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-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 10, 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.

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

Handbook Section

Handbook Changes

Section I ? Doing Business with FHA

I.A.5.a.iii(A)(3)(a) First-Time

Removed guidance to align with

Applicants ? Test Case Phase ? ML 2016-21 and ML 2017-08,

Case Binder Submission

which eliminated Pre-closing

submissions for Test Case lenders

applying on or after 5/15/17.

I.A.5.a.iii(A)(3)(b) First-Time

Removed guidance to align with

Applicants ? Test Case Phase ? ML 2016-21 and ML 2017-08,

Test Case Underwriting Report which eliminated Pre-closing

submissions for Test Case lenders

applying on or after 5/15/17.

I.A.5.a.iii(A)(4)(a) First-Time

Guidance updated to align with

Applicants ? Approval Decision ? ML 2016-21, which bases the

Approval of Unconditional DE

timeline on the DE Program Test

Authority

Case approval letter.

I.A.5.a.v(B) Title II Direct

Added citation to Code of

Endorsement Authority ?

Federal Regulations to clarify

Sponsor/Sponsored Third-Party mortgagee responsibility.

Originator Relationship ? Standard

I.B.4.b.iii(A)(8)(b) Nonprofits and Updated guidance to reflect the

Governmental Entities ? Financial amendments to Circular A-133.

Capacity ? Required

Documentation

I.B.4.b.iii(B)(3)(a)(iii) Secondary Updated required documentation

Financing ? Required

to clarify that the nonprofit must

Documentation ? Copy of the

submit a copy of the board

Board Resolution

resolution that adopts the

complete Affordable Housing

Program Plan.

I.B.5.c.i Application and

Title change for form SAMS-

Registration Process ? Real Estate 1111-A.

Broker's Application

Page Number(s) 30 30 31 34

80-81 92

103

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Handbook Section

Handbook Changes

Page Number(s)

Section II ? Origination through Post-Closing/Endorsement

II.A.1.b.ii(A)(1)(a) General

Clarified the guidance for

131

Borrower Eligibility

individuals exempt from

Requirements ? Social Security providing Social Security

Number ? Standard

Numbers to address World Bank

and foreign embassy employees.

II.A.1.b.ii.(A)(3)(a) Borrower

Updated definition to address

132

Minimum Decision Credit Score ? application of a median score.

Definition

II.A.3.a.ii(O)(1) Water Supply Added clarifying requirement to

166

Systems ? Public Water Supply the Public Water Supply System

System

requirements.

II.A.3.a.ii(O)(2) Water Supply Systems ? Individual Water Supply Systems (Wells)

Removed language regarding treatment methods for termites.

166

II.A.3.a.ii(O)(2)(a) Individual

Added requirements for well

166-167, 168-169

Water Supply Systems (Wells) ? water testing.

Requirements for Well Water

Testing;

II.A.3.a.ii(O)(3)(a) Shared Wells ?

Requirements for Well Water

Testing

II.A.3.a.ii(O)(2)(b) Individual

Added location where a valid

168, 171

Water Supply Systems (Wells) ? water test can be obtained.

Required Documentation;

II.A.3.a.ii(O)(3)(b) Shared Wells ?

Required Documentation

II.A.3.a.ii.R Minimum Property Inserted guidance about soil

175

Requirements and Minimum

poisoning as a treatment method

Property Standards ? Termites

for termites. Guidance was

moved from the Individual

Water Supply Systems (Wells)

section.

II.A.4.a.i Underwriting with an Added language clarifying that

178

Automated Underwriting System Mortgages made to

? Use of TOTAL Mortgage

nonprofit/Governmental Entity

Scorecard

Borrowers do not need to be

scored through TOTAL

Mortgage Scorecard.

3

Handbook Section

Handbook Changes

II.A.4.b.ii(A) Credit Reports (TOTAL) ? Requirements for the Credit Report (TOTAL); II.A.5.a.ii(A)(1) Traditional Credit (Manual) ? Requirements for the Credit Report

