Title 42
State Affairs and Government

Chapter 55
Rhode Island Housing and Mortgage Finance Corporation

§ 42-55-9. Terms and conditions of loans.

Mortgage and other loans made by the corporation to housing sponsors of multi-family residential housing units or healthcare facilities shall be subject to the following terms and conditions:

(1) No application for a loan for a housing development or healthcare facility shall be processed unless the applicant is a housing sponsor or healthcare facility sponsor as defined in § 42-55-3;

(2) The ratio of loan to total housing development or healthcare facility cost and the amortization period of loans made under this chapter that are insured by any agency or instrumentality of the United States government shall be governed by the mortgage insurance commitment for each housing development or healthcare facility; but in no event shall the amortization period exceed fifty (50) years; in the case of a mortgage loan not insured by an agency or instrumentality of the United States government, the amount of the loan to: (i) nonprofit housing sponsors shall not exceed one hundred percent (100%) of the total housing development cost as determined by the corporation; and (ii) other housing sponsors and healthcare sponsors shall not exceed ninety-five percent (95%) of the total development cost as determined by the corporation, and the amortization period of the loan shall be determined in accordance with regulations formulated and published by the corporation, but in no event shall the amortization period exceed fifty (50) years;

(3) A loan made under this chapter may be prepaid to maturity after a period of years as determined by the rules and regulations of the corporation, provided the corporation finds that the prepayment of the loan will not result in a material escalation of rents charged to the persons and families of low and moderate income occupying the housing development or charges to the persons using the healthcare facilities;

(4) The corporation shall have authority to set from time to time the interest rates at which it shall make loans and commitments. The interest rates shall be established by the corporation at the lowest level consistent with the corporation’s cost of operation and its responsibilities to the holders of its bonds, bond anticipation notes and other obligations. In addition to these interest charges, the corporation may make and collect those fees and charges, including, but not limited to, reimbursement of the corporation’s financing costs, service charges, insurance premiums, and mortgage insurance premiums, that the corporation determines to be reasonable;

(5) In considering any application for a loan to finance a housing development or housing project, the corporation shall determine that the housing developments will be well planned and well designed; and shall also give consideration to:

(i) The comparative need for housing for persons and families of low and moderate income in the area to be served by the proposed development;

(ii) The ability of the applicant sponsor to construct, operate, manage, and maintain the proposed housing development;

(iii) The existence of zoning or other regulations to adequately protect the proposed housing development against detrimental future uses which could cause undue depreciation in the value of the development;

(iv) The existence of federal and statewide housing, land use, and pollution abatement plans and programs;

(v) A detailed plan of security proposed for the safety of the inhabitants of any development hereinafter constructed within the city of Providence;

(6) In considering any application for a loan to finance healthcare facilities, the corporation shall give consideration to:

(i) The availability of healthcare facilities presently located or to locate in the area;

(ii) The ability of the sponsor to meet the health needs of the inhabitants of the area and to operate, manage, and maintain the proposed healthcare facilities;

(iii) The regulations of the state to standards of construction and design and equipment of healthcare facilities of the type proposed to be financed;

(7) Each mortgage loan shall contain the terms and provisions and be in a form approved by the corporation. The corporation may require the housing sponsor or healthcare sponsor receiving a loan or its contractor to execute any other assurances and guarantees that the corporation may deem necessary, including without limitation, payment and performance bonds, and letters of credit;

(8) Each loan shall be subject to an agreement between the corporation and the housing sponsor which will subject the sponsor and its principals or stockholders, if any, to limitations established by the corporation as to rentals and other charges, builders’ and developers’ profits and fees, and the disposition of its property and franchise to the extent more restrictive limitations are not provided by the law under which the borrower is incorporated or organized or by this chapter;

(9) As a condition of the loan, the corporation shall have the power at all times during the construction or rehabilitation of a housing development or housing project by a housing sponsor or of healthcare facilities by a healthcare sponsor and the operation thereof:

(i) To enter upon and inspect any housing development or housing project or healthcare facility, including all parts thereof, for the purpose of investigating the physical and financial condition thereof, and its construction, rehabilitation, operation, management, and maintenance, and to examine all books and records of the housing sponsor or healthcare sponsor with respect to capitalization, income and other related matters and to make any charges that may be required to cover the cost of those inspections and examinations;

(ii) To order any alterations, changes or repairs that may be necessary to protect the security of its investment in a housing development, housing project, or healthcare facility or the health, safety, and welfare of the occupants or users thereof and to insure that the housing development or healthcare facility is, or has been, constructed or rehabilitated in conformity with all applicable federal, state, and local building codes;

