Special Attention of: Transmittal: All FHA Approved ...

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

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

Special Attention of: All FHA Approved Lenders and Mortgagees All Direct Endorsement Underwriters All FHA Roster Appraisers All FHA Approved 203(k) Consultants All HUD Approved Housing Counselors

Transmittal: Handbook 4000.1 Issued: March 18, 2015

Effective Date: June 15, 2015

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

Doing Business with FHA - Lenders and Mortgagees Doing Business with FHA - Other Participants - Appraiser Origination through Post-Closing/Endorsement for Title II Forward Mortgages Origination through Post-Closing/Endorsement for Title II Forward Mortgages - 203(k)

Rehabilitation Mortgage Insurance Program Origination through Post-Closing/Endorsement for Title II Forward Mortgages - 203(k)

Consultant Requirements Origination through Post-Closing/Endorsement - Appraiser and Property Requirements

for Title II Forward and Reverse Mortgages Quality Control, Oversight and Compliance - Lenders and Mortgagees Quality Control, Oversight and Compliance - Other Participants - Appraiser

2. Explanation of materials transmitted:

This FHA Single Family Policy Handbook (Handbook 4000.1) is being published to provide updates to the content initially published September 30, 2014 and incorporate several additional sections.

Below is a list of those updates being made to the September 30, 2014 publication of Origination through Post-Closing/Endorsement for Title II Forward Mortgages section of Handbook 4000.1.

Handbook Changes

Updated Table of Contents to reflect the following changes: - Switched the titles for headings II and A - Moved 203(k) consultant requirements to heading 9 under A

Changed `Interested Third Parties' to `Interested Parties' in `Handling of Documents', to distinguish Mortgagees from other Interested Third Parties Changed `interviewer' to `loan originator' in Section `URLA and HUD/VA Addendum to the URLA' to be consistent with referenced form Updated `Borrower Authorization for Verification Information' to clarify the Mortgagee must obtain the non-borrowing spouse's consent to verify their SSN with the Social Security Administration and remove requirement for non-borrowing spouse to sign Part IV of form HUD-92900-A

Page Number

66 72 73

Handbook Changes

Deleted Section `Disclosure Regarding Interest Due Upon Prepayment' because the post settlement interest rule eliminated this section of the Regulation for mortgages closed after January 21, 2015 Updated `Lead-Based Paint' with specific guidance from the HUD-EPA Lead Disclosure Rule Clarified `Appraiser Independence' Reorganized Section `Borrower Minimum Decision Credit Score' into more logical order and to address the result of a single score Clarified that in community property states, the Borrower's spouse is not required to be a Borrower or a Cosigner in Section `Borrower and Co-Borrower Ownership and Obligation Requirements' In `Military Personnel Eligibility' added `if a Family Member will not occupy the subject Property as their Principal Residence' to requirement to document Borrower's intent to occupy the subject Property upon discharge from military service, to be consistent with the Standard Changed `Loan Officer' to `Loan Originator' in `Other Parties to the Transaction', to be consistent with terminology usage Clarified language in `Investment Property' Edited `Restrictions on Property Flipping' due to discontinuance of Property Flipping waiver, and reorganized section to be consistent with the regulation Clarified Mixed Use of Property requires a minimum of 51 percent of the entire building square footage for residential use Replaced `vacancy and maintenance factor used by the Jurisdictional HOC' with `fair market rent' in `Calculation' Section of `Self-Sufficiency Rental Income Eligibility, to be consistent with the calculation of Rental Income Removed requirement to obtain a completed form HUD-92561 from `Condominium Unit', to be consistent with the purpose of this form Added guidance to `Legal Restrictions of Conveyance (Free Assumability)', to address the impact of leased equipment Incorporated changes from Mortgagee Letter 14-25 to Section `Nationwide Mortgage Limits' Clarified guidance in Section `Loan-to-Value Limits', to identify the credit score restriction to all programs Clarified guidance in Section `Mortgage Insurance Premiums' In `Annual (or Periodic) Mortgage Insurance Premiums,' clarified the amount of the annual MIP is based on the LTV ratio, Base Loan Amount and the term of the Mortgage Added guidance to Section ` Minimum Property Requirements and Minimum Property Standards' which was originally incorporated in the Appraiser draft guidance Inserted new Section `Leased Equipment', to address guidance on property valuation Inserted new Section `Conditional Commitment Direct Endorsement Statement of Appraised Value' Clarified data submitted to TOTAL Mortgage Scorecard through an approved AUS vendor in a data format acceptable to the AUS Vendor in Section `Requirements for the Submission of Data through TOTAL Mortgage Scorecard Revised language in `New Versions of TOTAL Mortgage Scorecard' for clarity Removed `only the non-occupying co-Borrower has a credit score' from `Accept Risk Classifications Requiring a Downgrade to Manual Underwriting (TOTAL)' as TOTAL scorecard is programmed with this requirement Added guidance to `General Credit Review Requirements (TOTAL)' in conjunction with the guidance added to address the Mortgagees responsibility to verify a non-borrowing spouse's SSN Changed Section title and guidance from `Updated Credit Report (TOTAL)' to `New Credit Report (TOTAL)' Added definition for Short Sales Added guidance on payments for General Liabilities and Debt Clarified guidance for Business Debt in Borrower's Name Changed re-verification of employment requirement from within 10 days of Disbursement to within 10 days of the date of the Note to provide greater flexibility in the closing process. Added IRS Form 4506-T, Request for Transcript of Tax Return to Past Employment Documentation, consistent with the use of this form.

