2.6.1 Introduction

A. The Code of Federal Regulations at 24 CFR 200.1530(b)(6) refers to Identity of Interest (IOI) violations as defined in this Chapter. For purposes of this section, an IOI is defined as a financial or family relationship between a MAP Lender and another party related to the MAP loan transaction. All IOIs must first be reviewed and approved in writing by COB. IOIs are prohibited unless explicitly permitted pursuant to this section or approved in writing by COB. A prohibited IOI is referred to in this section as a “Conflict of Interest.” Conflicts of Interest are unacceptable in the MAP program because they:

1. Undermine the independence and integrity of the MAP Lender’s underwriting, risk assessment, credit analysis and/or loan closing procedures;

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Chapter 2 Lender Qualifications and Practices 2.6 Identity of Interest, Conflicts of Interest

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2. Obscure the lines between the MAP Lender’s fiduciary responsibilities to the project’s equity investor and its responsibilities to HUD;

3. Represent an unfair competitive advantage for the MAP Lender; and/or;

4. Represent an unfair business practice with the Borrower or any of its affiliates, which may be due to a lack of disclosure or skewing of arm’s length incentives.

• B. HUD considers certain prohibited payments and promises by a MAP Lender to be a violation of 24 C.F.R. 200.1530(b)(7), which prohibits:

Payment by, or receipt of a payment by, a MAP Lender of any kickback or other consideration, directly or indirectly, which would affect the Lender’s independent evaluation, or represent a conflict of interest, in connection with any FHA-insured mortgage transaction .

C. Certain payments and promises could further violate the Lender’s Certificate (form HUD-92434M) and the Request for Endorsement form (HUD-92455M, Certificate of Lender) provision, as follows:

Lender has not made or offered, and shall not make or offer, any guarantees, pledges, reservations of sums to become due, or other inducements to any entity or person to make loans or advances which Lender would be prohibited from making under the terms of this Section.

D. MAP Lenders that violate the prohibition against IOIs may be subject to enforcement action by the Department, including, but not limited to, sanctions under 24 CFR part 200, subpart Y (MAP Lender Quality Assurance Enforcement) and part 25 (Mortgagee Review Board).

E. Prohibited Conflicts of Interest, and acceptable IOI relationships and permissible exceptions, are detailed in this section; examples are provided in Appendix 2, Section A.2.1.1. IOI relationships that could be a Conflict of Interest must be disclosed and reported to COB which will provide determinations to written requests for IOI approvals pursuant to this section. Because determining whether an IOI is acceptable is inherently complex and may lead to an enforcement action, MAP Lenders and other participants must obtain written approval from COB prior to proceeding when there is any question of an IOI.