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| Montana Administrative Register Notice 8-111-93 | No. 13 07/14/2011 | |
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BEFORE THE BOARD OF HOUSING DEPARTMENT OF COMMERCE OF THE STATE OF
TO: All Concerned Persons 1. On August 9, 2011, at 1:00 p.m., the Board of Housing will hold a public hearing in Room 226 of the 2. The Board of Housing will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Commerce no later than 5:00 p.m., July 28, 2011, to advise us of the nature of the accommodation that you need. Please contact Paula Loving, Board of Housing, Department of Commerce, 3. The rules as proposed to be adopted provide as follows: NEW RULE I PURPOSE AND OBJECTIVE (1) These rules are adopted to implement the Montana Veterans' Home Loan Act, Title 90, chapter 6, sections 1 through 6, MCA. These rules provide explanation and guidance to loan applicants and participating lenders and servicers. REASON: The 2011 Montana Legislature enacted Senate Bill 326, Chapter 349, L. 2011 (the "Act"), creating the Montana Veterans' Home Loan Mortgage Program with money from the Permanent Coal Tax Trust Fund to be administered by the Board of Housing. The Act requires the Board of Housing to adopt administrative rules necessary for the administration of the program and to address specified areas of the program. The Act is effective July 1, 2011. The Board of Housing administers various existing loan programs. Although the Act creates a new loan program to be administered by the board, some aspects of the new program can be handled in the same manner as other existing programs. New Rule I is reasonably necessary to identify and state that the purpose of the proposed new rules is to implement the program and provide explanation and guidance to loan applicants and participating lenders and servicers. NEW RULE II DEFINITIONS As used in these rules, the following words and phrases have the following meanings: (1) "Act" means the Montana Veterans' Home Loan Act, Title 90, chapter 6 sections 1 through 6, MCA. (2) "Board" means the Montana Board of Housing established under 2-15-1814, MCA. (3) "Deceased eligible veteran" means an eligible veteran who was killed in the line of duty while in military service. (4) "Eligible veteran" means an individual who is in military service or has been in military service and was discharged under honorable conditions. (5) "First time home buyer" means an individual who has not previously owned an interest in real property occupied by the individual as their primary residence. An applicant must provide proof of first time home buyer status satisfactory to the board. (6) "Guide" means the board's Mortgage Purchase and Servicing Guide referenced in ARM 8.111.305. (7) "Honorable conditions" means a discharge or separation from service characterized by the applicable military authority as under honorable conditions. The term includes honorable discharge and general discharge, but does not include a dishonorable discharge or other administrative discharge characterized by military regulation as other than honorable. (8) "Montana Resident" means an individual who has established and maintains a permanent place of abode within the state of (9) "Program" means the Montana Veterans' Home Loan Program established by the Act and administered by the board pursuant to these rules. (10) "Property" means the residential real property purchased or to be purchased with a veteran's loan. (11) "Military Service" means: (a) Membership in the (b) Membership in the federal reserve forces of the armed forces of the United States pursuant to Title 10 of the U.S. Code; or (c) Service on federal active duty pursuant to Title 10 of the U.S. Code. (12) "Veteran's loan" means a mortgage loan made pursuant to the Act and these rules. REASON: New Rule II is reasonably necessary to specify the definitions of terms used in the proposed rules. The proposed definitions are consistent with and implement the terms and definitions of the Act. NEW RULE III APPLICANT ELIGIBILITY REQUIREMENTS (1) To qualify for a veteran's loan, an applicant must: (a) be a (b) be an eligible veteran or a deceased eligible veteran's surviving spouse who is not and has not remarried since the death of the deceased eligible veteran; (c) be a first time home buyer; and (d) have successfully completed a homebuyer education class approved by the board. (2) There is no income limit for veteran's loan eligibility. REASON: New Rule III is reasonably necessary to specify the eligibility requirements for veterans' loan applicants. To comply with the authorization of the Act, applicant eligibility requires that an applicant meet the particular eligibility requirements stated in proposed Rule III. NEW RULE IV APPLICATION PROCEDURES (1) Application for a veteran's loan must be made using the same process established by the board for regular bond program loans, as specified in the guide. (2) In addition to other documents required by the guide, the application materials submitted to the participating lender must include: (a) a completed application on an application form approved by the board; and (b) satisfactory proof of eligibility under [New Rule III]. (3) Additional information and forms for the program may be obtained by contacting the board by mail at REASON: New Rule IV is reasonably necessary to specify the loan application procedures and requirements, and to specify where and how program information and forms may be obtained. Section 5 of the Act requires that the Board of Housing adopt rules specifying the loan application process. The board proposes to adopt the application process specified in the board's existing Mortgage Purchase and Servicing Guide, because this process is already established, loan originators are familiar with this process, and it would be an unwarranted use of resources to establish a new and separate process. NEW RULE V LENDER AND SERVICER REQUIREMENTS AND LIMITS (1) The program will be governed by and subject to the