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

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: July 20, 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 FHA Lenders and Mortgagees Aligned Handbook policy

1

language with 24 CFR ? 202.5.

I.A.3.c.iv(B)(2)(b)(i) Exception for Incorporated exception for

16

Officer in Charge of an Investing Officer in Charge of an

Mortgagee Without Servicing

Investing Mortgagee Without

Authority

Servicing Authority, per

Handbook waiver issued May

11, 2020.

Handbook Section I.A.3.c.vii(A)(1)(a) Financial Requirements ? Standard ? Single Family Programs I.A.5.a.iii(A)(3)(a) Test Case Phase ? Case Binder Submission

I.A.5.b.iii(C) Application and Approval ? Reinstatement

I.A.7.h Post-Approval Changes ? Operating Loss

I.A.7.l Post-Approval Changes ? Servicing

I.A.7.r.i Mergers, Acquisitions, and Reorganizations ? Merger or Consolidation

I.A.7.v Program Approvals

I.B.4.b.iii(A)(2) General Application Requirements ? Board of Directors and Employees I.B.4.b.iii(A)(4) General Application Requirements ? Relevant Experience I.B.4.b.iii(A)(13)(a) General Application Requirements ? Adequate Facilities ? Standard; I.B.4.b.iii(B)(2)(c)(iii) Affordable Housing Program Plan ? Required Documentation

Handbook Changes

Aligned Handbook policy language with 24 CFR ? 202.5.

Moved existing policy from II.A.7.d.vii to this section and added language for the submission of Test Case binders per ML 2020-07. Clarified existing policy for reinstatement when the Mortgagee voluntarily withdrew their LI Authority. Aligned Handbook policy language with 24 CFR ? 202.5(m)(1). Clarified existing policy for Mortgagees requesting postapproval servicing authority. Clarified existing policy and documentation requirements by eliminating outdated language. Aligned policy with existing processes and Lender Electronic Assessment Portal (LEAP) functionality. Clarified existing policy for Mortgagees requesting Title I or Title II program approval after initial FHA program approval. Clarified current guidance for voting members of the Board of Directors. Reorganized section to conform with Handbook style.

Updated guidance to provide flexibility for the geographical requirement for nonprofits.

Page Number(s) 20 30

37 52 53 55-57

62

82 83-84 88, 94

2

Handbook Section

I.B.4.b.iii(B)(1)(a)(i) HUD Homes ? Name and Address Identification Number ? Standard I.B.4.c.iii(C) HUD Homes ? Individual Property Files ? Required Documentation

Handbook Changes

Updated section to reflect process changes for bidding on Real Estate Owned properties. Clarified Required Documentation to address the use of most recent W-2.

Page Number(s) 89

103

Section II ? Origination Through Post-Closing /Endorsement

II.A.1.a.i(A)(2)(c) Handling of

Updated citation and link for

114

Documents ? Confidentiality Policy Fair Housing Act.

for Credit Information

II.A.1.a.iii(B)(10) Initial Document Updated guidance on who can

134

Processing ? Ordering an Update to provide an update to an

an Appraisal

Appraisal.

II.A.1.b.ii(A)(9) General Borrower Updated guidance on residency

139-140

Eligibility Requirements ?

requirements per ML 2021-12.

Residency Requirements

II.A.1.b.ii(A)(14)(a)(i) Eligibility Moved sentence about

142

Criteria for a Mortgage for

nonprofit eligibility for

Nonprofit Organizations ? Standard refinances from general

underwriting section to

nonprofit underwriting section.

II.A.1.b.iv(A)(1) General Property Provided clarification of

148-149

Eligibility ? Special Flood Hazard Special Flood Hazard Area

Areas

zone designations.

II.A.1.b.iv(B)(5) Property Types ? Clarified guidance on eligible

156

Condominium Unit

property types and Units for

FHA-insured financing,

inserted link to II.C.2.c.vii(D)

to streamline guidance, and

renumbered subsequent

sections.

II.A.4.a.iii(A)(1) Automated

Removed unnecessary

186, 338

Underwriting System Data Entry Mortgage Credit Certificate

Requirements ? Mortgagees;

language.

II.A.5.d.vii(B) Calculating

Qualifying Ratios (Manual) ?

Calculating Total Mortgage

Payment

II.A.4.b.iii(B) Disputed Derogatory Reorganized Disputed

191

Credit Accounts (TOTAL)

Derogatory Credit Accounts

section for consistency.

