(a) The contract of insurance shall terminate if any of the following occurs:

(1) The mortgage is paid in full;

(2) The HFA acquires the mortgaged property and notifies the Commissioner that it will not file an insurance claim;

(3) A party other than HFA acquires the property at a foreclosure sale;

(4) The HFA notifies the Commissioner of Termination of Insurance (voluntary termination);

(5) The HFA or its successors commit fraud or make a material misrepresentation to the Commissioner with respect to information culminating in the contract of insurance on the mortgage or while the contract of insurance is in existence;

(6) The receipt by the Commissioner of an Application for Final Claims Settlement;

(7) If the HFA acquires the mortgaged property and fails to make an initial claim.

(b) In lieu of termination of the mortgage insurance contract pursuant to paragraph (a)(5) of this section, the Commissioner may, in his or her full discretion, permit a Level I participant rated “A” or higher to indemnify HUD, or otherwise reimburse HUD in a manner acceptable to the Commissioner, for the full amount of the mortgage claim.