2.6.3 Identity of Interest - General

A. The MAP Lender is responsible for conducting appropriate, commercially reasonable due diligence to identify IOIs and to ensure that no Conflicts of Interest exist. Because the guidance in this chapter is necessarily general, the Lender is responsible for obtaining prior written approval from COB when there are questions as to whether an IOI is prohibited in any specific situation.

B. In some cases, the MAP Lender is a Supervised Mortgagee, as defined in the HUD Single Family Handbook, or is a publicly owned company (or a wholly owned subsidiary of a publicly owned company) subject to oversight by the U.S. Securities and Exchange Commission. Such entities are actively regulated by other federal agencies and thus HUD’s risk in IOI situations is partially mitigated. Due to the size and number of shares and employees, it may be impractical for such entities to provide certainty that there is no IOI. Accordingly, for purposes of determining whether a prohibited Conflict of Interest exists, Supervised Mortgagees or publicly-owned MAP Lenders may define in their QC Plan the MAP Lender as the applicable operating entity responsible for origination and servicing of “agency business”, which would include both FHA and GSE loans. The QC Plan must describe the due diligence process used to ensure shareholder or employee IOIs are sufficiently remote such that they will not undermine, or give the appearance of undermining, the MAP Lender’s or Borrower’s Team member’s integrity and independence in the underwriting, risk analysis, credit review and loan closing process.

C. Generally, MAP Lenders which are Supervised Mortgagees or publicly owned companies can assume that counterparties in MAP transactions with less than a 5% shareholder interest in the Borrower entity, or depositories with less than $500,000 in an account, would not have a Conflict of Interest with the Lender.

D. Lenders are expected to perform commercially reasonable and appropriate due diligence in evaluating Borrower Team members’ potential IOIs. Generally, certifications by Borrower’s counsel, Design Architects and other professional advisors (including the MAP Lender’s third-party professionals) and the

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principals of their firms, that they have no equity interest in the Borrower or in the MAP transaction or project, may be relied upon. Similarly, certifications by non-IOI General Contractors may be relied upon as applying to principals of their firms and sub-contractors.

E. Borrower Team members subject to Previous Participation review are assumed to be subject to IOI disclosure and prohibitions, as are entities or persons with an equity or other financial interest in the Borrower such that their role in the transaction may provide material control or influence over the development, operations or management of the project.

F. Further IOI examples can be found in Appendix 2, Section A.2.2.1.