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 OCTOBER 11, 1989 Mortgagee Letter 89-23 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production -Requirements for Single Family Mortgage Instruments This Mortgagee Letter supersedes an earlier version dated July 31, 1989, which was distributed to HUD field offices as an advance copy prior to publication of the mandatory compliance date in the Federal Register. The letter has been revised to include this information and a section added to provide language to be used if a mortgagee elects to add an acceleration clause. This is to inform mortgagees that HUD is discontinuing the practice of printing or distributing single family mortgage forms and will no longer approve the text of forms for individual states. Mortgagees will be responsible for developing their own mortgage instruments in conformance with "Requirements for Single Family Mortgage Instruments" published in the Federal Register on June 29, 1989. A notice with a correction was published in the Federal Register on October 2, 1989. Copies of both publications are attached. Mortgagees may also elect to purchase mortgage instruments from printing companies which have developed and produced forms meeting the new requirements. However, all mortgagees remain ultimately responsible for ensuring that they only use forms meeting the new requirements. The certification submitted by mortgagees with the request for insurance endorsement for each case includes a statement that the mortgage instruments meet HUD'S requirements. Mortgagees are authorized to close loans using these new mortgage/deed of trust and note forms beginning immediately. Use of the currently approved HUD forms may continue until March I, 1990 to allow the industry time to implement this new procedure. In Puerto Rico, the Virgin Islands and Guam the mandatory date is extended to June I, 1990. _____________________________________________________________________ 2 HUD Field Offices will not knowingly issue mortgage insurance certificates for cases using the newly developed forms if the mortgage instruments do not conform to these new requirements. (If a mortgage insurance certificate is issued, however, the validity of the contract of insurance will be incontestable in the absence of mortgagee fraud or misrepresentation, regardless of errors in complying with the new requirements, due to Section 203(e) of the National Housing Act). HUD-approved mortgagees who purchase an insured loan will not have to review the mortgage instruments to determine whether the contract of insurance will remain in effect. Of course, the insurance claims process ordinarily requires that the mortgage instrument be drafted so that it is legally enforceable, and the contract of insurance does not insure against lack of enforceability. Mortgagees must supplement the language provided in the new requirements whenever necessary to produce a mortgage/deed of trust which is recordable and enforceable under state and local law. Part IV. B. of the requirements and the footnotes to the model mortgage and note forms (Exhibit A and B to the requirements) contain some instances of state-specific requirements. To insure consistency, Field Offices are authorized to issue Circular Letters to mortgagees imposing additional requirements regarding mortgage instrument provisions in their respective states or localities. Commonly-required mortgage/deed of trust riders and note all allonges are included as part of the new requirements. They are not meant to be combined with current HUD-approved forms and should be used only when a mortgagee is complying with these new requirements. The ARMs documents, Tax-Exempt Financing Rider and Rehabilitation Loan Rider for Section 203(k) cases are similar to current documents authorized by HUD, but the new documents must be used because some changes in vocabulary are included. The other riders and allonges cover situations where each mortgagee was previously responsible for making its own modifications to documents. For example, a number of privately-developed "Condominium Riders" now exist to carry out instructions for documents modification in HUD Handbook 4265.1, but HUD did not approve the riders. Under these new requirements, the HUD "Condominium Rider" included as part of the requirements would be used instead. The new "PUD Rider" represents a change in policy, as explained in the Federal Register notice, since HUD has not previously required the use of special riders for planned unit developments. The new requirements do not permit use of any FNMA/FHLMC riders. _____________________________________________________________________ 3 Mortgagees are authorized, but not required, to add the following provision to the mortgage/deed of trust. Borrower agrees that should this Security Instrument and the note secured thereby not be eligible for insurance under the National Housing Act within from the date hereof, Lender may, at its option and notwithstanding anything in Paragraph 9, require immediate payment in full of all sums secured by this Security Instrument. A written statement of any authorized agent of the Secretary dated subsequent to from the date hereof, declining to insure this Security Instrument and the note secured thereby, shall be deemed conclusive proof of such ineligibility. Notwithstanding the foregoing, this option may not be exercised by Lender when the unavailability of insurance is solely due to Lender's failure to remit a mortgage insurance premium to the secretary. Any period may be inserted in the blanks, expressed either in numbers of days or months, which in not shorter than 60 days and not longer than eight months. Lenders are cautioned that this clause should not be used to abuse innocent borrowers. If there are questions concerning interpretation of these requirements or legal issues, please contact the Office of General Counsel, Home Mortgage Division, at (202) 755-7070 or 755-5272. Sincerely, James E. Schoenberger General Deputy Assistant Secretary for Housing Attachment _____________________________________________________________________