SECTION II: LOAN PROCESSING

5.14

REQUESTING A CASE NUMBER

1. Timing. The lender will request the Section 184 case number after the completion of the loan application by the Indian family, IHA/TDHE or tribal borrower. If Loan Guarantee Funds are available, and there is an acceptable legal framework as noted in Chapter 2, a case number will be assigned and Loan Guarantee funds, in the amount of the proposed mortgage, will be reserved. This request must be completed prior to the lender ordering the credit report(s) or appraisal so that the borrower is not subject to any expenses, in the event Guarantee funds are not available. If funds are not available, the loan cannot be processed under Section 184.
2. Submission Information. Lenders may utilize the sample Request for Case Number form in Appendix 3 or may use their own form, as long as the following information is provided:
1. The lender’s name.
2. The lender’s ten digit, federal tax identification number.
3. The name of a contact person at the lender’s office in the event there is any questions concerning the request.
4. The contact person’s telephone number/fax number.
5. An indication as to the type of loan (i.e. an acquisition, rehabilitation of an existing home, both acquisition and rehabilitation of an existing home refinance or the construction of a new home).
6. The mortgagor’s name (whether it is an Indian family, IHA/TDHE or tribe).
7. Name of the tribe with jurisdiction over the subject property.
8. The property address. This would be the street address or legal description.
9. Proposed Mortgage Amount. Since the lender has not begun full processing of the loan at this stage, this should be the lender’s best estimate.
10. Land Status. The lender will provide information as to the status of the land as either tribal trust land, fee simple land or allotted/individual trust land.
11. The lender will indicate if the tribe has a tribal court system.

    The information above is sent to the Program ONAP office in any of the following manners:

    1. Sent via facsimile to: (303) 675-1671; or
    2. It may be mailed to the address noted in Appendix 1.

    After the Program ONAP’s review, the form will be returned to the lender via facsimile. The lender will either receive a case number, which authorizes the lender to proceed, or the lender will be informed that the information is unacceptable or funding is unavailable. Under the latter, the lender cannot proceed with processing this loan under the Section 184 program.

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5.15

LOAN PARAMETERS

Lenders are given considerable discretion in setting loan conditions and terms, subject to the requirements established below and elsewhere in this guidebook. This section highlights key mortgage criteria under the Section 184 Program.

1. Loan Term. Loans may have a term of no longer than 30 years and must be fully amortized (balloon mortgages are not permitted). The determination of term for individual properties will be based upon the interests of both the lender and the borrower.
2. Interest Rates. Lenders will set interest rates for guaranteed mortgages commensurate with the nature of the loan, the level of risk, and other customary factors. The Department will not process loans where rates are inflated beyond reasonable and normal market levels for loans not guaranteed or insured by any agency or instrumentality of the federal government.

Interest rates on Section 184 loans covering construction must remain fixed throughout the term of the loan. Since this loan is fully guaranteed, the interest rate should reflect current market rates for permanent, rather than construction financing.

While lenders and borrowers are given flexibility to select loan types that meet individual needs, the Section 184 program prohibits the use of adjustable rate mortgages.

3. Amount. The mortgage amount requested for the Section 184 firm commitment may be no greater than the maximum mortgage calculated under Paragraph 5.16 of this guidance and must be within the borrower’s ability to pay (see Paragraph 5.8 for this criteria). The mortgage is rounded down to the nearest dollar if necessary.
4. Payment Factors. Lenders may use a six-digit factor for the monthly principal and interest payment. A tolerance of four cents per thousand is permitted.
5. Mortgage Credit Analysis Worksheet. The worksheet at Appendix 4 (form HUD-53036) has been provided to assist with the determination of mortgage amount.

