which will ensure that hospitals and related health care facilities 
    retain access to capital during this period of major structural changes 
    in the industry.
        The primary purpose of the Hospital Risk-Sharing program is to 
    provide a new form of credit enhancement for constructing and 
    rehabilitating hospitals, i.e., using insurance by HUD, pursuant to 
    risk-sharing agreements with qualified public and private financing 
    agencies, to develop and improve hospitals. Using a risk-shared credit 
    enhancement program should leverage access to capital markets and 
    thereby result in hospital facilities and services appropriate to local 
    needs. By permitting State financing agencies and private sector 
    financing firms to risk-share with HUD in the construction and 
    rehabilitation of hospitals, HUD expects a more efficient financing 
    process which should maximize the hospitals ability to get the lowest 
    cost financing available in the market place.
        HUD further expects that by allowing a risk-sharing finance partner 
    to underwrite, process and service the loans and to manage and dispose 
    of property that goes into unremedied default the hospital program will 
    be run very effectively. HUD also expects that the Hospital Risk-
    Sharing program will increase the chances of the insured hospital's 
    successful operation as the risk-sharing partners have a financial 
    incentive to assure cost effective operations and will be in closer 
    proximity to the hospital thereby having a better understanding of 
    local market conditions. Finally, if a hospital encounters adverse 
    economic conditions that force its failure, HUD's risk-sharing partner 
    should be in a better position to minimize HUD's losses as it would 
    have a more complete understanding as to what disposition alternatives 
    are available and which one would maximize HUD's financial position.
        HUD is proposing to use the authority to insure mortgages under the 
    Hospital Insurance Program under section 242 pursuant to the 
    coinsurance authority under section 244 of the National Housing Act to 
    design such a Hospital Risk-Sharing Mortgage Insurance Program. The 
    program would be similar to the Multifamily Risk-Sharing Insurance 
    Program set out at 24 CFR part 266. As with that program, HUD and the 
    mortgagee would share the risk of loss as specified in the risk-sharing 
    agreement. The risk-sharing agreement is a contract setting out the 
    rights and obligations of HUD and the mortgagee. (See Sec. 242.304 for 
    a summary of its contents.) The Department would issue the insurance 
    commitments and would endorse mortgage notes for insurance. Mortgages 
    would have to meet HUD's normal underwriting requirements for the 
    hospital full insurance program.
        The Commissioner's endorsement of the mortgage note for insurance 
    would specify whether the Department, upon a mortgage default, would 
    pay a full initial claim or would pay an initial claim based upon the 
    full initial claim amount multiplied by HUD's percentage of the risk. 
    The latter formula is new to this program.
        In the event of a mortgage default, HUD would pay an insurance 
    claim shortly after the default and would receive a debenture or note 
    in like amount from the mortgagee (Sec. 242.428). The mortgagee would 
    retain the mortgage. At the end of five years or upon sale of the 
    hospital after foreclosure or acquisition by the mortgagee, HUD would 
    determine the total loss and the parties would make the necessary 
    payments for each to have its respective share of the loss.
        HUD is also proposing a cap on its share of the loss equal to the 
    unpaid principal balance of the mortgage note as of the date of default 
    multiplied by HUD's percentage of the risk (Sec. 242.450). Operating 
    deficits after default constitute a liability over which HUD would have 
    no control. Since the mortgagee will retain the mortgage after default, 
    the Department believes that a cap will provide a stronger economic 
    incentive to service the mortgage in a manner that will minimize 
    accrual of operating deficits than would a straight risk-sharing 
    formula.
        Section 242.430 contains a partial payment of claims procedure 
    similar to
    
    [[Page 64415]]
    
    that provided in Sec. 266.630 of the Multifamily Risk-Sharing Insurance 
    Program rule. HUD has implemented this procedure under the authority 
    provided in section 244(a) of the National Housing Act for HUD to 
    determine the method of calculating insurance benefits. It is not based 
    on section 541 of the National Housing Act, which authorizes partial 
    payments of claim for certain full insurance programs.
        This proposed rule follows the Multifamily Risk-Sharing Insurance 
    Program rule on sharing of mortgage insurance premiums, namely, they 
    are shared in direct proportion to share of risk (Sec. 242.404). The 
    Department specifically invites public comment on this structure, 
    particularly in view of the proposed sharing of the initial claim 
    payment and of HUD's cap on liability. It should be noted that, under 
    section 244(a) of the National Housing Act, the total premium charged 
    may not exceed the premium applicable under the full insurance program, 
    which is, in general, 0.5 percent of unpaid principal balance. (See 24 
    CFR 207.252 to 207.252c and 242.251.)
        As part of its effort at streamlining its regulations, the 
    Department has chosen to leave much of the detailed procedures to be 
    established contractually through the risk-sharing agreement rather 
    than in this rule. This proposed rule does contain, in detail, the 
    claims payment requirements. This is consistent with the Department's 
    historic practice in both its single family and multifamily mortgage 
    insurance programs of having the contract of insurance evidenced by 
    issuance of a mortgage insurance certificate or by endorsement of the 
    note, with an incorporation by reference of the appropriate 
    regulations. That method has proved highly efficient for those high-
    volume programs where the contract of insurance must follow readily-
    assignable mortgages. The Hospital Risk-Sharing Program should be a 
    much smaller volume program in terms of numbers of mortgages. The 
    mortgages themselves would not be assignable (Sec. 242.416). The 
    Department seeks comment on the feasibility and desirability of 
    establishing these requirements contractually through the risk-sharing 
    agreement or addenda to the risk-sharing agreement.
    
