U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ...

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

Special Attention of: All FHA Approved Mortgagees All Direct Endorsement Underwriters All FHA Roster Appraisers All FHA Roster Inspectors All FHA-Approved 203(k) Consultants All HUD-Approved Housing Counselors All HUD-Approved Nonprofit Organizations All Governmental Entity Participants All Real Estate Brokers All Closing Agents

Transmittal: Handbook 4000.1 Issued: March 27, 2019 Effective Date: Multiple; See Below

1. This Transmits: 1. Handbook 4000.1, FHA Single Family Housing Policy Handbook.

2. Previously published updates to Handbook 4000.1, FHA Single Family Housing Policy Handbook.

____________________________ Brian D. Montgomery Assistant Secretary for Housing ? Federal Housing Commissioner

2. Explanation of Materials Transmitted:

This revision to the FHA Single Family Housing Policy Handbook, or Handbook 4000.1 (Handbook), is being published to update existing sections. Content updates, identified in the following table, do not change effective dates for existing policy, except as noted below.

Below is a list of content updates being made to the Handbook:

Handbook Section

Handbook Changes

Section I ? Doing Business with FHA

I.A.3.c.i(A)(2)(b) Limited Liability Updated legal age for members of

Company ? Standard

an LLC.

I.A.3.c.iv(B)(1)(a)(i) Corporate Updated definition of Corporate

Officers of Nonsupervised and

Officer "Vice President" for

Investing Mortgagees

Nonsupervised and Investing

Mortgagees to be consistent with

the definition for Supervised and

Government Mortgagees.

I.A.3.c.iv(B)(3)(b)(ii) Employees ? Updated standard to limit non-

Standard ? Compensation

commission employees to those

employees that perform

underwriting or Quality Control

(QC) activities.

I.A.3.c.iv(B)(3)(b)(ii) Employees ? Updated standard to indicate

Standard ? Compensation

Mortgagee must report employee

compensation in accordance with

Internal Revenue Service (IRS)

requirements. Removed language

"or its permissible contractor" to

indicate the Mortgagee is

responsible for ensuring it meets

the Standard for Employee

Compensation.

I.A.3.c.vii(A)(1)(b)(i) Adjusted Net Updated standard to be consistent

Worth ? Multifamily Programs ? with regulation at 24 CFR ?

With Servicing

202.5(n)(3)(ii).

I.A.3.c.vii(A)(1)(b)(ii) Adjusted Updated standard to be consistent

Net Worth ? Multifamily Programs with regulation at 24 CFR ?

? Without Servicing

202.5(n)(3)(ii).

I.A.3.c.vii(C) Financial

Updated required documentation

Requirements ? Required

to include the submission of the

Documentation

calculation of net worth.

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Page Number(s) 9 14

16 16

20 21 21

Handbook Section I.A.5.a.iii(A)(3) Test Case Phase

I.A.5.a.iii(A)(3)(a)(i) Pre-closing Submission

I.A.5.a.iii(A)(3)(a)(ii) Post-closing Submission

I.A.5.a.iii(A)(3)(b) Test Case Underwriting Report

I.A.5.a.iii(A)(3)(b) Test Case Underwriting Report

I.A.5.a.iii(A)(3)(c) Test Case Closing Documents

I.A.6.b.viii Providing Information to FHA ? Loan Review System Authorizations I.A.6.j.i Use of Contractors ? Permissible Use

I.A.7.u Unresolved Findings or Sanctions

Handbook Changes

Clarified FHA's review of Test Cases includes closing requirements to reflect ML 201621. Provided guidance on the final date for Mortgagees entering the Direct Endorsement Test Case process to reflect ML 2016-21. Provided the effective date for Mortgagees entering the Direct Endorsement Test Case process and provided guidance on review results to reflect ML 2016-21. Clarified guidance that Mortgagees may submit mitigating documentation for Test Case reviews that receive an unacceptable rating during Test Case file review to reflect ML 2016-21. Included instructions for certain Mortgagees to redview Test Case results in the Loan Review System to reflect ML 2017-03. Provided a change in the title from Test Case Closing Package to Test Case Closing Documents to reflect ML 2016-21. Included new guidance for Loan Review System authorization to reflect ML 2017-03. Provided guidance on the use of Third Party Verification (TPV) services to verify a borrower's employment, income, and asset information, to reflect ML 201901. Removed partial definition of Unresolved Findings, which is a defined term in the Glossary.

