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SECTION 184 INDIAN HOUSING LOAN GUARANTEE PROGRAM
Processing Guidelines February 2003

TABLE OF CONTENTS

Chapter 1:
Program Overview

Chapter 2:
Tribal Legal And Administrative Framework

Chapter 3:
Lender Participation

Chapter 4:
Eligible Activities And Properties

Chapter 5:
Loan Processing And The Firm Commitment

Chapter 6:
Loan Closing And Endorsement

Chapter 7:
Administering Construction Loans

Chapter 8:
Loan Servicing

Chapter 9:
Alaska Processing Guidelines For Construction Loans

Chapter 10:
Direct Guarantee

Chapter 11:
Refinances

LIST OF
APPENDICES

LIST OF
EXHIBITS

Chapter 11: Refinances

11.1 Overview
11.2 Trust Land Refinances
11.3 Appraisals
11.4 Types Of Refinances
11.5 Overview On All Streamline Refinances


11.1

OVERVIEW

Section 184(b)(2) of the Housing and Community Development Act of 1992 has been amended to allow the refinance of one-to-four dwellings that are standard housing and located on trust land or land located in an Indian or Alaska Native area.

There is no statutory or regulatory authority to refund any portion of the Section 184 guarantee fee on an existing Section 184 guaranteed mortgage that is refinanced.

Request for case numbers under the refinance program will be handled in the same manner as other Section 184 loans. The loan amounts on refinance mortgages must be within the mortgage limits for the area (see paragraph 5.16a(2).

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11.2

TRUST LAND REFINANCES

For Section 184 refinances on trust land:

  1. The residential mortgage lease must be acceptable to the tribe, the Bureau of Indian Affairs (BIA) and HUD.
  2. The lease term on the existing residential mortgage lease must be equal-to-or greater than the term of the new Section 184 loan at the date of closing if the existing residential mortgage lease will remain in effect.
  3. A current Title Status Report (TSR) with an acceptable lease must be submitted at time of loan approval.
  4. The Lessor must provide written approval on all refinance transactions.
  5. It is the responsibility of the lender to assure:
    1. That if an existing residential mortgage lease is canceled, the Title Status Report (TSR) reflects that cancellation and that the new residential mortgage lease be properly recorded and reported on the TSR;
    2. That the satisfaction of any existing mortgage be recorded and reported on the TSR and/or county and tribe, as appropriate.
    3. That the new Section 184 mortgage instrument and rider be approved and recorded by the BIA and reflected on the TSR.

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11.3

APPRAISALS

Although we do not require the use of FHA appraisers, appraisals for property located on trust land will be performed in accordance with the requirements of HUD Handbook 4150.2, Valuation Analysis for Home Mortgage Insurance for Single Family One-to Four-Unit Dwellings, Appendix A-2, Appraisal of Single Family Homes on Native American Lands, dated April 1999.

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11.4

TYPES OF REFINANCES

Refinances under Section 184 may be processed as:

  • Credit qualifying, no cash out with an appraisal;
  • Credit qualifying, cash back with an appraisal (owner-occupant loans only);
  • Non-credit qualifying streamline with or without an appraisal; or
  • Credit qualifying streamline refinance with or without an appraisal.

All refinance loan files under the Section 184 program must contain a Verification of Existing Mortgage (VOM) or other documentation, which includes principal balance, date loan originated, names of original borrowers, and type of loan. A pay-off statement from the previous lender for the month of closing for the previous loan must be provided.

