September 2015, Issue 09
HUD/FHA's Origination Through Post-Closing/Endorsement Handbook (4000.1)
Additional Policy Changes
In previous LendingLogics Newsletters, many of the substantive underwriting, appraisal, 203(k) and Quality Control policy changes that are being implemented by HUD/FHA in the 4000.1 Handbook were outlined. The vast majority of these policy & procedural changes became effective for loan transactions that obtained their FHA case number on and after September 14, 2015.
Subsequent to the issuance of these Newsletters, HUD/FHA continues to modify and clarify previously issued guidance with respect to the application of these policies and has already added new Sections to the 4000.1 Handbook. In fact, it is anticipated that additional Sections will be added to this Handbook months after the September 14, 2015 effective date as FHA continues to make progress towards their goal to have a single, authoritative source of Single Family Housing policy.
Outlined below is a listing of additional updates to the 4000.1 Handbook that HUD/FHA has recently issued as well as policy clarifications on previously published Handbook content:
Mortgagees will now be allowed to charge Tax Service Fees to FHA Borrowers as long as such fees are deemed reasonable and customary. It should be noted that the 4000.1 Handbook is silent on this specific topic but HUD/FHA has indicated in their listing of Frequently Asked Questions (FAQs) that Tax Service Fees will now be an allowable charge. Previously, the 4155.1 Handbook specifically stated that Tax Service Fees could not be charged to FHA Borrowers.
With the implementation of the 4000.1 Handbook, HUD is introducing a new option for Borrowers who wish to refinance their current FHA mortgage. This new refinance option is labeled as the "Simple Refinance Program' and is geared toward those FHA Mortgagors who wish to pay off their existing loan and obtain a new loan with a lower interest rate. No cash-back will be allowed under this program. It is truly a "simple refinance" as there is not even a Net Tangible Benefit test required. Previously, this "Simple Refinance" option was not available as the streamline refinance program requires a Net Tangible Benefit test to be performed and has additional documentation requirements than this new option.
HUD has issued a recent clarification to existing policy that states that a Family Member's name can be listed on the Agreement of Sale but not be a Co-Borrower on the loan transaction. Previously, HUD/FHA did not permit names, other that the Mortgagor & any Co-Borrowers, to be listed on the Agreement of Sale.
In light of the upcoming TILA, RESPA Integrated Disclosure (TRID) changes being implemented industry-wide on October 3, 2015, HUD had indicated that the "Selling Agent" Certification that must be executed on FHA loan transaction can be modified to delete the phrase "which I have prepared". Previously, the verbiage contained in the Selling Agent Certification could not be altered in any way.
When receiving Gift Funds in a loan transaction, HUD/FHA now requires evidence to document the withdrawal of such funds from the Donor's savings or checking account along with copies of these Bank Statements. Previously, HUD/FHA only required documentation that documented the transfer of gift funds from the donor to the borrower (i.e. copy of certified check).
The eligibility, approval and re-certification criteria for 203(k) Consultants, Direct Endorsement (DE) Underwriters and Nonprofits & Governmental Entities have been enhanced but these changes will not become effective until March 14, 2016. Previously, HUD criteria for the approval of Consultants, DE underwriters and Nonprofits were less onerous.
Any refunds of the Borrowers' Paid Outside of Closing (POCs) fees (i.e. appraisal fees or credit reports) may now be used towards a Borrower's minimum required investment (MRI) - if the lender can document that the POCs were initially paid with the Borrower's own funds. Previously, HUD/FHA did not allow any POCs to be counted towards a borrower's MRI.
Any payments towards utilities as part of a Borrower's Home Owner Association (HOA) fees may be subtracted from the total HOA fees when calculating the Borrower's Housing Expenses ratios. Previously, the Borrower's total amount of HOA fees were counted in calculating their qualifying ratios.
Finally, HUD/FHA has announced additional changes to its underwriting policies & procedures for loan transactions involving Real Estate Owned (REO) properties and FHA staff is currently in the process of modifying its Condominium project approval guidelines. These changes will not be implemented until at least March 14, 2016. Stay tuned for more LoanLogics Blogs and Newsletters on these topics in the coming weeks.
— Gerry Glavey, SVP - Chief Credit Officer, LoanLogics
Mr. Glavey was the former Director of the Processing &Underwriting Division in the Philadelphia HOC for an 11 year period (2000 thru 2011) and has a total of 37 years' experience with HUD/FHA.
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This material is provided as a general information service by LoanLogics, Inc. and its applicable subsidiaries and affiliates ("LoanLogics"), and is not intended to provide financial, regulatory or legal advice on any specific matter. The information contained herein reflects the views of LoanLogics and sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics does not make any representation or warranty regarding the accuracy of the information contained in this material, and there is no guarantee that any projection, forecast or opinion in this material will be realized. Any links provided from outside sources are subject to expiration or change. © 2015 LoanLogics, Inc. All Rights Reserved.
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