11.8.2 Prepayment Provisions

A. Generally, prepayment lockout and/or penalty structures that are commercially reasonable and consistent with industry practice, that expire after 10 years and are no more than 10% during any of the first 10 years, and no more than 1% thereafter are acceptable, so long as the interest rate is commercially reasonable at the time of the rate lock.

B. The following additional conditions and terms apply:

1. Market rate properties.

   • Prepayment must be permitted in whole or in part so long as 30 days advance written notice is given to Lender of intent to prepay, except for Section 223(f) loans (subject to statutory five year prepayment lockout), which must meet certain conditions and receive HUD approval if the property will be converted to a use other than rental housing, in order to prepay within the five year prepayment lockout.

• Prepayments must be permitted for up to 15% of the original principal amount in any one calendar year without a prepayment charge. Prepayments exceeding 15% may be subject to a reasonable charge agreed to by Borrower and Lender and included in the Mortgage.

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Chapter 11 Lender Underwriting, HUD Review and Closing

11.8 Note

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• Notwithstanding the Borrower’s right to prepay, a HUD 9807 must be processed in order for HUD to release the recorded Regulatory Agreement.

2. Affordable or subsidized properties.

   • FHA insured projects which are, or formerly were, affordable or subsidized and are subject to a Use Agreement, Regulatory Agreement, or similar restrictive covenants require prior written consent of HUD to prepay the mortgage debt.

   • HUD may approve partial prepayments to reduce succeeding monthly payments over the remaining portion of the original mortgage term or may also approve partial prepayments made after 30 days written notice. Prepayments exceeding 15% of the original principal amount may be subject to a reasonable charge on such excess as agreed to by Borrower and Lender and included in the Mortgage.

3. Prepayment of bond financed or Ginnie Mae securitized mortgages. Where the mortgage is given to secure Ginnie Mae mortgage-backed securities or a loan made by a Lender that has obtained the funds for the loan by the issuance and sale of bonds or bond anticipation notes, or both, the mortgage may contain a prepayment restriction and prepayment penalty charge acceptable to the Commissioner as to term, amount, and conditions.