www.hudclips.org _____________________________________________________________________ U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 October 19, 1987 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgage Letter 87-32 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Processing Procedures -- Shared Equity Identity of Interest Uniform Residential Appraisal Report (URAR) Sales Data Prohibited Kickback Payments Mortgagor Borrowing Funds for the Required Investment A. Shared Equity Identity of Interest Prior to 1982, the Department of Housing and Urban Development (HUD) had taken the position that high ratio loans would not be permitted where one of the co- mortgagor's only interest in the applicant or the property was monetary and participated only to effectuate a sale or to capitalize on the appreciation of the property. HUD amended this policy in 1982 to permit a high ratio mortgage in those instances in which HUD reviewed a Shared Equity agreement and determined that the occupant mortgagor's interests were adequately protected. Because of recent abuses which have occurred when an investor-mortgagor's primary interest in the transaction was the sale of a house rather than investment for long-term gains, the Department has found it necessary to change this approach. Effective for all sales contracts dated on or after January 1, 1988, HUD will no longer accept and insure any high ratio mortgage loan applications associated with Shared Equity agreements involving an identity of interest or any relationship between the seller and the investor mortgagor. B. Uniform Residential Appraisal Report (URAR) Sales Data Mortgagee Letter 87-10, dated March 9, 1987, provided instructions for the use of the Uniform Residential Appraisal Report (URAR) and the new HUD Forms 92800 and 92800.5B. This is to alert you to the location on the URAR (top right corner) for registering particular sales data and to remind all lenders participating in the Direct Endorsement (DE) program of the requirement for completion prior to submission for endorsement. _____________________________________________________________________ 2 LENDER DISCRETIONARY USE INSTRUCTIONS FOR COMPLETION: Sales Price $_________________ * Date _________________ (Date of sales contract) Mortgage Amount $_________________ Without MIP Mortgage Type _________________ (FHA) Discount Points & Other Concessions Paid by Seller $_________________ Self Explanatory _____________________________________ Source D.E. Case * Contract price adjusted for seller paid closing costs, gifts, etc., plus other sales inducements delineated in Mortgagee Letter 86-15 where they exceed 5 percent. (Not to include costs of "unplanned buy-downs"). Although this section is titled "Lender Discretionary Use," its completion is mandatory in connection with FHA-insured mortgage loans processed by D.E. Lenders. C. Prohibited Kickback Payments The Department has recently received inquiries questioning the legality of persons or companies soliciting, processing and placing loan packages with HUD participating mortgage lenders for a percentage of the mortgagee's origination fee. Mortgagees are reminded that as provided in HUD Handbook 4060.1, paragraph 1-4 and HUD Handbook 4000.2, paragraph 7-5, "A mortgagee is not permitted to pay any fee, kickback, compensation or thing of value, including a fee representing all or part of the lender's origination fee; '(2) To any person or entity for referral of the loan or as a finder's fee;' (6) To any person or entity for assistance in the preparation of the FHA mortgage insurance application, if the property is within a fifty miles radius of the office of the mortgagee or,the mortgagee's branch office, authorized agent, or loan correspondent." These requirements and prohibitions remain unchanged. Only under the conditions described in Mortgagee Letter 83-17, Rural Outreach program, may an approved mortgagee reimburse licensed real estate brokers for actual services performed in preparing the application for a firm commitment (Form HUD 92900) or in preparing the worksheet for the application. _____________________________________________________________________ 3 D. Mortgagor Borrowing Funds for the Required Investment Although it is perfectly permissible for a purchaser to borrow funds for the required investment in a transaction in which HUD/FHA will insure the mortgage, there must be satisfactory evidence that the borrowed funds have been, or will be, fully secured by real marketable assets other than the property being purchased. To avoid any potential abuses in this area, HUD is explicitly prohibiting the seller from being a participating party in any such loan arrangement. HUD or the DE underwriter must be satisfied that any loan of this nature is being made by an independent third party; one who has no connection with either the seller or the purchaser. This restriction would prohibit a real estate broker, marketing agent, or other interested third party from being a lender in such a transaction, In conclusion, your cooperation with the foregoing will assist us in maintaining effective underwriting programs. Further questions concerning this letter should be directed to the Mortgage Credit Branch of your local HUD office. Sincerely yours, Thomas T. Demery Assistant Secretary