Regulation on Housing Loans 2008 INJUPEMP

The Housing Loan Program of the National Institute of Retirements and Pensions of Employees and Officials of the Executive Branch (INJUPEMP) is established as an investment that will be operated as a service provided by the Institute to its participants, being administered through the Department of Housing Loans, dependent on the Loan Division, in accordance with the Regulation on Investments of Public Pension Funds, in harmony with the provisions on risk management issued by the National Commission of Banks and Insurance, the provisions contained in this Regulation, the Resolutions and Agreements of the Board of Directors and the other operational regulations that are issued, approved by the same. Likewise, the Housing Loan Program may be extended to participants of other Foresight Institutes with which INJUPEMP, exceptionally, has executed inter-institutional agreements.

The Housing Loan Program has as its Object to provide financing to Active and Inactive participants, and in its case to Retirees. For Active and Inactive participants, the following purposes shall be financed: a). Construction on land owned by the participant or his spouse or household partner; b). Acquisition of Land exclusively for Housing Construction; which may occur simultaneously or deferred; in the latter case, when the land has already been acquired, the loan intended for construction shall be considered as Complementary Credit; with the understanding that the term of this loan shall be equivalent to the remainder of the term of the loan originally agreed upon; c). Acquisition of existing housing; d). Improvement and/or expansion of housing owned by the participant or his spouse or household partner; e). Release of mortgage liens constituted by any of the concepts indicated in the subsections mentioned above. The purpose of loans for Retirees is subject to what is provided in the last paragraph of article 11 of this Regulation. In the event that the property to be encumbered in favor of the Institute by the financing to be provided belongs in whole or in part to the spouse or household partner who is not a participant in the system, the consent of such person, legally formalized, shall be inevitably required in order to constitute the mortgage. In the case of Release of Mortgage Lien constituted by the participant in favor of a natural or legal person, the Institute must previously verify, against the deed in which the mortgage was constituted, that the property to be released is effectively the one provided as collateral, and that it complies with the technical and legal requirements contemplated in this Regulation.

In order to materialize the right to obtain financing in the manner established by article 2 above, the Institute shall proceed to grant it, attending to the following order of priority: a. Acquisition of housing b. Construction of housing c. Acquisition of land exclusively for housing construction, whether simultaneously or deferred. d. Improvements and Expansion of housing e. Release of mortgage lien in accordance with what is established in article 2 subsection e).