(iii) To order any managing agent, housing development or healthcare facility manager, or owner of a housing development or healthcare facility, or sponsors of these, to do those acts that may be necessary to comply with the provisions of all applicable laws, ordinances, or building codes or any rule or regulation of the corporation or the terms of any agreement concerning the development or facilities or to refrain from doing any acts in violation thereof, and in this regard the corporation shall be a proper party to file a complaint and to prosecute any violations of law, ordinances, or building codes as set forth herein;

(iv) A housing sponsor may not make distributions of income or earnings from a housing development or housing project financed by the corporation in any one year in excess of six percent (6%) (or a higher or lower percent as shall be prescribed by the rules and regulations of the corporation) of the housing sponsor’s equity in the development, nor shall any of the principals or stockholders of the housing sponsor at any time earn, accept, or receive a return greater than six percent (6%) per annum (or a higher or lower percent as shall be prescribed by the rules and regulations of the corporation) of his or her investment in any housing development financed by the corporation. The sponsor’s equity in a housing development shall consist of the difference between the corporation assisted mortgage loan and the total housing development cost. With respect to every housing development assisted by the provisions of this chapter the corporation shall, pursuant to regulations adopted by it, establish the sponsor’s equity at the time of the making of the final mortgage advance and, for the purposes of this subsection (9)(iv), that figure shall remain constant during the life of the corporation’s mortgage on the development;

Notwithstanding the above, the corporation shall allow existing project owners to withdraw a rate of return on redefined equity provided the corporation finds that the project is “stable and financially secure”. Properties meeting this definition would have healthy finances and reserves and be in good condition, as determined by the corporation; provided, however, no project owner of a housing development financed by the corporation may apply for redefinition until fifteen (15) years from the date of financing. In addition, the following requirements must occur:

(A) There is no deferred maintenance as determined by the corporation.

(B) There are no major repairs or replacements (three thousand dollars ($3,000) or more) anticipated or required for the coming year that would reduce the reserve accounts below required levels.

(C) All operating expenses have been paid within thirty (30) days of their due date.

(D) Operating account balance equals one month’s total operating expenses.

(E) The development has sustained ninety-five percent (95%) or greater economic occupancy for the prior twenty-four (24) consecutive months and has a current waiting list equal to at least one and one-half (1½) times the annual turnover for the two (2) preceding years.

(F) The mortgage has not been delinquent for the preceding twenty-four (24) months.

(G) Reasonable reserve account balances.

(H) The owner agrees to limit future rent increases to the amount needed to pay all annual operating expenses including return on equity and maintaining reserves at five thousand dollars ($5,000) per unit or twenty percent (20%) of the outstanding mortgage.

(I) The owner agrees to maintain the housing affordable to persons of low and moderate income for (a) a minimum of twenty (20) years from the date that owner could prepay a mortgage securing a development, as that term is defined in § 34-45-4, or could elect not to renew a Section 8 assistance contract under § 34-45-5 or (b) twenty (20) years from the maturity date of a note evidencing indebtedness to the corporation which is secured by a housing development.

Not-for-profit sponsors shall be eligible to receive unlimited annual cash flow, subject to the above criteria, up to the cumulative amount of their initial equity investment. Subsequent annual cash flow may be distributed provided the distributions are restricted to low and moderate income housing related expenditures.

Equity would be redefined by either capitalizing the annual cash flow using corporation-approved appraisal practices or by the difference between the fair market value of the housing project using corporation approved appraisal practices less the unpaid principal balance of any outstanding mortgage loans, whichever is greater.

Equity would be subject to recalculation every five (5) years, or more frequently at the corporation’s discretion.

The corporation shall receive a one-time fee equal to one-half percent (½%) of the outstanding mortgage for redefining equity. This will be an eligible operating expense. The fee may be waived by the corporation in whole or in part;

(v) Whenever any housing sponsor accumulates an earned surplus, in addition to the reserves the corporation may require for maintenance, operation, and replacement, in excess of ten percent (10%) of the initial annual rent roll for the housing development, rents in the housing development shall be reduced to the extent necessary to lower the earned surplus accumulation to that ten percent (10%) figure in the following fiscal year. Every five (5) years the housing sponsor may seek the approval of the corporation for increases in those reserves. To the extent warranted the corporation may grant that approval if in its judgment there have been increased price levels or unusual maintenance and repayment requirements;

(vi) The corporation may provide by rules and regulations for the terms and conditions of mortgage loans to housing sponsors of single family residential housing units or healthcare facilities and the supervision of housing sponsors or healthcare sponsors.