11.8.5 Override of Prepayment Lockout

A. Where obligations pursuant to tax-exempt bond financing or Ginnie Mae involvement do not impose restrictions independent of the Lender’s restrictions, HUD may consider exercising an override of prepayment lockout and/or premium provisions imposed by the Lender if:

1. Borrower has defaulted on the insured loan and HUD has received notice as required by the regulations.

2. HUD determines that the project has been experiencing a net income deficiency, which has not been caused solely by management inadequacy or lack of owner interest, and which is of such a magnitude that the Borrower is currently unable to make required debt service payments on the insured loan, pay all project operating expenses and fund all required HUD reserves;

3. HUD finds there is a reasonable likelihood that the Borrower can arrange to refinance the defaulted loan at a lower interest rate or otherwise reduce the debt service payments through partial prepayment; and

4. HUD determines that refinancing the defaulted loan at a lower rate or partial prepayment is necessary to restore the project to a financially viable condition and to avoid a full insurance claim.

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Chapter 12 Construction Period 12.1 HUD Construction Administration Roles and Responsibilities

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