For the application of this Regulation, the terms indicated below shall have the meaning expressed for each one, as follows: ACQUISITION Circumstance of being able to obtain by the participant a housing unit, for residential use, whether new or used, in projects financed by the Institute, by other Social Foresight Institutes, and private individuals, natural or legal persons. AMORTIZATION Periodic payments made by the Borrower in order to reduce gradually and progressively in the agreed manner the outstanding balance of the loan, which includes principal and interest, within the agreed term. INCREASE IN THE LOAN AMOUNT This is understood as the granting of an additional amount to the loan originally granted for construction, provided that it is intended to complement any financing gap for the purpose originally approved, without affecting the agreed term between the parties and it is carried out during the period of execution of the works. EXPANSION OF THE HOUSING Material works executed with the purpose of expanding or extending the area of existing construction, adding new habitable spaces to the housing, in order to improve the living environment and comfort of the participant and his family unit. APARTMENT An urban or suburban building that meets the characteristics of a dwelling, with all basic services and installations necessary to be habitable, governed by the provisions of the Horizontal Property Law; in any case, it must always be insurable. Notwithstanding the above, excluded from the concept of Apartment is any construction that the borrower makes to expand or improve the main body of the housing, whether integrated or isolated, provided it is done on the same land where the main housing is constructed. SOLIDARITY GUARANTOR Personal guarantee that the spouse or household partner of the participant, with demonstrated payment capacity, backs and jointly and severally responds, where applicable, for the credit of the borrower. INSURABILITY Irrevocable obligation of the participant to take out insurance for the mortgage release by death or disability, and of the property against the risk of damage. PAYMENT CAPACITY Sufficient economic capacity that accredits an applicant to meet the payment of the obligation to be generated by the loan to be granted. DEBT CAPACITY The margin or maximum credit limit to which a participant of the System may opt, depending on the gross income perceived by such participant. COMPLEMENTARY INTEGRATION OF A LOAN The integration of a personal loan to a mortgage loan, provided that due to reasons of payment capacity the participant cannot opt for compliance with payment of both loans simultaneously, and furthermore it complies with the requirements established in article 12. CREDIT COMMITTEE A collegiate body responsible for evaluating and resolving credit opinions submitted for its consideration by the Department of Housing Loans; likewise to rule on other matters related to the subject. It shall be governed by its own Internal Regulation. HOUSEHOLD PARTNER A person who maintains a legally recognized common-law union with the participant. Whenever this Regulation makes reference to a household partner, it shall be understood that it refers indistinctly to male or female. The spouse of the borrower participant is considered as such. Whenever this Regulation makes reference to spouse it shall be understood that it refers indistinctly to the husband or wife. LOAN CONSOLIDATION SPOUSE A legally married person to the participant. Whenever this Regulation makes reference to spouse it shall be understood that it refers indistinctly to the husband or wife. DEPENDENTS Persons who depend economically on the participant. INSURANCE COMPANY An Insurance Entity duly registered with the National Commission of Banks and Insurance, that provides insurance services and complies with the insurability requirements required by the Institute in accordance with this Regulation. HOUSING CONSTRUCTION The different activities that imply direction, plans, materials, labor, equipment and tools, and everything necessary to build a dwelling. CONSTRUCTION COST The total value of the building to be financed by the Institute, including in some cases the necessary complementary funds that the borrower must provide at the beginning of construction, which must be duly verified by the Institute. PROCESSING COSTS The initial operational cost incurred to initiate the process for the granting of a mortgage loan. DISBURSEMENTS Quantities of money paid after the advance, corresponding to the progress of the work and that the Institute periodically delivers in favor of the borrower for the continuation of the execution of the work, until its completion. AGE Time elapsed from the date of birth of the participant to the moment of presenting the application; it shall be determined as follows: If the fraction of years is greater than six (6) months, the next birthday to be celebrated shall be taken as age; if it is less than or equal to six (6) months, the age achieved shall be taken. THE INSTITUTE (INJUPEMP) The National Institute of Retirements and Pensions of Employees and Officials of the Executive Branch. COMPLEMENTARY FUNDS The initial premium equivalent in material work or cash money, contributed by the borrower to complement the total value of the financing; said amounts shall be invested before the first disbursement made by the Institute and duly verified by it. FAMILY GROUP The one formed by spouses or household partners, and their immediate dependents, as well as their relatives up to the second degree of consanguinity, both in ascending or descending form, who live with them. It is the preferential real guarantee constituted by the borrower in favor of the Institute over the real property object of the loan, for the fulfillment of the obligation contracted. MORTGAGE AFFECTABLE INCOME That which is subject to be deducted monthly from the payroll by the employer and therefore subject, where applicable, to payment of the borrower's obligation. INCOME The principal regular monetary compensation received monthly by the participant as consideration for his work from any Institution affiliated with the System, including the thirteenth and fourteenth month of salary. SUPERIOR GOVERNING BODY Of deliberation and decision of the Institute. THE LAW The constitutive law of the National Institute of Retirements and Pensions of Employees and Officials of the Executive Branch (INJUPEMP). MORTGAGE RELEASE The act by which the Institute proceeds to release the mortgage lien constituted on the housing of the participant or spouse or household partner, once the loan granted is fully paid. IMPROVEMENTS It refers to material works executed by the borrower, in order to improve the housing aesthetically or structurally, and that does not imply an increase in the constructed area. NEW LOAN This is understood as one granted to a participant when he has paid to the Institute's satisfaction his previous loan. The new loan may only be granted once. BOARD OF DIRECTORS Monetary amounts that the participant receives periodically or habitually, in addition to his regular salary, that are susceptible to being accredited or verified by means of public and private documents; likewise it shall be assimilable in relation to his spouse or household partner. PARTICIPANT A public servant covered by the INJUPEMP Retirement System. The one in the condition of inactive is included in the concept of participant for purposes of this Regulation. Whenever this Regulation makes reference to the participant it shall be understood that it refers indistinctly to male or female. COMPLEMENTARY LOAN For the purposes of article 2 subsection b) of this Regulation, Complementary Loan is understood as one intended exclusively for housing construction on land previously acquired by financing granted by the Institute, and granted in deferred form. OTHER INCOME Periodic or habitual monetary amounts perceived by the participant, in addition to his regular salary, that are susceptible to being accredited or verified by means of public and private documents; likewise it shall be assimilable in relation to his spouse or household partner. INDIVIDUAL LOAN The one granted to a singular participant, independently of whether he has a spouse or household partner; it is referred to a particular person. JOINT LOAN The one granted to two participants of the system who maintain a spousal relationship or legally constituted common-law union. In this case they access the loan in joint form and shall have the status of co-borrowers for purposes of this Regulation, independently of who pays the amortization installment. BORROWER Participant of the System who currently enjoys housing credit granted by the Institute. Whenever this Regulation makes reference to a Borrower, it shall be understood that it refers indistinctly to the borrower or borroweress. DEBT READJUSTMENT OR READJUSTMENT Debt Readjustment is understood as the renegotiation of the outstanding balance or payment obligation that the borrower maintains with the Institute, and that cannot be resolved by normal collection methods; in this sense the term of maturity of the debt may be restructured or the payment adjusted to installments that are accessible to the borrower's payment capacity at the time the event occurs. INSURANCE Protection and support in favor of the Institute generated by the credit granted to the borrower, with coverage for mortgage release, disability and housing damage, according to the insurable value, and of which the Institute shall be the sole irrevocable beneficiary. SALARY Regular monetary compensation received monthly by the participant as consideration for his work from any Institution affiliated with the System, including the thirteenth and fourteenth month of salary. CREDIT SUBJECT Every active, inactive, and retired participant who meets the requirements of article 5 of this Regulation, and seeks to access a housing loan. WINDOW The place designated by the Institute, intended to receive loan applications, and in its case, for the direct receipt of the respective amortization installments. USEFUL LIFE Time of economic life of a building, as a consequence of the durability of the materials used in its construction, or its remaining economic life, when the housing has already been inhabited. HOUSING Urban, suburban, or rural real property intended for the habitation of the participant and the family group, which has all basic services and installations necessary to be habitable and that provides safety to its occupants.

