Special Attention of: Transmittal: Issued: Effective Date

Special Attention of: All FHA-Approved Mortgagees All Direct Endorsement Underwriters All Eligible Submission Sources

for Condominium Project Approvals All FHA Roster Appraisers 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: October 26, 2021 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.

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.

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

Handbook Section

Handbook Changes

Page Number(s)

Section I ? Doing Business with FHA

I.A.5.a.i.(A)(2) Scope of Authority Added the definition of Test

27

? Definitions ? Test Case and Test Case to that of Test Case Phase

Case Phase

to align language with the entry

in the Glossary and updated

definition of Test Case Phase.

I.A.5.b.iv Post-approval

Added language to require

37

Requirement

Mortgagees to update LI

contact information in FHAC.

Handbook Section

I.B.4.a.i(B) FHA Mortgagor

I.B.4.b.iii(B)(1)(d)(iii) HUD Homes ? Affordable Housing Program Plan ? Required Documentation; I.B.4.b.iii(B)(3)(a)(iii) Secondary Financing ? Affordable Housing Program Plan ? Required Documentation I.B.4.b.iii(B)(3)(b) Restrictions on Conveyance

Handbook Changes

Clarified guidance regarding underwriting of HUD-approved Nonprofits as an FHA Mortgagor. Updated guidance regarding the geographic requirement for nonprofits to align with guidance in I.B.4.b.iii(B)(2)(c)(iii) FHA Mortgagor ? Affordable Housing Program Plan ? Required Documentation. Provided guidance on restrictions on conveyance to align with 24 CFR ? 203.41.

Page Number(s) 77

91, 96

97-98

Section II ? Origination Through Post-Closing /Endorsement

II.A.1.a.iii(B)(6)(d) Appraiser

Provided guidance to address

130

Independence

selecting, retaining, and

providing for payment of

Appraisers by Mortgagees'

authorized third parties.

II.A.1.a.iii(B)(11) Appraisal

Updated guidance for use of the

135

Delivery ? Electronic Appraisal

FHA Catalyst: EAD Module,

Delivery

per ML 2021-23.

II.A.1.b.ii(A)(9) Residency

Removed guidance regarding

140

Requirements

non-U.S. citizens per ML 2021-

12.

II.A.1.b.iv(A)(1) Special Flood

Updated terminology pertaining

148

Hazard Areas

to Special Flood Hazard Areas.

II.A.2.a.ii(A) Requests for Local Updated the time period for the

162

Increases

look-back period for requests

for local increases.

II.A.4.b.iii(I)(1) Deed-in-Lieu of Added the definition of Deed-

194, 271

Foreclosure (TOTAL) ? Definition; in-Lieu (DIL) of Foreclosure

II.A.5.a.iii(I)(1) Foreclosure and and renumbered subsequent

Deed-in-Lieu of Foreclosure

sections.

(Manual) ? Definition

II.A.4.b.iv(L)(2) Contingent

Updated language to clarify the

204, 281

Liabilities (TOTAL) ? Standard; Mortgagee is not required to

II.A.5.a.iv(N)(2) Contingent

verify 12 months of timely

Liabilities (Manual) ? Standard

payments for a divorce decree

or other court order.

2

Handbook Section

Handbook Changes

II.A.4.b.iv(L)(4)(c) Court Ordered Divorce Decree or Other Court Order (TOTAL); II.A.5.a.iv(N)(3)(c) Court Ordered Divorce Decree or Other Court Order (Manual) II.A.4.c.xi(C) Addressing Temporary Reduction in Income (TOTAL); II.A.5.b.xi(C) Addressing Temporary Reduction in Income (Manual) II.A.4.c.xii(E)(3) Section 8 Homeownership Vouchers ? Calculation of Effective Income (TOTAL); II.A.4.c.xii(P)(1) Nontaxable Income (Grossing Up) (TOTAL) ? Definition; II.A.5.b.xii(E)(3) Section 8 Homeownership Vouchers (Manual) ? Calculation of Effective Income; II.A.5.b.xii(P)(1) Nontaxable Income (Grossing Up) (Manual) ? Definition II.A.4.d.iii(A)(3) Checking and Savings Accounts (TOTAL) ? Required Documentation; II.A.5.c.iii(A)(3) Checking and Savings Accounts (Manual) ? Required Documentation II.A.4.d.iii(F)(3) Gifts (Personal and Equity) (TOTAL) ? Required Documentation; II.A.5.c.iii(F)(3) Gifts (Personal and Equity) (Manual) ? Required Documentation; II.A.8.k.iv(B) ? Building on Own Land ? Minimum Required Investment ? Required Documentation

Updated language for consistency.