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5.16

MAXIMUM MORTGAGE AMOUNT

1. Mortgage Caps. Mortgages are set based upon established loan-to-value criteria and the borrower’s ability to pay. However all Section 184 loans are capped by two criteria:
1. No mortgage may exceed 97.75 percent of the appraised value of the property excluding closing costs (or 98.75 percent if the appraised value is $50,000 or less).
2. All mortgages are capped at 150 percent of the FHA loan limits for the area. This is the Section 184 mortgage limit. Loan limits are available from the ONAP and are also published periodically in the Federal Register and on the Internet at: www.hud.gov.
2. Acquisition Cost. The acquisition cost is the documented sales price of the property (or the contractor’s price to build as stated in the written cost estimate) plus the allowable closing costs paid by the borrower and other specific items that may be needed to close (see Paragraph 5.17).

In addition to the Section 184 mortgage limit and the loan-to-value ratio based on the appraised value of a property, the maximum guaranteed mortgage offered on any property is calculated by applying the loan-to-value limitation to the acquisition cost.

1. 97.75 percent of the acquisition cost as of the date it is accepted for guarantee (the date of closing); or
2. 98.75 percent of the acquisition cost if the acquisition cost is $50,000 or less as of the date it is accepted for guarantee (the date of closing).
3. Determining Maximum Mortgage Amount. Lenders should calculate the maximum mortgage amount as follows:
1. Calculate 150% of the area’s FHA mortgage limit;
2. Calculate 97.75% of the appraised value excluding closing costs (or 98.75% if the appraised value excluding closing costs is $50,000 or less) (*see d. below for definition of appraised value when rehabilitation is involved);
3. Calculate 97.75% of the acquisition cost (or 98.75% if the acquisition cost is $50,000 or less);
4. Compare the amounts calculated under steps 1, 2 and 3. The lowest amount is the maximum allowable mortgage.

Note that the loan guarantee fee, which is added to the mortgage amount, does not affect calculation of the maximum allowable mortgage (paragraph 5.20a).

Examples of the maximum mortgage calculation are found in Exhibit 5-3 for properties with an appraised value or sales price more than $50,000 and in Exhibit 5-4 for properties less than $50,000. In addition, refer to the Mortgage Credit Analysis Worksheet found at Appendix 4.

Exhibit 5-3: Determining the Maximum Mortgage Amount
for Properties Over $50,000

Appraised Value: $120,000 Sales Price or Construction Cost: 110,000 Allowable Closing Costs: 4,000 FHA Mortgage Limit: 95,000
1. Section 184 mortgage limit:		$95,000 x 150% = $142,500
2. Loan-to-value cap based on appraised value:		$120,000 x 97.75% = $117,300
3. Loan-to-value cap based on acquisition cost:
	Sales price/construction cost plus closing cost:	$110,000 + $4,000 = $114,000
	Acquisition cost:	$114,000
Loan-to-value ratio based on acquisition cost:		$114,000 x 97.75% = $111,435
Maximum mortgage amount (lowest of 1, 2, or 3): (without the guarantee fee)		$111,435

Exhibit 5-4: Determining the Maximum Mortgage Amount
for Properties Under $50,000

Appraised Value: $45,000 Sales Price or Construction Cost: 46,250 Allowable Closing Costs: 3,000 FHA Mortgage Limit: 95,000
1. Section 184 mortgage limit:		$95,000 x 150% = $142,500
2. Loan-to-value cap based on appraised value:		$45,000 x 98.75% = $44,437
3. Loan-to-value cap based on acquisition cost:
	Sales price/construction cost plus closing cost:	$46,250 + $3,000 = $49,250
	Acquisition cost:	$49,250
Loan-to-value ratio based on acquisition cost:		$49,250 x 98.75% = $48,634
Maximum mortgage amount (lowest of 1, 2, or 3): (without the guarantee fee)		$44,437

4. Definition of Appraised Value on Purchase and Rehabilitation Loans. Lenders must notify the appraiser at the time the appraisal is requested, of the rehabilitation work, which the purchaser intends to complete and provide applicable contracts, exhibits and plans and specifications. The appraiser must supply a final appraised value based upon the completion of the rehabilitation work. See paragraph 7.4 for additional information.

