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

November 30, 1987
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 87-39
     TO:  ALL APPROVED MORTGAGEES
     SUBJECT:  Changes to the Term of Conditional Commitments
                  Issued for Proposed Construction
 
          In Mortgagee Letter 86-15 , dated August 8, 1986, we
     shortened the term of conditional commitments issued for
     proposed construction from twelve months to nine months.  In
     addition, we stated that Certificates of Reasonable Value (CRV)
     issued by the Veterans Administration (VA) for proposed
     construction were subject to the same nine-month term.
 
          In assessing the impact of this change, we have determined
     that a blanket reduction from twelve to nine months, nationwide,
     has created a hardship in those market areas where there is
     strong market growth and a good economic climate.  Moreover, the
     differences between the term of the HUD commitment and the VACRV
     has led to confusion and increased costs to both homebuyers and
     home builders.  We believe that it would be more appropriate for
     HUD to adjust the term of its conditional commitments for
     proposed construction based on local market conditions and where
     possible, have a term that is the same for both HUD commitments
     and VACRVs.  This "market based" approach will not unfairly
     penalize homebuyers and home builders in strong markets.
 
          To implement this market based approach, certain HUD
     Offices, in cooperation with VA, may be changing the term of
     conditional commitments and validity period of CRVs.  However,
     until you are notified otherwise by your local HUD office, the
     following policies are effective immediately:
 
     1.   HUD conditional commitments for proposed construction
          will be valid for a term of twelve months from the
          date of issue;
 
     2.   Direct Endorsement appraisals for proposed
          construction will be valid for a term of twelve
          months from the date the appraisal was performed;
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    3.    Outstanding commitments and Direct Endorsement appraisals
          with nine-month terms will be considered to have twelve-
          month terms, unless you are notified otherwise by your
          local HUD Office; and
 
    4     VACRVs will be honored for the full term of the CRV,
          not to exceed twelve months from the date of issue.
 
     We intend that the local HUD and VA offices, jointly will agree
to any reduction in the term of conditional commitments or validity
period of CRVs, so that the industry is not confronted with
inconsistent approaches within the marketplace.  Since some VA
stations have already reduced the validity period of a CRV in
certain areas to less than twelve months, the HUD offices in those
same areas will be reducing the term of conditional commitments to
be the same.  Therefore, you may have already received a notice from
your local HUD Office informing you of a change in the term of HUD
commitments.
 
     If you have any questions concerning this letter contact your
local HUD Office or call the Single Family Valuation Branch in HUD
Headquarters at (202) 755-6720.
 
                                Sincerely yours,
 
                                Thomas T. Demery
                                Assistant Secretary
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