www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 January 8, 1993 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 93-3 TO: ALL APPROVED MORTGAGEES ATTENTION: Originating and Servicing Mortgagees SUBJECT: Refinancing Section 235 Mortgages - SUPERSEDING MORTGAGEE LETTER REVISION TO THE SECTION 235 (r) REFINANCING PROCEDURES This letter supersedes Mortgagee Letter 91-22 and sets forth the revised procedures for refinancing Section 235 mortgages with new mortgages insured under Section 235(r) of the National Housing Act. Furthermore, the Section 203(b) refinancing procedures, recapture mortgage subordination procedures and Section 235 servicing requirements that were originally published in Mortgagee Letter 91-22 are reprinted in this letter with a few minor changes. The last pages of this letter is a table of contents that facilitates reference to the various subjects that are found in this letter. In Mortgagee Letter 91-22, the lender is required to pay all the expenses respective to refinancing a Section 235 mortgage to a Section 235(r) mortgage. These expenses include the refinancing costs and the cash financial incentive that is paid to the mortgagors at closing. In this superseding mortgagee letter, the lender is required to pay these expenses unless the mortgagors elect to pay the refinancing costs. If the mortgagors pay any of these costs, they cannot receive a cash financial incentive and the originating lender cannot add the maximum margin (set by HUD) to the maximum interest rate (set by HUD). (See Subparagraph H-1, 235(r) Interest Rate, on Pages 8 and 9.) In the instructions contained in Mortgagee Letter 91-22, the originating lender needed sufficient funds to pay these expenses at closing and recoups these expenses during a "recovery period" (a period of up to 60 months). During this period the lender collects the old Principal and Interest (P + I) payments until all these expenses are recouped. Afterwards, the monthly P + I payments drop and are computed at the market interest rate that _____________________________________________________________________ was in effect on the date of the Section 235(r) application. The difference between these P + I payments represents the interest income that offsets these expenses. Effective with the date of this letter, this method of recoupment cannot be used and is replaced by the method in the next paragraph. In the revised Section 235(r) refinancing procedures, the lender pays these expenses at closing and charges an interest rate for the life of the mortgage higher than the market interest rate to defray the expenses of refinancing a Section 235 mortgage to a Section 235(r) mortgage. When the lender sells the Section 235(r) mortgage at a price above par value or pools the Section 235(r) mortgage in a Government National Mortgage Association (GNMA) security that is above par value, the lender can recoup these expenses. This letter reflects the changes necessary to implement this method of recoupment by the mortgagee. GENERAL Currently, HUD is subsidizing old Section 235 mortgages with interest rates as high as 17 1/2 percent. Prior to the issuance of Mortgagee Letter 91-22 there had been no incentive for mortgagors with high interest rates to refinance their old Section 235 mortgage as their share of the monthly mortgage payment is equivalent to or less than a monthly mortgage payment that would be associated with a lower interest rate. Furthermore, some mortgagors have not been able to refinance their high interest rate Section 235 mortgage because the amount due HUD under the recapture mortgage (a second mortgage which allows HUD to recapture Section 235 assistance payments made on behalf of the mortgagors) could not be paid, or HUD's policy prohibiting the subordination of the recapture mortgage prevented the refinance of the old Section 235 mortgage to a Section 203(b) Streamline mortgage. The comprehensive procedures contained in this letter are designed to give financial incentives to Section 235 mortgagors and HUD-approved mortgagees. HUD's purpose is to lower the high interest rates associated with old Section 235 mortgages and to save the Federal subsidy (Section 235 assistance payments). Approximately 36,000 Section 235 insured mortgages with interest rates of 9 percent or higher may be eligible to be refinanced. Old 235 mortgages, where the old Assistance Payments Contract (APC) has been properly suspended or terminated (or should have been suspended or terminated - See the "Note 2" on Pages 5 and 6 for details) by the servicing mortgagee, are not eligible to be refinanced under the 235(r) Program; but, may be refinanced under Section 203(b) per the Refinance Procedures on Page 25 or the Streamline Refinance Procedures on Pages 25 through 27. Mortgagors, who are eligible for