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5.17

CLOSING COSTS

1. General. All closing costs assessed to the homebuyer must comply with the Real Estate Settlement Procedures Act (RESPA; 24 CFR Part 3500.) All fees charged must be for services that are actually performed and must bear a reasonable relationship to the service provided. Section 184 borrowers must not be charged underwriting fees, processing fees, application fees and tax service fees. Courier fees may be charged only if needed by the borrower and the borrower agrees (in writing, prior to closing) to pay the fee.
2. Financed Closing Costs. When calculating the acquisition cost, lenders may add allowable closing costs to the sales price or contractor’s price as stated in the written cost estimate. Those closing costs that may be added to the sales price or the contractor’s written price estimate when calculating the acquisition cost are those to be paid by the borrower and must be typical, reasonable and customary for the area (as determined by HUD) and may include:
1. The appraisal fee and any inspection fees. (For single close loans the inspections fees are included on the Maximum Mortgage Calculation Worksheet as part of the total cost to construct.)
2. Actual cost of credit reports.
3. Deposit verification fees.
4. Borrower home inspection fees (up to $300).
5. Cost of title examination and title insurance (where applicable).
6. Document preparation (if performed by a third party not controlled by the lender).
7. Property survey.
8. Attorney’s fees (if the attorney is not an employee of the mortgagee).
9. Recording fees.
10. Test and certification fees (such as water or environmental tests).
11. Settlement fees (if the closing agent is not an employee of the mortgagee and if the settlement agent is an independent company or a subsidiary that regularly closes loans for several different mortgagees).
12. Loan origination fee not to exceed one percent of the mortgage amount before the guarantee fee (base loan amount). The loan origination fee may total up to 2.5 percent of the base loan amount when the loan involves construction draws on single close new construction or rehabilitation loans.

    HUD’s definition of closing costs does not include discount points and prepaids (hazard insurance/taxes). Discount points and prepaids paid by the borrower are included as part of the borrower’s cash needed to close.

3. Loan Guarantee Fee.The 1% loan guarantee fee is 100% financeable but is not included in the costs listed under Paragraph 5.17(b). (See paragraph 5.20a.) This amount may be added directly onto the mortgage amount.
4. Lender Paid Closing Costs. Lenders may pay the borrower’s closing costs (and prepaid items) by charging a premium price that may include additional discount points paid by the borrower or the seller. The seller may pay the borrower’s closing costs (and prepaid items).

Closing costs paid in this manner can not be added to the sales price or contractor’s written price estimate when calculating the acquisition cost and the maximum mortgage amount, but must be disclosed on the HUD-1 Settlement Statement. The amount paid on the borrower’s behalf for each item may not exceed the allowable fee recognized by the HUD office having jurisdiction where the property is located.

5. Up-Front Estimate of Closing Costs. Lenders must comply with the provisions of RESPA and provide loan applicants with a Good Faith Estimate of settlement costs. The estimate must contain the settlement charges that the borrower will normally pay at or before settlement based upon common practice in the locality of the mortgaged property. The estimate of closing costs used in calculating the acquisition cost and mortgage during processing and underwriting must be a reasonable reflection of actual closing costs at the time of settlement.

   Lenders must ensure that the initial estimate of closing costs is realistic, given the likely costs for the particular property. If the estimated closing costs used to calculate the acquisition cost and mortgage result in a mortgage that exceeds by more than $250 the maximum mortgage based on actual charges, the mortgage amount must be recalculated before settlement. It is the lender’s responsibility to ensure that its loans close in compliance with this requirement.

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5.18

ADDITIONAL ITEMS TO BE ADDED TO SALES PRICE

Repairs and improvements to existing housing as well as energy-related weatherization items may be added directly to the mortgage basis.

