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§42-55-9  Terms and conditions of loans. –


Published: 2015

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TITLE 42

State Affairs and Government

CHAPTER 42-55

Rhode Island Housing and Mortgage Finance Corporation

SECTION 42-55-9



   § 42-55-9  Terms and conditions of loans.

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Mortgage and other loans made by the corporation to housing sponsors of

multi-family residential housing units or health care facilities shall be

subject to the following terms and conditions:



   (1) No application for a loan for a housing development or

health care facility shall be processed unless the applicant is a housing

sponsor or health care facility sponsor as defined in § 42-55-3;



   (2) The ratio of loan to total housing development or health

care facility cost and the amortization period of loans made under this chapter

which are insured by any agency or instrumentality of the United States

government shall be governed by the mortgage insurance commitment for each

housing development or health care facility; but in no event shall the

amortization period exceed fifty (50) years; in the case of a mortgage loan not

insured by an agency or instrumentality of the United States government, the

amount of the loan to: (1) nonprofit housing sponsors shall not exceed one

hundred percent (100%) of the total housing development cost as determined by

the corporation; and (2) other housing sponsors and health care sponsors shall

not exceed ninety-five percent (95%) of the total development cost as

determined by the corporation, and the amortization period of the loan shall be

determined in accordance with regulations formulated and published by the

corporation, but in no event shall the amortization period exceed fifty (50)

years;



   (3) A loan made under this chapter may be prepaid to maturity

after a period of years as determined by the rules and regulations of the

corporation, provided the corporation finds that the prepayment of the loan

will not result in a material escalation of rents charged to the persons and

families of low and moderate income occupying the housing development or

charges to the persons using the health care facilities;



   (4) The corporation shall have authority to set from time to

time the interest rates at which it shall make loans and commitments. The

interest rates shall be established by the corporation at the lowest level

consistent with the corporation's cost of operation and its responsibilities to

the holders of its bonds, bond anticipation notes and other obligations. In

addition to these interest charges, the corporation may make and collect those

fees and charges, including, but not limited to, reimbursement of the

corporation's financing costs, service charges, insurance premiums, and

mortgage insurance premiums, that the corporation determines to be reasonable;



   (5) In considering any application for a loan to finance a

housing development or housing project, the corporation shall determine that

the housing developments will be well planned and well designed; and shall also

give consideration to:



   (i) The comparative need for housing for persons and families

of low and moderate income in the area to be served by the proposed development;



   (ii) The ability of the applicant sponsor to construct,

operate, manage, and maintain the proposed housing development;



   (iii) The existence of zoning or other regulations to

adequately protect the proposed housing development against detrimental future

uses which could cause undue depreciation in the value of the development;



   (iv) The existence of federal and statewide housing, land

use, and pollution abatement plans and programs;



   (v) A detailed plan of security proposed for the safety of

the inhabitants of any development hereinafter constructed within the city of

Providence;



   (6) In considering any application for a loan to finance

health care facilities, the corporation shall give consideration to:



   (i) The availability of health care facilities presently

located or to locate in the area;



   (ii) The ability of the sponsor to meet the health needs of

the inhabitants of the area and to operate, manage, and maintain the proposed

health care facilities;



   (iii) The regulations of the state to standards of

construction and design and equipment of health care facilities of the type

proposed to be financed;



   (7) Each mortgage loan shall contain the terms and provisions

and be in a form approved by the corporation. The corporation may require the

housing sponsor or health care sponsor receiving a loan or its contractor to

execute any other assurances and guarantees that the corporation may deem

necessary, including without limitation, payment and performance bonds, and

letters of credit;



   (8) Each loan shall be subject to an agreement between the

corporation and the housing sponsor which will subject the sponsor and its

principals or stockholders, if any, to limitations established by the

corporation as to rentals and other charges, builders' and developers' profits

and fees, and the disposition of its property and franchise to the extent more

restrictive limitations are not provided by the law under which the borrower is

incorporated or organized or by this chapter;



   (9) As a condition of the loan, the corporation shall have

the power at all times during the construction or rehabilitation of a housing

development or housing project by a housing sponsor or of health care

facilities by a health care sponsor and the operation thereof:



   (i) To enter upon and inspect any housing development or

housing project or health care facility, including all parts thereof, for the

purpose of investigating the physical and financial condition thereof, and its

construction, rehabilitation, operation, management, and maintenance, and to

examine all books and records of the housing sponsor or health care sponsor

with respect to capitalization, income and other related matters and to make

any charges that may be required to cover the cost of those inspections and

examinations;



   (ii) To order any alterations, changes or repairs that may be

necessary to protect the security of its investment in a housing development,

housing project, or health care facility or the health, safety, and welfare of

the occupants or users thereof and to insure that the housing development or

health care facility is, or has been, constructed or rehabilitated in

conformity with all applicable federal, state, and local building codes;