the 235(r) Program, 2 _____________________________________________________________________ may elect to refinance under Section 203(b). The old APC is terminated on the day before the date of disbursement of the mortgage proceeds of the new Section 203(b) or 235(r) mortgage. If the old 235 mortgage is refinanced with a Section 203(b) mortgage, then there is no entitlement to an APC. Only when an existing 235 mortgage is refinanced with a Section 235(r) mortgage, where the mortgagors meet the requirements of this letter, will continuation of the assistance payments under a new APC take place. A recapture mortgage, which is associated with an old 235(i) mortgage that is refinanced by a 235(r) or a 203(b) (Streamline) mortgage, can be subordinated to a new 235(r) or 203(b) mortgage under the requirements and procedures in this letter. (See Paragraph M on Pages 15 through 18 for additional details) For the purpose of this letter, the following definitions will apply: "old 235 mortgages"* refers to any Section 235 mortgage which is insured under Sections 235(b), 235(i), or 235(j)(4) of the National Housing Act which includes "Section 235(i) mortgages" and "Section 235 revised recapture 10 mortgages;" "old 235(i) mortgages" refers to any Section 235(i) mortgage that has a recapture mortgage which includes "Section 235 revised recapture 10 mortgages;" "old 235 revised recapture 10 mortgages" refers to only those Section 235(i) mortgages that have a recapture mortgage and an old APC with an original contract term of 10 years (all other Section 235 mortgages have an APC with a term equal to the original mortgage term); and "Section 235(r) mortgages"* refers to the mortgages which refinance Section 235 mortgages, Section 235(i) mortgages or Section 235 revised recapture 10 mortgages. * A Section 235(r) mortgage that is subsequently refinanced to a Section 235(r) mortgage is included in this definition. (See Attachment 1, 235 Mortgages (ADP/Suffix Codes), for additional information). REVISED 235(r) PROGRAM A. General - The Department of Housing and Urban Development Reform Act of 1989 (Reform Act) authorizes HUD to insure new mortgages under Section 235(r) of the National Housing Act 3 _____________________________________________________________________ that refinance old 235 mortgages. B. HUD Handbook 4330.1, REV-3, Administration of Insured Hose Mortgages, Chapters 10 and 11 - The recertification requirements and procedures found in Chapter 10 of HUD Handbook 4330.1, REV-3, must be used as the "initial" certification requirements and procedures for the 235(r) mortgage. After the 235(r) mortgage has been executed by the mortgagors and the new servicing mortgagee begins servicing the mortgage, the recertification requirements and procedures must be performed by the mortgagors and the new servicing mortgagee on an annual basis, when requested by the mortgagors or when the mortgagors report any future increases in the family's income which, in total, increases the family's monthly gross income by $50.00 or more. Additional requirements and procedures are set forth in this letter. The requirements and procedures in HUD Handbook 4330.1, REV-3, Chapters 10 and 11, apply to the servicing of the 235(r) mortgages. Mortgagees can obtain the handbook by contacting the local HUD Field Office. C. Section 235(r) Mortgage Application Processing - Section 235(r) mortgage applications are to be processed and underwritten by Direct Endorsement (DE) mortgagees and underwriters. HUD will not process these applications. Furthermore, DE mortgagees and underwriters are not subject to the "test cases" requirement and Direct Endorsement approval by any HUD Field Office qualifies the mortgagee and underwriter to process and underwrite these applications in that Field Office's jurisdiction. Section 235(r) mortgages are subject to a fifty percent (50%) "Post Endorsement Technical Review" requirement when the case binder is sent to the local HUD Field Office for insurance. Field Offices have the prerogative to increase this percentage. If the review reveals that the underwriter miscalculated the amount of the assistance payments and the miscalculation results in an overpayment of assistance payments then the local HUD Field Office will notify the originating mortgagee in writing and will include instructions on how to handle the overpayments. Furthermore, the local HUD Field Office will notify the Office of Finance and Accounting (OFA) at HUD Headquarters about the overpayment. D. Prerequisites and Conditions of the 235(r) Program - The following prerequisites must be met before the mortgagors may obtain a 235(r) mortgage to refinance their old 235 mortgage: 1. the mortgagors must be currently eligible for assistance under the old APC; 4 _____________________________________________________________________ 