Act and these rules. (2) Veteran's loans shall be originated and serviced using the processes established for the board's regular bond program loans, as specified in the guide, subject to the following: (a) where the provisions of the guide are inconsistent with the Act or these rules, the provisions of the Act or these rules shall govern; (b) terms defined in the Act or these rules shall have the meaning provided in the Act or these rules where used in the guide; and (c) the sections of the guide pertaining to requirements of the Internal Revenue Service and the bond indentures (currently sections 2.01(a), 2.04(a)(i) and (ii), 2.05, 2.05.1, 2.06, 2.11 and 2.12) shall not apply for purposes of the veteran's loan program. (3) To participate as a lender under the veteran's loan program, a lender must be a board-approved participating lender under the requirements of ARM 8.111.305. The lender must comply with the applicable provisions of the guide. (4) A single lender may reserve or originate no more than ten veteran's loans until at least a total of $10 million in loans has been originated by all lenders under the veteran's loan program. The board may waive the ten-loan limit where necessary to provide an opportunity for an eligible applicant to obtain a loan where the loan is not otherwise available to the applicant from another participating lender. Once a total of $10 million in loans has been originated by all lenders under the veteran's loan program, the ten-loan limit shall no longer apply to any lender. (5) Veteran's loans will be serviced by the board or its designee. Servicing fees shall be 0.375% per annum. A servicing release premium will be paid by the board to the lender. (6) Lenders must provide the board and the legislative auditor access to all records and documents related to veteran's program loans. REASON: New Rule V is reasonably necessary to specify the requirements to qualify and participate in the program as a loan originator or servicer. Section 5 of the Act requires that the Board of Housing adopt rules specifying what financial institutions may participate in the program, specifying the maximum servicing fees that may be charged by lenders, and providing the legislative auditor with access to program loan records. The board proposes to adopt the lender participation requirements already established in the board's administrative rules for its existing loan programs. The board chose these requirements because the requirements and processes for approving and reapproving lenders are already established, lenders are familiar with these requirement and processes, and it would be an unwarranted use of resources to establish new and separate requirements and processes. New Rule V is also reasonably necessary to specify the process and requirements for originating and servicing loans. Again, the Board of Housing proposes to adopt processes and requirements specified in the board's existing Mortgage Purchase and Servicing Guide, because these processes and requirements are already established, loan originators are familiar with these processes and requirements, and it would be an unwarranted use of resources to establish new and separate processes and requirements. The board proposes in Rule V to adopt a servicing fee amount of 0.375% per annum, which the board has determined is necessary to cover servicing costs for program loans. It is also necessary to provide for payment of a servicing release premium to originating lenders, because without such payment, lenders will not be willing to originate program loans for which they would lose the valuable servicing rights. Section 4(6) of the Act requires that the Board of Housing adopt rules specifying the maximum amount of mortgage loans that any one lender may make under the program, in order to allow small lenders to participate equitably in the program along with large lenders. The board proposes in Rule V that each lender may make no more than ten loans until at least $10 million of the total available $15 million in funding is exhausted. Given the number of lenders in NEW RULE VI QUALIFYING PROPERTY (1) The property to be purchased with a veteran's loan must be: (a) located in the state of (b) actually occupied by the borrower as the borrower's primary residence; (c) if manufactured housing, de-titled and fixed to a permanent foundation. REASON: New Rule VI is reasonably necessary to specify requirements for the property that is to be purchased with a program loan. Section 5 of the Act requires that the Board of Housing adopt rules specifying other loan conditions determined to be necessary by the board. The Act requires that property be located within the state of NEW RULE VII LOAN TERMS AND CONDITIONS (1) The purchase price for the property, as agreed upon in a written buy-sell agreement, may not exceed 95% of the value of the statewide allowable purchase price determined by the board. (2) The borrower must contribute a minimum of $2,500 of the borrower's own funds toward the down payment for the purchase of the property or the closing costs of the loan, with no cash back to the borrower at closing. (3) The lender may charge and collect lender fees not exceeding the amount allowable under the board's regular bond program. No points may be charged. All fees must be paid by the borrower or seller and will not be paid or financed by the board. (4) Loans must meet FHA, VA, RD, or HUD 184 underwriting standards as specified by the board and must be guaranteed by FHA, VA, RD, or HUD 184. (5) Loans will be 30-year, fixed rate loans. (6) Loan interest rates will be one percent below the lower of the Federal National Mortgage Association's 60-day delivery rate or the board's regular bond home loan mortgage program. The interest rate will be posted on the board's web site and updated every two weeks. (7) Loans must be documented with a standard promissory note used by FHA, Fannie Mae, or Freddie Mac; secured by a first priority trust indenture under the Montana Small Tract Financing Act, Title 