1. Repairs and Improvements. Lenders may add the value of repairs or improvements that are required by the appraiser as essential for property eligibility and that will be paid by the borrower. (The appraised value will already reflect these repairs and improvements). To be eligible for inclusion in determining the mortgage amount, the sales contract or addendum to the sales contract must identify the borrower as responsible for performing the repairs or improvements.
1. The amount of repairs or improvements used to calculate the maximum mortgage is based upon the appraiser’s and/or contractor’s repair estimate as shown on the appraisal. Only repairs specified in the appraisal may be included in the maximum mortgage basis. Any repairs completed by the borrower on the property before the appraisal is performed are not eligible for sweat equity but are considered in calculating the maximum mortgage to the extent that their value is included in the appraisal.
2. The amount for repairs or improvements included in the total cost to acquire the property (when determining total settlement requirements) is the amount of the contractors bid. If no bid for repairs or improvements is submitted, the amount to be used is the appraiser’s estimate.
3. If repairs or improvements not included as proposed rehabilitation work cannot be completed before loan closing, the lender must establish an escrow account (utilizing form HUD-92300, Assurance of Completion) to ensure eventual completion of all required repairs.
2. Energy-Related Weatherization Items. If the borrower is responsible for payment of energy-related weatherization items, they may be included in the acquisition cost.
1. Weatherization items include thermostats, insulation, storm windows and doors, weather stripping and caulking, etc. These items may be added to the sales price and the appraised value up to the amounts shown below before determining maximum mortgage amount (a contractor’s statement of cost of work completed or buyer’s estimate of the cost of materials must be submitted.)
2. Caps on amounts include:
   • $2,000 without a separate value determination;
   • $3,500 if supported by a value determination by an approved appraiser or contractor; or
   • More than $3,500 subject to a value determination and an on-site inspection made by a HUD-approved appraiser/inspector or by the lender.

   An example of the maximum mortgage calculation for a property over $50,000 with required repairs and energy-related weatherization is found in Exhibit 5-5.

   Exhibit 5-5: Determining the Maximum Mortgage Amount for Properties Over $50,000 With Required Repairs and Weatherization Items

   Appraised Value: $120,000 Repairs Required by the Appraiser: $ 1,700 Sales Price or Construction Cost: $110,000 Allowable Closing Costs: $ 4,000 Energy-Related Weatherization Items: $ 3,000 FHA Mortgage Limit: $ 95,000
   1. Section 184 mortgage limit:		$95,000 x 150% = $142,500
   2. Loan-to-value cap based on appraised value:		$120,000 + 3,000 x 97.75% = $120,232
   (Appraiser required repairs of $1,700 included in $120,000 appraised value)
   3. Loan-to-value cap based on acquisition cost:
   	Sales price, closing costs, repairs, energy items:	$110,000 + $4,000 + $1,700 + $3,000 = $118,700
   	Acquisition cost:	$118,700
   Loan-to-value ratio based on acquisition cost:		$118,700 x 97.75% = $116,029
   Maximum mortgage amount (lowest of 1, 2, or 3):		$116,029 (without loan guarantee)

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5.19

ITEMS TO BE SUBTRACTED FROM SALES PRICE

Items that must be subtracted from the sales price in calculating the maximum mortgage amount include seller (or interested third party) contributions that exceed the 6 percent rule and inducements to purchase which result in a dollar-for-dollar reduction in the sales price. These items are discussed below.

1. Inducements to Purchase (Sales Concessions). Inducements to purchase include those costs that the seller pays to consummate the transaction. The value or amount of these concessions must be subtracted dollar for dollar from the sales price before the mortgage amount is computed. Inducements to purchase are considered to include:
   1. Decorating allowances.
   2. Moving costs.
   3. Personal property items, such as cars, boats, riding lawn mowers, furniture, televisions, given by the seller to consummate the sale. The value of the item must be subtracted from the sales price of the property and the appraised value if it has not been deducted by the appraiser.

      Certain items, depending upon local custom or law, may be considered as part of the real estate transaction, with no adjustment to sales price or value necessary. Such items include ranges, refrigerators, dishwashers, washers and dryers, carpeting, and window treatments. The appraiser determines if these items affect value.

   Replacement of existing equipment or other realty items, such as carpeting or air conditioners, by the seller before closing does not require a value adjustment, provided no cash allowance is given to the borrower.

2. Excess Rent. Excess rent credit must be subtracted dollar for dollar from the sales price before calculating the mortgage amount. See paragraph 5-9d(15).
3. Seller Payment of Borrower’s Sales Commission on Present Residence. If the borrower is purchasing a property with a mortgage to be guaranteed by HUD and is also selling his or her present residence, and the builder or seller of the property being purchased agrees to pay any portion of the borrower’s sales commission on the present house, that amount must be treated as a sales concession and subtracted dollar for dollar from the sales price.

