www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

July 02, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 93-19
TO:  ALL APPROVED MORTGAGEES
SUBJECT:  Refinance Transactions - Clarification to Mortgagee Letter 93-3
 
    Mortgagee Letter 93-3 , dated January 8, 1993, outlined the instructions
for refinancing Section 235 mortgages.  The purpose of this letter is to
clarify calculating the maximum mortgage amount when streamline refinancing
with an appraisal on a Section 235 mortgage to a Section 203(b) mortgage.
 
    Instructions in Mortgagee Letter 93-3 for calculating the maximum
mortgage amount for a new 203(b) mortgage have been interpreted to mean
that the maximum mortgage amount for the new loan cannot exceed the
original principal balance of the old mortgage regardless of an appraisal
being performed and a borrower credit qualifying.  Such an interpretation
is not the intention of the Department.  Lenders are to use the outstanding
instructions in Handbook 4155.1  REV-4 paragraph 1-12(B) when exceeding the
original mortgage amount.  This paragraph instructs lenders that when
exceeding the original mortgage amount they must document that the
borrower's record of payment on the existing mortgage is satisfactory, and
the borrower has not otherwise exhibited a continuing disregard for credit
obligations.  An infile credit report may be used to document credit.
 
Very sincerely yours,
 

 
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
 
Attachment
 
___________________________________________________________________________
                                                   4155.1 REV-4
 
___________________________________________________________________________
 
(1-12)
 
     B.   Streamline Refinances WITH appraisals (no credit qualifying*)
          allow for the inclusion of closing costs and reasonable discount
          points into the new mortgage in certain situations, subject to
          loan-to-value limits applied to the appraised value.  The lowest
          of the three calculations shown below determines the maximum
          insurable mortgage before adding any Upfront MIP.  To calculate
          the maximum mortgage:
 
          1)   Multiply the appraised value, excluding any closing costs,
               by 97.75 percent (or 98.75 percent if the property's value
               is $50,000 or less);
 
          2)   Add the appraised value and allowable percentage of closing
               costs.  Multiply the first $25,000 of this amount by 97
               percent and the remaining amount by 95 percent and add the
               two sums together;
 
          3)   Complete the calculations described below:
 
               a)   Add the existing principal indebtedness (but no
                    interest), plus
 
               b)   All closing costs associated with the transaction (but
                    not prepaid items), plus
 
               c)   Reasonable discount points, and
 
               d)   Subtract any refund of MIP if originally financed in
                    the mortgage.
 
          The lowest amount, plus any financed Upfront MIP, is the maximum
          mortgage the Department will insure.  (*If no underwriting is
          performed, HUD regulations require that the new mortgage not
          exceed the original principal balance (excluding financed MIP)
          of the mortgage being refinanced.  If the lowest of the three
          amounts calculated above will exceed the original principal
          balance, the lender must document that:  1) the mortgagor's
          record of payment on the existing mortgage is satisfactory, and
          2) the borrower has not otherwise exhibited a continuing
          disregard for credit obligations.  An in-file credit report may
          be used to document credit.)
 
___________________________________________________________________________
 
                                  1-25
                                                                     6/92