To be a Credit Subject, every participant must meet the following conditions and requirements:

• a)

  Be over twenty-one (21) years of age;

• b)

  Be Honduran;

• c)

  Have effectively contributed to the system for a period of not less than six (6) months, and be current with his obligations to the Institute;

• d)

  Have demonstrated payment capacity;

• e)

  Not have had housing financing with the Institute; and in the case of the participant who has paid off the previous loan, he shall have the option of a new housing loan;

• f)

  Comply with the documentation that must be presented according to the type of financing required in accordance with the pertinent forms;

• g)

  Comply with the other requirements demanded by this Regulation, and any other provision or regulation issued or approved by the Board of Directors;

• h)

  The inactive participant who does not withdraw his contributions from the system shall have the right to obtain financing from the Institute.

The debt capacity shall be determined up to fifty percent (50%) of the gross monthly salary of the credit subject participant, plus other income duly verified that the participant or his spouse or household partner receives.

Payment Capacity shall be determined by the net salary received by the participant, or other affectable income of his spouse or household partner in the condition of solidarity guarantor, which allows him to comply with his borrower obligation, and may affect up to 70% of the net salary of the credit subject participant.

The formalization, modalities, and procedure to which every participant shall be subject for obtaining financing from the Institute shall be the following: A). Housing Loans may be requested individually and jointly in accordance with the purposes and terms established in article three (3) of this Regulation and in accordance with an insurability certificate issued by the Insurance Company, which complies with the requirements established in article 41 of this Regulation. Housing financing shall be granted in accordance with this Regulation in any geographic location of the Republic of Honduras, provided that the sector where the property is located is insurable and has the infrastructure and the following minimum basic services: potable water or water supply certified by the Ministry of Health or the Approval of the Water Board of the area, electrical energy and sewage or alternatively an approved septic tank by the Secretary of Health; all of the above without prejudice to the fact that the real property object of the mortgage financing is not located in one of the so-called high-risk zones. B). Applications shall be processed and resolved through the Department of Housing Loans and the levels of competent authority, in accordance with the regulations and requirements contemplated in the Procedures Manual issued for this purpose, which shall form an integral part of this Regulation. C). If the credit is resolved favorably, the applicant must proceed as follows: c.

• 1)

  Payment of Closing Costs; c.

• 2)

  Subscribe to the required insurance policies in accordance with what is contemplated in Chapter XI, Sections I and II of this Regulation, and, c.

• 3)

  Formalize and constitute in public instrument the conditions under which the loan will be granted; D). In the case of joint loans, the borrowers shall subscribe to the insurance policies independently, as if they were two separate loans. E). Notwithstanding the fact that participants have the free right to designate the Notary authorizing the execution of their loan, it shall be the Legal Division of the Institute that is responsible for delivering the format that will serve as a guide with the pertinent data.

The costs derived from processing rights shall be absorbed by the Institute.

Loan applications and all those cases that fall within the competence of Housing in accordance with this Regulation shall be heard by the Credit Committee, which shall approve or deny them as appropriate. Cases that present characteristics not contemplated in this Regulation shall be referred for knowledge and approval to the Board of Directors. Any type of request related to housing loans presented by Institute employees and officials shall be ruled upon by the Credit Committee and resolved definitively by the Board of Directors.

The amount of the Housing Loans to be granted may not be less than the sum of THIRTY THOUSAND LEMPIRAS (Lps. 30,000.00) nor greater than TWO MILLION LEMPIRAS (Lps. 2,000,000.00). It is understood that the financing to be provided only encompasses the purposes authorized in article 2 of this Regulation, or the combination that may be made between them. In the case of loans for Retirees, the maximum amount to be granted shall be up to THREE HUNDRED FIFTY THOUSAND LEMPIRAS (Lps. 350,000.00), intended exclusively for Improvements and/or Housing Expansion, or for release of mortgage lien in accordance with what is established in article 2 subsection e).

In the event that the participant has a Personal Loan in effect and requests a Housing Loan, but due to the Personal Loan he does not have sufficient payment capacity to pay both loans, the Institute through the Loan Division, upon request of the interested party, may authorize the Consolidation of both loans or obligations, provided that:

• a)

  The appraisal of the housing including the works to be constructed permits it;

• b)

  The balance of the personal loan is always less than the mortgage loan requested; and,

• c)

  It is conclusively demonstrated by the borrower that he does not have sufficient payment capacity to comply with both obligations simultaneously. The Consolidation of both loans, having met the requirements indicated above, shall proceed exceptionally and in duly verified cases, and once the Consolidation is made in the manner, term, and conditions established above, the resulting or consolidated housing loan shall have the rate and term of validity imputed to the latter applied to it.