    Findings and Certifications
    
    Paperwork Reduction Act Statement
    
        The proposed information collection requirements contained at 
    Secs. 242.304, 242.426, 242.430, 242.430, 242.432, 242.440, and 242.442 
    of this rule have been submitted to the Office of Management and Budget 
    (OMB) for review, under section 3507(d) of the Paperwork Reduction Act 
    of 1995 (44 U.S.C. Chapter 35).
        (a) In accordance with 5 CFR 1320.5(a)(1)(iv), the Department is 
    setting forth the following concerning the proposed collection of 
    information:
        (1) Title of the information collection proposal: Risk-Sharing for 
    Hospitals
        (2) Summary of the collection of information:
        The information collection requirements identified in the proposed 
    rule consist of: (i) the application for hospital mortgage insurance; 
    and (ii) documents relating to the filing of a claim for mortgage 
    insurance benefits pursuant to a risk-sharing agreement.
        (3) Description of the need for the information and its proposed 
    use:
        (A) The application for hospital mortgage insurance consists of a 
    Form HUD-92013 (OMB No. 2502-0029) and series of supporting documents, 
    including, for example: a Certificate of Need (in States that require a 
    Certificate of Need) or a State-sponsored study demonstrating need (in 
    States that do not require Certificates of Need); a project narrative; 
    organizational documents; accreditation reports; audited financial 
    statements and operating statistics for the last five years; a five-
    year business plan; a detailed feasibility study; architectural/
    engineering documentation; and assurances of compliance with applicable 
    Federal statutes and Executive Orders. This information is used to: (i) 
    verify the hospital's eligibility for FHA mortgage insurance; (ii) 
    ascertain the need for a proposed hospital construction project and 
    define its scope, design and cost; (iii) assess the applicant 
    hospital's financial strength and project feasibility; and (iv) provide 
    a basis for thorough evaluation and underwriting of the proposed 
    project.
        (B) Documents relating to the claim for mortgage insurance benefits 
    include the following standard HUD forms: Notice of Default, Form HUD-
    92426 (OMB No. 2502-0041); Application for Initial Claim Payment, Form 
    HUD-92747 (OMB No. 2502-0419); and Form HUD-92742, Application for 
    Final Claim Payment and Fiscal Data in Support of Claim for Insurance 
    Benefits (OMB No. 2502-0415); and non-standard forms including an 
    appraisal of the defaulted hospital and annual certified statement of 
    amounts due. This information is used to compute the amount of the 
    insurance benefits which the risk-sharing lender is entitled to receive 
    in the event of a claim.
        (4) Description of the likely respondents, including the estimated 
    number of likely respondents, and proposed frequency of response to the 
    collection of information:
        The application for hospital mortgage insurance is prepared jointly 
    by the applicant hospital and its investment banker (mortgagee). 
    Documents relating to claims for mortgage insurance benefits are 
    prepared by the mortgagee. The estimated number of respondents and 
    proposed frequency of responses are included in paragraph (5), 
    immediately below.
        (5) Estimate of the total reporting and recordkeeping burden that 
    will result from the collection of information:
    
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                                                                 Responses      Total                               
     Description of annual information collection   Number of       per         annual      Hours per   Total burden
                                                   respondents   respondent   responses     response                
    ----------------------------------------------------------------------------------------------------------------
    Sec.  242.304 HUD 92013, Hospital--Section                                                                      
     242, Application for Project Mortgage                                                                          
     Insurance, OMB No. 2502-0029 \1\............            3            1            3        750         2,250   
    Sec.  242.426(c) HUD 92426, Notice of Default                                                                   
     Status on Multifamily Housing Projects OMB                                                                     
     No. 2502-0041 \1\...........................            1            1            1          1             1   
    Sec.  242.426(d) Application for Initial                                                                        
     Claim Payment: HUD 92747, Application for                                                                      
     Insurance Benefits, OMB No. 2502-0419 \1\...            1            1            1          0.08          0.08
    Sec.  242.426(d) Application for Partial                                                                        
     Claim Payment...............................            1            1            1          1             1   
    Sec.  242.430(b) Partial Claim Payment                                                                          
     Mortgagee Submission........................            1            1            1         20            20   
    Sec.  242.430(d)(5) Annual Certified                                                                            
     Statement of Amounts Due....................            1            1            1          5             5   
    Sec.  242.432 Withdrawal of Claim: HUD 92426,                                                                   
     Notice of Default Status on Multifamily                                                                        
     Housing Projects, OMB No. 2502-0041 \1\.....            1            1            1          1             1   
    Sec.  242.440 Appraisal......................            1            1            1        100           100   
    
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    Sec.  242.442 HUD 92742, Application For                                                                        
     Final Claim Fiscal Data in Support of Claim                                                                    
     for Insurance Benefits, OMB No. 2502-0415                                                                      
     \1\.........................................            1            1            1          0.5           0.5 
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    \1\ These items involve existing information collection requirements for which HUD is adjusting burden hour     
      estimates or is seeking reinstatement of an OMB control number.                                               
    
        (b) In accordance with 5 CFR 1320.8(d)(1), the Department is 
    soliciting comments from members of the public and affected agencies 
    concerning the proposed collection of information to:
        (1) Evaluate whether the proposed collection of information is 
    necessary for the proper performance of the functions of the agency, 
    including whether the information will have practical utility;
        (2) Evaluate the accuracy of the agency's estimate of the burden of 
    the proposed collection of information;
        (3) Enhance the quality, utility, and clarity of the information to 
    be collected; and
        (4) Minimize the burden of the collection of information on those 
    who are to respond; including through the use of appropriate automated 
    collection techniques or other forms of information technology, e.g., 
    permitting electronic submission of responses.
        Interested persons are invited to submit comments regarding the 
    information collection requirements in this proposal. Comments must be 
    received within sixty (60) days from the date of this proposal. 
    Comments must refer to the proposal by name and docket number (FR-3447) 
    and must be sent to: Joseph F. Lackey, Jr., HUD Desk Officer, Office of 
    Management and Budget, New Executive Office Building, Washington, DC 
    20503.
    
    Executive Order 12866
    
        This proposed rule was reviewed by the Office of Management and 
    Budget (OMB) under Executive Order 12866, Regulatory Planning and 
    Review. Any changes made to the proposed rule as a result of that 
    review are clearly identified in the docket file, which is available 
    for public inspection in the office of the Department's Rules Docket 
    Clerk, room 10276, 451 Seventh Street, SW, Washington, DC 20410.
    
    Environmental Impact
    
        A Finding of No Significant Impact with respect to the environment 
    has been made in accordance with HUD regulations at 24 CFR part 50 
    implementing section 102(2)(C) of the National Environmental Policy Act 
    of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is 
    available for public inspection and copying between 7:30 a.m. and 5:30 
    p.m. weekdays at the Office of the Rules Docket Clerk, 451 Seventh 
    Street, SW, Room 10276, Washington, DC 20410-0500.
    
    Unfunded Mandates Reform Act
    
        The Secretary has reviewed this proposed rule before publication 
    and by approving it certifies, in accordance with the Unfunded Mandates 
    Reform Act of 1995 (2 U.S.C. 1532), that this proposed rule does not 
    impose a Federal mandate that will result in the expenditure by State, 
    local, and tribal governments, in the aggregate, or by the private 
    sector, of $100 million or more in any one year.
    
