Section 266.125 - Scope and nature of sanctions(a)Actions by Designated Office. Depending on the nature and extent of the noncompliance with the requirements of this part, the Designated Office may take any of the following actions:(1) Require that the HFA execute a trust agreement, establish a trust account in accordance with such agreement, and fund such account which may be drawn upon by HUD for purposes of meeting the HFA's risk-sharing obligations;(2) Require the HFA to assume a higher portion of risk for the subject and future mortgages;(3) Recommend to the Commissioner that the HFA be required to contract its loan servicing or property disposition functions to a third party;(4) Recommend to the Commissioner that the mortgage insurance be terminated in cases of fraud or material misrepresentation by the HFA, or transfer of interest in an insured mortgage or assignment of the mortgage not in accord with the requirements of this part;(5) Recommend to the Commissioner that approval for the HFA to participate in the program be suspended or withdrawn;(6) Recommend to the Commissioner that the HFA's mortgagee approval be withdrawn pursuant to 24 CFR part 25 (regulations of the Mortgagee Review Board) and/or that penalties be imposed pursuant to 24 CFR part 30 (regulations pertaining to Civil Money Penalties; Certain Prohibited Contact);(7) Require additional financial or other reports as may be necessary to monitor the activities of the HFA more closely.(8) Require the HFA to revise any or all of its underwriting, processing, asset management, or servicing policies and procedures as directed by the Commissioner.(b)Actions by Headquarters. HUD Headquarters may impose any of the sanctions set forth or recommended in paragraph (a) of this section based upon its responsibilities for monitoring and overall program oversight.(c)Effect of suspension or withdrawal. A suspension or withdrawal action will not affect any mortgage insurance endorsement in effect on the date of the suspension or withdrawal action.(d)HFA right to informal hearing.(1) Any sanction imposed by a designated office in writing will be immediately effective, will state the grounds for the action, and provide for the HFA's right to an informal hearing before the designated office representative or designee in the designated office. The HFA may request an informal hearing within 10 working days of receipt of the suspension or withdrawal action and the Designated Office shall give the HFA an opportunity to be heard within 10 working days of receipt of the HFA's request. The HFA may be represented by counsel. The Designated Office Representative, or his or her designee, will advise the HFA in writing of the decision within 10 working days of the informal hearing, which decision will constitute final HUD action.(2) Sanctions imposed by Headquarters will be handled in a similar manner, except that the informal hearing shall be before the Commissioner or his or her designee.59 FR 62524, Dec. 5, 1994, as amended at 85 FR 83441 , Dec. 22, 2020