Page Number(s) 30 30 30 31

31 31 39 41

56

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Handbook Section

Handbook Changes

I.A.8.c.ii Calculation of Fee Amount

I.A.8.f Recertification Extension Requests

I.A.9 Voluntary Withdrawal of FHA Mortgagee Approval

I.B.4.a.i(A) Types of Single Family Nonprofit Programs ? HUD Homes I.B.5.d Real Estate Brokers ? Annual Recertification

Updated the terms "annual reporting period" and "annual period" by replacing them with the defined glossary term "Certification Period." Updated the circumstances, prior to the recertification package due date, where a Mortgagee can request a recertification extension. Updated policy for a Mortgagee's voluntary withdrawal of FHA approval. Ineligible Mortgagees must notify FHA in accordance with I.A.7. Separated guidance into (1) Discounted Purchase and (2) Exclusive Listing Period. Updated NAID recertification process for real estate brokers.

Page Number(s) 59

60 60

71-72 103

Section II ? Origination through Post-Closing/Endorsement

II.A.1.a.i(E)(1)(a)(iii) Property

Updated sales guidance for

118

Assessed Clean Energy

properties encumbered with a

PACE obligation to require the

sales contract to specify

satisfaction of the PACE

obligation by the seller at or prior

to the closing to reflect ML 2017-

18.

II.A.1.a.iii(B)(6)(e) Additional

Updated guidance to require

127

Requirements When Ordering an lender to notify the appraiser that

Appraisal

the PACE obligation will be paid

off as a condition of loan approval

to reflect ML 2017-18.

II.A.1.b.ii(A)(13)(b) Tax Liens

Clarified that a subordination

137

agreement is not required for

federal tax liens (in repayment).

II.A.1.b.iii(A)(2)(c) Exceptions to the FHA Policy Limiting the Number of Mortgages per Borrower

Updated guidance for nonoccupying co-Borrowers with existing FHA-insured Mortgages.

141

4

Handbook Section

Handbook Changes

II.A.1.b.iv(A)(6) Property Assessed Clean Energy

II.A.1.b.v Legal Restrictions on Conveyance (Free Assumability) II.A.4.a.iii(A)(1) Automated Underwriting System Data Entry Requirements ? Mortgagees; II.A.5.d.vii(B) Calculating Total Mortgage Payment; II.A.6.a.viii(A) Monthly Escrow Obligations II.A.4.c.ii(C) Employment Related Income (TOTAL) ? Required Documentation; II.A.4.d.i(A) Earnest Money Deposit (TOTAL); II.a.4.d.iii(A)(3)(a) Checking and Savings Accounts (TOTAL) ? Required Documentation ? Traditional Documentation; II.A.5.b.ii(C) Employment Related Income (Manual) ? Required Documentation; II.A.5.c.i(A) Earnest Money Deposit (Manual); II.a.5.c.iii(a) Checking and Savings Accounts (Manual) ? Required Documentation ? Traditional Documentation II.A.4.c.ii(C)(3) Past Employment Documentation; II.A.4.c.v Overtime, Bonus and Tip Income (TOTAL); II.A.5.b.ii(C)(3) Past Employment Documentation; II.A.5.b.v Overtime, Bonus and Tip Income (Manual)

Updated guidance to clarify that properties that remain encumbered with a PACE obligation are not eligible for FHA Mortgage insurance to reflect ML 2017-18. Added guidance on determining reasonable share of appreciation.

Updated Borrower's total Mortgage Payment to make any PACE obligation classified as a special assessment ineligible to reflect ML 2017-18.

Provided guidance on the use of Third Party Verification (TPV) services to verify a borrower's employment, income, and asset information, to reflect ML 201901.

Added clarifying guidance to treat Tip Income the same as Overtime or Bonus Income.

Page Number(s) 148

152-153 177, 324, 342

197-198, 221, 227, 271272, 296, 301

198, 199-200, 272, 274

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Handbook Section

Handbook Changes

II.A.4.c.xii(I)(2)(c) Rental Income Received from the Subject Property (TOTAL) ? Calculation of Effective Income II.A.4.c.xii(I)(2)(c)(i) Limited or No History of Rental Income; II.A.4.c.xii(I)(3)(c)(i) Limited or No History of Rental Income; II.A.5.b.xii(I)(2)(c)(i) Limited or No History of Rental Income; II.A.5.b.xii(I)(3)(c)(i) Limited or No History of Rental Income II.A.4.d.iii(F)(3) Required Documentation ? Documenting the Transfer of Gifts; II.A.5.c.iii(F)(3) Required Documentation ? Documenting the Transfer of Gifts II.A.4.d.iii(J) Secondary Financing (TOTAL); II.A.5.c.iii(J) Secondary Financing (Manual) II.A.5.d.ix(A)(1) Energy Efficient Homes ? Standard; II.A.8.a.vi(A)(2)(a) General Improvement Standards; II.A.8.c.iii(B) Cost-effective Test for New Construction; II.A.8.c.iv(C) Home Energy Report for New Construction II.A.5.d.x(B) Documentation of Final Underwriting Review Decision (Manual)

II.A.6.a.vii Mortgagee Closing Requirements ? Certifications; II.A.7.b.v Closing Disclosure and Settlement Certification II.A.7.b.xii Secondary Financing Documentation

Added clarifying language for calculation of Effective Income.

