3.7.10 Prepayment Provisions and Prohibition

A. The National Housing Act prohibits prepayment of loans insured under Section 223(f) for 5 years from the date of endorsement for insurance, except where at the time of prepayment:

1. The Borrower enters into an agreement with HUD to maintain the property as rental housing for the remainder of the specified 5-year term;

2. HUD determines that the conversion of the property to a cooperative or condominium ownership is sponsored by a bona fide resident organization representing the majority of households in the project;

3. HUD determines that continuation of the property as rental housing is unnecessary to assure adequate rental housing for low- and moderate-income residents of the community; or

4. HUD determines that continuation of the property as rental housing would have an undesirable and deleterious effect on the community.

B . The statutorily imposed prepayment restriction is not intended to prohibit refinancing under Section 223(a)(7), though the terms of a Ginnie Mae or other mortgage backed security or bond financing may restrict prepayment. A Section 223(f) Use Agreement is required for a refinancing of an existing Section 207 insured loan pursuant to Section 223(f)/ 223(a)(7) if the mortgage is aged less than five years from the Final Endorsement date.