2. the servicing mortgagee must be receiving monthly assistance payments from HUD on the mortgagors, behalf under the old APC; 3. the mortgagors must occupy the property which is subject to the old 235 mortgage and must continue occupancy after the 235(r) mortgage is closed; 4. the mortgagors must complete and execute a form HUD-92900, Application of HUD/VA Insured Mortgage (OMB 2502-0059, 3/94), and a form HUD-93100, Application for Homeownership Assistance under Section 235 of the National Housing Act (OMB 2502-0190, 10/94), detailing the family's composition, income, employment and occupancy, and sign a certification averring its accuracy; and Note 1: Mortgagors, who are members of a cooperative association operating a housing project and who are eligible for and receiving assistance payments under an old APC, are not eligible to participate in the 235(r) Program. 5. the mortgagors have not received payments for the costs of refinancing and/or a cash financial incentive, nor have such payments been made on their behalf, for a period of 60 months from the date of the first payment of principal and interest on the mortgage to be refinanced; provided, however, that if the mortgagors pay their own refinancing costs and receive no cash financial incentive, then this prohibition will not apply. If these prerequisites are met the originating mortgagee must complete the following conditions before HUD can insure a 235(r) mortgage: 1. process and underwrite the 235(r) applications for mortgage insurance and assistance payments in accordance with the requirements and procedures in this letter; 2. determine from the form HUD-93100 and other documents that the mortgagors continue to be eligible for assistance and the amount of the assistance payments under the new APC; Note 2: If the originating mortgagee discovers during the 235(r) mortgage application process (i.e., review of form HUD-93100 and its supporting documentation) that the mortgagors were erroneously determined to be eligible for assistance under the old APC by the servicing mortgagee then the originating mortgagee must 5 _____________________________________________________________________ reject the mortgage application since these mortgagors are not eligible for a 235(r) mortgage. The rejection must be in writing. If the mortgagors question the rejection they should be referred to the servicing mortgagee for an explanation and a possible recertification of their eligibility under the old APC. 3. determine that the mortgagors have sufficient income to make their share of the full monthly mortgage payment with 20 percent of adjusted monthly income (or, 28 percent, if an old 235 revised recapture 10 mortgage is refinanced); 4. perform a mortgage credit analysis (as described in HUD Handbook 4155.1, REV-3, Mortgage Credit Analysis for Mortgage Insurance on One-to-Four Family Properties) when the mortgagors' share of the full monthly payment increases more than $50.00 per month under the 235(r) mortgage; 5. assure that the interest rate on the mortgage does not exceed the greater of the 235(r) interest rate in effect on the date that: (a) the form HUD-92900-WS, Work Sheet, was executed by the DE underwriter, or (b) the 235(r) mortgage was executed; Note: See Subparagraph H-1, 235(r) Interest Rate, on Pages 8 and 9. 6. assure HUD that there is a decrease between the interest rate on the old 235 mortgage and the 235(r) mortgage; 7. assure HUD that the 235(r) mortgage amount does not exceed the lesser of: (a) the unpaid principal balance due on the mortgage being refinanced, including any advances properly made by the servicing mortgagee under the terms of the mortgage and any current interest due and delinquent interest up to two (2) months, or (b) the original mortgage amount of the mortgage being refinanced; and 8. assure HUD that all overpayments of assistance payments have been refunded to HUD by the servicing mortgagee (if the overpayments have not been refunded the 235(r) or 203(b) mortgage application cannot be approved). The DE underwriter and mortgagee will certify to these prerequisites and conditions when the "Underwriter Certification" (Appendix 3) and the "Mortgagee's Certification" (Appendix 4) is completed per the requirements set forth in HUD Handbook 4000.4, REV-1, Change 1. 