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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

May 28, 1991
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 91-25
    TO:  ALL APPROVED MORTGAGEES
    SUBJECT:  Prepayment of a HUD-Insured Mortgage by an Owner of
              Low Income Housing
 
         On November 28, 1990, the President signed into law the
    Cranston-Gonzalez National Affordable Housing Act of 1990;
    Subtitle A, Title VI of the Act, entitled the Low Income Housing
    Preservation and Resident Homeownership Act of 1990, repeals and
    replaces the Emergency Low Income Housing Preservation Act of
    1987.  Section 211 of the 1990 Act prohibits an owner of
    "eligible low income housing" from prepaying, and bars a
    mortgagee from accepting prepayment of, a mortgage on such
    housing except in accordance with a plan of action approved by
    the Secretary of Housing and Urban Development.  Likewise, the
    mortgage insurance contract with respect to such a project may be
    terminated only in accordance with a HUD-approved plan of action.
    Section 211 also prohibits a mortgagee from foreclosing upon the
    mortgage of, or acquiring by deed-in-lieu of foreclosure, any
    eligible low income housing project to the Secretary in
    connection with a claim for insurance benefits.  Section 602(b)
    of the 1990 Act appears to extend the prohibition on foreclosure
    to all categories of projects listed in paragraph (a) of the
    definition of "eligible low income housing" set forth below,
    regardless of whether or not the mortgage or applicable
    regulations permit prepayment without HUD's consent.
 
         HUD is currently drafting regulations which will establish
    standards for the approval of such plans of action.  Since
    Section 211 is now in effect, mortgagees should not accept a
    prepayment from an owner of eligible low income housing, request
    voluntary termination of mortgage insurance with respect to any
    such project, or foreclosure on any such project (unless the
    mortgagee then conveys title to the Secretary).  Any prepayment
    or termination of mortgage insurance in violation of this
    provision will be null and void.
 
_____________________________________________________________________
     The term "eligible low income housing" includes housing
financed by a loan or mortgage:
 
     (a) that is :
 
          (i)  insured or held by the Secretary under the Section
          221(d)(3) market rate program, if the project receives
          Rent Supplement or project-based Section 8 assistance;
 
          (ii) insured or held by the Secretary under the Section
          221(d)(3) Below Market Interest Rate (BMIR) program;
 
          (iii) insured, assisted or held by the Secretary under
          the Section 236 program; or
 
          (iv) a Purchase Money Mortgage held by the Secretary
          and originated by HUD with respect to a project which,
          prior to HUD's acquisition, was insured under a program
          referred to in clauses (i), (ii) or (iii) above; and
 
     (b)  that, under the terms of the mortgage or applicable
     regulations in effect before February 5, 1988, is, or will,
     within 24 months become eligible for prepayment without
     HUD's consent.
 
     Any requests for prepayment of, or voluntary termination of
mortgage insurance on, mortgages to which Section 211 of the Low
Income Housing Preservation and Resident Homeownership Act of
1990 is, or may be, applicable should be forwarded to the
Department of Housing and Urban Development, 451 7th Street, SW,
Washington, D.C.  202410-8000, Attention: Affordable Housing
Branch, Room 6176.
 
                              Very sincerely yours,
 
                              Arthur J. Hill
                              Assistant Secretary for
                                Housing-Federal Housing Commissioner