Page Number

N/A 77 83 89

89

90

96 99 102

104

106

N/A

109 112 114 117 118

119 127 128

129

131

132

133

134 137, 210 139, 211 147, 216 149, 222

149, 222

Handbook 4000.1 Transmittal

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Issued: March 18, 2015

Effective: June 15, 2015

Handbook Changes

Clarified `Required Documentation' for Disability Benefits Clarified `Required Documentation' for Other Public Assistance Added the Standard for Expected income (TOTAL ) to match the requirement in Manual Underwriting Removed `gift funds' from list of non-eligible reserves (TOTAL), to be consistent with TOTAL scorecard's handling of gift funds Changed heading from `Additional Reserves for Three- to Four-Unit Properties' to `Required Reserves for Three- to Four-Unit Properties' Clarified guidance for Governmental Entities in `Source Requirements for the Borrower's Minimum Required Investment' is when acting in their governmental capacity, to provide direction consistent with HUD's interpretive rule Removed Section `Reserves' from Gifts (Personal and Equity) (TOTAL) Added guidance to Section `Documenting the Transfer of Gifts' to address donor's ability to borrow the gift funds from the Mortgagee or affiliate Edited Section `Interested Party Contributions (TOTAL) to read `Interested Parties may contribute up to 6 percent of the sales price...' to eliminate circular logic in the calculation of the Adjusted Value Clarified that Instrumentalities of Government do not have 501(c)(3) status for the purpose of secondary financing Expanded definition of HUD-approved Nonprofit in `Secondary Financing Provided by HUD-Approved Nonprofits (TOTAL) to address all roles of Nonprofits Clarified that the underwriter's approval date of the Property is indicated as Action Date of form HUD92800.5B Added clarification to Section `Non-Traditional Mortgage Credit Report' to identify insufficient trade lines to generate a credit score Added "a documented 12-month history of payment by the Borrower on an account for which the Borrower is an authorized user" as an acceptable credit reference Added clarification to Disputed Derogatory Credit Accounts (Manual) Removed Section `Calculation' from Revolving Charge Accounts (Manual) as the calculation is included in the standard Inserted clarification to required pay stubs in `Traditional Current Employment Documentation' for consistency with Alternative Current Employment Documentation Deleted `The mortgagee must verify and document all assets submitted to the AUS.' from Section `Reserves (Manual)' as this requirement is inconsistent with the Manual underwriting section. Added new Section `Reserves for One- to Two-Unit Properties' as this requirement was inadvertently omitted from the previous publication Added new Section `Per Diem Interest and Interest Credits' to provide additional guidance Reorganized Section `Mortgage and Note' Clarified guidance in `Procedures for Endorsement' Removed Maximum Mortgage Worksheet (HUD-92700) from `Uniform Case Binder Stacking Order' consistent with the updated Section 203(k) guidance which has removed this form requirement Added Refinance Authorization Screen Printout to `Uniform Case Binder Stacking Order' Clarified Application Deadline for `Disasters and 203(h) Mortgage Insurance for Disaster Victims' Clarified the maximum Loan-to-Value ratio limit is 100 percent of the Adjusted Value for `Disasters and 203(h) Mortgage Insurance for Disaster Victims' to be consistent with the use of this term Added `General Mortgage Eligibility' to Refinances to incorporate restrictions contained in the FY 2015 Appropriations Act Added `LTV Limitations Base on Borrower's Credit Score' to Non-Credit Qualifying and Credit Qualifying Streamline Refinance Exemptions to address this exemption Clarified which Non-Credit Qualifying Exemptions refer to the Manual Section Clarified `Reduction in Term' in Section `Net Tangible Benefit of Streamline Refinances' to clearly identify the payment calculation applicable to the increase in payment Added guidance to Section `Appraisal and Inspection Requirements on Streamline Refinances' to clearly identify the receipt of an appraisal does not disqualify the use of a streamline refinance