    Executive Order 12612, Federalism
    
        The General Counsel, as the Designated Official under section 6(a) 
    of Executive Order 12612, Federalism, has determined that the policies 
    contained in this proposed rule would not have substantial direct 
    effects on States or their political subdivisions, or the relationship 
    between the Federal government and the States, or on the distribution 
    of power and responsibilities among the various levels of government. 
    As a result, the proposed rule is not subject to review under the 
    Order. Specifically, the requirements of this proposed rule are 
    directed to lenders and do not impinge upon the relationship between 
    the Federal government and State and local governments.
    
    Executive Order 12606, the Family
    
        The General Counsel, as the Designated Official under Executive 
    order 12606, The Family, has determined that this proposed rule would 
    not have potential for significant impact on family formation, 
    maintenance, and general well-being, and, thus, is not subject to 
    review under the Order. No significant change in existing HUD policies 
    or programs would result from promulgation of this proposed rule, as 
    those policies and programs relate to family concerns.
    
    Impact on Small Entities
    
        The Secretary, in accordance with the Regulatory Flexibility Act (5 
    U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so 
    doing certifies that this proposed rule would not have a significant 
    economic impact on a substantial number of small entities. The proposed 
    rule would provide a risk-sharing alternative to full mortgage 
    insurance and should be beneficial to both small and large entities.
        The Catalog of Federal Domestic Assistance program number is 
    14.128.
    
    List of Subjects in 24 CFR Part 242
    
        Hospitals, Mortgage insurance, Reporting and recordkeeping 
    requirements.
    
        Accordingly, part 242 of title 24 of the Code of Federal 
    Regulations is proposed to be amended as follows:
    
    PART 242--MORTGAGE INSURANCE FOR HOSPITALS
    
        1. The authority citation for part 242 is revised to read as 
    follows:
    
        Authority: 12 U.S.C. 1715b, 1715n(t), and 1715z-7; 42 U.S.C. 
    3535(d). Subparts C and D are also issued under 12 U.S.C. 1715z-9.
    
        2. The heading for subpart A is revised to read as follows:
    
    Subpart A--Eligibility Requirements--Full Insurance Program
    
        3. The heading for subpart B is revised to read as follows:
    
    Subpart B--Contract Rights and Obligations--Full Insurance Program
    
        4. New subparts C and D are added, to read as follows:
    Subpart C--Eligibility Requirements--Risk-Shared Insurance Program
    242.301  Purpose and scope.
    242.302  Definitions.
    242.303  Eligibility to enter into risk-sharing agreement.
    242.304  Risk-sharing agreement.
    242.305  Cross-cutting regulations.
    Subpart D--Contract Rights and Obligations--Risk-Shared Insurance 
    Program
    
    Mortgage Insurance Premiums
    
    242.400  Mortgage insurance premium: Insurance upon completion.
    242.402  Mortgage insurance premium: Insured advances.
    242.404  Mortgage insurance premium: Other requirements.
    242.406  Mortgage insurance premium: Duration and method of paying.
    
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    242.408  Mortgage insurance premium: Pro rata refund.
    
    Insurance Endorsement
    
    242.412  Insurance endorsement.
    
    Assignments
    
    242.416  Transfer of partial interest under participation agreement.
    
    Termination
    
    242.420  Termination of contract of insurance.
    242.422  Notice and date of termination by the Commissioner.
    
    Claim Procedures
    
    242.426  Notice of default and filing an insurance claim.
    242.428  Initial claim payments.
    242.430  Partial payment of claims.
    242.432  Withdrawal of claim.
    242.434  Reinstatement of the contract of insurance.
    242.436  Issuance of mortgagee Debenture.
    242.438  Foreclosure and acquisition.
    242.440  Appraisals.
    242.442  Application for final claim settlement.
    242.444  Determining the amount of loss.
    242.446  Items included in total loss.
    242.448  Items deducted from total loss.
    242.450  Determining share of loss.
    242.452  Final claim settlement and mortgagee Debenture redemption.
    242.454  Recovery of costs after final claim settlement.
    242.456  Program monitoring and compliance.
    
    Subpart C--Eligibility Requirements--Risk-Shared Insurance Program
    
    
    Sec. 242.301  Purpose and scope.
    
        This subpart C and subpart D of this part provide for the sharing 
    of the risk of loss, by the Commissioner and mortgagees that enter into 
    risk-sharing agreements, through insurance under section 242 of the 
    National Housing Act pursuant to section 244 of the National Housing 
    Act of mortgages securing loans to hospitals.
    
    
    Sec. 242.302  Definitions.
    
        (a) For purposes of this subpart C and subpart D of this part, the 
    term:
        Contract of insurance means the agreement evidenced by the 
    endorsement of the Commissioner upon the credit instrument given in 
    connection with an insured mortgage, incorporating by reference the 
    regulations in this subpart and subpart D of this part and the 
    applicable provisions of the National Housing Act. The endorsement 
    shall indicate whether the initial claim amount under Sec. 242.428 will 
    be based on the Commissioner's percentage of the risk.
        (b) See Sec. 200.3 of this chapter for other applicable 
    definitions.
    
    
    Sec. 242.303  Eligibility to enter into risk-sharing agreement.
    
        To be eligible to enter into a risk-sharing agreement, a mortgagee 
    must be approved for participation under the National Housing Act in 
    accordance with Secs. 202.11 through 202.14 and Secs. 202.17 through 
    202.19, of this chapter. The mortgagee must also meet such additional 
    net worth and capital requirements as the Commissioner may prescribe 
    and must have experience in originating and servicing mortgages in 
    connection with hospitals, health care facilities, or both, that is 
    acceptable to the Commissioner.
    
    
    Sec. 242.304  Risk-sharing agreement.
    
        The risk-sharing agreement shall include provisions relating, but 
    not necessarily limited, to the following:
        (a) The risk sharing level or levels at which the mortgagee shall 
    participate in the program, subject to the Commissioner's maximum 
    liability. The mortgagee's share of the loss may not be less than 10 
    percent of the loss;
        (b) Capital, loss reserves, and escrow requirements for the 
    mortgagee;
        (c) The particular functions to be performed by each party with 
    respect to mortgage origination, underwriting, mortgage servicing and 
    claims settlement. The risk-sharing agreement shall provide for the 
    Commissioner to issue mortgage insurance commitments and to endorse 
    mortgage notes for insurance;
        (d) Fees;
        (e) Required certifications;
        (f) Reports; and
        (g) Audits.
    