   Similarly, if the borrower does not pay a real estate commission on the sale of a present home, this constitutes a sales concession if the real estate broker or agent is involved in both transactions and the seller of the property purchased by the borrower pays a real estate commission exceeding that typical for the area.

   In these situations, the amount paid by the seller above the normal real estate commission is considered a sales concession and must be subtracted from the sales price of the property being purchased.

4. Seller Contributions (Financing Concessions). Seller contributions (or interested third party) include:
1. Payment of closing costs normally paid by the buyer.
2. Discount points.
3. Interest rate buydowns and other payment supplements.
4. Prepaid and escrow items collected at closing.
5. Payments of mortgage interest (but not principal).
6. Loan Guarantee Fee.

These concessions are not subtracted dollar for dollar from sales price, but are limited to six percent of the contract sales price before a dollar-for-dollar reduction is required. The normal borrower’s closing costs paid by the seller (or other interested third party) are not included in the calculation of the borrower’s acquisition cost.

Excluded from this six percent limit on financing concessions are unplanned permanent buydown points resulting from a shift in interest rates during the period between the date of the sales contract and the date of loan closing. The sales agreement must provide for specific financing terms (including the interest rate and/or seller-paid points) that could not be met due to a change in market conditions.

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5.20

ITEMS ADDED DIRECTLY TO THE MORTGAGE AMOUNT

1. Loan Guarantee Fee. A loan guarantee fee (one percent of the principal obligation of the loan) must be paid at closing. This amount may be added directly onto the mortgage amount and need not be within the loan-to-value ratios.
2. Solar Energy System. The cost of solar energy systems may be added directly to the maximum mortgage amount without applying the LTV ratio. The statutory mortgage limit may also be exceeded by 20 percent, to the extent that these improvements are within the borrower’s acceptable debt to income ratio.
1. The energy system’s contribution to the mortgage amount is limited to the lesser of its replacement cost or its effect on the property’s market value. This amount may be added directly to the mortgage.
2. Both active and passive solar systems are acceptable, as are wind-driven systems. See HUD Handbooks 4150.1 REV-1 and 4930.2 for details.
3. Real Estate Broker Fees. These fees may be added directly to the mortgage amount if the real estate agent or broker has been the exclusive agent of the borrower in the transaction and the following additional requirements are met. Note that services provided by the IHA/TDHE or tribe are not considered brokers’ fees unless the borrower is specifically charged such a fee.
1. The amount of the fee that may be added to the mortgage is the difference between the maximum mortgage amount computed on the appraised value and the maximum mortgage amount computed on the sales price plus or minus the required adjustments (i.e. the acquisition cost). (If the appraised value determined the maximum mortgage or both computations yield the same maximum mortgage amount, the fee has no effect on the maximum mortgage and cannot be added.)
2. The buyer-broker agreement must be submitted with the application.

   Any portion of the commission or fee that is not eligible for inclusion in the mortgage amount is considered as funds required for closing.

   Any portion paid by the seller is not considered a sales concession or an inducement to purchase nor part of the 6 percent limitation provided that the seller is paying only the normal sales commission typical of that market. In such cases, the lender must obtain a copy of the original listing agreement to determine if the seller paid a sales commission separately inclusive of the buyer-broker fee.

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5.21

LAND VALUE

1. Fee Land. On fee land, appraisers should undertake a standard analysis of the property value, including estimating the value of the land. The value of the land is therefore included in the total value stated in the appraisal report.

   Land acquisition costs are also considered a component of the total cost to acquire or construct a property. If the borrower already owns this land, it may be used as a portion of the borrower investment in the property. See Paragraph 5.9d for more information.