   (iii) To order any managing agent, housing development or

health care facility manager, or owner of a housing development or health care

facility, or sponsors of these, to do those acts that may be necessary to

comply with the provisions of all applicable laws, ordinances, or building

codes or any rule or regulation of the corporation or the terms of any

agreement concerning the development or facilities or to refrain from doing any

acts in violation thereof, and in this regard the corporation shall be a proper

party to file a complaint and to prosecute any violations of law, ordinances,

or building codes as set forth herein;



   (iv) A housing sponsor may not make distributions of income

or earnings from a housing development or housing project financed by the

corporation in any one year in excess of six percent (6%) (or a higher or lower

percent as shall be prescribed by the rules and regulations of the corporation)

of the housing sponsor's equity in the development, nor shall any of the

principals or stockholders of the housing sponsor at any time earn, accept or

receive a return greater than six percent (6%) per annum (or a higher or lower

percent as shall be prescribed by the rules and regulations of the corporation)

of his or her investment in any housing development financed by the

corporation. The sponsor's equity in a housing development shall consist of the

difference between the corporation assisted mortgage loan and the total housing

development cost. With respect to every housing development assisted by the

provisions of this chapter the corporation shall, pursuant to regulations

adopted by it, establish the sponsor's equity at the time of the making of the

final mortgage advance and, for the purposes of this subdivision, that figure

shall remain constant during the life of the corporation's mortgage on the

development;



   Notwithstanding the above, the corporation shall allow

existing project owners to withdraw a rate of return on redefined equity

provided the corporation finds that the project is "stable and financially

secure". Properties meeting this definition would have healthy finances and

reserves and be in good condition, as determined by the corporation; provided,

however, no project owner of a housing development financed by the corporation

may apply for redefinition until fifteen (15) years from the date of financing.

In addition, the following requirements must occur:



   (A) There is no deferred maintenance as determined by the

corporation.



   (B) There are no major repairs or replacements (three

thousand dollars ($3,000) or more) anticipated or required for the coming year

which would reduce the reserve accounts below required levels.



   (C) All operating expenses have been paid within thirty (30)

days of their due date.



   (D) Operating account balance equals one month's total

operating expenses.



   (E) The development has sustained ninety-five percent (95%)

or greater economic occupancy for the prior twenty-four (24) consecutive months

and has a current waiting list equal to at least one and one-half (1 1/2) times

the annual turnover for the two (2) preceding years.



   (F) The mortgage has not been delinquent for the preceding

twenty-four (24) months.



   (G) Reasonable reserve account balances.



   (H) The owner agrees to limit future rent increases to the

amount needed to pay all annual operating expenses including return on equity

and maintaining reserves at five thousand dollars ($5,000) per unit or twenty

percent (20%) of the outstanding mortgage.



   (I) The owner agrees to maintain the housing affordable to

persons of low and moderate income for (a) a minimum of twenty (20) years from

the date that owner could prepay a mortgage securing a development, as that

term is defined in § 34-45-4, or could elect not to renew a Section 8

assistance contract under § 34-45-5 or (b) twenty (20) years from the

maturity date of a note evidencing indebtedness to the corporation which is

secured by a housing development.



   Not-for-profit sponsors shall be eligible to receive

unlimited annual cash flow, subject to the above criteria, up to the cumulative

amount of their initial equity investment. Subsequent annual cash flow may be

distributed provided the distributions are restricted to low and moderate

income housing related expenditures.



   Equity would be redefined by either capitalizing the annual

cash flow using corporation-approved appraisal practices or by the difference

between the fair market value of the housing project using corporation approved

appraisal practices less the unpaid principal balance of any outstanding

mortgage loans, whichever is greater.



   Equity would be subject to recalculation every five (5)

years, or more frequently at the corporation's discretion.



   The corporation shall receive a one-time fee equal to

one-half percent (1/2%) of the outstanding mortgage for redefining equity. This

will be an eligible operating expense. The fee may be waived by the corporation

in whole or in part.



   (v) Whenever any housing sponsor accumulates an earned

surplus, in addition to the reserves the corporation may require for

maintenance, operation, and replacement, in excess of ten percent (10%) of the

initial annual rent roll for the housing development, rents in the housing

development shall be reduced to the extent necessary to lower the earned

surplus accumulation to that ten percent (10%) figure in the following fiscal

year. Every five (5) years the housing sponsor may seek the approval of the

corporation for increases in those reserves. To the extent warranted the

corporation may grant that approval if in its judgment there have been

increased price levels or unusual maintenance and repayment requirements;



   (vi) The corporation may provide by rules and regulations for

the terms and conditions of mortgage loans to housing sponsors of single family

residential housing units or health care facilities and the supervision of

housing sponsors or health care sponsors.



History of Section.

(P.L. 1973, ch. 262, § 1; P.L. 1975, ch. 128, § 3; P.L. 1981, ch.

214, § 1; P.L. 1987, ch. 287, § 1; P.L. 1989, ch. 226, § 1; P.L.

1990, ch. 431, § 3; P.L. 1993, ch. 422, § 12.)