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U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

August 1, 1996
 
Mortgagee Letter 96-40
 
TO:  ALL APPROVED MORTGAGEES
 
SUBJECT:  Housing Opportunity Program Extension Act (Act) of 1996
            as it relates to the Preservation Program
 
     The Housing Opportunity Program Extension Act of 1996 and
the Departments of Veterans Affairs and Housing and Urban
Development, and Independent Agencies Appropriations Act, 1996,
reinstated the rights of all Preservation-eligible owners to
prepay their mortgages or terminate the mortgage insurance, if
they are otherwise eligible to prepay the mortgage by the terms
of the mortgage, the note, and the regulations under which the
mortgage was insured (i.e., a limited dividend mortgagor at or
past the 20th year).  A mortgagor that has not reached its 20th
anniversary from the date of final endorsement is not eligible to
prepay its mortgage.  Insured projects which were originally
owned by nonprofits or those which are currently owned by
nonprofits are not Preservation eligible because of the 40-year
lock-in period.
 
     The term "eligible low-income housing" means any housing
financed by a loan or mortgage meeting the following criteria:
 
     1.  Section 221(d)(3) market rate limited distribution
         owners receiving Section 8 payments converted from Rent
         Supplement whose project number series is 35001-36599;
 
     2.  All Section 221(d)(3) below market interest rate owners
         whose project number series are 55001-55999 and
         57501-57999, unless a Rent Supplement Contract remains
         in effect between HUD and the mortgagor;
 
     3.  All Section 236 project owners whose project number
         series are 44001-44799, 44801-44899; 45001-45999; and
         58501-58999, unless a Rent Supplement Contract remains
         in effect between HUD and the mortgagor;
 
     4.  A purchase money mortgage formerly insured under Section
         221(d)(3) or 236 and now held by HUD; or
 
     5.  A mortgage held by a state agency as a result of a sale
         by HUD without insurance, which immediately before the
         sale would have been eligible low-income housing under
         LIHPRHA; which mortgage (1) for LIHPRHA projects is, or
         is within 2 years of being, eligible for prepayment by
         contract or regulation in effect before February 5, 1988
         without HUD's prior approval; or (2) for ELIHPA projects
         is, or is within 1 year of being, eligible for
         prepayment under regulation or contract in effect before
         February 5, 1988.
 
     Any of the above projects which have financial assistance
contracts executed between the owner and the Department that
places a lock-in on the project for the remaining term of the
mortgage, e.g., flexible subsidy contracts, etc., are not
Preservation eligible for prepayment.  Any questions on these
projects should be directed to the Office of Asset Management.
 
     On Form HUD-9807, Request for Termination of Multifamily
Mortgage Insurance, you may disregard the requirement for the
Secretary's prior consent (set forth in Mortgagee Letter 88-3) in
connection with projects listed above which are "eligible low-
income housing."
 
     Before prepayment is accepted, the mortgagee must obtain
assurance from the owner that certain certifications have been
made to HUD and/or the mortgagee.
 
     Certifications that:
 
     1.  He/she will not raise rents for 60 days after
         prepayment.
 
     2.  There are no legally binding contracts in effect which
         would render the property Preservation ineligible for
         prepayment.
 
These certifications contain the following Warning:  HUD will
prosecute false claims and statements.  Conviction may result in
criminal and/or civil penalties. (18 USC 1001, 1010, and 1012;
and 31 USC 3729 and 3802)
 
     The mortgagee should also remind the owner that:
 
     1.  In order for HUD to carry out its statutory mandate to
         protect tenants, the owner should provide the HUD
         State/Area Office with all the tenant information
         required of an owner wishing to prepay a Preservation-
         eligible project.
 
     2.  All tenants should be properly notified.  The owner
         should post a copy of the notice in each building and
         give each tenant a copy of the notice.
 
     This letter does not change any other special conditions set
forth on Form HUD-9807.  If you have any questions concerning
this letter, please do not hesitate to contact the Preservation
staff at (202) 708-2300 in connection with Preservation-eligible
projects and the Office of Asset Management for projects whose
prepayment is governed by Section 250(a) of the National Housing
Act.  The telephone number is (202) 708-0547.
 
                             Assistant Secretary for Housing-
                             Federal Housing Commissioner