Page Number 157, 230 161, 234

169 175

175

176, 249

180 181, 255

182, 255

185, 259

187, 260

199, 279

202

204 207 215

221

248

248 293 294 301 302 304 346 346

357

366 366 369

372

Handbook 4000.1 Transmittal

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Issued: March 18, 2015

Effective: June 15, 2015

Handbook Changes

Incorporated changes from Mortgagee Letter 14-23 to Section `Refinance of Borrowers in Negative Equity Positions Program (Short Refi)' Updated `Lease and Mortgage' in Section 248 Mortgages on Indian Land Deleted Residential Lease from Section 248 Mortgages on Indian Land and moved the form to FHA's Model Documents page Deleted Rider for Section 248 Mortgage from Section 248 Mortgages on Indian Land and moved the form to FHA's Model Documents page Clarified Wood Infestation Report for `Required Documentation for Maximum Financing' in New Construction to provide a clear list of areas where termite treatment is not required Added `Environmental' to `Site Considerations' in New Construction to address guidance originally included in the Appraiser draft section Changed heading from `Individual Well' to `Individual Water Supply Systems (Wells)' in New Construction Updated guidance in `Individual Water Supply Systems (Wells)' in New Construction to provide guidance originally included in the Appraiser draft section Added guidance to `Calculating Maximum Mortgage Amount' in Construction to Permanent to address the Builder's Price to build for Manufactured Housing Added guidance to `Maximum Mortgage Amount' in Building on Own Land to address the Builder's Price to build for Manufactured Housing Clarified `Maximum Mortgage Amount Calculation' in Weatherization Corrected references to `solar or wind energy systems' to `weatherization improvements' to update terminology usage Clarified installation of solar and wind energy systems must be completed within 120 Days of the Mortgage Disbursement Added guidance to `Exception to Minimum Required Investment' in Assumptions to address the LTV restrictions by occupancy Updated MIP column under `Mortgage Term of More Than 15 Years' in Appendix 1.0 to incorporate changes made by ML 15-01 Added row in Base Loan Amount Greater than $625,000 in `Mortgage Term of Less than or Equal to 15 Years' in Appendix 1.0 to incorporate ML 15-01 guidance Updated various hyperlinks that were broken or incorrect and inserted various internal hyperlinks Indicated all glossary terms by capitalizing first letter of each word Adjusted heading levels to maintain consistent formatting Changed `case assignment' to `case number assignment' throughout Updated `Case Cancellation Request Form' to `Case Cancellation Request Template' throughout Differentiated between Third Party Originator (TPO) and Sponsored TPO throughout Corrected various grammatical, punctuation and word errors and typos

Page Number

374 381 N/A

N/A

389

391 392 392

394

397 400 400

404

406

535

535

The following new sections are being added to Handbook 4000.1:

Doing Business with FHA - Lenders and Mortgagees Doing Business with FHA - Other Participants - Appraiser Origination through Post-Closing/Endorsement for Title II Forward Mortgages - 203(k)

Rehabilitation Mortgage Insurance Program Origination through Post-Closing/Endorsement for Title II Forward Mortgages - 203(k)

Consultant Requirements Origination through Post-Closing/Endorsement - Appraiser and Property Requirements

for Title II Forward and Reverse Mortgages Quality Control, Oversight and Compliance - Lenders and Mortgagees Quality Control, Oversight and Compliance - Other Participants - Appraiser

Handbook 4000.1 Transmittal

4

Issued: March 18, 2015

Effective: June 15, 2015

3. Implementation: The following sections are effective on June 15, 2015, except as otherwise noted below:

Doing Business with FHA - Lenders and Mortgagees Doing Business with FHA - Other Participants - Appraiser Quality Control, Oversight and Compliance - Lenders and Mortgagees (Except for

Section V.A.3.c.i ? Origination and Underwriting Loan File Compliance Review ? Minimum Requirements which is effective for case numbers assigned on or after June 15, 2015)

All other sections referenced in section one (1) of this Transmittal are effective for case numbers assigned on or after June 15, 2015.

4. Superseded Policy

This Handbook 4000.1, along with the applicable statutes and regulations, contain all FHA requirements pertaining to Doing Business with FHA for Lenders, Mortgagees and Appraisers; Origination through Post-Closing/Endorsement for Title II Insured Housing Programs Forward Mortgages, 203(k) Consultant Requirements, Appraiser and Property Requirements for Title II Forward and Reverse Mortgages; and Quality Control, Oversight and Compliance for Lenders, Mortgagees and Appraisers. Below is a list of Handbooks, Mortgagee Letters and Housing Notices containing content related to these sections of Handbook 4000.1 that are hereby superseded in their entirety and are cancelled. Also, below is a list of Handbooks, Mortgagee Letters and Housing Notices containing content related to these sections of Handbook 4000.1 that are hereby superseded in part; the partially superseded Handbooks, Housing Notices and Mortgagee Letters remain in effect to the extent not hereby superseded. All previously superseded or cancelled Handbooks, Mortgagee Letters or Housing Notices remain cancelled or superseded, but will continue to remain available for informational purposes only on HUD's website along with the items listed below.

Handbooks Superseded in Whole Requirements for Existing Housing One to Four Family Units Miscellaneous Type Home Mortgage Insurance, Sec. 223(a), (e), and (d) 203K, Rehabilitation Home Mortgage Insurance Application Through Insurance (Single Family) Section 203(n) The Graduated Payment Mortgage Program Mortgage Credit Analysis for Mortgage Insurance on One to Four Unit Mortgage Loans Valuation Analysis for Single Family One to Four Unit Dwellings Valuation Analysis for Home Mortgage Insurance Mortgagee Review Board FHA Title II Mortgagee Approval Handbook

Number 4905.1 4260.1 4240.4 4240.3 4240.2 4155.1 4150.2 4150.1 4060.2 4060.1

Handbook 4000.1 Transmittal

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Issued: March 18, 2015

Effective: June 15, 2015

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