(a) The corporation shall establish a special mortgage loan purchase program. Under the special mortgage loan purchase program, the corporation may purchase first or second mortgage loans. A first or second mortgage loan purchased under this subsection must be made for the purchase, improvement, or rehabilitation of a residence or must be a refinancing loan. First or second mortgage loans purchased under this subsection may include graduated payment mortgage loans and adjustable rate mortgage loans.

(b) The corporation shall adopt regulations under AS 18.56.088 to establish minimum construction standards that a residence must meet before the corporation may purchase a mortgage loan on the residence under (a) of this section. The minimum construction standards must include standard deviations from the minimum construction standards to allow the corporation to purchase loans on residences that do not meet the minimum construction standards but that are certified by an engineer to be within the standard deviations. The standard deviations must include, but are not limited to, provisions relating to water holding tanks, on-site water and sewer systems, and foundations.

(c) The corporation may pledge mortgage loans purchased by the corporation under (a) of this section, mortgage loans assigned to the corporation for the special mortgage loan purchase program, and mortgage loans purchased with amounts appropriated to the corporation for the special mortgage loan purchase program to pay the principal, interest, and redemption premium, if any, on bonds or bond anticipation notes issued by the corporation for the special mortgage loan purchase program and may expend amounts appropriated to the special mortgage loan purchase program for mortgage loan subsidies or other purposes of the program as necessary to cause the interest rate on mortgage loans purchased under the special mortgage loan purchase program and retained by the corporation or sold under AS 18.56.099 to equal the rates specified in this section.

(d) [Repealed, § 51 ch 115 SLA 1981.]

(e) The corporation shall adopt regulations under AS 18.56.088 to implement the special mortgage loan purchase program. The regulations shall include provisions allowing, prohibiting, or restricting the right to assume or the right to provide for the payment of mortgage loans purchased under (a) of this section by a person other than the mortgagor. A provision in a mortgage loan purchased by the corporation after June 30, 1981, that prohibits or restricts the right to assume or the right to provide for the payment of mortgage loans is enforceable. The corporation shall enforce the regulations adopted under this subsection.

(f) The corporation shall establish the interest rate on a first mortgage loan purchased under (a) of this section in accordance with the following:

(1) the interest rate on the loan amount eligible for assistance of a mortgage loan purchased with the proceeds of an issue of taxable bonds of the corporation is three percent less than the cost of funds of that issue, except that

(A) if the cost of funds of that issue is less than 10 percent, the interest rate is equal to the cost of funds; and

(B) if the cost of funds of that issue is more than 10 percent, the interest rate may not be less than 10 percent;

(2) an interest rate determined under this subsection on the loan amount eligible for assistance of a mortgage loan that is not purchased from the proceeds of bonds that are qualified veterans' mortgage bonds under the applicable provisions of 26 U.S.C. (Internal Revenue Code) shall be reduced by one percentage point if the loan is made to an eligible veteran under AS 18.56.101;

(3) the interest rate for the amount of a mortgage loan purchased under (a) of this section that exceeds the loan amount eligible for assistance is equal to the cost of funds to the corporation attributable to that part of the loan;

(4) the interest rate on the loan amount eligible for assistance of a mortgage loan purchased with money that is not the proceeds of either taxable or tax-exempt bonds is the rate the corporation determines is appropriate by application of the provision of (1) of this subsection;

(5) the interest rate on the loan amount eligible for assistance of a mortgage loan purchased from the proceeds of bonds that are exempt from taxation, other than bonds that constitute qualified veterans' bonds under (h) of this section, is equal to the interest rate determined under (1) and (2) of this subsection on a loan purchased under (a) of this section from the proceeds of the most recent applicable issue of taxable bonds sold by the corporation; a higher or lower interest rate shall be established on the entire loan amount if required to ensure the tax-exempt status of the bonds;

(6) the corporation shall determine the interest rate on a mortgage loan that is an adjustable rate mortgage loan as provided in this subsection; the corporation shall recalculate the interest rate from time to time based on changes in the cost to the corporation of the funds used to purchase the adjustable rate mortgage loan; however, the corporation may establish a minimum interest rate applicable to an adjustable rate mortgage loan, and the interest rate on the adjustable rate mortgage loan may not be less than the minimum interest rate so established regardless of the cost of funds to the corporation;

(7) for loans made under this section, the corporation shall give effect to interest rate changes applicable to the loans based on time of loan application, time of issuance of the corporation's bonds issued to purchase loans, or other factors as the corporation determines;

(8) in this subsection,

(A) “cost of funds” means the true interest cost expressed as a rate on bonds of the corporation plus an additional percentage as determined by the corporation to represent the allocable expenses of operation, costs of issuance, and mortgage servicing;

(B) “taxable bonds” means bonds bearing interest that is taxable under applicable provisions of 26 U.S.C. (Internal Revenue Code) and which were issued to finance the purchase of first mortgage loans.

(g) The corporation shall establish the interest rate on a second mortgage loan purchased under (a) of this section in the manner established for computing the interest rates on a first mortgage loan under (f) of this section except that, in the case of a second mortgage loan, if the first mortgage loan made to the same borrower is held by the corporation and was purchased under the special mortgage loan purchase program, the outstanding principal balance of the existing first mortgage loan is subtracted from the loan amount eligible for assistance to determine the amount of the loan that is eligible for an interest rate on a second mortgage loan determined by reference to (f) of this section.

(h) The interest rate on the loan amount eligible for assistance of a mortgage loan purchased from the proceeds of bonds that constitute qualified veterans' mortgage bonds under applicable provisions of 26 U.S.C. (Internal Revenue Code) is the rate for other loans to veterans under (f)(2) of this section. A higher or lower interest rate shall be established on the entire loan amount if required by applicable provisions of 26 U.S.C. (Internal Revenue Code).

(i) If the money used to purchase a mortgage loan made to a veteran under this section comes from an issue of bonds of the corporation guaranteed by the state, each bond must be issued as part of an issue substantially all of the proceeds of which are used to provide residences for qualifying veterans. In this subsection, a qualifying veteran is a person who is a “qualified veteran” as the term is defined or may subsequently be defined under 26 U.S.C. 143.

(j) The interest rate limitations of AS 45.45.010 do not apply to loans purchased under this section or to loans that the corporation has, in any manner, committed itself to purchase.

(k) In this section and in AS 18.56.091 and 18.56.099

(1) “graduated payment mortgage loan” means a mortgage loan the terms of which provide for monthly principal and interest payments that

(A) during the first year of the mortgage loan are lower than the monthly principal and interest payments that would be required under the terms of a level payment mortgage loan made at the same interest rate; and

(B) during subsequent years of the mortgage loan are graduated to provide for the same return over the term of the loan that would have been provided by a level payment mortgage loan made at the same interest rate;

(2) “loan amount eligible for assistance” means

(A) the first $50,000 of a mortgage loan for persons of lower or moderate income whose purchase of a home is assisted under AS 18.56.091; or

(B) except as to persons whose purchase of a home is assisted under AS 18.56.091, the amount of a mortgage loan that does not exceed the amount of the loan established by law; if an amount has not been established by law, the amount is zero;

(3) “mortgage loan” includes a beneficial interest or participation in a mortgage loan;

(4) “residence” means

(A) an owner-occupied, single-family residence, including a mobile home; or

(B) an owner-occupied duplex, triplex, or fourplex.