6 _____________________________________________________________________ E. The 235(r) Mortgage Amount - The 235(r) mortgage amount is the unpaid principal balance (UPB) of the old Section 235 mortgage, including any advances (e.g., Section 235 overpayments, real estate taxes, hazard insurance, etc.) properly made by the servicing mortgagee under the terms of the mortgage and any current interest due and delinquent interest up to two (2) months. The 235(r) mortgage amount cannot exceed the original Section 235 mortgage amount. The Section 235 Payoff Statement requirements on Pages 27 through 30 set forth this information. The Section 235(r) mortgage amount must be rounded down to the nearest $50.00 increment before applying the P + I factors for the interest rates associated with the 235(r) mortgage application (i.e., 235(r) and floor; See Paragraph H on Pages 8 through 10) and the "periodic" MIP factor for the initial MIP. This mortgage amount must be incorporated into the 235(r) mortgage instruments. F. The 235(r) Mortgage Term - The maximum term of the 235(r) mortgage cannot exceed the remaining term of the old 235 mortgage as of the date of closing the 235(r) mortgage, rounded down to the next whole year. For example, if the remaining term of the old 235 mortgage as of the date of closing is 23 years, 11 months and 3 days, the maximum term of the 235(r) mortgage is 23 whole years. A 235(r) mortgage may have a term in whole years that is less than the maximum term. The Section 235 Payoff Statement requirements on Pages 27 through 30 set forth the remaining term of the old Section 235 mortgage. G. The 235(r) "Periodic" Mortgage Insurance Premiums - The 235(r) mortgage is subject to "periodic" MIP. The premiums are included in the mortgagors' monthly mortgage payments and escrows must be established for the payment of these premiums to HUD. The amount of the premium is computed on an annual basis at seven-tenths of one percent (.7%). The MIP factor is based on the 235(r) interest rate and term of the 235(r) mortgage. The "periodic" MIP requirements are set forth in HUD Handbook 4330.1, REV-3. The factors in Attachment 2, Section 235(r) Mortgages - Initial and Annual Mortgage Insurance Premiums Factor Table, are computed to reflect the MIP at .7 percent for a variety of 235(r) interest rates and 235(r) mortgage terms. These factors must be used to compute the initial MIP and the annual MIP for subsequent premium years. MIP factors found in HUD Handbook 4330.1, REV-3, cannot be used with a 235(r) mortgage because they are computed for different amortization periods that may not apply to a 235(r) mortgage. 7 _____________________________________________________________________ H. Interest Rates and Related issues - Two different interest rates (235(r) and floor) affect the processing and underwriting of any 235(r) mortgage application. These interest rates are used to compute the P + I payments respective to the 235(r) mortgage and assistance payments (Formula One and Formula Two computations) at the time of application. Monthly P + I factors for the 235(r) interest rates are found in forms FHA-2025(A, B, C and D), Supplement, Amortization, Insurance Premium and Outstanding Principal Balance Tables, and can be used to compute the periodic payments of P + I associated with the 235(r) mortgage. The FHA No. 2025 comes in various supplements covering ranges of interest rates. These supplements can be obtained from the local HUD Field Office. Furthermore, Subparagraph H-2 on Page 9 prescribes the P + I factors that must be used with the interest rate floor. 1. 235(r) Interest Rate - Originating lenders may negotiate an interest rate higher than the market interest to defray some or all the expenses of refinancing a Section 235 mortgage to a Section 235(r) mortgage. These expenses include the refinancing costs and cash financial incentive paid to the borrower. If the mortgagors elect to pay the refinancing costs, the originating lender cannot pay the cash financial incentive to the mortgagors and cannot add the maximum margin set forth in the following definition. (See Upfront Costs on Pages 10 through 11 for additional details) For purposes of defining the 235(r) interest rate, it is: "A negotiated interest rate that cannot exceed the maximum interest rate (set by HUD), plus a maximum margin (set by HUD) when the lender is paying all the refinancing costs and a cash financial incentive to the borrowers. If the lender does not pay all the refinancing costs and the cash financial incentive to the borrowers then the lender shall not be entitled to add the margin to the maximum interest rate (set by HUD)." The initial maximum interest rate is 8.00 percent. The initial maximum margin is 1.50 percentage points. Thus, the initial maximum 235(r) interest rate is 9.50% if the lender pays the refinancing costs and financial incentive. If the lender does not pay these items, then the initial maximum 235(r) interest rate is 8.00%. The interest rate and/or the margin may be changed by HUD when the market dictates. Any changes will be published in the Federal Register and in mortgagee letters. 