Added guidance for underwriting Borrowers affected by a government shutdown or similar pause in employment. Updated guidance for acceptability of grossing up Section 8 Homeownership Voucher income.

Removed written statement requirement for bank accounts co-held by a non-borrower.

Provided guidance regarding gifts of land to require proof of ownership by the donor and evidence of the transfer of title to the Borrower and added links to these requirements in the Building on Own Land product sheet.

Page Number(s) 204, 282 216, 293

220, 231, 297, 308

238, 315 241, 318-319,

3

Handbook Section

Handbook Changes

II.A.5.a.iii(C) Housing Obligations/Mortgage Payment History (Manual) II.A.5.d.ix(A) Energy Efficient Homes

II.A.6.a.ii(A) Good and Marketable Title; II.A.7.d.ii Assembly of Case Binder for Electronic Submission II.A.6.c.ii Required Documentation for Disbursement of Mortgage Proceeds

II.A.7.d.ii Assembly of Case Binder for Electronic Submission

II.A.8.a.i 203(k) Rehabilitation Mortgage Insurance Program ? Overview; II.A.8.a.iii Property Eligibility

II.A.8.a.i(A)(2) Types of 203(k) Rehabilitation Mortgages ? Limited 203(k); II.A.8.a.vii(A) Limited 203(k) Eligible Improvements; II.A.8.a.xi Maximum Mortgage Amounts for Energy Efficient Mortgages, Weatherization Items, and Solar Energy Systems II.A.8.a.xvii(B) Extension Requests; II.A.8.a.xx(A) Servicing ? Delinquencies

Aligned section title and language to be consistent with the TOTAL section. Expanded eligibility for stretch ratios to Manufactured Homes that are certified as ENERGY STAR. Provided guidance on title evidence that demonstrates good and marketable title.

Updated guidance to clarify that the Mortgagee must obtain the final acknowledged Closing Disclosure or similar legal document signed by the Borrower. Updated policy related to assembly of case binders and provided new guidance for electronic file assembly and submission. Removed unnecessary appraisal forms from Case Binder requirements. Updated list of eligible projects to include the interior space of a condominium unit to conform with 24 CFR ? 203.43 and updated the definition of Structure. Added hyperlinks to the Treasury Department's list of Qualified Opportunity Zones.

Added guidance that Mortgages in forbearance must be treated as not delinquent for the purpose of administering the 203(k) repair escrow.

4

Page Number(s) 266 340

354, 370 361

368-370

377-378 378, 386, 394

402, 410

Handbook Section

Handbook Changes

II.A.8.d.v(A)(2)(a) Payment History Requirements ? Standard

II.A.8.d.vi(C)(4)(c)(ii) Standard for Refinances without a Term Reduction or with a Term Reduction of Less Than Three Years; II.A.8.d.vi(C)(4)(c)(iii) Standard for Refinances with a Term Reduction of Three Years or More II.A.8.d.vi(C)(5)(b) Special Documentation and Procedures for Non-credit Qualifying Streamline Refinances

II.A.8.i.iii Required Inspections for New Construction Financing; II.A.8.i.iv Required Documentation for New Construction Financing

II.A.8.i.iii(C) Units in Condominium Project or Legal Phase (Existing Less Than One Year)

II.A.8.j.x Required Documentation for Endorsement

Provided clarity that for both Mortgages underwritten through TOTAL Scorecard and manually underwritten Mortgages, the Mortgagee must document the payment history for the previous 12 months. Updated Streamline Refinance's net tangible benefit guidance to specify the required minimum term reduction.

Provided instructions for completing the Uniform Residential Loan Application (URLA) for non-credit qualifying Streamline Refinance transactions to conform with updated URLA Fannie Mae Form 1003/Freddie Mac Form 65. Expanded guidance to allow, in certain circumstances, a qualified trades person or contractor to provide the required inspections and certifications per 24 CFR ? 200.145. Updated language to clarify inspection requirements for units in condominium project or legal phase (existing less than one year). Updated required documentation to align with new construction financing guidance per ML 2020-36.