    
    Sec. 242.305  Cross-cutting regulations.
    
        (a) General. Sections 200.31 (debarment and suspension), 200.32 
    (participation and compliance requirements), and 200.33 (labor 
    standards) of this chapter and part 200, subpart J, of this chapter 
    (equal employment opportunity) apply to this program.
        (b) Environmental review requirements. To comply with the National 
    Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and related 
    laws and authorities, HUD will ensure that each hospital site proposed 
    for insurance under this subpart is visited and will prepare the 
    applicable environmental reviews as set forth in part 50 of this title 
    and for the related environmental criteria and standards in part 51 of 
    this title and other applicable regulations. These requirements must be 
    completed before HUD may issue a mortgage insurance commitment.
    
    Subpart D--Contract Rights and Obligations--Risk-Shared Insurance 
    Program
    
    Mortgage Insurance Premiums
    
    
    Sec. 242.400  Mortgage insurance premium: Insurance upon completion.
    
        (a) Initial premium. For mortgages insured upon completion, on the 
    date of the final closing, the mortgagee shall pay to the Commissioner 
    an initial premium equal to the prescribed percentage, as indicated in 
    Sec. 242.404(b), of the face amount of the mortgage.
        (b) Premium payable with first payment of principal. On the date of 
    the first payment of principal the mortgagee shall pay a second premium 
    (calculated on a per annum basis) equal to the prescribed percentage of 
    the average outstanding principal obligation of the mortgage from the 
    final closing date to the year following the date of the first 
    principal payment, less the amount paid on the date of the final 
    closing.
        (c) Subsequent premiums. Until one of the conditions is met under 
    Sec. 242.406(a), the mortgagee on each anniversary of the date of the 
    first principal payment shall pay to the Commissioner an annual 
    mortgage insurance premium equal to the prescribed percentage of the 
    average outstanding principal obligation of the mortgage, without 
    taking into account delinquent payments, or partial claim payment under 
    Sec. 242.430, or prepayments, for the year following the date on which 
    the premium becomes payable.
    
    
    Sec. 242.402  Mortgage insurance premium: Insured advances.
    
        (a) Initial premium. For mortgages involving insured advances, on 
    the date of the initial closing, the mortgagee shall pay to the 
    Commissioner an initial premium equal to the prescribed percentage, as 
    indicated in Sec. 242.404(b), of the face amount of the mortgage.
        (b) Interim premium. On each anniversary of the initial closing, 
    the mortgagee shall pay an interim mortgage insurance premium equal to 
    the prescribed percentage of the face amount of the mortgage. The 
    mortgagee shall continue to pay the interim mortgage insurance premiums 
    until the date of the first principal payment.
        (c) Premium payable with first payment of principal. On the date of 
    the first principal payment, the mortgagee shall pay a mortgage 
    insurance premium equal to the prescribed percentage of the average 
    outstanding principal obligation of the mortgage for the year following 
    the date of the first principal payment. The mortgagee shall adjust 
    this payment by deducting an amount equal to the
    
    [[Page 64418]]
    
    portion of the last premium paid that is attributable to the months 
    after the date of the first payment to principal. Any partial month is 
    to be counted as a whole month. The mortgagee shall remit the net 
    adjusted mortgage premium to the Commissioner and refund the amount of 
    the adjustment (over-payment) to the mortgagor.
        (d) Subsequent premiums. Until one of the conditions is met under 
    Sec. 242.406(a), the mortgagee on each anniversary of the date of the 
    first principal payment shall pay to the Commissioner an annual 
    mortgage insurance premium equal to the prescribed percentage of the 
    average outstanding principal obligation of the mortgage, without 
    taking into account delinquent payments, prepayments, or a partial 
    claim payment under Sec. 242.430, for the year following the date on 
    which the premium becomes payable.
    
    
    Sec. 242.404  Mortgage insurance premium: Other requirements.
    
        (a) Premium calculations on or after first principal payment. The 
    premiums payable to the Commissioner on and after the first principal 
    payment shall be calculated in accordance with the amortization 
    schedule prepared by the mortgagee for final closing and the prescribed 
    percentage as set forth in the sliding scale chart in paragraph (b) of 
    this section without taking into account delinquent payments or 
    prepayments.
        (b) Prescribed percentages. The following sliding scale chart 
    provides the prescribed percentage, based upon the respective share of 
    risk, that is to be used in calculating mortgage insurance premiums 
    under this section:
    
    ------------------------------------------------------------------------
                Percentage share of risk              Prescribed percentage 
    ------------------------------------------------     for calculating    
              HUD                   Mortgagee         mortgagee's annual MIP
    ------------------------------------------------------------------------
    90.....................                 10                     .45      
    75.....................                 25                     .375     
    50.....................                 50                     .25      
    40.....................                 60                     .2       
    30.....................                 70                     .15      
    20.....................                 80                     .1       
    10.....................                 90                     .05      
    ------------------------------------------------------------------------
    
        (c) Closing information. The mortgagee shall provide final closing 
    information to the Commissioner within 15 days of the final closing in 
    a format prescribed by the Commissioner. In addition, the mortgagee 
    shall submit a copy of the amortization schedule. This amortization 
    shall be used to compute and collect all future mortgage insurance 
    premiums subject to Sec. 242.400(c) or Sec. 242.402(d). If the mortgage 
    is modified, the mortgagee shall submit to the Commissioner a copy of 
    the revised amortization schedule, which shall be used to compute and 
    collect all future mortgage insurance premiums subject to 
    Sec. 242.400(c) or Sec. 242.402(d).
        (d) Due date for premium payments. Mortgage insurance premiums are 
    due on the first day of the month of the anniversary of the first 
    payment to principal. Any premium received by the Commissioner more 
    than 15 days after the due date, shall be assessed a late charge of 4 
    percent of the amount of the premium payment due. Mortgage insurance 
    premiums that are paid to the Commissioner more than 30 days after the 
    due date shall begin to accrue interest at the rate prescribed by the 
    Treasury Fiscal Requirements Manual.
    
    
    Sec. 242.406  Mortgage insurance premium: Duration and method of 
    paying.
    