II.A.4.c.i Income Requirements (TOTAL) ? General Income Requirements (TOTAL); II.A.5.b.i Income Requirements (Manual) ? General Income Requirements (Manual) II.A.4.c.v(A) Overtime, Bonus or Tip Income (TOTAL) ? Definition; II.A.4.c.v(B) Overtime, Bonus or Tip Income (TOTAL) ? Standard; II.A.5.b.v(A) Overtime, Bonus or Tip Income (Manual) ? Definition; II.A.5.b.v(B) Overtime, Bonus or Tip Income (Manual) ? Standard II.A.4.c.v(C) Overtime, Bonus or Tip Income (TOTAL) ? Calculation of Effective Income; II.A.5.b.v(C) Overtime, Bonus or Tip Income (Manual) ? Calculation of Effective Income II.A.4.c.ix(C) Commission Income (TOTAL) ? Required Documentation; II.A.4.c.ix(D) Commission Income (TOTAL) ? Calculation of Effective Income; II.A.5.b.ix(C) Commission Income (Manual) ? Required Documentation; II.A.5.b.ix(D) Commission Income (Manual) ? Calculation of Effective Income

Added guidance regarding credit report requirements.

Added clarification on when tax returns must be analyzed and added a link to Appendix 2.0 ? Analyzing IRS Forms.

Added clarifying language to the definition and standard to replace "and" with "or" for context.

Updated guidance regarding calculating Effective Income based upon the length of time of receipt and the trend in level of such income.

Updated guidance regarding unreimbursed business expenses to align with IRS tax laws.

Page Number(s) 183, 253 199, 274 202, 277

202, 277 204-205, 280

4

Handbook Section

Handbook Changes

II.A.4.c.xii(G)(2) Automobile Allowances (TOTAL) ? Required Documentation; II.A.4.c.xii(G)(3) Automobile Allowances (TOTAL) ? Calculation of Effective Income; II.A.5.b.xii(G)(2) Automobile Allowances (Manual) ? Required Documentation; II.A.5.b.xii(G)(3) Automobile Allowances (Manual) ? Calculation of Effective Income II.A.4.d.i(B)(2)(h) Cash to Close (TOTAL) ? Mortgagee Responsibility for Estimating Settlement Requirements ? Premium Pricing on FHA-Insured Mortgages; II.A.5.c.i(B)(2)(h) Cash to Close (Manual) ? Mortgagee Responsibility for Estimating Settlement Requirements ? Premium Pricing on FHA-Insured Mortgages II.A.4.d.iii(G)(1) Interested Party Contributions (TOTAL) ? Definition; II.A.5.c.iii(G)(1) Interested Party Contributions (Manual) ? Definition II.A.4.d.iii(G)(2) Interested Party Contributions (TOTAL) ? Standard; II.A.5.c.iii(G)(2) Interested Party Contributions (Manual) ? Standard II.A.4.d.iii(G)(3) Interested Party Contributions (TOTAL) ? Required Documentation; II.A.5.c.iii(G)(3) Interested Party Contributions (Manual) ? Required Documentation

Updated guidance regarding unreimbursed business expenses to align with IRS tax laws.

Added clarifying language to the definition for Premium Pricing to address aggregate credits and clarified the existing guidance when such credits are not included in Interested Party Contributions.

Added clarifying language to the definition of Interested Parties to address Mortgagees and ThirdParty Originators.

Added new subsection for exceptions to Interested Party Contributions to address Premium Pricing.

Added clarifying language to the required documentation section about Interested Party Contributions that are documented outside of the sales contract.

Page Number(s) 212, 288

225, 300

233, 308 234, 309 234, 309

5

Handbook Section

II.A.4.d.iii(H)(3) Inducements to Purchase (TOTAL) ? Rent Below Fair Market (TOTAL); II.A.5.c.iii(H)(3) Inducements to Purchase (Manual) ? Rent Below Fair Market (Manual) II.A.5.d.x(B) Borrower Approval or Denial (Manual) ? Documentation of Final Underwriting Review Decision

II.A.6.c.ii Required Documentation for Disbursement of Mortgage Proceeds

II.A.7.b.iii Mortgagee PreEndorsement Review Requirements ? Note (Including Any Secondary Mortgage) II.A.7.b.v Mortgagee PreEndorsement Review Requirements ? Closing Disclosure and Settlement Certification II.A.7.c Inspection and Repair Escrow Requirements for Mortgages Pending Closing or Endorsement in PresidentiallyDeclared Major Disaster Areas

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

Handbook Changes

Updated language to clarify when reduced rent is considered an inducement to purchase and clarified guidance on the calculation of such inducement.

Removed guidance to align with ML 2016-21 and ML 2017-08, which eliminated Pre-closing submissions for Test Case lenders applying on or after 5/15/17. Provided guidance on the seller's Closing Disclosure to align with industry standards when such disclosure is received separately from the Borrower's disclosure. Removed language to align with FHA's model note requirements.