  1. Credit Qualifying, No Cash Out with an Appraisal(see Appendix 5 — Worksheet #1)
    1. The maximum mortgage is the lesser of 1) the appropriate loan-to-value (LTV) ratio (98.75% or 97.75%) applied to the appraised value; or 2) the sum of existing indebtedness, subordinate liens seasoned at least one year, closing costs for the refinance, reasonable discount points and other prepaid expenses, plus the cost of required repairs.
      • Appraised Value.If the property was acquired less than a year before the subject loan application (and is not 184 guaranteed), the LTV is also applied to the lesser of the original sales price or the current appraised value (not including closing costs) . With conclusive documentation (canceled checks and paid invoices), expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to the original sales price if the property was acquired less than a year before the subject loan application.
      • Existing Indebtedness. The term includes the interest charged by the servicing lender when the payoff is not received on the first day of the month, as is typically assessed on FHA mortgages, as well as prepayment penalties, such as on certain conventional mortgages and FHA Title I home improvement loans. It may not, however include delinquent interest, late charges or escrow shortages and does not permit a borrower to obtain "cash back" through not making the existing mortgage payment when due.
      • Subordinate Liens Less than One Year Old (loans not 184 guaranteed).Subordinate liens less than 1 year old (from the date of loan application), including equity lines of credit, may be included if the borrower provides conclusive evidence (canceled checks and paid invoices) that the proceeds were used for the repair or rehabilitation of the subject property. If any portion of a line of credit in excess of $1,000 was advanced within the past 12 months and was for the purposes other than repairs and rehab of the subject property, the line of credit is not eligible for inclusion in the new mortgage.
    2. No cash back to the borrower is permitted except for minor adjustments at closing not exceeding $250.
    3. The Section 184 guarantee fee for the subject refinance is in addition to the maximum mortgage amount and is 100% financeable.
    4. A subordinate lien may remain in place if the subordinate lien meets Section 184 requirements for secondary financing. Refer to Chapter 5, paragraph 5.9d (4)(5). Lenders should obtain a copy of the original HUD-1 to determine if buydown or closing cost/down payment assistance was provided. Tribal approval must be obtained when tribal or NAHASDA funds were used.
    5. A current homeowner may refinance an existing mortgage and rehabilitate the subject property with a credit qualifying refinance with an appraisal. The appraisal will reflect the value of the property after the rehabilitation is completed. The lender must comply with outstanding instructions for Section 184 rehabilitation/construction loans. Refer to Chapter 5.22d and Chapter 7. Any funds remaining in the escrow account after the rehabilitation is completed must be applied to the outstanding principal balance.
    6. All credit-qualifying refinances under Section 184 require full credit, appraisal and land documents equivalent to a finance purchase processed under Section 184.
  2. Credit Qualifying, Cash Back with an Appraisal(see Appendix 5 — Worksheet #2). This type of refinance is only for owner-occupant Section 184 loans, not Tribal or TDHE/IHA loans.
    1. The maximum mortgage is limited to 85% of the sum of the appraised value plus actual borrower paid closing costs, provided the property has been owned for at least one year.
    2. If the property was acquired less than one year before the subject loan application, the maximum mortgage is based on 85% of the lesser of the current appraised value or the original sales price, plus closing costs for the refinance.
    3. Lenders should obtain a copy of the original HUD-1 to determine if buydown or closing cost/down payment assistance was provided. Tribal approval must be obtained for cash-out refinances when tribal or NAHASDA funds were used.
    4. Closing costs do not include discount points or prepaid expenses.
    5. Temporary interest rate buydowns may not be used for a cash back refinance.
    6. The Section 184 loan guarantee fee for the subject refinance is in addition to the maximum mortgage amount and is 100% financeable.
    7. All cash back refinances must be credit qualified by HUD and are not eligible for Direct Guarantee processing. The last 12 mortgage payments (all mortgage payments if the property has been owned less than a year at the time of application) including subordinate liens must have been paid on time.
    8. All subordinate liens must be paid in the cash back refinance or otherwise satisfied and released.
    9. The credit package must include a statement from the borrower as to the purpose of the cash back refinance. All payments to third party creditors must be paid at closing.
    10. Debt Consolidation.Cash back refinances for debt consolidation represent considerable risk especially if the borrowers have not received an increase in income since the original mortgage was originated. These transactions will be carefully evaluated as to:
      • Type of debts being refinanced;
      • Age and payment history of debts being refinanced;
      • Subject property value; and
      • Income stability.

      The credit history of borrowers refinancing with a debt consolidation refinance cannot include the following:

      • Payments more than 30 days late in the past 12 months;
      • Paid late charges in the past 12 months; and
      • Any history of bankruptcy, judgments and collections except for documented extenuating circumstances beyond the control of the borrower(s).
  3. Non-Credit Qualifying Streamline Refinance with an Appraisal(see Appendix 5 — Worksheet #3). Streamline refinances are limited to existing Section 184 loans only.
    1. The maximum mortgage is based on the lesser of 1) the appropriate LTV (98.75% or 97.75%) of the appraised value (not including closing costs); or 2) the sum of the existing indebtedness (including interest charged to the end of the month when the existing loan is not paid-off on the first of the month) plus closing costs, prepaid expenses and reasonable discount points for the refinance.
    2. The new mortgage may not exceed the sum of the existing 184 lien, the subject closing costs, prepaid expenses and reasonable discount points.
    3. If the new loan is greater than the original principal balance, the lender must document a satisfactory pay history on the current mortgage (payments all made in the month due) and a satisfactory credit history.
    4. The Section 184 loan guarantee fee for the subject refinance is in addition to the maximum mortgage amount and is 100% financeable.
  4. Non-Credit Qualifying Streamline Refinance Without an Appraisal(see Appendix 5 — Worksheet #4). Streamline refinances are limited to existing Section 184 loans only.
    1. The maximum mortgage is based on the lesser of 1) original principal balance (from the HUD-1 or the note for the original loan); or 2) the sum of the existing indebtedness (including interest charged to the end of the month when the existing loan is not paid off on the first of the month) plus closing costs, prepaid expenses and reasonable discount points.
    2. The Section 184 loan guarantee fee for the subject refinance is in addition to the maximum mortgage amount and is 100% financeable.
  5. Credit Qualifying Streamline Refinance(see Appendix 5 — Worksheets#3 and #4 for Non Qualifying Streamline Refinances). Streamline refinances are limited to existing Section 184 loans only. A credit qualifying streamline refinance may be processed with or without an appraisal, as appropriate.
    1. The maximum mortgage calculation is the same as for a non credit qualifying streamline refinance, with or without an appraisal.
    2. A credit qualifying streamline refinance may be used:
      • When a reduction in the mortgage term will result in an increase (over $50) in the payment to principal and interest;
      • If a borrower will be deleted from or added to the title. The deletion or addition of a borrower on a leasehold mortgage must comply with all tribal and federal leasing requirements for the deletion or addition of another party; or
      • Following an assumption of a mortgage that did not trigger a due-on-sale clause such as a divorce where the property transfer results from the divorce decree or by devise or descent and the assumption occurred less than six months previously.
    3. The credit processing includes verification of the payment record on the existing 184 mortgage; verification of income (adequacy and stability); a credit report; CAIVRS; and computation of the total debt-to-income ratio on the MCAW.

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11.5

OVERVIEW ON ALL STREAMLINE REFINANCES

The purpose of a streamline refinance is generally to lower the borrower’s monthly payment to principal and interest or to reduce the term of the mortgage.

  1. Streamline refinances are limited to existing Section 184 guaranteed loans. The lender must provide verification in the submission file (the guarantee file if the refinance is processed under Direct Guarantee) that the existing mortgage is guaranteed under Section 184.
  2. Cash back to the borrower at closing is not permitted except for minor adjustments at closing, not exceeding $250.
  3. CAIVRS need not be checked if the refinance is processed as a non-credit qualifying streamline.
  4. Social security numbers must be verified on all borrowers (see paragraph 5.23c(12).
  5. Trust land documentation, as required, must be included in the file (see Paragraph 11-2).
  6. Mortgage credit underwriting is not required for non-credit qualifying streamline refinances. For non-credit qualifying streamline refinances, an abbreviated URLA omitting Sections IV, V, VI and Sections 1-k of VII may be submitted. The Mortgage Credit Analysis Worksheet (MCAW) must be submitted although the sections related to income, assets and debts and other obligations need not be completed.
  7. Appraisal and Credit Report Fees. If the lender is required by law, banking regulation or its investors to obtain an appraisal on a mortgage that will be processed as if no appraisal was made, the fees may be paid by the borrower out-of-pocket but not financed. It is the responsibility of the lender to explain this to the borrower(s).
  8. Delinquent Mortgages. Delinquent mortgages are not eligible for streamline refinancing until the loan is brought current. The lender must verify and document the payment record on the existing mortgage. However, if the mortgage is delinquent by no more than 2 monthly payments at the time of the subject application, the refinancing lender may bring the borrower’s mortgage current provided the borrower does not have to repay the funds used to bring the mortgage current.
  9. Cash-to-Close. Borrowers are not required to provide evidence of cash-to-close on a streamline refinance.
  10. Mortgage Term. An existing 30-year mortgage may be refinanced to a shorter term provided that the new monthly payment to principal and interest increases no more than $50 (unless credit qualifying).
  11. No-Cost Refinances and Premium Pricing. The lender may charge a premium interest rate to defray the cost of the borrower’s closing costs and/or prepaid expenses at closing. The lender may offer an interest-free advance of amounts equal to the borrower’s escrow accounts on the existing mortgage.
  12. Subordinate Financing. Subordinate financing may remain in place on streamline refinances without regard to the total indebtedness against the property on streamline with or without appraisals. The borrower is not required to satisfy any outstanding subordinate liens as long as they will clearly be subordinated to the new 184-guaranted mortgage.
  13. Proceeding as if no appraisal was completed. If the appraised value is such that it is beneficial to the borrower to proceed as if there was no appraisal, the appraisal may be voided and the file documented in the "remarks" section of the MCAW.
  14. Repairs. Cost of repairs may not be financed with a streamline refinance. HUD does not require repairs on streamline refinances except for lead based paint repairs. The lender may require repairs but the cost may not be financed in the streamline refinance.

U.S. Department of
Housing and Urban Development

1999 Broadway, Suite 3390
Denver, CO 80202

1-800-561-5913
(303) 675-1600

Website:
Section 184 Home

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Chapter 10

Appendices