        (a) Duration of payments. Mortgage insurance premium payments must 
    continue annually until one of the following occurs:
        (1) The mortgage is paid in full;
        (2) A deed to mortgagee is filed for record;
        (3) An application for initial claim payment is received by the 
    Commissioner; or
        (4) The contract of insurance is otherwise terminated.
        (b) Method of payment. The mortgagee shall pay any mortgage 
    insurance premium required by this part in cash.
    
    
    Sec. 242.408  Mortgage insurance premium: Pro rata refund.
    
        If the contract of insurance is terminated by payment in full or is 
    terminated by the mortgagee on a form prescribed by the Commissioner, 
    after the date of the first payment to principal, the Commissioner 
    shall refund any mortgage insurance premium for the period after the 
    effective date of the termination of insurance. The refund shall be 
    mailed to the mortgagee for credit to the mortgagor's account. In 
    computing the pro rata portion of the annual mortgage insurance 
    premium, the date of termination of insurance shall be the last day of 
    the month in which the mortgage is prepaid or the Commissioner receives 
    a notification of termination, whichever is later. No refund shall be 
    made if the insurance was terminated because of the submission of an 
    application for initial claim payment or if the termination occurs 
    before the date of the first payment to principal.
    
    Insurance Endorsement
    
    
    Sec. 242.412  Insurance endorsement.
    
        (a) Initial endorsement. The Commissioner shall indicate his or her 
    insurance of the mortgage by endorsing the original credit instrument.
        (b) Final endorsement. When all advances of mortgage proceeds have 
    been made and all other applicable terms and conditions have been 
    complied with to the satisfaction of the Commissioner, the Commissioner 
    shall indicate on the original credit instrument the total of all 
    advances that have been approved for insurance and again endorse such 
    instrument.
        (c) Effect of endorsement. From the date of initial endorsement, 
    the Commissioner and the mortgagee shall be bound by the provisions of 
    this subpart to the same extent as if they had executed a contract 
    including the provisions of this subpart and the applicable sections of 
    the Act.
    
    Assignments
    
    
    Sec. 242.416  Transfer of partial interest under participation 
    agreement.
    
        The mortgagee may not assign the mortgage. However, a partial 
    interest in an insured mortgage or pool of insured mortgages may be 
    transferred under a participation agreement or arrangement (such as a 
    declaration of trust or the issuance of pass-through certificates), 
    without obtaining the approval of the Commissioner, if the following 
    conditions are met:
        (a) Legal title to the insured mortgage or mortgages shall be held 
    by the mortgagee; and
        (b) The participation agreement, declaration of trust or other 
    instrument under which the partial interest is transferred shall 
    provide that:
        (1) The mortgagee shall remain mortgagee of record under the 
    contract of insurance;
        (2) The Commissioner shall have no obligation to recognize or deal 
    with anyone other than the mortgagee with respect to the rights, 
    benefits, and obligations of the mortgagee under the contract of 
    insurance; and
        (3) The mortgagor shall have no obligation to recognize or do 
    business with any one other than the mortgagee or, if applicable, its 
    servicing agent with respect to rights, benefits, and obligations of 
    the mortgagor or the mortgagee under the mortgage.
    
    Termination
    
    
    Sec. 242.420  Termination of contract of insurance.
    
        The contract of insurance shall terminate if any of the following 
    occurs:
    
    [[Page 64419]]
    
        (a) The mortgage is paid in full;
        (b) The mortgagee acquires the mortgaged property and notifies the 
    Commissioner that it will not file an insurance claim;
        (c) A party other than the mortgagee acquires the property at a 
    foreclosure sale;
        (d) The mortgagee notifies the Commissioner of termination of 
    insurance (voluntary termination);
        (e) The mortgagee or its successors commit fraud or make a material 
    misrepresentation to the Commissioner with respect to information 
    furnished in connection with the contract of insurance on the mortgage 
    or while the contract of insurance is in existence;
        (f) The receipt by the Commissioner of an Application for Final 
    Claims Settlement; or
        (g) If the mortgagee acquires the mortgaged property and fails to 
    make an initial claim.
    
    
    Sec. 242.422  Notice and date of termination by the Commissioner.
    
        The Commissioner shall notify the mortgagee that the contract of 
    insurance has been terminated and shall establish the effective date of 
    termination. The termination shall be the last day of the month in 
    which one of the events specified in Sec. 242.420 occurs.
    
    Claim Procedures
    
    
    Sec. 242.426  Notice of default and filing an insurance claim.
    
        (a) Definition of default. (1) A monetary default exists when the 
    mortgagor fails to make any payment due under the mortgage.
        (2) A covenant default exists when the mortgagor fails to perform 
    any other covenant under the provision of the mortgage or the 
    regulatory agreement, which is incorporated by reference in the 
    mortgage. A mortgagee becomes eligible for insurance benefits on the 
    basis of a covenant default only after the mortgagee has accelerated 
    the debt and the owner has failed to pay the full amount due, thus 
    converting a covenant default into a monetary default.
        (b) Date of default. For purposes of this subpart, the date of 
    default is:
        (1) The date of the first uncorrected failure to perform a mortgage 
    covenant or obligation; or
        (2) The date of the first failure to make a monthly payment that is 
    not covered by subsequent payments, when such subsequent payments are 
    applied to the overdue monthly payments in the order in which they were 
    due.
        (c) Notice of default. If a default (as defined in paragraph (a) of 
    this section) continues for a period of 30 days, the mortgagee must 
    notify the Commissioner within 10 days thereafter. Unless waived by the 
    Commissioner, the mortgagee must submit this notice monthly, on a form 
    prescribed by the Commissioner, until the default has been cured or the 
    mortgagee has filed an application for an initial claim payment. In 
    cases of mortgage acceleration, the mortgagee must first give notice of 
    the default to HUD and the mortgagor.
        (d) Timing of claim filing. Unless a written extension is granted 
    by the Commissioner, the mortgagee must file an application for initial 
    claim payment (or, if appropriate, for partial claim payment) within 75 
    days from the date of default, but not earlier than the first day of 
    the month following the month for which a payment was missed. Upon 
    request of the mortgagee, the Commissioner may extend, up to 180 days 
    from the date of default, the deadline for filing a claim. In those 
    cases where the mortgagee certifies that the hospital owner is in the 
    process of transacting a bond refunder, refinancing the mortgage, or 
    changing the ownership for the purpose of curing the default and 
    bringing the mortgage current, the Commissioner may extend the deadline 
    for filing a claim beyond 180 days, not to exceed 360 days from the 
    date of default.
    