Provided guidance on the seller's Closing Disclosure to align with industry standards when such disclosure is received separately from the Borrower's disclosure. Updated guidance to clarify damage inspection report requirements for individuals in Presidentially-Declared Major Disaster Areas designed for individual assistance, and provided guidance for the time period when such inspections may be performed. Removed guidance to align with ML 2016-21 and ML 2017-08, which eliminated Pre-closing submissions for Test Case lenders applying on or after 5/15/17.

Page Number(s) 235, 311 332 350 351 352 354

357

6

Handbook Section

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

II.A.7.d.vii Procedures for Endorsement ? Mortgagee with Conditional Direct Endorsement Approval (Test Case)

II.A.8.d.ii(D)(1) Refinances ? General Eligibility ? General Mortgage Eligibility ? Standard II.A.8.d.vi(C)(4)(c)(i) Net Tangible Benefit of Streamline Refinances ? Definitions II.A.8.d.vi(C)(4)(c)(ii) Net Tangible Benefit of Streamline Refinances ? Standard for Refinances without a Term Reduction; II.A.8.d.vi(C)(4)(c)(iii) Net Tangible Benefit of Streamline Refinances ? Standard for Refinances with a Term Reduction II.A.8.d.vi(C)(5)(b) Streamline Refinance Non-Credit Qualifying ? Special Documentation and Procedures for Non-Credit Qualifying Streamline Refinances II.A.8.e Refinance of Borrowers in Negative Equity Positions Program (Short Refi) [EXPIRED]

II.A.8.i.i New Construction ? Definitions; II.A.8.i.iii New Construction ? Required Documentation for Maximum Financing

Handbook Changes

Removed obsolete requirement for 10-Year Warranty; clarified existing requirement to include "all" closing disclosures or similar legal documents with Addenda to address when separate Borrower and seller disclosures are obtained. Removed guidance to align with ML 2016-21 and 2017-08, which eliminated Pre-closing submissions for Test Case lenders applying on or after 5/15/17. Removed dates associated with the "eminent domain" exclusionary language. Clarified the definition for Net Tangible Benefit and added definition for Reduction in Term. Updated to align terminology and clarify guidance to distinguish requirements for refinances with or without a term reduction.

Updated title to use consistent terminology.

Added "[EXPIRED]" in bracketed text and watermark in this section to reflect the December 31, 2016 expiration of this program. Updated definition and documentation requirements for Early Start Letter to clarify when one can be issued based upon the property jurisdiction's requirement for building permits.

7

Page Number(s) 358, 359

363 411 422-423 423-424

427 429 442; 444

Handbook Section

Handbook Changes

II.A.8.i.ii(A)(3) New Construction ? Inspections or Warranties for Maximum Financing ? Existing for Less than One Year (100 Percent Complete) II.A.8.i.vii(A)(6)(a) Individual Water Supply Systems (Wells) ? Requirements for Well Water Testing II.A.8.i.vii(A)(6)(b) Individual Water Supply Systems (Wells) ? Required Documentation II.A.8.j Construction to Permanent II.A.8.k Building on Own Land

II.D.2 General Appraiser Requirements

II.D.3.a Acceptable Appraisal Reporting Forms and Protocols ? Additional Required Documentation for Appraisals of New Construction II.D.3.c.iii(C)(7) Externalities ? Required Analysis and Reporting ? Stationary Storage Tanks II.D.3.g Utilities ? Mechanical Components

II.D.3.p.iii Utility Services ? Public Water Supply Systems

II.D.3.p.iv Utility Services ? Community Water Systems

II.D.3.p.v(B) Utility Services ? Individual Water Supply Systems ? Standard

Updated guidance to remove the building permit and appraisal requirements.

Added new language to identify parties that may perform water testing and to address handling of test samples. Added new language regarding required water well testing documentation. Updated product sheet per ML 2019-08. Updated product sheet per ML 2019-08. Clarified General Appraiser Requirements by consolidating language. Removed Appraiser language that has been moved to the general section.

Removed unnecessary language from guidance on Stationary Storage Tanks. Updated section title and added guidance for inspection while utilities are off. Added Public Water Supply Systems section and renumbered all sections that follow. Moved Community Water Systems section from II.D.3.p.v, updated Required Analysis and Reporting guidance, and renumbered all sections that follow. Removed language regarding treating termites.

Page Number(s) 443

447 448 449-452 453-454 486-487 488

496 507 515 515-516, 519-520

516

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