Page Number(s) 424 437

441

456-458, 458-459 458 465

5

Handbook Section

Handbook Changes

II.A.8.p.ii(E)(2)(b) Individual Owner Concentration ? Standard; II.C.2.c.vi(B)(3)(b) Individual Owner Concentration ? Standard; II.C.2.c.vi(B)(3)(d) Individual Owner Concentration ? Required Documentation

II.A.8.p.ii(F)(3)(c) Flood Insurance ? Required Documentation II.A.8.p.iii(C) Property Eligibility

II.D.3.i Defective Paint; II.D.3.m.i Environmental and Safety Hazards ? Lead-Based Paint II.D.4.c.iii(F)(2) FHA Appraisal Requirements in Changing Markets ? Required Analysis and Reporting

II.D.7.c Valuation of Leasehold Interest ? Required Analysis and Reporting

Clarified that the Individual Owner Concentration does not apply to eligible governmental or nonprofit programs if Units owned are legally designated to provide affordable housing. Updated required documentation accordingly. Streamlined documentation requirements. Clarified the Certificate of Occupancy (CO) requirements for a Complete Condominium Project or a Complete Legal Phase and subject Unit. Aligned with inspection requirements in 24 CFR ? 200.810. Provided an alternative and guidance for Appraisers in the absence of two credible listing comparables. Removed the calculation of leasehold interest guidance so that Appraisers are afforded discretion in consideration of complex factors that offer advantages or disadvantages that can affect value.

Page Number(s) 490, 532

492 497

578, 580-581 599-600 608

Section III ? Servicing and Loss Mitigation

III.A.1.f.ii(B) Prohibited Fees and Updated guidance to inform

635

Charges

that a Borrower may not be

charged for the Mortgagee's use

of an independent contractor

such as a tax service to furnish

tax data and information

necessary to pay property taxes

or make the payments on behalf

of the Mortgagee.

6

Handbook Section

Handbook Changes

III.A.2.h.ii(D) Error Reports and Correction

III.A.2.h.vii Reporting the Delinquency to HUD

III.A.2.k.iv(C)(2) Special Forbearance-Unemployment Agreement ? Standard

III.A.2.l.iii(A) Deed-in-Lieu of Foreclosure ? Definition III.A.2.o Presidentially-Declared COVID-19 National Emergency

III.A.2.o.i Forbearance for Borrowers Affected by the COVID19 National Emergency (COVID19 Forbearance) III.A.3.c.i(B) Contact Information for Submission of Reports

Updated guidance to clarify Mortgagees may receive Error Reports from SFDMS instead of FHAC, per ML 2021-21. Clarified Mortgagees must continue reporting Default Reason Codes for Defaults until the Default is resolved, per ML 2021-21 Updated the time frame that the Mortgagee must provide the SFB-Unemployment Agreement to the Borrower. Updated the definition for a Deed-in-Lieu of Foreclosure. Updated policy for loss mitigation options for Borrowers affected by the COVID-19 National Emergency, per ML 2021-18. Updated guidance to provide additional periods of COVID19 Forbearance, per ML 202124. Updated guidance that for Hawaiian Home Lands Mortgages, Mortgagees must complete their Default Reporting in SFDMS, per ML 2021-21.

Page Number(s) 663 667

690 729 740-759

741-743 826

Section IV ? Claims and Disposition

IV.A.1.a.v Borrower's Social

Deleted section, per ML 2020-

911

Security Number

38, and renumbered subsequent

sections.

IV.A.1.c.i Claim Review File ?

Deleted certain Default

917

Standard

servicing documentation

required for the Claim Review

File, per ML 2021-21.

Section V ? Quality Control, Oversight and Compliance

7

Handbook Section

Handbook Changes

Page Number(s)

Appendix 7.0 ? Property Preservation Allowances and Schedules (Applies to Servicing Only)

Appendices

Updated property inspection

1086

language to align with revised

definitions.

Throughout Document

Updated hyphenation for consistency Updated capitalization of hyphenated terms for consistency Added hyperlinks for consistency to HUD forms and CFR references Spelled out acronym, Direct Endorsement, when used with any term other than "DE underwriter" Various technical edits including hyperlinks, punctuation, formatting, grammar, spelling, and capitalization.

Throughout Handbook Throughout Handbook Throughout Handbook Throughout Handbook

Throughout Handbook

3. Implementation:

Handbook changes identified in Section 2 of this Transmittal incorporated to reflect a Mortgagee Letter are effective as previously announced in the corresponding Mortgagee Letter. Changes identified in Section II.A of Handbook 4000.1 may be implemented immediately, but must be implemented for Mortgages with case numbers assigned on or after January 24, 2022. All other changes may be implemented immediately, but must be implemented no later than January 24, 2022.

4. Public Feedback:

HUD welcomes feedback from interested parties for a period of 30 calendar days from the date of issuance. To provide feedback on this policy document, please send any feedback to the FHA Resource Center at answers@. HUD will consider the feedback in determining the need for future updates.

5. Superseded Policy:

Previous versions of Handbook 4000.1 are amended as described in this Transmittal. All previously

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