The maximum amount to be granted shall be determined by the value resulting from the appraisal conducted on the property on which the financing operation will fall, in accordance with the following scale:

• a)

  For the first FIVE HUNDRED THOUSAND LEMPIRAS (Lps. 500,000.00) financing may be granted up to one hundred percent (100%) of the appraised value;

• b)

  For the following THREE HUNDRED THOUSAND LEMPIRAS (Lps. 300,000.00), financing may be granted up to ninety percent (90%) of the appraised value;

• c)

  For the following THREE HUNDRED THOUSAND LEMPIRAS (Lps. 300,000.00) financing may be granted up to eighty percent (80%) of the appraised value;

• d)

  And for the excess of the appraised or valued value, financing may be granted up to seventy percent (70%).

The amortization of the loan shall be made through leveled installments, payable monthly on their due date. The value of the installment shall include payment of principal, interest, and credit administration expenses; to said installment shall be added, as the only variant, the monthly amount of insurance premiums for the concept of mortgage release, disability, and damage.

In accordance with what is provided in article 2 subsections a) through d) of this Regulation, the maximum amortization term of the loan shall be up to twenty-five (25) years, according to the payment capacity of the applicant, and independently of the purpose of the financing, except as established in the following article.

Notwithstanding the provisions of the preceding article, the amortization period shall not exceed: a). The number of years comprised between the age reached by the applicant as of the date of formalization of his/her loan request and the maximum age of coverage of the mortgage discharge insurance (death and disability), in accordance with the limits established by Insurance Companies. b). Eighty percent (80%) of the remaining probable useful life of the real property, which is equivalent to the total useful life of the property (50 years), less the average age of construction of the property plus the probable age of improvements, when such construction is solid; and sixty percent (60%) of the remaining probable useful life in case of mixed construction, in accordance with the parameters indicated by the Honduran Chamber of the Construction Industry (CHICO). c). In case of expansion to the existing loan, the period to be granted shall be the remaining time elapsed between the start of the credit and its termination, and up to five (5) additional years if the applicant so chooses, provided that the sum of both does not exceed the regulated maximum.

When a retiree from the system requires a loan, the financing period shall not exceed the maximum age of coverage of life insurance, which is seventy (70) years, or the age that may prevail at that time, and the loan payment shall be deducted from the monthly pension through payroll deduction.

The Institute shall collect the monthly amortization payments agreed upon, through procedures that it deems appropriate and expeditious, by deducting the amount from the salary earned by the borrower in the manner provided for and agreed with the Ministry of Finance with respect to participants of the Executive Branch, or with the Paying Offices of the organisms, entities, or Branches of the State that are affiliated with the system, so that such deductions are remitted promptly to the Institute. If the borrower becomes a retiree from the System, the deduction to amortize the loan shall be made from the monthly benefit he/she receives.

The fact that the payroll deduction is omitted shall not exempt or relieve the borrower of the obligation to pay the Institute the installments stipulated in the manner and time agreed upon.

The borrower who separates from service with the Executive Branch or with the decentralized and deconcentrated organisms of the Government or other Branches of the State affiliated with the system, must pay his/her monthly agreed-upon installments directly at the INJUPEMP Offices, within seven (7) business days following the due date, and must observe, in his/her case, what is provided for in Article 26 of this Regulation.

Notwithstanding the amortization period that may have been agreed upon and established, the borrower may cancel at any time the total of his/her outstanding balance; in such case, he/she must pay the unpaid balance of the capital and the interest accrued until the date on which he/she makes such cancellation. Likewise, the borrower may make partial payments toward the debt in advance, which shall be made effective on the stipulated date of the agreed-upon payment, in amounts that permit paying off an exact number of capital amortization installments, and this shall not modify the amount of the agreed-upon monthly installment for future payments.

The interest rates on mortgage loans to be granted, including expansions thereto under the regime of this Regulation, are established in accordance with the following ranges: The aforementioned rates shall be applied on unpaid balances, and may be reviewed and modified by the Board of Directors at the request of the Administration of the Institute, for which purpose the behavior of average yield rates on the Institute's investments and the maximum prevailing interest rates in the National Financial System shall be considered. It is also understood that in case of default, the borrower shall pay an additional two percent (2%) on the originally agreed-upon rate, which shall be calculated annually and compounded monthly on overdue installments. AMOUNTS RATE (ANNUAL) From Lps. 30,000.00 to 500,000.00………….. ..............11.0% On the excess of Lps. 500,000.00 .............…......... 11.5%

For loans intended for Construction, Improvements, and Expansion of Housing, a grace period or maximum execution period of six (6) months shall be recognized, if requested by the borrower, counted from the date of the first disbursement, which must coincide with the date of recording of the loan; during such period the borrower shall only pay interest on balances, which shall be made effective and collected from each disbursement that is made. When it is an expansion to the amount of the original loan, the grace period shall be applicable only to the amount of the loan expansion. The new level installment shall be applicable at the end of the grace period, during which the borrower shall only pay interest on the disbursements made, and the original loan installment shall remain unchanged.