    
    Sec. 242.428  Initial claim payments.
    
        (a) Determination of initial claim amount. (1) The initial claim 
    amount is based on the unpaid principal balance of the mortgage note as 
    of the date of default, plus interest at the mortgage note rate from 
    date of default to date of initial claim payment. The mortgage note 
    interest component of the initial claim amount is subject to 
    curtailment as provided in paragraph (b) of this section. The resulting 
    amount is the initial claim amount, unless the Commissioner's 
    endorsement of the note for insurance provided that the initial claim 
    amount shall be based on the Commissioner's percentage of risk. If the 
    endorsement so provided, the resulting amount is multiplied by the 
    Commissioner's percentage of the risk to obtain the initial claim 
    amount.
        (2) The Commissioner shall make an initial claim payment to the 
    mortgagee that is equal to the initial claim amount, less any 
    delinquent mortgage insurance premiums, late charges and interest, 
    assessed under Sec. 242.404(d).
        (3) The mortgagee must use the proceeds of the initial claim 
    payment to retire any bonds or any other financing mechanisms securing 
    the mortgage within 30 days of the initial claim payment. Any excess 
    funds resulting from such retirement or repayment shall be returned to 
    the Commissioner within 30 days of the retirement.
        (b) Curtailment of interest for late filings. In determining the 
    mortgage note interest component of the initial claim amount, if the 
    mortgagee fails to meet any of the requirements of this section within 
    the specified time (including any granted extension of time), the 
    Commissioner shall curtail the accrual of mortgage note interest by the 
    number of days by which the required action was late.
        (c) Method of payment. The Commissioner shall pay the claim in 
    cash, unless the mortgagee requests payment in debentures.
    
    
    Sec. 242.430  Partial payment of claims.
    
        (a) General. When the Commissioner receives a claim for a partial 
    payment under Sec. 242.426(d), the Commissioner may make a partial 
    payment of claim in accordance with the requirements of this section. 
    If the mortgagee has not previously received a partial claim payment, 
    the mortgagee may file a claim for a partial claim payment under 
    Sec. 242.430. Otherwise, the mortgagee must file for an initial claim 
    payment under Sec. 242.428.
        (b) Mortgagee submission. In addition to any other requirements set 
    forth in administration instructions, the mortgagee must provide the 
    following information with its application for a partial claim payment:
        (1) The amount by which the mortgagee will reduce the principal on 
    the insured mortgage and the amount of delinquent interest on the 
    insured mortgage that the mortgagee will defer based on the anticipated 
    closing date; and
        (2) A certification that:
        (i) The amount of the principal reduction of the insured first 
    mortgage does not exceed 50 percent of the unpaid principal balance;
        (ii) The relief resulting from the partial claim payment when 
    considered with other resources available to the hospital are 
    sufficient to restore the financial viability of the hospital;
        (iii) The hospital is or can (at reasonable cost) be made 
    structurally sound;
        (iv) The management of the hospital is satisfactory; and
        (v) The default under the insured mortgage was beyond the control 
    of the mortgagor.
        (c) Claim processing.--(1) Acceptable application. If the 
    mortgagee's application is acceptable, the Commissioner shall notify 
    the mortgagee to process the partial payment, which will include the 
    modification of the existing mortgage
    
    [[Page 64420]]
    
    and the execution by the mortgagor of a second mortgage payable to the 
    mortgagee. When the second mortgage is closed, the mortgagee shall 
    notify the Commissioner, in a form and manner prescribed in 
    administrative instructions. Upon receipt of notice from the mortgagee, 
    the Commissioner shall make the partial claim payment.
        (2) Unacceptable application. If the application is unacceptable, 
    the Commissioner shall either advise the mortgagee of the information 
    needed to make the application acceptable or return the application for 
    further action. The mortgagee is granted an extension of 30 days from 
    the date of any notification for further action. If the Commissioner 
    determines that a partial payment of claim is not feasible, the 
    application will be processed as an application for an initial claim 
    payment.
        (d) Requirements.--(1) One partial claim payment. Only one partial 
    claim payment may be made under a contract of insurance.
        (2) Partial claim payment amount. The amount of the partial claim 
    payment is equal to the amount of relief provided by the mortgagee in 
    the form of a reduction in principal and a reduction of delinquent 
    interest due on the insured mortgage times the lesser of the 
    Commissioner's percentage of the risk of loss or 50 percent.
        (3) Second mortgage. Repayment of the relief provided by the 
    mortgagee must be secured by a second mortgage to the mortgagee. This 
    second mortgage may provide for postponed amortization and may not be 
    assigned by the mortgagee. This second mortgage is not insured under 
    this part and may not be insured under any other HUD-related insurance 
    program.
        (4) Partial claim repayment by mortgagee. The mortgagee must remit 
    to the Commissioner a percentage of all amounts collected on the 
    mortgagee's second mortgage within 15 days of receipt by the mortgagee. 
    The applicable percentage is equal to the percentage used in paragraph 
    (d)(2) of this section to determine the partial claim payment amount. 
    Payments made after the 15th day must include a 5 percent late charge 
    plus accrued interest at the debenture rate.
        (5) Certified statements of amounts collected. As long as the 
    second mortgage remains of record, the mortgagee must submit to the 
    Commissioner an annual certified statement of the amounts collected by 
    the mortgagee. The mortgagee must submit a final certified statement 
    within 30 days after the second mortgage is paid in full, foreclosed, 
    or otherwise terminated.
    
    
    Sec. 242.432  Withdrawal of claim.
    
        In case of a default and subsequent filing of claim, the mortgagee 
    shall determine the form of workout or modification and will inform the 
    Commissioner of the type of mortgage relief determined to be 
    appropriate. If the default is cured after the claim is made but before 
    the initial claim payment is paid by the Commissioner, the mortgagee 
    may, in writing, withdraw the claim, and insurance will continue as if 
    the default had not occurred.
    
    
    Sec. 242.434  Reinstatement of the contract of insurance.
    