3

Handbook Section

Handbook Changes

II.A.4.b.iv(H) Evaluating Liabilities and Debts (TOTAL) ? Student Loans (TOTAL); II.A.5.a.iv(G) Evaluating Liabilities and Debts (Manual) ? Student Loans (Manual)

II.A.4.c.ii(C) Employment Related Income (TOTAL) ? Required Documentation; II.A.5.b.ii(C) Employment Related Income (Manual) ? Required Documentation II.A.4.c.x(C)(2) Self-Employment Income (TOTAL) ? Required Documentation ? Profit & Loss Statements and Balance Sheets; II.A.5.b.x(C)(2) Self-Employment Income (Manual) ? Required Documentation ? Profit & Loss Statements and Balance Sheets II.A.4.c.xii(D) Mortgage Credit Certificates (TOTAL); II.A.5.b.xii(D) Mortgage Credit Certificates (Manual) II.A.4.c.xii(Q) Other Sources of Effective Income (TOTAL) ? Foster Care Payment II.A.5.b.xii(Q) Other Sources of Effective Income (Manual) ? Foster Care Payment II.A.4.d.i(B)(2)(j) Cash to Close (TOTAL) ? Mortgagee Responsibility for Estimating Settlement Requirements ? Real Estate Tax Credits; II.A.5.c.i(B)(2)(j) Cash to Close (Manual) ? Mortgagee Responsibility for Estimating Settlement Requirements ? Real Estate Tax Credits

Updated required documentation and calculation of monthly obligation requirements of student loans, per ML 2021-13 and added clarifying exception for student loans in COVID related forbearance. Clarified that the Mortgagee must provide either traditional or alternative current employment and income documentation as well as past employment documentation. Clarified when Profit and Loss Statements and Balance Sheets are required.

Simplified language for consideration of Mortgage Credit Certificates to align with language in II.A.4.a.iii(A)(1). Added new guidance to specifically address income requirements for foster care payments.

Clarified that real estate tax credit can be used to meet MRI when the borrower has enough assets verified without using the real estate credit.

Page Number(s) 201, 277

207-209, 284-286 214, 291

219, 296 231-232, 308-309

235, 312

4

Handbook Section

Handbook Changes

II.A.5.d.xii(C) Underwriting Nonprofit Borrowers (Manual) ? Program and Product Limitations

II.A.6.b.ii Mortgage and Note ? Standard

II.A.6.c.ii Disbursement of Mortgage Proceeds ? Required Documentation for Disbursement of Mortgage Proceeds; II.A.7.b.v Closing Disclosure and Settlement Certification II.A.7.d.ii(B) Uniform Case Binder Format

II.A.7.d.ii(C) Uniform Case Binder Stacking Order

II.A.7.d.vii Mortgagee with Conditional Direct Endorsement Approval (Test Case) II.A.8.a.xvi Data Delivery/203(k) Calculator II.A.8.d.vi(C)(4)(h) General Information Applicable to All Streamline Refinances ? Funds to Close II.A.8.j.iv Construction to Permanent ? Calculating Maximum Mortgage Amount II.A.8.j.vi Construction to Permanent ? Required Documentation

Moved sentence about nonprofit eligibility for refinances from general underwriting section to nonprofit underwriting section. Added guidance to Standard that at least one Borrower on Note must be on title. Changed "final disclosure" to "final Closing Disclosure."

Updated guidance to reflect Mortgagee Letter 2020-07. A color-coded binder is not visible in the FHA Catalyst: Case Binder Module and therefore, the requirement to submit a color-coded binder is eliminated for cases submitted through FHA Catalyst. Clarified document stacking order for Case Binder submission. Moved policy language to Test Case Application and Approval I.A.5.a.iii(A)(3)(a). Removed obsolete effective date information. Updated guidance to clarify requirements when funds to close exceed the total mortgage payment. Clarified calculation for Acquisition Cost of the property. Added guidance for when the land was given as a gift to the Borrower.

Page Number(s) 350

360 361, 363

368

368 374 400 437 462-463 463

5

Handbook Section

Handbook Changes

II.A.8.o.v(B)(2) HUD Real Estate Owned Purchasing ? Occupancy Types ? Investment Property ? Investor Buyer II.A.8.p.ii(E)(2)(a) Individual Owner Concentration ? Definition; II.A.8.p.iii(D)(6)(c)(i) Individual Owner Concentration ? Definition; II.C.2.c.vi(B)(3)(a) Individual Owner Concentration ? Definition II.A.8.p.ii(F)(2) Requirements for Units in Approved Condominium Projects ? Insurance ? Hazard Insurance; II.A.8.p.iii(D)(7)(b) Single-Unit Approval ? Requirements for Eligible Properties ? Insurance Coverage ? Hazard Insurance II.C.2.c.vii(A) Insurance Coverage ? Hazard Insurance II.A.8.p.ii(F)(4) Requirements for Units in Approved Condominium Projects ? Insurance ? Exception to FHA Insurance Requirements; II.A.8.p.iii(D)(7)(f) Single-Unit Approval ? Requirements for Eligible Properties ? Insurance Coverage ? Exception for FHA Insurance Requirements; II.C.2.c.vii(E) Insurance Coverage ? Exception for FHA Insurance Requirements II.A.8.p.iii(B) Single Unit Approval ? Borrower Eligibility

Provided guidance for underwriting investor transactions.

