Code of Maine Rules
99 - INDEPENDENT AGENCIES
346 - MAINE STATE HOUSING AUTHORITY
Chapter 7 - INDIAN HOUSING MORTGAGE INSURANCE PROGRAM RULE

SUMMARY: This rule sets forth standards governing the administration of the Indian Housing Mortgage Insurance Program. The purpose of the Program is to make mortgage loans available to Indians living on reservations on the same terms as they are available to persons not living on reservations. Due to the restrictions on the use and ownership of land which are peculiar to some of the tribal reservations, financial institutions have been historically reluctant to provide loans to Indians living on reservations. Mortgage insurance provided under the Program offers greater assurance to lenders by removing some of the marketability risks to collateral posed by these restrictions. The Rule sets forth eligibility standards and application, closing, default, and insurance claim procedures.

BASIS AND BACKGROUND STATEMENT: In November, 1971, Maine voters approved an amendment to the Maine Constitution which added Article IX, Section 14-D. This section permits the State to insure payment of mortgage loans secured by housing on Maine's three Indian reservations. Statutes enabling the Indian Housing Mortgage Insurance Program ( 30 MRSA §4784, et seq.) were enacted in 1973. Regulations were adopted in 1974. In 1977, the section of regulations governing defaults was amended. Statutory amendments were made in late 1980 as part of the Maine Indian Claims Settlement Act. Among other things, the amendments created the Indian Housing Mortgage Insurance Committee and clarified procedures enabling the State Treasurer to obtain funds to make insurance payments. Regulations were prepared in late 1981 and a public hearing was held on the proposed regulations in April, 1982.

Representative comments received during the 1982 rulemaking process and the Authority's rationale for adopting or failing to adopt suggested changes are set forth below.

Due to the high rate of defaults under the Program (over 50% of the loans have been paid off by insurance), a number of changes were made in order to give banks and homeowners a greater incentive to maintain the loans. A downpayment requirement of 20% and insurance coverage of 90% were proposed. Commenters stated that the downpayment requirement would make the Program unaffordable to most Indians and that banks would not participate without 100% insurance (see Section 3) . For the reasons given by the commenters, the Authority provided for a 5% downpayment with 100% insurance. Because of these changes, the Authority did not restore, as requested, the provision contained in the 1974 regulations allowing up to $350 of closing costs to be paid from loan proceeds. It is not standard lending practice to permit payment of closing costs from loan proceeds.

The Authority did not extend the 15-day grace period for making loan payments because there are adequate provisions for time to work out problems in the event of default beyond the 15-day period (see Section 3) .

The proposed rule prohibited an Indian Housing Authority from leasing property acquired on default to the defaulting borrower or a member of his family. A commenter stated that this would be unfair in the case where the default was due to illness. For this reason, the rule was changed to require that the monthly rental payment be in an amount no less than the monthly mortgage payment under the defaulted loan (see Section 8.F.1).

The rule requires repayment to the State of funds received by an Indian Housing Authority from sale or lease of a property acquired on default and allows the Indian Housing Authority to recover certain expenses from proceeds of the sale or lease. Formerly, there was an allowance for actual legal fees and costs plus other expenses up to 10% of the proceeds. The rule allows more itemized costs but limits the unspecified category to 5%. The Authority did not restore the original rule provision as requested because the Authority believes that the current rule provides better cost control while still permitting reasonable costs to be paid for out of proceeds of sale or lease of the property (see Section 8.G and H).

By emergency rulemaking the Authority has amended Section 3.F of this rule in order to allow Banks offering loans under this program to charge market interest rates at times when they are not offering to the general public loans which are either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. The adoption of this amendment as an emergency rule change will enable loans to be made under the program before the end of the current construction season. Effective October 26, 1982; Adopted as permanent February 17, 1983.

On January 27, 1983, in response to the request of a potential participating lender, the Authority amended this Rule so as to 1) impose the cost of loan application-related investigative procedures on the applicant (§ 4.D), 2) clarify the extent of the Bank's obligation in relation to property insurance, i.e., confirmation of its existence (§ 5.F), 3) reduce the number of days the IHA can grant a Borrower to cure a default from 120 to 90 (§ 8.C), and 4) empower the Authority to approve a transfer of the Loan Insurance Certificate to another financial institution (§ 7.D). The Authority believes these amendments to be appropriate in light of its policy of encouraging maximum private lender participation consistent with the overall intent of the Legislature in establishing the program. No comments were submitted on these amendments as originally proposed.

On January 27, 1983, the Authority amended § 10.B of this Rule in order to limit mobile homes eligible for mortgage insurance under the program to those 1) constructed in accordance with standards promulgated under either the National Manufactured Housing Construction and Safety Standards Act of 1974 or the Maine Industrialized Housing Law, and 2) meeting certain size requirements. The Authority believes this change to be necessary in order to bring this aspect of the program into conformance with reasonably prudent standards of program administration. No comments were submitted on this amendment as originally proposed.

AUTHORITY: 30 MRSA §4789

EFFECTIVE DATE: July 17, 1982

AMENDED: October 26, 1982

AMENDED: February 9, 1983

BASIS STATEMENT: By emergency rulemaking the Authority has amended Section 3.F of this rule in order to allow Banks offering loans under this program to charge market interest rates at times when they are not offering to the general public loans which are either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. The adoption of this amendment as an emergency rule change will enable loans to be made under the program before the end of the current construction season. No comments were submitted on this amendment when the Authority proposed to adopt it permanently.

EFFECTIVE DATE: March 20, 1983

BASIS STATEMENT: Many of the provisions of the current Indian Housing Mortgage Insurance Program Rule are obsolete and do not reflect current practice in the residential mortgage insurance market. The Board of Commissioners of the Maine State Housing Authority wish to repeal the Rule and replace it with one that reflects current market practices and otherwise, facilitates the efficient administration of the Indian Housing Mortgage Insurance Program. This repeal and replacement of the Rule sets forth revised standards governing the administration of the Indian Housing Mortgage Insurance Program. The purpose of the Program is to make mortgage loans available to Indians living on reservations on the same terms as they are available to persons not living on reservations. Due to the restrictions on the use and ownership of land which are peculiar to some of the tribal reservations, financial institutions have been historically reluctant to provide loans to Indians living on reservations. Mortgage insurance provided under the Program offers greater assurance to lenders by removing some of the marketability risks to collateral posed by these restrictions. The Rule sets forth eligibility standards and application, closing, default, and insurance claim procedures.

One written comment was received from Mr. Richard H. Mitchell, Executive Director of the Penobscot Tribal Reservation Housing Authority. Mr. Mitchell raises two concerns: (1) the premium charge for mortgage insurance is excessive and (2) the Rule does not authorize the Insurance Committee to delegate all or some of its powers.

Section 6(A)(2) of the Rule has been clarified to state that the premium is a one-time charge. The Rule also states that the amount will fluctuate based on the most recent premium charged in the public and private mortgage insurance markets. The statute authorizing the Rule does not allow the Authority to delegate the functions of the Insurance Committee. If and when the statute is amended to allow a delegation, the Authority will accordingly amend the Rule.

Other changes to the rule were made for grammatical and stylistic reasons.

STATUTORY AUTHORITY: 30-A MRSA §4741(1); 30-A M.R.S.A., chapter 201, subchapter X; Me. Const. art. IX, § 14-D