(1) For the purpose of section 10(a) and section 13(3) of the Act, an approved mortgagee shall exercise reasonable care and prudence in the administration of an approved mortgage and the collection and repayment thereof, and it shall be satisfactory to the Authority and the approved mortgagee shall be deemed not to be negligent if it follows the practice and procedure which pertain to the approved mortgagee's general practice.
(2) If an approved mortgagee is negligent in the administration of an approved mortgage or the protection of the security, then the Authority may deduct from any sum payable under the Authority's guarantee given under Part 2 of the Act, the amount of the damage sustained by the Authority as a result of such negligence.
(3) If the Authority and the approved mortgagee are unable to agree on the extent of such negligence or of the damages arising therefrom, then the matter shall be referred for arbitration to a sole arbitrator acceptable to the Authority and the approved mortgagee or if no sole arbitrator is acceptable to both parties, then to 2 arbitrators, one of whom shall be chosen by each party and an umpire to be chosen by the 2 arbitrators. The cost of the arbitration shall be borne as agreed between the parties or in default of such agreement as shall be determined in the arbitration award.