To guarantee full payment of the loan granted, the borrower must constitute in favor of the Institute a first and special mortgage on the real property including its present and future improvements. In case the borrower requests an expansion to the amount of the original loan, this new credit shall be documented under the designation of second mortgage, in accordance with the number of loan expansions to which he/she is entitled.

In order to keep updated the financial return of the resources invested in the Housing Loan Program, in each and every one of the public instruments that are executed for this purpose, in addition to the general conditions of contracting stipulated in the Loan Document, the Institute through resolutions of its Board of Directors reserves the right to modify the agreed-upon interest rate, in accordance with what is provided for in the second paragraph of Article 22 of this Regulation.

The variation in the agreed-upon interest rate shall have legal effects from the date of effectiveness of the respective resolution, without any other procedure than written notification made to the borrower by the Institute, taking into consideration for its specific application the time remaining to elapse between the date of modification of the interest rate and the date of maturity of the loan. The reduction in the interest rate shall not be applicable to those who have withdrawn from the system and therefore do not retain their contributions therein, nor to those who are in default while they maintain that condition.

In addition, in the execution of the public instruments referred to in the preceding article, it must be stipulated that when the borrower separates from service and exercises the right to the Benefit of Separation from the System, or causes withdrawal ex officio by effect of application of his/her contributions to the outstanding balance of a personal loan if any, the agreed-upon or modified interest rate in accordance with Article 25 of this Regulation shall be increased by two (2) percentage points, effective from the date of his/her Separation from the System, or from the application of his/her contributions to the outstanding balance.

Without prejudice to what is provided for in the preceding articles of this Section, in the event that the borrower again becomes an active member of the System and complies with the provisions indicated in subsection d) of Article 5 of this Regulation, the interest rate applicable until that time shall be replaced and modified by that which governs the Housing Loan Program at the moment such event occurs, taking into consideration the time remaining to elapse for the maturity of the obligation contracted.

In addition to the interest rates indicated in Article 22, the borrower must pay to the Institute for purposes of Credit Administration the following amounts: a). One-half of one percent (0.5%) annually for loans granted up to an amount of FIVE HUNDRED THOUSAND LEMPIRAS EXACTLY (Lps. 500,000.00), and, b). One percent (1.0%) annually for loans granted and exceeding FIVE HUNDRED THOUSAND LEMPIRAS (Lps. 500,000.00). Such administration expenses shall be calculated on unpaid balances. c). Likewise, the Institute shall collect, one time only, one-half percent (0.5%) in cases of Acquisition and Release, and 0.70% in cases of Construction, Improvements, and Expansion; both charges shall be calculated on the amount of the loan, which includes supervision, inspection, and appraisal expenses. Cases of financing in housing projects that have been developed by the Institute are excepted from this provision, since such expenses are understood to be included in the calculation of the final sale price. When it is Improvements, Expansion, and Repair and/or simultaneous Expansion in housing projects developed by the Institute, charges shall be assessed only for the additions to be made.

In cases of Housing Construction on one's own land, including Improvements and Expansion, in the manner established in this Regulation, the borrower must commit to the Institute to execute the work in accordance with the budget or amount of the loan in the form that was recorded in the respective loan instrument. Any modification must be authorized by the Institute prior to its execution or disbursement, as the case may be. When the Work Budget, after having been analyzed and reviewed by the Engineering Division, turns out to be greater than the maximum value of the loan that can be granted, the applicant must accredit to the satisfaction of the Institute the availability of complementary funds, which shall be invested in the initial phase of the project to be financed, prior to authorization and under the supervision of the Engineering Division. Only once this requirement has been fulfilled shall the Institute proceed to make the disbursements of the granted loan.

In the case of financing the acquisition of land and simultaneous construction, up to fifty percent (50%) of the loan amount shall be allocated to complement or pay for the value of the land and the remainder for the construction of the dwelling. When the financing is for acquisition of land and Deferred Construction, the amount to be granted shall be awarded in accordance with what is provided in Article 13 in accordance with Article 8 subsection a) of this Regulation. No financing shall be granted for the acquisition of land, unless compliance is met with what is established in Articles 2 subsection b), and 3 subsection c) of this Regulation.

It is understood that if within a period of six months counted from the date of approval of the credit the borrower without any justification does not invest the advance and disbursements granted under the loan for which it was intended, and such fact is proven in accordance with the progress report of works issued by the Engineering Division, the Administration of the Institute shall proceed to terminate the contractual relationship, without prejudice to the obligation of the borrower to immediately reimburse the advance and/or disbursements granted, automatically losing his right to apply for a new loan.

In the case that the participant modifies the original blueprint altering the construction area and its design, which implies a greater cost in the works budget, he shall request authorization from the Engineering Division, after verification that he has complementary resources available for the conclusion of the work, which shall be used on a priority basis before any advance or disbursement under the loan. SECTION II OF THE DISBURSEMENTS

When it is a loan for the Construction, Improvement and/or Expansion of a Dwelling and complementary funds to be contributed by the borrower are not included in the works budget, the Institute may make a disbursement of up to forty percent (40%), as an advance in relation to the works budget and in accordance with the amount of the loan granted. The remainder of the financing shall be delivered in partial form prior to written request of the borrower and in accordance with the work progress report submitted by the Engineering Division.

