www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 September 9, 1988 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING- FEDERAL HOUSING COMMISSIONER Mortgagee Letter 88-30 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Production - Clarifications and Changes to Processing Procedures The purpose of this letter is to clarify certain policies and procedures that we are asked about by mortgage lenders and our Field Office personnel, and to change a procedure pertaining to HUD accepted insured 10-year protection plans. A. High Loan-To-Value Ratios on Proposed Construction Cases The term "proposed construction" is defined as "A property approved for mortgage insurance or loan guaranty prior to the beginning of construction and inspected during the construction period by HUD-FHA or the Veterans Administration (VA)" (Refer to HUD Handbook 4070.1). A purchaser may obtain a high loan-to-value ratio mortgage (minimum downpayment) in cases involving proposed construction. In such cases the purchaser may, if circumstances warrant, file an application for assistance in correcting structural defects under Section 518(a) of the National Housing Act. A borrower will not be considered ineligible for Section 518(a) assistance merely because the borrower chooses to increase the downpayment amount. However, a borrower will be ineligible for assistance if construction was started prior to HUD's issuance of a Conditional Commitment (or early start letter) or the issuance of a Statement of Appraised Value from a Direct Endorsement lender. Similarly, if VA processing is used by the mortgagee, a borrower will be deemed ineligible for 518(a) assistance if construction was started prior to VA's issuance of a Certificate of Reasonable Value (or early start letter). A purchaser may obtain a high loan-to-value ratio mortgage if the builder began construction prior to the issuance of a conditional commitment and a HUD accepted insured 1O-year protection plan is provided to the purchaser. However, since construction was already started, item 16 of the specific conditions on the back of Form HUD 92800.5B would be applicable, stating: "Borrower Notification: At the time of the application for Firm Commitment, the mortgagee must include a certificate that the borrower was notified that the property was not approved by HUD prior to the start of construction and the Department does not have authority to provide financial relief for any future property repairs under Section 518(a) of the National Housing Act." B. Insured 10-Year Protection (Warranty) Plans To ensure that the builder has properly enrolled and paid for the insured 10-year protection plan, effective for all loans closed on or after January 1, 1989, the Department will require all mortgage lenders to obtain an insurance binder, before closing the loan, from the applicable Plan provider. The mortgage lender must ensure that payment has been made to the appropriate Plan or monies must be held in escrow at closing to ensure that the Plan is properly paid and that the insurance policy is in effect on the date of closing. To assist your processing staffs, Attachment 1 provides a current listing of all HUD accepted insured 10-year protection plans, and the jurisdictions within which the acceptances for each Plan are valid. C. Compliance Inspection Report (Form HUD 92051) Form HUD 92051 has been revised (see sample in Attachment 2) to allow for use by DE Underwriters and Staff Inspectors. Please note that the inspector continues to be responsible for completion of Parts I and II on the form. The reviewer continues to be responsible for completion of Parts III and IV. To assist DE lenders in converting cases to be submitted to the VA, a HUD concurrence box has been provided at the bottom of the form. If this is signed and dated by a HUD Authorized Agent (Chief of Valuation or Architecture, or their designee), the final report will be considered processed by HUD. In Part I, item 5, Form HUD 92573 (Health Authority Approval for Individual Water-Supply and Sewage-Disposal systems) has been canceled by the Office of Management and Budget. Therefore, you can no longer use this form and must accept letters from the applicable Health Department. Future revisions to Form HUD 92051 will eliminate reference to Form HUD 92573. The new forms have been printed by the Government Printing Office and private form suppliers and should be available in a short time. Existing supplies of the old forms may continue to be used after October 1988, however, we strongly suggest that you use the new form to allow for the conversion to be submitted to the VA. D. Size of Architectural Plans The Department continues to receive complaints from builders that the requirement to reduce the size of architectural plans is burdensome. Therefore, until further notice, it is not necessary to require the reduction of the architectural plans as required in item I.C. of Mortgagee Letter 87-34, dated October 21, 1987. If you have any questions concerning this letter, please contact the Housing Development Branch in the local HUD Field Office for your jurisdiction, or the Single Family Technical Support and Valuation Branch in HUD Headquarters at (202) 755-6720. Sincerely yours, Thomas T. Demery Assistant Secretary Attachments ATTACHMENT 1 LIST OF ACTIVE HUD-ACCEPTED INSURED 10-YEAR PROTECTION PLANS **************************************************************** (As of September 1, 1988) Name of Plan State Acceptance ____________________________________________________________________ BUILDERS TRUST WARRANTY Arizona*, Connecticut*, 629 East Atlanta Boulevard Delaware*, Florida*, Pompano Beach, FL 33060 Georgia, Illinois*, Maryland*, Minnesota*, Missouri, Nevada*, New Hampshire*, New Jersey, New Mexico*, North Carolina*, Ohio*, Pennsylvania*, South Carolina*, Tennessee*, Texas* and Virginia*. (305)941-6100 (*Acceptable for condominiums) 1-800-327-1182 Insurance Backing: Central National Insurance Company of Omaha ____________________________________________________________________ HOME BUYERS WARRANTY *District of