8 _____________________________________________________________________ The 235(r) interest rate that applies to a Section 235(r) mortgage is the greater of the Section 235(r) interest rate in effect on the date that the form HUD-92900-WS is executed by the DE underwriter, or the date of execution of the Section 235(r) mortgage. When the 235(r) mortgage is sent to HUD for endorsement there must be a decrease between the old Section 235 interest rate and the 235(r) interest rate and the old Section 235 interest rate must be higher then the Section 235(r) interest rate; otherwise, the old Section 235 mortgage cannot be refinanced to a Section 235(r) mortgage. The prepaid interest associated with the 235(r) mortgage is computed at the 235(r) interest rate. If the lender pays the upfront costs, the first 10 days of prepaid interest may be included in these costs and any excess prepaid interest must be paid in cash by the mortgagors at closing. Therefore, mortgagors should be encouraged to close within the last 10 days of the month. 2. The Interest Rate Floor - The interest rate floor that is associated with the old APC is the interest rate floor for the new APC. The Section 235 Payoff Statement requirements on Pages 27 through 30 set forth the interest rate floor of the old APC. Instructions to compute the P + I payments at the interest rate floor are set forth on form HUD-93100. The P + I factors for the interest rate floors that are found in HUD Handbook 4330.1, REV-3, cannot be used for processing, underwriting and servicing the 235(r) mortgages because these factors are based on an original 30 year term. The term of the 235(r) mortgage is based on the remaining term of the old 235 mortgage and will vary in each refinance transaction. The interest rate floor is used in the Formula Two computation where the assistance payment is the difference between the amount of the monthly payment for principal, interest and mortgage insurance premium which the mortgagors are obligated to pay under the 235(r) mortgage and the monthly payment for principal and interest which the mortgagors would be obligated to pay if the 235(r) mortgage were to bear interest at the interest rate floor. The P + I factors in Attachment 3, Section 235(r) Interest Rate Floor(s) - Factor Table, are computed to reflect the interest rate floors for a variety of 235(r) mortgage terms. These factors must be used to compute 9 _____________________________________________________________________ Formula Two when the 235(r) mortgage is processed and underwritten and when subsequent assistance payments are recomputed by the new servicing mortgagee. I. Upfront Costs of the 235(r) Mortgage and Related Issues : 1. Upfront Costs - If the originating mortgagee is paying the upfront costs, it must pay all the actual upfront costs associated with the 235(r) mortgage. (See Subparagraph I-3, below, for additional details.) These costs are: a. the one percent (1%) loan origination fee; b. the mortgagors' prepaid interest (up to the first 10 days of prepaid interest); c. actual closing costs and discount points; and the d. cash financial incentive paid to the mortgagors. 2. Mortgagors' Financial Incentives - If the originating mortgagee is paying the costs of refinancing, the mortgagee must pay the mortgagors a cash payment of $450.00 as a cash financial incentive to refinance to a 235(r) mortgage. The financial incentive is payable to the mortgagors at closing and can be used to offset the mortgagors' prepaid expenses for the 235(r) mortgage. Originating mortgagees must inform the mortgagors that they may need assistance from a tax advisor regarding the tax consequences of the mortgagee paying a cash financial incentive to the mortgagors and the mortgagee paying for, or on behalf of, the mortgagors' upfront costs. The mortgagors will certify on the form HUD-93100 that the originating mortgagee has so informed them. Mortgagees should not give tax advice unless they are professionally qualified to do so. 3. Mortgagors' Option to Pay the Upfront Costs - If the mortgagors elect to pay any of the upfront costs then they cannot be paid a cash financial incentive and the mortgagee cannot add the maximum margin to the maximum interest rate as set by HUD for the Section 235 refinance program. 