When complementary funds exist, the Institute shall proceed in accordance with what is provided in the second paragraph of Article 30 of this Regulation, and after completing this requirement, the Administration of the Institute shall proceed to make the disbursements prior to written request of the borrower, in accordance with the work progress report submitted by the Engineering Division.

In the case of loans for the Purchase of Land and Construction of a Dwelling, whether in Simultaneous or Deferred form, as established in this Regulation, in the same manner for acquisition of a dwelling and release of mortgage lien, the Institute shall disburse the total amount of the loan on behalf of the borrower, in favor of the natural or juridical person who shall effect the transfer of ownership of the real estate property, against the return of the guarantee that the Institute shall have granted securing payment of the transaction.

Prior to any disbursement, in relation to the cases contemplated in the articles of this Section, the borrower shall have delivered to the Institute the certified copy of the public Mortgage Deed duly registered in the Property Institute, in addition to demonstrating that he has complied with the requirements demanded in Article 41 of this Regulation. SECTION III OF THE OBLIGATION TO COMPLY WITH CONSTRUCTION

In case that the borrower without any justification has not initiated construction in accordance with the approved work execution calendar or is at the foundation level with the work paralyzed, after the grace period has elapsed, the Institute shall immediately demand the return of the advance and/or disbursements granted. In case that the participant alters, modifies or omits the construction and improvement conditions approved by the Institute, it shall refrain from granting the remainder of the disbursements that correspond to it for the conclusion of the work, unless what the Engineering Division of the Institute dictates otherwise. If for any reason the construction of the work is not concluded with the remainder of pending disbursements and without the possibility of obtaining other complementary funds, the borrower shall assume, for the additional time that the work remains incomplete, the payment for changing the damages policy to a construction risk policy. CHAPTER X OF THE EXPANSION OF THE LOAN AMOUNT. OF THE NEW LOAN. SECTION I OF THE EXPANSION OF THE LOAN AMOUNT.

An Expansion of the Loan Amount may be granted from the original loan provided that the borrower complies with the following requirements:

• a)

  That the Payment Capacity of the borrower can be accredited in accordance with what is provided in Article 7 of this Regulation.

• b)

  That the original loan has been invested or executed as agreed, and that the Expansion and/or Improvements be made in the same dwelling that was the subject of the financing originally granted.

• c)

  That the borrower is current with his normal payment obligations.

• d)

  When the originally granted loan is in progress, and the works to be executed have not been able to be concluded due to reasons of discrepancy in the works budget, for causes not attributable to the borrower. SECTION II OF THE NEW LOAN

A participant and/or borrower shall have the right, only once, to a New Loan for Housing, provided that he qualifies in any of the following cases:

• a)

  When the borrower has paid his mortgage loan, and being a participant of the System requires a new loan in accordance with the purposes referenced in Article 2 of this Regulation, considering the payment capacity that the interested party has at that time.

• b)

  Without prejudice to what is provided in subsection a) above, in the same manner the granting of a New Loan proceeds, when the borrower maintains an active and current mortgage loan in progress, provided that he applies to any of the grounds established in Articles 54 and 55 of this Regulation and a period of no less than three (3) years has elapsed, and for this he must be current in payment of his credit, and furthermore shall have been authorized by the Board of Directors. In the case of this subsection, it is understood that the Borrower shall transfer his dwelling to a participant of the System, without prejudice to what is provided in Article 55 numeral 6) of this Regulation; as a consequence the original loan shall be canceled with respect to said borrower.

• c)

  When the spouse or domestic partner of the borrower is an active participant and does not have or has not had a loan with the Institute and wishes to encumber the same real estate property that the Institute has financed to his spouse or domestic partner for Improvements or Expansion of it prior to authorization of the latter, the financing shall be taken as joint or under the figure of joint guarantee, assuming in the first of the two cases payment by payroll deduction, the participant who has better income. CHAPTER XI OF INSURANCE. OF THE POLICY. MORTGAGE RELEASE INSURANCE AND DAMAGES. SECTION I OF INSURANCE. OF THE POLICY

The Institute shall require from the borrower and in his respective case from the co-borrower, an individual or joint insurance policy on outstanding balances for mortgage release insurance in case of death or disability of any of them, issued by the Insurance Company that meets the requirements proposed by the Institute, and the Institute must be designated as the sole and irrevocable beneficiary.

For the foregoing purposes, both the borrower and the co-borrower in his respective case shall submit a request for issuance of a policy to the Insurance Company, which shall have a period of no more than thirty (30) days to respond regarding the acceptance or rejection of it, and the borrower and the co-borrower in his respective case must comply with the conditions required by the Insurance Company for the granting of insurance coverage in accordance with the terms required by the Institute.