        (a) Conditions for reinstatement. After the initial claim payment, 
    the Commissioner may reinstate the contract of insurance on the 
    following conditions:
        (1) The mortgagee has not acquired the hospital;
        (2) The mortgagor has cured the default; and
        (3) The mortgagee requests that the Commissioner reinstate the 
    contract of insurance.
        (b) Notification of reinstatement. If reinstatement is acceptable 
    to the Commissioner, the Commissioner shall notify the mortgagee of the 
    date the contract of insurance will be reinstated and shall advise the 
    mortgagee of the payment needed to reinstate the contract of insurance.
        (c) Payment. Within 30 days of the date of the notice under 
    paragraph (b) of this section, the mortgagee shall pay the Commissioner 
    an amount equal to the initial claim amount, as determined under 
    Sec. 242.428(a)(1), plus an amount equal to the accrued and unpaid 
    interest on the mortgagee Debenture through the reinstatement date, 
    plus an amount equal to the mortgage insurance premium for the period 
    from the date of reinstatement of the contract of insurance to the next 
    anniversary date for payment of the mortgage insurance premium.
        (d) Cancellation of debenture. Upon receipt from the mortgagee of 
    the amount specified in paragraph (c) of this section, the Commissioner 
    shall return the mortgagee debenture for cancellation.
        (e) Continuation of contract of insurance. Upon reinstatement, the 
    contract of insurance shall continue as if the default had not 
    occurred.
    
    
    Sec. 242.436  Issuance of mortgagee Debenture.
    
        (a) Condition to initial claim payment. The mortgagee must issue an 
    instrument in the form of a debenture to the Commissioner within 30 
    days of receiving the initial claim payment. The mortgagee Debenture 
    shall meet the following requirements and shall be in a form that has 
    been approved by the Commissioner as part of the application approval 
    process.
        (b) Term of mortgagee Debenture. The mortgagee Debenture shall be 
    dated the same date that the initial claim payment is issued. The 
    mortgagee Debenture shall have a term of five years in order to afford 
    the mortgagor ample time to cure the default or the mortgagee time to 
    foreclose and/or resell the hospital. The Commissioner may provide a 
    written extension of the five year term if the mortgagee certifies and 
    provides documentation that the hospital owner has filed bankruptcy and 
    the mortgagee is taking action to have the hospital discharged from the 
    bankruptcy. The mortgagee Debenture shall, during this extended period, 
    continue to bear interest as described below at HUD's published 
    debenture rate at the earlier of initial endorsement or final 
    endorsement. Interest shall be due and payable annually on the 
    anniversary date of the initial claim payment. Interest is due on the 
    full face amount of the mortgagee Debenture through the term of the 
    mortgagee Debenture or through the date an application for final claim 
    payment is received by the Commissioner.
        (c) Mortgagee Debenture amount. (1) The mortgagee Debenture shall 
    be for the full initial claim amount as determined under 
    Sec. 242.428(a)(1) (minus any excess funds returned to HUD under 
    Sec. 242.428(a)(3)).
        (2) The full amount of the mortgagee Debenture shall be payable to 
    HUD upon maturity, unless the mortgagee Debenture is canceled because 
    of:
        (i) A reinstatement of the contract of insurance under 
    Sec. 242.434; or
        (ii) Final claim settlement under Sec. 242.452.
        (d) Mortgagee Debenture interest rate. The mortgagee Debenture 
    shall bear interest at HUD's published debenture rate at the earlier of 
    initial endorsement or final endorsement. Interest shall be due and 
    payable annually on the anniversary date of the initial claim payment 
    and on the date of redemption when redeemed or canceled before an 
    anniversary date. Interest shall be computed on the full face amount of 
    the mortgagee Debenture through the term of the mortgagee Debenture.
        (e) Form of mortgagee Debenture. The mortgagee Debenture should 
    follow the standard form of a State/Municipal Debenture issued under 
    the Uniform Commercial Code, where applicable, and shall be supported 
    by the full faith and credit of the mortgagee. For
    
    [[Page 64421]]
    
    mortgagees that operate as departments or divisions of States or units 
    of local government and where such mortgagees cannot pledge the full 
    faith and credit of the mortgagee, such mortgagees may collateralize 
    their obligation through a letter of credit, reinsurance, or other 
    forms of credit acceptable to the Commissioner.
        (f) Debenture registration. Unless otherwise required by law, 
    including State or local laws, or other governing bodies, the 
    Commissioner will not require the mortgagee Debenture to be 
    ``Registered'' (with the Securities and Exchange Commission) as it is a 
    direct, or private, placement that is supported by the full faith and 
    credit of the mortgagee and is not a public offering.
    
    
    Sec. 242.438  Foreclosure and acquisition.
    
        The mortgagee is not required to foreclose the insured mortgage. It 
    may accept a deed-in-lieu of foreclosure.
    
    
    Sec. 242.440  Appraisals.
    
        Where actions taken or caused to be taken by the mortgagee have the 
    effect of the recovery of less than the face amount of the mortgagee 
    Debenture held by the Commissioner, an appraisal should be made to 
    determine the value of the hospital. The appraisal should assume a 
    willing buyer and a willing seller. The appraisal must be done within 
    the 45 day period immediately preceding the date when the mortgagee 
    files an application for final claim settlement. If at the time of 
    final claim settlement the mortgagee has not sold the hospital, an 
    appraisal should be made to determine the value of the hospital at its 
    highest and best use.
    
    
    Sec. 242.442  Application for final claim settlement.
    
        The mortgagee shall file an application for final settlement in 
    accordance with the Commissioner's administrative procedures not later 
    than 30 days after any of the following:
        (a) Sale of the property after foreclosure or after acquisition by 
    deed-in-lieu of foreclosure; or
        (b) Expiration of the term of the mortgagee debenture.
    
    
    Sec. 242.444  Determining the amount of loss.
    
        The amount of the total loss to be shared by the Commissioner and 
    the mortgagee is equal to:
        (a) The amount of the initial claim payment;
        (b) Plus all items set forth in Sec. 242.446; and
        (c) Less all items set forth in Sec. 242.448.
    
    
    Sec. 242.446  Items included in total loss.
    
