HUD granted a limited exemption from Sections 4 and 5 of the Real Estate Settlement Procedures Act for certain borrower-assistance subordinate loan transactions. The exemption applies primarily to subordinate loans offered by assistance programs such as state housing finance authorities, municipal governments and nonprofit organizations. To come within the exemption, the loan must be a subordinate lien with a 0% interest rate and made for the purpose of assisting the borrower with a down payment, closing costs, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention. The loan must also meet certain deferred or forgiveness requirements and have settlement costs of less than 1% of the amount of the subordinate loan. The only fees that can be charged are the recordation fee, application fee, and a housing counseling fee. Finally, the borrower must receive at or before settlement a written disclosure that effectively describes the loan terms, repayment conditions and any costs associated with the loan.
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