4. Mortgagors' Prepaid Expenses - The mortgagors must pay their prepaid expenses (escrow deposits and prepaid interest that exceeds the amount included in the actual upfront costs paid by the originating mortgagee). Originating mortgagees can offer an interest free advance 10 _____________________________________________________________________ equal to the present escrow balance on the old 235 mortgage to assist the mortgagors with these prepaid expenses that they will be required to pay in cash at closing. Also, the mortgagors, cash financial incentive (at the mortgagors, option) can be applied toward their prepaid expenses. The cash amount that is required at closing from the mortgagors for their prepaid expenses will depend on the date of disbursement of the 235(r) mortgage proceeds and the date of the first scheduled monthly amortization payment, and on the method used by the originating mortgagee to determine the first assistance payment (initial partial assistance payment) under the new APC. (See next paragraph) 5. First Section 235(r) Assistance Payments - The first (initial partial) assistance payment may offset some of the mortgagors, prepaid expenses. It is computed for the period of time beginning with the date of disbursement and ending with the last day of the month that precedes the first scheduled monthly amortization payment. The prepaid interest that is paid by the originating mortgagee at closing cannot be used to compute the first assistance payment. Originating mortgagees must select one of two methods (i.e., Interest Collected at Closing or Adjusted Mortgage Payment) to determine the first assistance payment for the new APC. These methods are set forth in HUD Handbook 4330.1, REV-3, and Appendix 1 (attached) sets forth a computational example. The method selected must be the one that is most advantageous to the mortgagors. Note: Originating mortgagees must compute the regular monthly Section 235(r) assistance payments in accordance with the instructions set forth on form HUD 93100 and the procedures found in HUD Handbook 4330.1, REV - 3, Chapter 10. 6. Form HUD-1, Settlement Statement - The originating mortgagee, or its agent, must complete and have the mortgagors execute at closing a form HUD-1 that enumerates the upfront costs associated with the 235(r) refinance transaction. A copy of the form HUD-1 and attachment must be included in the case binder when it is sent to the local HUD Field Office for mortgage insurance. 11 _____________________________________________________________________ J. The Characteristics of the New Assistance Payments Contract (New APC) and 235(r) Assistance Payments Billings : 1. The New 235(r) APC - The issuance of the Mortgage Insurance Certificate (form HUD-59100, MIC) will constitute the execution of the new 235(r) APC (new APC). The new APC will not be a separate written contract between HUD and the originating mortgagee, but rather 24 CFR Part 235, Subpart C, as modified by a final rule that is published in the Federal Register (57 FR 62452, December 30, 1992), will constitute the new APC. 2. The New 235(r) APC's Contract Term - The contract term of the new APC commences on the date of disbursement of the 235(r) mortgage proceeds and expires at the end of the 235(r) mortgage term, or such earlier time as the new APC is terminated pursuant to 24 CFR 235.375. An exception, as described in Subparagraph J-3, below, is made for the new APC (new APC 10) which is associated with the 235(r) mortgage that refinances an old 235 revised recapture 10 mortgage. 3. The New APC 10 - The new APC 10 will not be a written contract and will be represented as set forth in Subparagraph J-1, above. The new contract term of the new APC 10 will commence on the date of disbursement of the 235(r) mortgage proceeds and will expire on the "expiration date" of the new contract term as set forth in the next paragraph, or such earlier time as the new APC 10 is terminated pursuant to 24 CFR 235.375. The "expiration date" of the new APC 10 can be determined by adding 10 years to the date of the first scheduled monthly amortization payment under the old 235 revised recapture 10 mortgage. The Section 235 Payoff Statement requirements on Pages 27 through 30 set forth the date of the first scheduled monthly amortization payment under the old 235 revised recapture 10 mortgage. Attachment 4, Acknowledgment of Mortgagor(s), must be executed by the mortgagors on the date of closing of the 235(r) mortgage (Use with 235 revised recapture 10 refinancings only). A copy of the original APC which is associated with the old 235 revised recapture 10 mortgage is required to be attached to the Section 235 Payoff Statement. 4. Date of the 235(r) Mortgage Proceeds Disbursement - The originating mortgagee must complete the instructions to and must execute Attachment 5, Mortgagee's Certificate of the Date of Disbursement of the Section 235(r) Mortgage 12 _____________________________________________________________________ Proceeds. The date of disbursement is the date on which the contract term of the new APC or APC 10 commences. Prior to the date of disbursement HUD is not obligated to pay any assistance payments which are associated with the new APC or APC 10. 