(a) Notwithstanding paragraph (1) of subdivision (d) of Section 50662.7, the department may allow the assumption of any loan made pursuant to subdivision (b) of that section for owner-occupied dwellings subject to all of the following conditions:

1. (1) The original borrower dies.
2. (2) The assumption is by a member of the original borrower’s household and is a spouse, domestic partner, or child of the original borrower.
3. (3) The person assuming the loan has legal ownership of the home.
4. (4) The person assuming the loan will continuously reside in the home as his or her principal place of residence and will not transfer the home to any other person or entity. If the person assuming the loan moves to another residence or transfers the home to any other person or entity, the loan shall become immediately due and payable.
5. (5) The total income of the household assuming the loan is at or below 120 percent of the area median income, adjusted for household size.
6. (6) The department determines that requiring immediate repayment of the loan upon the borrower’s death would be an economic hardship for the person assuming the loan.
7. (7) The assumption is for a period of time necessary to permit the person assuming the loan to repay the loan without economic hardship.

(b) The department may not permit subordination of a loan made pursuant to subdivision (b) of Section 50662.7 for owner-occupied dwellings except under the following circumstances:

1. (1) The total household income of the borrower’s household is at or below 80 percent of the area median income, or, in the case of extreme hardship, where borrowing becomes necessary to either protect the health and safety of the occupants, or pay health care costs for the borrower’s immediate family.
2. (2) The total principal of the loans senior to the department’s loan is unchanged or decreased and the department’s security interest is not jeopardized, as determined by the department.

(c) With respect to any loans made pursuant to subdivision (b) of Section 50662.7 for owner-occupied dwellings, the department shall do all of the following:

1. (1) Annually mail, by the end of January, to any borrower who has an outstanding balance a statement that provides all of the following information:

   1. (A) The principal loan balance.
   2. (B) The interest accrued to the date of the statement.
   3. (C) The interest percentage rate.
   4. (D) Payment instructions with a disclaimer that a payment may not be required until the outstanding loan balance is due and payable.
   5. (E) Contact information, including a telephone number and mailing address for borrower inquiries.
2. (2) By July 1, 2005, adopt a written application process and evaluation guidelines to authorize the transfer of the borrower’s loan obligations described in subdivision (a) or the subordination of the deed of trust. The department shall provide a summary of this process and the guidelines with all statements mailed on or before February 1, 2006.
3. (3) Mail to the party that applies to the department to subordinate or assume the loan, the department’s decision to approve or deny the application within 60 days of receipt, along with a statement of reasons for any denial.