2. Allotted Trust Land and Tribal Trust Land. The cost approach is often the primary indication of value based on the unique nature of the reservation setting. Lenders and appraisals should refer to Appendix A-2, Appraisal of Single Family Homes on Native American Lands, Page A-4, HUD Handbook, 4150-2, Valuation Analysis for Home Mortgage Insurance for Single Family One-to-Four, for additional guidance in determining the exact methods of appraisal for trust land. A copy of the handbook can be obtained on the following website: http://www.hud.clips.org.

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5.22

TRANSACTIONS AFFECTING MAXIMUM MORTGAGE

Certain types of loan transactions affect the amount of financing otherwise available and the calculation of the maximum mortgage. This section details those circumstances.

1. Identity-of-Interest Transactions. Identity-of-interest transactions are usually restricted to a maximum loan-to-value ratio of 85 percent. Identity of interest is defined as a transaction between family members, business partners, or other business affiliates.

However, the maximum Section 184 Program loan-to-value ratio (see Paragraph 5.16) is permissible under the following identity-of-interest circumstances:

1. A family member purchasing another family member’s principal residence or unimproved land for development under the Program.
2. An employee of a builder purchasing one of the builder’s new homes or models as a principal residence.
3. A current tenant purchasing the property that he or she has rented for at least six months predating the sales contract. A lease or other written evidence must be submitted verifying occupancy.
4. Sales by corporations that transfer employees out of an area, purchase the transferred employee’s home, and then resell the residence to another employee.

If a property being sold from one family member to another is the seller’s investment property, and it is being sold under its appraised value, the maximum mortgage is the lesser of:

1. 85 percent of the sum of the appraised value; or
2. The 97.75 or 98.75 percent LTV computation applied to the borrower’s acquisition cost.
2. Nonoccupying Co-Borrowers and Co-Signers
1. When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is usually limited to a 75 percent loan-to-value ratio.
2. However, use of the standard Section 184 Program loan-to-value ratio (see Paragraph 5.16) is available for borrowers related by blood (e.g., parent-child, siblings, aunts-uncles/nieces-nephews), or for unrelated individuals who can document evidence of a family-type, longstanding and substantial relationship not arising out of the loan transaction. The occupying borrower must sign the security instrument and mortgage note.

While HUD does not object to legitimate transactions where the non-occupant borrower assists in the financing of the property, such as when parents help their children buy their first home or assist a child who is a college student to purchase a house near campus (one unit properties only), this arrangement may not be used by non-occupant borrowers to develop a portfolio of rental properties. The degree of financial contribution by the non-occupant borrower, and the number of properties similarly owned, may indicate that an investor loan has become the practical reality and that, in effect, family members are acting as "strawbuyers."

3. The Department has not imposed additional underwriting criteria on such transactions (such as specific qualifying ratios the occupying borrower must meet individually). Lenders must judge each transaction on its merits and should consult with HUD for guidance if necessary.
3. Three- and Four-Unit Properties
1. The projected rental income from all units must be equal to or greater than the monthly mortgage payment.
2. Net rental income is the appraiser’s estimate of fair market rent from all units (including the unit chosen by the borrower for occupancy) less the allowance for vacancies and maintenance set by the local HUD office.
3. The monthly payment is defined as principal, interest, taxes, and insurance (PITI), as well as any homeowners’ association dues, computed at the note rate (no consideration for buydowns may be given).
4. The above calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units.
5. The borrower must have a reserve of three months’ mortgage payments (PITI) after closing.
4. Building on Own Land or Acting as the General Contractor. A homebuyer can use equity, which they have created in the past (e.g. built the foundation or the on-site infrastructure), if the appraisal supports its value.
1. If the borrower is acting as a general contractor or is having a house built on land already owned or being acquired separately, the standard Section 184 Program loan-to-value ratio (see Paragraph 5.16) may be used if the borrower receives no cash from the settlement. The lender must condition its approval to ensure cash is not received at closing.
2. The appropriate loan-to-value limit (97.75 or 98.75 percent) is applied to the lesser of:
   • The appraised value; or
   • The documented acquisition cost of the property, which includes:
     • The builder’s price, or the sum of all subcontractors’ expenses, such as bids and materials.
     • The cost of the land (where applicable). If the land has been owned for more than six months or was received as an acceptable gift, the value of the land may be used instead of its cost.
     • The allowable closing costs.
   Where applicable, equity in the land (value or cost, as appropriate, minus the amount owed) may be used for the borrower’s entire cash investment. However, the borrower may not receive more than minimal cash at closing ($250 or less). Thus, the mortgage may never exceed the total acquisition cost of the property. (Replenishment of the borrower’s own cash expended during construction is not considered as "cash back," provided the borrower can provide cancelled checks and paid receipts for all out-of-pocket funds used during construction.)

