www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

August 24, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 93-26
     TO:  ALL APPROVED MORTGAGEES
     SUBJECT:  Single Family Loan Production - Implementation of Section
                 101 of the Energy Policy Act of 1992
 
          The purpose of this Mortgagee Letter is to provide guidance with
     regard to Section 109 of the Cranston-Gonzalez Affordable Housing Act
     as amended by Section 101(c) of the Energy Policy Act of 1992 (Act).
 
          Under Section 109, for a newly constructed one to four family
     structure (other than a manufactured home) to be eligible for HUD
     insured mortgage financing on or after October 24, 1993, it must have
     been constructed to comply with or exceed the energy conservation
     standards of the Council of American Building Officials (CABO) 1992
     Model Energy Code (MEC).
 
          Accordingly, a single family dwelling whose start of construction
     is on or after October 24, 1993, must be built in accordance with the
     CABO 1992 MEC to be eligible for HUD insured financing.  (Start of
     construction is deemed to commence when there is placement of
     permanent construction on the site.)  However, in order to not disrupt
     home builder ongoing operations, HUD will insure mortgages on
     properties where construction starts on or after October 24, 1993 and
     the home is not built to the CABO 1992 MEC if:
 
          1.  A Form HUD 92800.5B (Direct Endorsement Statement of
     Appraised Value) or a Direct Endorsement Master Appraisal, is issued
     prior to October 24, 1993 and construction of the property begins
     within six months of the date of issuance of the Form HUD 92800.5B or
     Master Appraisal, or
 
          2.  The Department of Veterans Affairs issues a Certificate of
     Reasonable Value (VA/CRV) or Master Certificate of Reasonable Value
     (VA/MCRV) before October 24, 1993 and construction of the property
     begins within six months of the date of issuance of the VA CRV/MCRV.
 
_____________________________________________________________________
 
                                   2
 
     If the start of construction for a property is on or after October
24, 1993 and it does not meet the CABO 1992 MEC or the two exceptions
explained above, then it will not be eligible for insured financing until
one year after the "completion of construction."
 
     Recognizing the energy savings that will accrue to mortgagors who
purchase the new houses which comply with the CABO 1992 MEC requirements,
the Department will permit the use of two percent "stretch" ratios for
qualifying prospective mortgagors.  The new qualifying stretch ratios will
be 31/43 percent instead of the standard 29/41 percent ratios.  Stretch
ratios may also be used on subsequent sales of a property constructed
according to the CABO 1992 MEC, provided that the lender obtains adequate
documentation showing that the property was originally constructed
according to this standard.
 
     For a property that must meet the CABO 1992 MEC, the builder will now
have to certify that the property complies with the CABO 1992 MEC, whether
or not stretch ratios are used.  The Form HUD-92541, Builder Certification,
is being reprinted to include this certification.  Until the new Builder
Certification form becomes widely available, the builder may just submit
to the lender a written certification that the house complies with the CABO
1992 MEC.
 
     For properties that are newly built or under construction and
presently meet the CABO 1992 MEC, the Department is revising its
instructions, effective immediately, to also permit the use of the two
percent stretch borrower qualifying ratios.  The builder must certify that
the house meets the CABO 1992 MEC.  Properties on which construction was
commenced prior to October 24, 1993, that do not meet CABO 1992 MEC, will
not be eligible for stretch ratios unless the property complies with the
requirements of Mortgagee Letter 89-25, dated October 20, 1989.
 
     The Department plans on publishing a final rule on this matter in the
near future.  However, if the rule is not published and effective by
October 24, 1993, the requirements stated above will be effective on
October 24, 1993, because the Act establishes the CABO 1992 MEC as the
minimum requirement in the absence of a rule.
 
     Questions concerning this Mortgagee Letter should be directed to your
local HUD Office.
 
Sincerely yours,
 

 
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
 
                                         *U.S. G.P.O.:1993-342-362:80176