Edited mentions of Fannie Mae Form 216/ Freddie Mac Form 998 for consistency.

Updated documentation guidance for evidencing transfer of gifts to the Borrower or settlement agent.

Replaced "loan instruments" with "Mortgage and Note" to provide more specific guidance.

Updated link and removed specific reference to 2006 International Energy Conservation Code (IECC) to ensure continuous access to the most recent IECC approved by HUD.

Clarified the timeframe, for preclosing or post-closing, for submitting final underwriting review decision documents to reflect ML 2016-21. Updated guidance to distinguish which certifications are required for purchase or refinance transactions. Replaced "subordinate loan agreement" with "Mortgage" and "Note" to provide specific guidance for documentation requirement.

Page Number(s) 214

214, 216, 289, 290

230-231, 305

236, 237, 238, 239, 310, 312, 313, 314

326, 368, 401, 402

329 341, 349

350

6

Handbook Section

Handbook Changes

II.A.7.d.ii(B) Uniform Case Binder Format

II.A.7.d.iii(C) After Receipt of a Notice of Return II.A.7.d.vii Mortgagee with Conditional Direct Endorsement Approval (Test Case)

II.A.8.c.iii Standard ? Energy Package

II.A.8.c.xii Energy Efficient Mortgages ? Inspection; II.A.8.i.ii New Construction ? Inspections or Warranties for Maximum Financing; II.A.8.l.i(D) Weatherization ? Eligibility ? Maximum Dollar Amount II.A.8.d.vi(A)(2)(b)(i) Calculating Maximum Mortgage Amount ? Standard; II.A.8.d.vi(B)(3)(a) Calculating Maximum Mortgage Amount for Simple Refinance Transactions ? Standard II.A.8.d.vi(C)(4)(h) Funds to Close

II.A.8.d.vi(C)(4)(j)(i) Maximum Mortgage Calculation for Streamline Refinances - Standard

II.A.8.i New Construction ? Definitions

Implemented a change in the test case binder colors, and added a timeframe for Mortgagees entering the Direct Endorsement Test Case process to reflect ML 2016-21. Added definition for "Notice of Return." Implemented timeframe changes for documents that are submitted for review from pre-closing to post-closing to reflect ML 201621. Replaced "general contractor" with "project manager" to reflect how work is being completed.

Removed requirements to use an FHA Roster Inspector, to reflect ML 2019-04.

Updated language to clarify PACE obligations meeting certain requirements as eligible debt under the "Rate and Term" and "Simple Refinances," to reflect ML 2017-18.

Clarified that evidence of funds to close must follow the "applicable sections" of Source of Funds. Removed language regarding UFMIP refund applying only when the Mortgage included financed UFMIP. [This change was first published in Handbook 4000.1 with the 09/30/2016 publication but was inadvertently left off the transmittal.] Removed definition for ten-year warranty.

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Page Number(s) 354

358 360-361

400 405, 438-439, 451

412, 415

421 422

438

Handbook Section

Handbook Changes

II.A.8.i.ii(A)(3) Existing for Less than One Year (100 Percent Complete)

II.A.8.i.ii Inspections or Warranties for Maximum Financing; II.A.8.i.iii Required Documentation for Maximum Financing; II.A.8.i.iv Financing LTV Limit II.D.3.c.i(D)(2)(a) Forward Mortgage Requirements

II.D.12.d.iv(B) Required Analysis and Reporting

Clarified that for properties existing for less than one year both a building permit or final inspection and an appraisal evidencing property is 100 percent complete are required to reflect ML 2019-04.

Removed requirements for a 10year warranty, to reflect ML 2019-05.

Clarified standard to be consistent with regulation at 24 CFR ? 203.37. Updated language to require the Appraiser to report the outstanding amount of any PACE obligation and value the property assuming the PACE obligation is extinguished to reflect ML 201718.

Section III ? Servicing and Loss Mitigation

III.A.1.e.ii Application of

Modified language to state that

Payments

escrowed items include any

assessments related to a PACE

obligation to reflect ML 2017-06.

III.A.1.g.ii(A) Escrowing of Funds Added language regarding the

? Standard

establishment of an escrow

"cushion."

III.A.1.g.ii(C) Items to be

Revised section to reflect ML

Escrowed

2017-06 and included a new

paragraph, (C) Items to be

Escrowed. The existing

paragraph, (C) Required

Documentation, is renumbered as

paragraph (D).

III.A.1.h.i Insurance Coverage

Updated language when the

Administration ? Hazard Insurance Mortgagee requires the Borrower

to maintain hazard insurance and

the amount of said insurance.

Page Number(s) 439

439, 440 486 544

554 560 560-561

564

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