71, chapter 1, part 3, MCA; and covered by a lender's policy of title insurance. (8) The loan agreement must provide that taxes and insurance payments will be escrowed, including hazard and mortgage insurance. Hazard insurance must meet the standards specified in the guide and the terms and conditions specified in the lender's contract with the board. (9) The loan documents shall provide that, in the event the borrower ceases to occupy the property as the borrower's primary residence, the loan interest rate shall increase by one percent per annum six months after such event and, at the option of the board, the entire loan indebtedness shall become immediately due and payable 12 months after such event. (a) The board or its designee may require the borrower to periodically verify continued occupancy of the property as a primary residence, and failure to comply with such verification requests shall constitute a default under the loan, except for good cause shown. (b) Upon written request of the borrower, the board in its sole discretion may extend or decline to extend the 12-month repayment period based upon the borrower's inability to sell the property despite good faith efforts, considering the following factors: (i) prompt and continuing listing of the property for sale; (ii) reasonableness of the listing price and other offering terms; (iii) any offers the borrower has received and refused; (iv) market conditions; (v) preservation of the loan collateral; and (vi) any other factors deemed relevant by the board. REASON: New Rule VII is reasonably necessary to specify the required terms and conditions of program loans. Section 5 of the Act requires that the Board of Housing adopt rules specifying underwriting criteria for program loans, the statewide allowable purchase price of a home for the purposes of the program, the security required for a mortgage loan financed by the program, and the maximum origination fees that may be charged by participating financial institutions. Proposed Rule VII specifies these items and other loan terms and conditions. The proposed rule would establish the maximum purchase price, which is based upon the value of the statewide allowable purchase price, continuously maintained and updated by the board, and the borrower's required minimum contribution of $2,500 toward the down payment or closing costs for the loan. The board proposes to limit lender fees to those amounts allowable under the board's regular bond loan program, to prohibit charging for points, and to specify for clarity that none of the permissible lender fees will be paid or financed by the board. The board proposes that loans will be required to meet FHA, VA, RD, or HUD 184 underwriting guidelines, because loans must be guaranteed by one of these federal programs. This is necessary to reasonably assure the security of permanent coal tax trust funds which are being used to facilitate program loans. The rule is necessary to specify the loan term, the interest rates upon which program interest rates will be based, the form and priority of loan documents and security required, and escrowing of tax and insurance payments. These proposed rules are necessary to assure that loans are made and secured in accordance with the requirements of the Act and in a manner reasonably assuring repayment of the permanent coal tax trust funds being used to facilitate program loans. The rule is also necessary to provide a mechanism for enforcement of the primary residence requirement. Borrowers may periodically cease to occupy the property as their primary residence for a variety of reasons, for example, relocating for employment purposes or as a result of being reassigned to a different military duty location. The proposed rule is necessary to allow for a period of transition and an opportunity for the borrower to sell the residence and repay the loan. The proposed rule provides an incentive for sale within the first six months after ceasing to occupy the property as a primary residence, by providing that the loan interest rate will increase by 1% after six months. The board would have discretion to declare the loan due and payable after one year, but would retain discretion to consider requests to extend the 12-month repayment requirement based upon consideration of the stated factors, where the borrower has been unable to sell the property despite good faith efforts to do so. The board considered an automatic loan due date, but believes that it would be inconsistent with the program purposes and would preclude the board from considering hardship circumstances. Section 5(2) of the Act also allows the board to change certain requirements of the Act regarding the definition of eligible veteran, loan security, and minimum borrower participation if determined necessary by the board for program purposes. The board has not determined that such changes are necessary for the initial implementation of the program. The board may consider such rules in the future as deemed necessary based upon experience with the program. 4. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to: Nancy L. Leifer, Homeownership Program Manager, Montana Board of Housing, P.O. Box 200528, Helena, MT 59620-0528; telephone (406) 841-2849; fax (406) 841-2841; or e-mail nleifer@mt.gov, and must be received no later than 5:00 p.m., August 11, 2011. 5. Nancy L. Leifer, Montana Board of Housing, Department of Commerce, has been designated to preside over and conduct this hearing. 6. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in 4 above or may be made by completing a request form at any rules hearing held by the department. 7. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor was contacted in person on May 31, 2011, by e-mail on June 10, 2011, and by telephone on June 13, 2011.
/s/ G. MARTIN TUTTLE /s/ DORE SCHWINDEN G. MARTIN TUTTLE DORE SCHWINDEN Rule Reviewer Director Department of Commerce Certified to the Secretary of State July 5, 2011.
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