        In computing the total loss, the following items are added to the 
    amount described in Sec. 242.444(a):
        (a) The amount of all payments that the mortgagee made from its own 
    funds and not from hospital income for:
        (1) Taxes, special assessments, and water bills that are liens 
    before the Mortgage; and
        (2) Fire and hazard insurance on the property.
        (b) A reasonable amount of acquisition costs actually paid by the 
    mortgagee. These costs may not include loss or damage resulting from 
    the invalidity or unenforceability of the Mortgage lien or the 
    unmarketability of the Mortgagor's title.
        (c) Reasonable payments that the mortgagee made from its own funds 
    and not from hospital income for:
        (1) Preservation, operation and maintenance of the property;
        (2) Repairs necessary to meet the requirements of local laws;
        (3) Expenses in connection with the sale of property; and
        (4) Bankruptcy expenses approved by the Office of General Counsel.
        (d) The amount of mortgagee Debenture interest paid by the 
    mortgagee to the Commissioner.
    
    
    Sec. 242.448  Items deducted from total loss.
    
        In computing insurance benefits, the following items are deducted 
    from the amounts described in Sec. 242.446(a) and (b):
        (a) All amounts received by the mortgagee on account of the 
    mortgage after the date of default;
        (b) All cash, and/or funds related to the mortgaged property, 
    including deposits and escrows made for the account of the mortgagor 
    that the mortgagee holds (or to which it is entitled);
        (c) The amount of any undrawn balance under a letter of credit that 
    the mortgagee accepted in lieu of a cash deposit for an escrow 
    agreement;
        (d) Any net income from the mortgaged property/hospital that the 
    mortgagee received after the date of default;
        (e) The proceeds from the sale of the hospital or the appraised 
    value of the hospital as provided in Sec. 242.442 as follows:
        (1) If the mortgagee disposes of the hospital through a negotiated 
    sale, the amount deducted shall be the higher of the sales price or the 
    appraised value.
        (2) If the mortgagee disposes of the hospital through a competitive 
    bid procedure approved by the Commissioner, the amount deducted shall 
    be the sales price, even if it is lower than the appraised value.
        (3) If the mortgagee has not disposed of the hospital within 5 
    years from the date of issuance of the mortgagee Debentures (unless an 
    extension has been granted pursuant to Sec. 242.436), the amount 
    deducted shall be the appraised value;
        (f) Any and all claims that the mortgagee has acquired in 
    connection with the acquisition and sale of the property. Claims 
    include but are not limited to returned premiums from canceled 
    insurance policies, interest on investments of reserve for replacement 
    funds, tax refunds, refunds of deposits left with utility companies, 
    and amounts received as proceeds of a receivership; and
        (g) The amount of daily mortgagee Debenture interest accrued but 
    not paid from the anniversary date of the last mortgagee Debenture 
    interest payment to the date an application for final claim payment is 
    received by the Commissioner.
    
    
    Sec. 242.450  Determining share of loss.
    
        The total loss computed in Sec. 242.444 shall be shared by the 
    Commissioner and the mortgagee in accordance with their respective 
    percentage of risk subject to the maximum cap on the Commissioner's 
    liability, as specified in the note and the addendum to the risk-
    sharing agreement between the Commissioner and the mortgagee. The 
    Commissioner's maximum loss on any risk-shared insurance claim shall 
    not exceed the unpaid principal balance of the mortgage note as of the 
    date of default.
    
    
    Sec. 242.452  Final claim settlement and mortgagee Debenture 
    redemption.
    
        (a) Final claim payment. If the initial claim amount, as determined 
    under Sec. 242.428(a)(1), is less than the Commissioner's share of the 
    loss, the Commissioner shall make a final claim payment to the 
    mortgagee that is equal to the difference between the Commissioner's 
    share of the loss and the initial claim amount and shall return the 
    mortgagee Debenture to the mortgagee for cancellation.
        (b) Mortgagee reimbursement payment. If the initial claim amount, 
    as determined under Sec. 242.428(a)(1), is more than the Commissioner's 
    share of the loss, the mortgagee shall, within 30 days of notification 
    by the Commissioner of the amount due, remit to the Commissioner an 
    amount that is equal to the difference between the initial claim amount 
    and the Commissioner's share of the loss. The funds must be remitted in 
    a manner prescribed in the Commissioner's administrative procedures. 
    The
    
    [[Page 64422]]
    
    mortgagee Debenture will be considered redeemed upon receipt of the 
    cash payment. A 5 percent penalty will be charged and interest at the 
    debenture rate will begin to accrue if the cash payment is not received 
    within the prescribed period. If a mortgagee is in default under an 
    existing debenture and files a claim on another hospital under this 
    part, the Commissioner will charge the mortgagee's Dedicated Account 
    for the amount owed the Department if such an account was required by 
    the risk-sharing agreement. The Commissioner may inform the rating 
    agencies of the mortgagee's failure to pay on their debt obligation and 
    of its violation of the risk-sharing agreement.
        (c) Losses. Losses sustained as a consequence of the (sole) 
    negligence of a mortgagee (e.g., failure to acquire adequate hazard 
    insurance where such insurance is available) shall be the sole 
    obligation of the mortgagee, notwithstanding the risk apportionment 
    otherwise agreed to by the Commissioner and the mortgagee.
        (d) Supplemental claim. Any supplemental claim must be filed within 
    one year from date of final claim settlement.
    
    
    Sec. 242.454  Recovery of costs after final claim settlement.
    
        If, after final claim settlement, the mortgagee recovers additional 
    sums as the result of the sale of the hospital or otherwise, the total 
    amount of such recovery shall be shared by The Commissioner and the 
    mortgagee in accordance with the prescribed percentage of shared risk.
    
    
    Sec. 242.456  Program monitoring and compliance.
    
        The Commissioner will monitor the performance of the mortgagee for 
    compliance with the provisions of this subpart.
    
        Dated: September 3, 1996.
    Nicolas P. Retsinas,
    Assistant Secretary for Housing-Federal Housing Commissioner.
    [FR Doc. 96-30764 Filed 12-3-96; 8:45 am]
    BILLING CODE 4210-27-P
    
    
    

Document Information

Published:
12/04/1996
Department:
Housing and Urban Development Department
Entry Type:
Proposed Rule
Action:
Proposed rule.
Document Number:
96-30764
Dates:
Comments must be submitted on or before February 3, 1997.
Pages:
64414-64422 (9 pages)
Docket Numbers:
Docket No. FR-3914-P-01
RINs:
2502-AB53
PDF File:
96-30764.pdf
CFR: (39)
24 CFR 242.406(a)
24 CFR 242.428(a)(3))
24 CFR 242.428(a)(1)
24 CFR 242.404(b)
24 CFR 242.430(b)
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