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5.23

FIRM COMMITMENT SUBMISSION

1. Process. Once the lender has obtained the required documentation and determined that the loan meets Section 184 requirements, the loan package is sent to the Program ONAP for review of tribal eligibility and land status, underwriting and issuance of the firm commitment.

   The Director, Office of Loan Guarantee, or the designee, in the Program ONAP, acts as the Chief Underwriter for all Section 184 loans. Upon receipt of this package, the Department will:

   1. Ensure that all necessary information has been included in the package.
   2. Review the stated loan terms and conditions for compliance with the various Section 184 Program requirements.
   3. Compare the loan conditions to the borrower’s income and asset information.
   4. Determine whether this loan is a good investment, given prudent underwriting criteria.
   5. Issue a firm commitment to the lender if the mortgage meets the Section 184 Program underwriting criteria.

   The Department will use the following two criteria to review this package:

   1. Prospect of repayment–the loan must have a reasonable prospect of repayment based upon the criteria herein.
   2. Property and loan value–the property and loan value has been established in accordance with appropriate regulatory and administrative requirements.
2. Closing the Loan. Lenders may not close loans until they have received a letter from the Department authorizing the firm commitment and approving a loan closing (unless the lender is a Direct Guarantee lender — See Chapter 10). Lenders who close the loan or allow construction to begin before receipt of the firm commitment letter, run the risk that the Department may find errors in the underwriting criteria and therefore reject the loan. Any funds already spent on the rejected project would not be guaranteed.
3. Items. The items listed below must be included in the lender’s submission of the firm commitment package.
1. Firm Commitment Submission Checklist (the checklist format is optional; lenders may develop their own format). See Appendix 3 for sample checklist and detailed explanation.
2. Mortgage Credit Analysis Worksheet (Form HUD 53036).
3. Maximum Mortgage Worksheet for Single Close (Single Close Only).
4. Good Faith Estimate.
5. Uniform Residential Loan Application/Addendum A (initial signed and dated by all borrowers and the lender and the addendum to the URLA).
6. Uniform Residential Loan Application/Addendum A (final/unsigned).
7. Land Status and Jurisdiction Form. Lenders must submit evidence that a particular location has been selected and should indicate the status of this land (i.e., tribal trust, allotted, or fee simple) and the court of jurisdiction. Fee simple land should be located in a designated Indian Operating area and must be certified by the tribe. Lenders may use the form found at Appendix 4 or any other acceptable documentation of land status.
8. Sales Contract (for existing structures or acquisition of land) any amendments or other agreements and certifications. Either an original or a certified true copy of the sales contract received by the lender is required. The Real Estate Certification (for existing structures or acquisition of land) signed by the buyer, seller, and selling real estate agent or broker must also be submitted (as applicable).
9. Appraisal Report (URAR Form 92800).
10. VC Condition Sheet or detailed explanation when appraisal is subject to repairs/completion.
11. Borrower Native American ID. Lenders must submit proof that the applicant is an Indian as defined under the Section 184 statute. Tribal membership cards are a common method of proof. Also, BIA uses a form entitled "Request for Certificate of Indian Blood" which lenders can send to the local BIA agency and obtain verification. Lenders may also accept alternate forms of identification.
12. Social Security Evidence. A copy of the actual social security card is not required. The Social Security Number can be obtained from such documents as pay stubs or the driver’s license.
13. Credit Report on all borrowers that will be obligated on the mortgage note. Lenders may accept a three repository merged credit report instead of the more comprehensive residential mortgage credit report. Lenders must use credit repositories that are able to report both credit and public records information for each locality that the borrower lived in during the past two-year period. See paragraph 5-4 for more information.
