www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 May 18, 1988 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 88-15 TO: ALL APPROVED MORTGAGEES Streamline Refinance, Allowable Fees 1. Required submission of Attachment A of Mortgagee Letter 86-15 a. Beginning 60 days from the date of this letter, all applications underwritten by a Direct Endorsement (DE) lender or submitted to HUD for processing must include Attachment A of Mortgagee Letter 86-15 (copy attached) when there is any amount of seller's or lender's contribution. The procedure for completing the Attachment remains unchanged. Previously, Attachment A was required to be included with the application only when the contribution exceeded the six percent threshold. b. There has been some misunderstanding regarding the answer to question No. 6 in Mortgagee Letter 86-23 (Questions and Answers on Mortgagee Letter 86-15 ). Some readers have chosen to concentrate on the phrase "...will not generally question processing that is within two points of the telerate quotes ..." rather than the key sentence, "However, where it is evident that the lender is misstating information to enable the seller to avoid adjustments in the sales price, the Department will take immediate administrative actions." Clearly HUD never intended to establish an automatic two-point leeway on all transactions. On the other hand, it is not necessary to make any adjustment or entry on Attachment A to reflect a favorable or below market interest rate when the transaction involves an existing property and there is no connection or arrangement between the lender and seller. 2. Assumption Policy Questions continue to be asked as to what types of changes of ownership trigger the HUD requirements for approval of the substitute mortgagor as contained in both Mortgagee Letters 86- 15 and 88-2. The most recent questions relate to cases in which only a part of the property is transferred. HUD considers the phrase "...a part of the property..." as set forth in the assumption provisions, to include a "part interest in" the property. The general rule to follow is that the transfer of a party's interest, other than by devise, descent or operation of law, necessitates a creditworthiness determination. On the other hand, parties added to the title subsequent to closing will not require creditworthiness review. 3. Streamline Refinance a. Adjustable Rate Mortgages (ARMS) - Mortgagee Letter 87-24 allows streamline refinancing of a fixed rate mortgage to an ARM when the "worst case" interest rate for the ARM does not exceed the interest rate of the existing mortgage. This rule is now being revised to permit ARM to ARM and fixed rate to ARM streamline refinancing when the first year interest rate of the new mortgage will be at least two percent (200 basis points) below the interest rate of the current mortgage. All other streamline refinance requirements remain the same. b. Section 245(a) Graduated Payment Mortgages (GPM) - A GPM which is eligible to be refinanced under the streamline procedure without an appraisal to a fixed rate mortgage may have a mortgage amount that exceeds the maximum mortgage limit for the area, provided the new mortgage amount results from the negative amortization inherent in the program. 4. Allowable Fees We wish to remind you that Section 203.27 of the HUD regulations specifically permits the lender to collect certain specified fees from the borrower. A mortgagee, who collects any charge that has not been authorized in advance as being reasonable and customary, may be in violation of the regulations. The acceptability of these charges and amounts that may be charged are determined by the individual Field Offices. The Department believes that courier fees charged by a lender for sending loan documents to its underwriter for approval is not an allowable charge and should not be charged to the buyer. Courier fees or fees for express mailing for the payoff of a mortgagor's loan on a refinance transaction are permissible and may be paid by the mortgagor since it would be in the best interest of the borrower to expedite the delivery of his payoff check to the previous lender. With regard to courier fees to and from the mortgagee's office and the settlement agent, we will permit the borrower to pay these fees if charged by the settlement office and provided there is a written request from the borrower to do so. If you have any questions, please contact the Mortgage Credit Branch at (202) 755-6700. Sincerely yours, Thomas T. Demery Assistant Secretary Attachment ATTACHMENT A SUGGESTED FORMAT FOR PROVIDING INTEREST REDUCTION INFORMATION AND COMPUTING MAXIMUM MORTGAGE AMOUNT FOR EXCESS FINANCING CONCESSION TRANSACTION 1. $ Contract Sales Price 2. Closing Cost to be 5. $ HUD estimate of value paid by purchaser 6. HUD estimate of 3. Required repairs closing cost to be paid by 7. Value plus closing purchaser 4. Acquisition Cost 8. $ Maximum mortgage amount based on the lesser of lines 4 or 7 9. MIP to be financed in the mortgage 10. Maximum mortgage amount including the MIP 11. Amount of sellers contribution toward buydown (payments for points, any type of interest payment, or closing costs normally paid by the buyer (including the one percent origination fee)). List amounts in each category based on mortgage amount on line 10 12. 6 percent of line 10 13. The amount that line 11 exceeds line 12 NOTE: If line 12 exceeds line 11, no further calculations are necessary. 14. $ Contract sales price from line 1 15. Minus amount on line 13 16. Adjusted sales price 17. Closing cost and/or required repairs to be paid by purchaser - lines 2 and 3 18. Corrected Acquisition cost 19. Maximum mortgage amount based on the lesser of line 7 or 18