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§1980.390 Interest assistance.
In order to assist low-income borrowers in the repayment of the loan, RHS is authorized to provide interest assistance payments subject to the availability of funds. Regardless of what date a borrower's loan payment is due each month, interest assistance payments will be made by RHS directly to the Lender on or before the 15th day of the month in which the borrower's payment is due.
(a) Policy. It is the policy of RHS to grant interest assistance on guaranteed loans to low-income borrowers to assist them in obtaining and retaining decent, safe, and sanitary dwellings and related facilities as long as the borrower remains eligible for payments when funds are available for interest assistance. Interest assistance must be established for the borrower at the time the loan guarantee is authorized.
(b) Processing interest assistance agreements. The Lender will process the interest assistance agreement and submit it to RHS for approval.
(1) RHS will reimburse the Lender in the amounts authorized in exhibit D of FmHA Instruction 1980-D (available in any RHS office) for the cost of processing the agreement. The fee will be paid upon receipt of a valid agreement which has been coded as requiring a processing fee payment. The processing fee is payable when:
(i) A new agreement is made with the borrower except at the time of loan closing.
(ii) The borrower had an agreement for the previous year and a new agreement is made for the current year.
(iii) The borrower is eligible for but not presently on interest assistance and enters into a new interest assistance agreement.
(iv) The borrower has a change in circumstances which requires a revision to the current agreement. When the change in circumstances results in an agreement with less than 90 days remaining, the agreement for the subsequent year will be prepared at the same time. This action is considered one agreement.
(2) A processing fee will not be paid when the revision to an existing agreement is required due to an error on the part of the Lender or the borrower.
(c) Amount of interest assistance. (1) The amount of interest assistance granted will be the difference between the monthly installment due on the promissory note eligible for interest assistance and the amount the borrower would pay if the note were amortized at the rate corresponding to the borrower's income range as outlined in the master interest assistance agreement.
(2) The basis for the amount of interest assistance for each loan is determined by the amount of interest assistance authorized to the Agency as shown in exhibit D of FmHA Instruction 1980-D (available in any RHS office) and the note interest rate.
(3) A borrower receiving a loan in a high cost area will be granted an additional 1 percent interest assistance in order to assist the borrower up to the maximum rate in exhibit D of FmHA Instruction 1980-D (available in any RHS office).
(i) The Administrator may designate an area as a high cost area for interest assistance purposes. Such designation may be granted when the State Director makes a written request for it and provides documentation that low-income borrowers in the area could not afford to purchase a dwelling under the interest assistance table in exhibit D of FmHA Instruction 1980-D (available in any RHS office). The area must also be designated by HUD as a high cost area. The amount of additional interest assistance for high cost areas is 1 percent; however, in no case will more interest assistance be granted than the amount necessary to reach the lowest floor rate in exhibit D of FmHA Instruction 1980-D (available in any RHS office).
(ii) The change in a designation to (or from) a high cost area will not affect existing loans. An individual's loan eligibility for high cost designation is determined at the time of issuance of the conditional commitment for loan guarantee.
(d) Shared equity. Prior to loan closing, the Lender will advise the applicant that interest assistance is subject to equity sharing.
(e) Eligibility. To be eligible for interest assistance, a borrower must personally occupy the dwelling and must meet the following additional requirements:
(1) Initial loans. Interest assistance may be granted at the time the loan note guarantee is issued, or an assumption is processed in accordance with §1980.366, when:
(i) The borrower's adjusted income at the time of loan guarantee approval did not exceed the applicable low-income limit, the loan guarantee was funded from interest assisted guaranteed loan funds, and a master interest assistance agreement was completed at closing if the borrower is ever to receive interest assistance.