14. W-2’s, Most Recent Pay Stubs or a Verification of Employment. The lender must obtain from the borrower pay stubs covering the most recent 30-day period, along with original copies of the previous two years’ IRS W-2 forms. At a minimum, the pay stub must clearly show the borrower’s name, social security number, and year-to-date earnings. The "original" of the W-2 may be any of the copies of the form not submitted with the borrower’s income tax returns. (These original documents may be photocopied and returned to the borrower.) The lender must also verify by telephone current employment. The loan file must include a certification from the lender that original documents were examined and the name, title, and telephone number of the person with whom employment was verified. If the borrower files tax returns, the lender must also obtain a signed copy of form IRS 4506, Request for copy of Tax Form: or Form IRS 8821: or whatever form is appropriate for obtaining tax returns directly from the Internal Revenue Service for all loans processed in this manner. Alternately, the lender may obtain a Verification of Employment (VOE) form directly from the borrower’s employer and a copy of the borrower’s most recent pay stub.
15. Federal Income Tax Returns with all schedules (self employed borrowers). Signed copies of individual returns with all applicable schedules and signed copies of federal business income tax returns with all applicable schedules. If the business is a corporation, an "S" corporation, or a partnership the income tax return for the business must be submitted. See paragraph 5.6d(3). Year-to-date profit-and-loss and financial balance statements for all business entities along with evidence of quarterly tax payments must also be provided. Commissioned individuals must provide individual federal income tax returns for the past two years. The lender must also obtain a signed form IRS 4506,IRS 8821, or whatever form is appropriate for obtaining tax returns directly from the Internal Revenue Service for any loan where the borrower’s tax returns are required. The lender may use an electronic retrieval but cannot charge the borrower for this service.
16. Verification of Deposit and Most Recent Bank Statements. The lender must obtain from the borrower either original or certified copies of bank statement(s) covering the most recent three-month period. Provided the bank statement shows the previous month’s ending balance, this requirement is met by obtaining the two most recent consecutive statements. Alternately, lenders may obtain the most recent original bank statement and an original Verification of Deposit (VOD) form directly from the depository.
17. 12 Month Verification of Prior Payment History of previous mortgages or any other recurring housing payments including rental payments. This may be in the form of a verification of mortgage including payment history, verification of rent obtained directly from the landlord or 12 months of cancelled checks. Such verification is not required for any mortgage reported on the credit report.
18. CAlVRS
19. Home Inspection Form signed by the borrower
20. Lead Based Paint Addendum (if appropriate)
21. Flood Certificate
22. Environmental Review
23. Gift Letter or other documentation on source of funds if other than on deposit
24. Letters of explanation on Derogatory Credit must be provided by the borrower or additional documentation necessary to make a sound underwriting decision must be provided by the lender.

In addition to the above items, the following are required based on construction and/or land status:

New Construction (single close or when lender requests HUD approval prior to doing the interim construction loan):

1. Detailed Plans and Specifications including Description of Materials,
2. Signed Contractor Cost Estimate(s) including name, address and phone number of builder,
3. Well/Septic. If well/septic to be installed by Indian Health Service, provide letter showing amount and/or no cost
4. Site Map and Legal Description
5. Breakdown of Construction Costs
6. Builders Certification. HUD 92541

Properties on Fee Simple Land:

1. Preliminary Title Report

Properties Located on Tribal Trust Land:

1. Title Status Report from the Bureau of Indian Affairs with recorded lease
2. Leasehold Instrument (with all signatures as required)

Properties Located on Individual Allotted Trust Land (no lease):

1. Title Status Report from the Bureau of Indian Affairs (including consent to mortgage from all owners if fractionated)

Properties Located on Individual Allotted Trust Land (with lease)

1. Title Status Report from the Bureau of Indian Affairs with recorded lease
2. Leasehold instrument(with all signatures as required). Lender should consult with Program ONAP when a lease is being used on individual allotted trust land.