Once the insurance policy is issued, the insured shall pay in advance the premium corresponding to the first year, plus the time that elapses between the date of delivery of the letter of guarantee or the signing of the protocol, whichever occurs first, until the issuance of the disbursement or advance by the administration of the Institute, event in which the agreed period of the granted loan begins to run. For the subsequent years of the loan's term, the borrower shall pay proportionally through monthly installments and, in advance, the annual insurance premium, in addition to the monthly installment of amortization of capital and interest, in such a manner that the Institute ensures payment of subsequent annual policy maturity dates.

The mortgage release insurance policy on outstanding balances shall be valid for the same period as the term of the credit and/or expansion of the same granted by the Institute. The coverage of insurance shall not be limited by establishing special or exclusionary clauses that affect the interests of the Institute when the grounds for claiming mortgage release insurance coverage by death or disability of the borrower and co-borrower occur in his respective case.

The protection provided by Mortgage Release Insurance shall end in the following cases:

• a)

  By early cancellation of the loan.

• b)

  By termination of the loan's term;

• c)

  By the occurrence of the insured loss, both of the borrower and of the co-borrower insured. The Insurance Policy shall establish INJUPEMP as the sole and irrevocable beneficiary, for the outstanding balance upon the occurrence of the loss due to death or disability of any of the insured parties.

The Institute, in its capacity as mortgagee creditor, shall require the borrower to contract a fire insurance policy, allied lines and other risks that, at the discretion of the Institution's Engineering Division, are deemed appropriate and which shall include at a minimum, among others: a. Fire and/or lightning. b. Explosion. c. Riot, strikes and popular disturbances. d. Malicious damage. e. Earthquake, tremor and volcanic eruption. f. Fall of aircraft, objects fallen from the same and collisions of land vehicles. g. Hurricane, typhoon, tornado, cyclone, gusty or stormy winds and hail. h. Floods and/or tidal waves. i. Extensive flooding. j. Collapses, landslides and mudslides. k. Damage from smoke and water spilled by firefighters and other causes. l. Temporary rent insurance. m. Debris removal.

The borrower shall submit its request to the Insurance Company, and shall comply with the conditions required by such company for granting the coverages of fire insurance and allied lines, as well as any additional risk that may warrant according to the opinion of the Engineering Division. For these purposes, INJUPEMP shall provide the borrower with the necessary advice and guidance.

The damage insurance policy shall have a validity equal to the period of the credit term granted by the Institute, and coverage may not be limited by establishing special clauses or conditions that modify the acceptance of the policy or the indemnification and risks covered. The amount of the damage insurance policy shall be determined by the Institute's Engineering Division and the pre-established value may only be modified when, at the request of the insured, the Insurance Company jointly with the Institute determine its appropriateness by mutual agreement according to the insurance policies of both Institutions and authorize its amendment, and in this case must inform the insured (borrower) before the expiration of the policy corresponding to that year for its modification.

Insurance policies shall establish the deductible amount consisting of the value or percentage of application over the insured sum that the insurer applies in the indemnification for catastrophic risks, in accordance with what is provided in article 46 of this Regulation.

Default shall be understood as the failure to pay two (2) consecutive installments of the loan granted.

For the recovery of default, the following criteria shall be applied:

• a)

  Once two (2) monthly installments are due, the Institute through the Portfolio and Collections Department shall proceed to make collection demands directly or by written notice, granting the borrower and the guarantor a maximum period of thirty (30) days to proceed with payment of the default, otherwise, if there is no response or justification whatsoever from the same, the Portfolio and Collections Administration shall proceed within the next thirty (30) days to make calls through written and radio media, it being understood that the costs incurred shall be added to the outstanding balance of the loan.

• b)

  Once the extrajudicial collection procedure previously mentioned has been exhausted, and four (4) overdue installments have accumulated during the collection management process, the Institute shall demand, through the judicial system, the immediate payment of the capital balance, interest, insurance, expenses and legal costs, plus any other charges if applicable.

• c)

  If the borrower to the satisfaction of the Institute justifies the causes of default due to domestic hardship, fortuitous event or force majeure duly qualified by the Legal Services Division and/or the Department of Social Services, as the case may be, the Institute through the Loans Division shall proceed to readjust on one occasion only the outstanding balance of the loan or the balance in default, as appropriate, structuring the payment plan to the expectations of the borrower's payment capacity at that moment, provided that it does not exceed the remaining period between the beginning of the credit and its termination. It is understood that a loan that has been readjusted in accordance with the requirements of this Regulation shall not be considered as a loan in default status.

• d)

  If the borrower and in his case the joint guarantor decide to withdraw from the system and at that moment the loan granted is in default, the Institute in order to reduce risk, reserves the right to apply ex officio the contributions of the borrower and/or joint guarantor, without prejudice to any legal actions that may be available.

The foregoing provisions shall not apply in those proven cases where the borrower incurs delay in the payment of one or more installments, if for reasons of procedures of the Employer's actions the salary earned by the participant is not timely received, the borrower being obligated in consequence to pay the totality of the overdue installments, together with the corresponding interest, on the date in which the participant receives the value of the delayed salaries.

