1. (a) The requirements in this section shall apply to non-conforming mortgage loans, unless otherwise provided in the Program Rules, NOFA or program guidelines.

2. (b) The fee requirements described in paragraphs (1) - (3) of this subsection apply to non-Conforming Mortgage Loans:

   1. (1) Allowable expenses are restricted to reasonable third party fees.
   2. (2) Fees charged by third party mortgage lenders are limited to the greater of 2 percent of the mortgage loan amount or $3,500, including but not limited to origination, Application, and/or underwriting fees.
   3. (3) Fees paid to other parties that are supported by an invoice and reflected on the HUD-1 will not be included in the limit.
3. (c) Maximum Debt Ratio. The total debt-to-income ratio may not exceed 45 percent. A borrower's spouse who does not apply for the mortgage loan will be required to execute the information disclosure form and the deed of trust as a "non-purchasing" spouse. The "non-purchasing" spouse will not be required to execute the note. For credit underwriting purposes the non-purchasing spouse's income, debts, and obligations will be considered in the borrower's total debt-to-income ratio.
4. (d) The Department reserves the right to deny assistance in the event that the senior lien conditions are not to the satisfaction of the Department, as outlined in the Program Rules or NOFA.

5. (e) Lien position requirements.

   1. (1) A mortgage loan made by the Department shall be secured by a first (1st) lien on the real property if the Department's loan is the largest mortgage loan secured by the real property; or
   2. (2) The Department may accept a Parity Lien position if the original principal amount of the leveraged mortgage loan is equal to or greater than the Department's loan; or
   3. (3) The Department may accept a subordinate lien position if the original principal amount of the leveraged mortgage loan is at least $1,000 or greater than the Department's loan. However liens related to other subsidized funds provided in the form of grants and non-amortizing loans, such as deferred payment or Forgivable Loans, must be subordinate to the Department's loan.
   4. (4) A subordinate mortgage loan may be re-subordinated, at the discretion of the Department, and as provided in the Program Rules or NOFA.

6. (f) Escrow Accounts.

   1. (1) An escrow account must be established if:

      1. (A) the Department holds a first lien mortgage loan which is due and payable on a monthly basis to the Department; or
      2. (B) the Department holds a subordinate mortgage loan and the first lien lender does not require an escrow account, the Department may require an escrow account to be established.

   2. (2) If an escrow account held by the Department is required under one of the provisions described in this subsection, then the provisions described in subparagraphs (A) - (F) of this paragraph are applicable:

      1. (A) The borrower must contribute monthly payments to cover the anticipated costs of real estate taxes, hazard and flood insurance premiums, and other related costs as applicable;
      2. (B) Escrow reserves shall be calculated based on land and completed improvement values;
      3. (C) The Department may require up to two (2) months of reserves for hazard and/or flood insurance and property taxes to be collected at the time of closing to establish the required Escrow account;
      4. (D) In addition, the Department may also require that the property taxes be prorated at the time of closing and those funds be deposited with the Department;
      5. (E) The borrower will be required to deposit monthly funds to an escrow account with the mortgage loan servicer in order to pay the taxes and insurance. This will ensure that funds are available to pay for the cost of real estate taxes, insurance premiums, and other assessments when they come due; and
      6. (F) These funds are included in the borrower's monthly payment to the Department or to the servicer. The Department will establish and administer the escrow accounts in accordance with the Real Estate Settlement and Procedures Act of 1974 (RESPA) if applicable.

Source Note:The provisions of this §20.13 adopted to be effective November 1, 2012, 37 TexReg 8470.