Clarified definition of Related Party.

Clarified guidance to address a co-insurance policy with coverage that is equal to at least 100% of the insurable replacement cost.

Incorporated an exception granted through Handbook waiver that allows individual Unit owners and the condominium association to obtain and maintain own insurance coverage as required by the governing documents for certain Condominium Project types.

Clarified that a Single Unit Approval mortgage applications that are manually underwritten have a maximum Loan-toValue (LTV) of 90 percent.

Page Number(s) 481

488, 499, 530 490, 502, 532

491-493, 504-505, 534535

495

6

Handbook Section

Handbook Changes

II.A.8.p.iii(D)(7)(d)(ii) Single-Unit Approval ? Requirements for Eligible Properties ? Insurance Coverage ? Fidelity Insurance ? Standard; II.C.2.c.vii(C)(2) Insurance Coverage ? Fidelity Insurance ? Standard II.C.2.c.v(B) General Condominium Project Approval Requirements ? Transfer of Control ? Standard

II.C.2.c.vi(C) Financial Stability and Controls ? Required Documentation

II.D.1.a Information Required before Commencement of Appraisal II.D.3 Acceptable Appraisal Reporting Forms and Protocols

II.D.3.b.ii(A)(2) Party or Lot Line Wall ? Required Analysis and Reporting II.D.3.o.v(B) Individual Water Supply Systems ? Standard II.D.4.c.ii(C) Appraisal Conditions ? Required Analysis and Reporting

II.D.5.k Sales Comparison Approach for Manufactured Housing II.D.12.b Section 247 Hawaiian Home Lands Program

Clarified requirements for fidelity insurance with respect to state law.

Updated guidance regarding timing of transfer of control and clarified that state and local condominium laws take precedence. Updated guidance to align the required documentation with the requirement to show that the Condominium Project income did not decrease more than 15% over the past two years. Reorganized section for clarity.

Moved additional documentation requirements for appraisals of New Construction to II.D.4.c.ii(C) and renumbered subsequent sections. Clarified language in Required Analysis and Reporting to align with Standard. Replaced an archived reference document and link. Moved additional documentation requirements for appraisals of New Construction here from II.D.3. Amended published ML language to clarify selection of comparables. Clarified language regarding use of computer-generated cost analysis.

Page Number(s) 503, 533

527

531

552-553 555

558 582 588 603 612

7

Handbook Section

Handbook Changes

Page Number(s)

Section III ? Servicing and Loss Mitigation

III. Servicing and Loss Mitigation Updated effective dates for

section III, except where noted,

per ML 2021-14.

III.A.1.l.ii(B)(2)(b) Effect of

Moved existing policy from

Voluntary Termination on

III.A.1.l.ii(F) to this section.

Outstanding Partial Claims

III.A.1.l.ii(B)(2)(c) Request for

Clarified mortgage record

Voluntary Termination;

change submission guidance in

III.A.2.l.iii(F)(6) Option Not to

FHAC to include Term Type

Convey

for HUD Form 27050-A.

III.A.2.o Presidentially-Declared Updated guidance for COVID-

COVID-19 National Emergency 19 Forbearance and added

guidance for COVID-19

Advance Loan Modification,

per ML 2021-15.

III.A.2.u.iii(B) Acquiring

Updated guidance clarifying the

Possession ? Notice to Occupant of NOPA timeframe requirements.

Pending Acquisition ? Standard

III.A.2.v.iii(B)(5)(c)(ii) Requests Updated guidance to ensure

for Exceeding Maximum Property requests for exceeding Property

Preservation Allowances ?

Preservation Allowances are

Required Documentation

submitted at least five days

prior to conveyance.

III.A.2.w Non-Conveyance

Added guidance for non-

Foreclosure

conveyance foreclosure, and

renumbered subsequent section.

Section IV ? Claims and Disposition

IV.A.1.a.vi(C) Form HUD-27011, Updated Part C submission

Single Family Application for

requirements for Property

Insurance Benefits ? Part C ?

Preservation and Protection

Support Document

disbursements.

IV.A.2.a.ii(A)(1) Damage to

Updated the definition of

Conveyed Properties ? Definition Surchargeable Damage.

IV.A.2.a.ii(I)(2) Claim Type 01- Clarifies alternative

Conveyances ? Computation of

documentation that HUD will

Claim Amount ? Tax Bills ?

accept as proof of tax payment

Required Documentation

for Claims Review.

623-839 650

650, 730 739-743, 753-754

779-780 786

812

910 924 933-934

8

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