Once collection efforts have been exhausted and no arrangement is reached with the borrower, prior to the execution of foreclosure actions, the participant shall have the option to transfer the sale of his dwelling to another participant of the System or to a private party who is not the guarantor, and may retain the right to a new mortgage credit, provided that he is a credit-eligible subject in accordance with the provisions governing this Regulation.

When the borrower, being current with the payment of his obligations, had the need to transfer the sale of his dwelling without having canceled the loan, the Institute may authorize the transaction either preserving the lien or releasing the mortgage upon payment of the outstanding balance.

For a Transfer to be authorized by the Institute, the interested party must prove any of the following duly justified grounds: 1. Change of residence for job-related reasons: The participant who, due to job transfer within or outside the country, is forced to change his residence on a permanent basis. 2. Better living conditions: When the participant demonstrates conclusively a considerable improvement in his income such that it allows him to opt for a higher standard of living than he had at the time of obtaining his first mortgage credit, he may transfer his dwelling to a family member within the second degree of consanguinity, to another system participant or to a private party who meets the regulatory requirements; in these cases the Institute must ensure that the remainder between the sale price and the outstanding balance, if any, is used for the acquisition of a new and better dwelling financed by the Institute. 3. Unemployment: When the participant is unemployed and such circumstance prevents him from fully complying with his obligations to the Institute without having defaulted. This circumstance shall be evidenced by the respective cancellation agreement. 4. Security: When the participant argues proliferation of crime and consequent insecurity in his residence zone. This justification shall be qualified by the Institute's Administration, after investigation with State security agencies. 5. Deterioration of Health: When the participant, according to medical diagnosis, must permanently change his residence due to the incidence of the environment on his health. 6. Dissolution of marital bond: In the case that the participant dissolves his marital bond or de facto union and intends that his spouse or household companion, being a system participant, remain with the ownership of the dwelling for the benefit of his descendants, the transfer may be made with the corresponding lien for the balance that the credit presents on the date of transfer, under the figure of assignment of rights over the property; when the spouse or household companion is not a system participant, the outstanding balance must be fully canceled; in both cases, the borrower shall maintain his right to a new mortgage financing.

Regardless of which ground was authorized, the borrowing participant may carry out the transfer action only once during his entire status as a member of the INJUPEMP system. The transfer request shall be evaluated and decided by the Credit Committee and forwarded definitively to the Board of Directors for its corresponding approval.

In cases where this Regulation authorizes the disposition or transfer of ownership of the real property on which a mortgage guarantee has been constituted in favor of the Institute, because the latter has acted as a financial entity in the respective credit operation, the Institute shall have the right to exercise the first option to purchase such property, provided that it is in the Institute's interest. For these purposes, the price of the transaction shall be that resulting from the appraisal conducted by the Institute.

The Closing Costs that the borrower must incur shall be borne by him and may be financed by the Institute through the mortgage loan granted to him, provided that the respective appraisal permits and payment capacity analysis allows, without that amount once added to the original loan amount exceeding the authorized maximum ceiling.

This Regulation repeals the "Regulation of Mortgage Loans for Housing" approved by the Board of Directors as stated in Minutes No. 961, dated the thirty (30th) day of January of two thousand three (2003), as well as the amendment made and published in the official newspaper La Gaceta on March 5, 2003, and any subsequent provisions that have been issued in this regard.

The files that are being processed in accordance with the provisions of the previous Regulation shall continue to be processed according to the provisions of the same, without prejudice to adapting its application to the terms of what is provided in this Regulation insofar as is appropriate.

Any matters not contemplated in this Regulation shall be resolved in accordance with the Resolutions, Agreements, and other operative rules issued by the Board of Directors.

This Regulation shall be effective and therefore shall begin to produce its effects as of the date of its ratification by the Board of Directors. Board of Directors Meeting Room, January 24, 2007.- DR. DARIO CARDONA VALLE LIC. LUCIO IZAGUIRRE R. PRESIDENT SECRETARY Note (1): The Housing Loan Regulation (in effect) was approved by the Honorable Board of Directors in the Extraordinary Session held on January 4, 2007, according to Resolution No. 01-1177 contained in Item No. 03 of Minutes No. 1077, becoming effective and therefore mandatory as of January 24, 2007, when said Resolution was ratified as shown in Item No. 03 of Minutes No. 1079. Note (2): The amendments made to the Housing Loan Regulation regarding the text of certain articles, as well as the inclusion of a new one and the consequent adjustment of the numbering of the articles that are already incorporated into the text thereof, were approved in the Ordinary Session held by the Board of Directors of the Institute on the twelfth (12) of November 2008, according to Resolution No. 01-1127 contained in Item No. 3 of Minutes No. 1127, becoming effective and therefore mandatory as of the ratification of said Resolution, contained in Minutes No. 1128 dated November 19, 2008. Note (3): Without prejudice to the amendments incorporated into the Regulation already being in effect and mandatory, solely for the purpose that said Regulation be known to the participants of the System, the Administration shall proceed to publish its full text in the Official Gazette "La Gaceta".