www.hudclips.org 


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

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 85-12
MAY 16 1985
TO:  ALL APPROVED MORTGAGEES
SUBJECT:  High Risk Mortgages - Investor Refinances
 
     The Department has recently undertaken a variety of steps to
improve our ability to evaluate the quality of mortgages we are
insuring.  In assessing the data we have become particularly
concerned with the claim rates on those mortgages involving
investor refinance transactions.  For mortgages originated since
January 1, 1982, this claim rate is more than twice that of our
total business.  This poor performance could be made worse with the
current trend of private mortgage insurance companies and
conventional lenders to discourage this type transaction.
 
     In addressing this concern, we are revising our instructions
for computing the maximum mortgage amount as follows:
 
     1. Owner-occupant - No change in current instructions.
 
     2. Properties Held for Rent (Investor) - No cash out; i.e.,
        no cash back to the mortgagor beyond that resulting from
        minor adjustments to financing costs which occur at
        closing.
 
        The mortgage may continue to be up to 85 percent of value
        plus closing costs if all items included in the refinance
        are debts related to the property to be covered by the HUD
        insured mortgage.
 
          NOTE:  Recent (last six months) supplemental obligations
          incurred outside of the purchase transaction, or the
          rehabilitation or repair of the property, are not eligible
          to be included as part of the existing indebtedness in
          determining the maximum mortgage.
 
     3. Acquisition cost will continue to be one of the limiting
        factors on all refinancing transactions in which the
        purchase or existing financing took place within the last
        six months.
 
                             Sincerely,
 
                                  Janet Hale
                                  Acting General Deputy Assistant
                                    Secretary for Housing-Federal
                                    Housing Commissioner
 
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