(ii) The borrower's net family assets do not exceed the maximum allowable amount as per exhibit D of FmHA Instruction 1980-D (available in any RHS office) unless an exception is authorized. The calculation of net family assets will exclude the value of the dwelling and a minimum adequate dwelling site, cash on hand which will be used to reduce the amount of the loan, and household goods and personal automobiles and the debts against them. The Lender may request an exception at the time the initial application is submitted to RHS for a loan guarantee. For the purpose of determining whether an exception is justified, consideration will be given to the nature of the assets upon which a borrower is currently dependent for a livelihood or which could be used to reduce or eliminate the need for interest assistance.
(iii) The loan was approved as a subsidized guaranteed loan on or after April 17, 1991.
(iv) The amount of interest assistance will be $20 or more per month in accordance with the provisions of paragraph (c)(1) of this section. Interest assistance in amounts of less than $20 per month will not be granted.
(2) Existing loans. Interest assistance may be granted at any time after loan closing if:
(i) The requirements of paragraphs (e)(1)(i), (e)(1)(iii), and (e)(1)(iv) of this section are met.
(ii) The borrower's adjusted annual income does not exceed the low-income limit.
(iii) The borrower requests interest assistance through the Lender or the Lender determines that interest assistance is needed to enable the borrower to repay the loan.
(iv) The Lender processes the interest assistance agreement and submits it to RHS for approval.
(f) Processing interest assistance. The Lender will process interest assistance agreements in accordance with this section. The interest assistance agreement will be executed by the Lender and borrower and forwarded to RHS for approval.
(1) Amount of interest assistance. The amount of interest assistance for which a borrower is eligible will be determined by use of the interest assistance agreement as outlined in paragraph (c) of this section.
(i) Determination of income. The Lender is responsible for determining the borrower's annual and adjusted annual income as outlined in §§1980.347 and 1980.348 of this subpart. Income of all persons occupying the dwelling will be verified in accordance with §1980.347 of this subpart.
(ii) Effective period. Annual interest assistance agreements will be for a 12-month period.
(2) Interest assistance agreements. The master interest assistance agreement will be executed for each qualifying loan at loan closing provided funds are available for interest assistance at the time the guarantee is issued. This agreement establishes the conditions and maximum amounts of interest assistance for the life of the loan. Each year, an annual interest assistance agreement will be used to determine the amount of interest assistance for the coming 12 months.
(i) The Lender will determine the borrower's adjusted annual income, document the calculations, and complete the interest assistance agreement form.
(ii) The borrower will review the interest assistance agreement form and sign the form signifying that all information is correct as shown.
(iii) If the information contained on the interest assistance agreement appears correct, RHS will approve the agreement and make monthly payments to the Lender on behalf of the borrower.
(iv) When the borrower's income is within the low-income limits but the provisions of paragraphs (e)(1)(ii) or (e)(1)(iv) of this section preclude granting interest assistance, the master interest assistance agreement must be executed if the borrower desires to be considered for interest assistance at a later date due to a change in circumstances.
(g) Interest assistance modification. A change in the borrower's circumstances after the effective date of the Annual Interest Assistance Agreement will be handled as follows:
(1) RHS required modifications before expiration. The borrower is responsible for reporting any increases in income exceeding $100 per month to the Lender. The Lender is not responsible for monitoring the borrower's income. The Lender must process a revised interest assistance agreement when a reported increase in the borrower's income results in the need for less interest assistance in accordance with paragraph (c) of this section.
(2) Additional interest assistance before expiration. The borrower may request and the Lender may process a modification of the interest assistance agreement and submit the modified agreement to RHS when:
(i) The borrower's adjusted annual income decreases by more than $100 per month;
(ii) The interest assistance calculation per paragraph (c) of this section indicates that the borrower is eligible for an additional $20 interest assistance per month; and
(iii) There are interest assistance funds available if the amount needed by the borrower exceeds the initial floor rate established at the time the loan was closed per paragraph (c) of this section.