Columbia and CORPORATION (HBW 2/10) all states except Alaska, 1200 south Parker Rd, Suite 200 Connecticut, Hawaii, Denver, CO 80231 Maine, Massachusetts. (*Acceptable for condominiums and manufactured (mobile) homes) (303) 368-4805 1-800-942-1243 Insurance Backing: National Home Insurance Co. (NHIC) of Colorado ____________________________________________________________________ HOME OWNERS WARRANTY *All states, the District CORPORATION (HOW) of Columbia and all 2000 L Street, N.W. Territories Washington, D.C. 20036 (*Acceptable for condominiums) (202) 463-4600 Insurance Backing: Home Owners Warranty Corp Risk Retention Group) ____________________________________________________________________ MID-ATLANTIC INSURANCE CORP. Virginia* (HW 10) 2117 Smith Avenue Chesapeake, VA 23320 (*Acceptable for Condominiums) (804) 424-6523 Insurance Backing: Colony Insurance Company (Subsidiary of Figgie International) ____________________________________________________________________ NEW JERSEY NEW HOME WARRANTY New Jersey plan Post Office Box 2768 Trenton NJ 08625 (609) 633-2113 Insurance Backing: State of New Jersey ____________________________________________________________________ PREFERRED BUILDERS WARRANTY Florida CORP. (PBW) 4700 N.W. 2nd Avenue, Suite 202 Boca Raton, FL 33431 (407) 994-2017 Insurance Backing: Cardinal Casualty Company ____________________________________________________________________ QUALITY BUILDERS WARRANT CORP. Delaware, Florida, P.O. Box 271 Georgia, Maryland, New Jersey, Camp Hill, PA 17011 New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia. Insurance Backing: Merchants and Business Men's Insurance Company of Harrisburg,PA (7l7)-737-2522 1-800-334-9143 Insurance Backing: Alabama, Connecticut, United Equitable Insurance Delaware, Florida, Company of Lincolnwood, IL Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, Vermont, West Virginia, Wisconsin. (All States are acceptable for condominiuns) ____________________________________________________________________ RESIDENTIAL WARRANTY District of Columbia, CORPORATION (RWC) Alabama, Arizona, P.O. Box 641 California, Colorado, Harrisburg, PA 17108-0641 Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Mexico, North Carolina, Nevada, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia, West Virginia. Insurance Backing: United Equitable Insurance Company of Lincolnwood, IL (711) 939-1971 1-800-247-1812 Insurance Backing: Delaware, Georgia, Maryland, Merchants and Business Men's North Carolina, Pennsylvania, Mutual Insurance Company Tennessee, New Jersey. of Harrisburg, PA Insurance Backing: Pennsylvania Eastern Atlantic Insurance Company of Highspire, PA (All States are acceptable for condominiums) ____________________________________________________________________ WARRANTY UNDERWRITERS INSURANCE Texas COMPANY (HOME) 6161 Savoy Drive, Suite 820 P.O. Box 741808 Houston, TX 77274-1808 (713) 785-1314 Insurance Backing: Self ____________________________________________________________________ See the statement below that corresponds to the designation checked on the front of the form under section "IV. To Mortgagee". A. Noncompliance. Construction is not acceptable or all specific conditions have not been fulfilled in accordance with the terms of the related commitment because of: (a) Variations from Exhibits. Inspection reveals extensive noncompliance, involving variations from accepted construction exhibits. The property will be considered ineligible for mortgage insurance (1) unless the work has been corrected so as to effect compliance, or (2) unless reprocessing is requested on the basis of the mortgage security as it is now being constructed, and this is found to be acceptable. Requests for reprocessing must be accompanied by a letter, in duplicate, fully describing the work as now being constructed, signed by the mortgagor and approved by the mortgagee. Where the plan arrangement, or either the exterior or interior appearance is affected, the mortgagor's letter must be accompanied by drawings, in duplicate, fully indicating the variations and signed by both the mortgagor and the mortgagee. (b) Unacceptable Construction. Construction reveals extensive noncompliance with applicable FHA requirements or good construction practice. The property will be considered ineligible for mortgage insurance until construction has been corrected so as to effect compliance. (c) Premature Construction. Inspection reveals that construction was begun prior to the date of approval for mortgage insurance (in noncompliance with the commitment or statement of appraised value). B. Compliance. (with incomplete items) Construction of on-site improvements has been acceptably completed except for any items listed on the front of this form. Completion of those items is delayed by conditions beyond the parties' control. The property will considered acceptable for mortgage insurance and closing papers may be submitted provided: (a) All required off-site improvements have been acceptably completed and so reported, or their completion has been assured by an acceptable "Mortgagee's Assurance of Completion" form, and; (b) All specific conditions not requiring field inspection as indicated on the front of this form have been acceptably fulfilled or evidence of compliance is submitted with the closing papers, and; (c) The closing papers are accompanied by form HUD-92300, "Mortgagee's Assurance of Completion," properly executed and providing for withholding the sum indicated, or by indicating the sum is available on a commercial letter of credit, and for completion of construction not later than the date stated on the front of this form. C. Final Acceptance Construction has been completed and all specific conditions have been acceptably fulfilled. Closing papers may be submitted provided the mortgagee's credit analysis of the borrower is acceptably completed. Evidence of compliance with specific conditions not requiring field inspection as indicated on the front of this form may be submitted with the closing papers. U. S. GOVERNMENT PRINTING OFFICE: 1988 - 201-912/80064