(3) Other changes in the borrower's circumstances. When one coborrower has left the dwelling, interest assistance based on the remaining coborrower's income may be extended if:
(i) The remaining coborrower is occupying the dwelling, owns a legal interest in the property, and is liable for the debt;
(ii) The remaining coborrower certifies as to who lives in the house;
(iii) Separation is not due only to work assignment or military orders; and
(iv) The remaining coborrower is informed and agrees that should the coborrower begin to live in the dwelling, that coborrower's income will then be counted toward annual income and interest assistance may be reduced or canceled.
(4) Effect of modification. An interest assistance agreement modified as per paragraph (g)(1), (g)(2), or (g)(3) of this section is valid for the remainder of the agreement period.
(5) Correction of interest assistance agreement. When an error by RHS or the Lender resulted in too little interest assistance being granted, a corrected agreement will be prepared effective the date of the error if the error results in granting $20 or more per month less interest assistance than the borrower was eligible to receive. The Lender must return any overpayment made by the borrower unless an agreement is reached to apply the funds to the loan as an extra payment.
(h) Eligibility review. Borrowers receiving interest assistance will be reviewed annually within 30 to 60 days prior to the anniversary date of the loan. All existing agreements must be reviewed and processed for the upcoming 12 months during the review period. Interest assistance will not be renewed if the amount that the borrower qualifies for is less than $20 per month.
(1) The Lender will obtain written verification of the income of each borrower and all adult members of the borrower's household and conduct the review.
(i) Borrower responsibility. The borrower will:
(A) Report the income of each adult member of the household to the Lender;
(B) Assure that each household member has provided sufficient information on that person's income for the Lender to conduct the review; and
(C) Cooperate in the Lender's efforts to verify income.
(2) Processing interest assistance renewals not reviewed during the review period. The Lender may process interest assistance renewals not completed during the review period as follows:
(i) The amount of interest assistance will be based on the borrower's current annual income.
(ii) The effective date will be:
(A) The expiration period of the previous interest assistance agreement if the RHS approval official determines failure to renew was the fault of RHS or the Lender.
(B) The next payment due date following approval in all other cases.
(3) Interest assistance form. Interest assistance payments will not be made after the expiration date unless RHS receives and approves a new interest assistance agreement form.
(i) Cancellation of interest assistance. (1) An existing interest assistance agreement will be canceled under the following circumstances:
(i) When the borrower has never occupied the dwelling, the interest assistance will be canceled as of the date of issuance of the guarantee. The Lender will refund all interest assistance payments to RHS.
(ii) The cancellation will be effective on the date on which the earliest action occurs which causes the cancellation or the date the Lender became aware of the situation if the date cannot be determined when:
(A) The borrower ceases to occupy, sells, or conveys title to the dwelling.
(B) The borrower has received improper interest assistance and a corrected agreement will not be submitted.
(C) The borrower has had an increase in income and is no longer eligible for interest assistance.
(D) The security is acquired by the Lender.
(E) The Lender formally declares the loan to be in default and accelerates the loan.
(j) Overpayment. When the Lender becomes aware of circumstances that have resulted in an overpayment of interest assistance for any reason, except as provided in paragraph (k) of this section, the following actions will be taken:
(1) The Lender will immediately notify RHS.
(2) The borrower will be notified and the interest assistance agreement will be corrected.
(3) A repayment agreement acceptable to RHS will be reached.
(k) Unauthorized use of loan funds. When RHS becomes aware that the Lender allowed loan funds to be used for unauthorized purposes, interest assistance paid on said amounts will be promptly repaid by the Lender. The Lender may work out a repayment agreement with the borrower but is expected to make every effort to minimize the adverse impact on the borrower's repayment ability.
(l) Appeals. All applicants/borrowers and Lenders may appeal adverse determinations in accordance with §1980.399 when RHS denies, reduces, cancels, or refuses to renew interest assistance.
(m) Reinstatement of interest assistance. The RHS approval official may authorize reinstatement of the borrower's interest assistance if it was canceled because the loan was accelerated and if the acceleration was withdrawn with RHS approval.