5. Section 235(r) Assistance Payments Billings - Within 5 days after receiving the 235(r) MIC the originating mortgagee, or its agent, must send to the address below the following completed and executed documents: a. form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act (original); b. a copy of form HUD-27050-A, Mortgage Insurance Termination-Application for Premium/Distributive Payments, for the old 235 mortgage (obtained from the servicing mortgagee); c. the form HUD-93114, Notice of Termination, for the old APC or APC 10 (obtained from the servicing mortgagee); d. the original Attachment 5, Mortgagee's Certification of the Date of Disbursement of the Section 235(r) Mortgage Proceeds; e. a copy of the Section 235 Payoff Statement; f. a copy of the 235(r) MIC (Part 2); g. the original Attachment 4, Acknowledgment of Mortgagor(s), if a new APC 10 is involved; and h. the original Attachment 6, Acknowledgment of 235(r) Assistance Payments Suspension, and the original form HUD-93114, Notice of Suspension, when a Section 235(r) mortgage application is approved and the new APC is suspended beginning with the date of closing. For additional details on Attachment 6 see the section on Pages 23 and 24 that is entitled: "APPROVING A MORTGAGE APPLICATION WHERE THE MORTGAGORS ARE ELIGIBLE FOR A SECTION 235(r) MORTGAGE, BUT ARE NOT ELIGIBLE FOR THE CONTINUATION OF ASSISTANCE PAYMENTS." These documents must be sent to: Department of Housing and Urban Development, Office of Finance and Accounting, Room 3206, Washington, D.C., 20410. 13 _____________________________________________________________________ The originating mortgagee must obtain from the servicing mortgagee a copy of form HUD-27050-A for the old 235 mortgage and the form HUD-93114 for the old APC. The original form HUD-27050-A must be sent to HUD by the servicing mortgagee (the address is inscribed on the form). The Office of Finance and Accounting (OFA) will not establish a new APC or APC 10 account without first terminating the old APC account. OFA will set up a new APC or APC 10 account by the 235(r) FHA case number which will enable it to process the new servicing mortgagee's requests for assistance payments and to disburse funds to the new servicing mortgagee once the bill has been validated. The servicing mortgagee will not be paid on the new APC or APC 10 until the account is set up by OFA. Once the account is established, the servicing mortgagee can request the initial 235(r) assistance payments on the next billing date which is at least 30 days after the documents in Subparagraphs J-5(a) through 5(h) on Page 13 have been received by OFA. The initial amount of the 235(r) assistance payments must represent the first assistance payment (as set forth in Subparagraph I-5, Page 11) and any subsequent monthly assistance payments that were due and payable to the new servicing mortgagee prior to the new APC or APC 10 account being set up. Mortgagees should send these documents to OFA by "Return Receipt Requested" or by courier. Requests for assistance payments must be submitted on form HUD-93102, Mortgagee's Certification and Application for Assistance or Interest Reduction Payments, in accordance with HUD Handbook 4330.1, REV-3. All Section 235(r) APCs are subject to the same billing procedures. Servicing mortgagees should indicate the amount being billed under their former section on the voucher (form HUD-93102); however, detail will be required for each of these cases if any adjustments are needed to the billing amount. If the mortgagee is billing for Section 235(r) cases and old program cases in the same block, the amounts should be shown separately until the old program cases are incorporated into the new billing system. See HUD Handbook 4330.1, REV-3, Chapter 10, paragraphs 10-21 - all sections. The procedures described in this section will take effect immediately for all Section 235(r) cases. HUD will compare the total billed for these cases with the amount recorded in the mortgagee's portfolio. Any difference must be supported by a form 14 _____________________________________________________________________ HUD-300 with one or more of the following support documents attached if appropriate: (1) form HUD-93101-A, Mortgagee's Certification of Family Income and Composition; (2) form HUD-93114, Notice of Termination, Suspension or Reinstatement of 235 Assistance Payments Contract; or, (3) form HUD-92080, Mortgage Record Change. K. The 235(r) Mortgage (or Deed of Trust) Provisions and Allonge Amending Note for Section 235(r) - The model forms for the security instrument and note to be used in the single family mortgage insurance programs were published in Mortgagee Letter 89-23, dated October 11, 1989. The originating mortgagee will have to make whatever amendments to the security instrument which are required by State and local laws. The 235(r) mortgage must be a first lien on the property which is held in fee simple, or on a leasehold under a lease where the term is for not less than 99 years (which is renewable) or has not less than 10 years to run beyond the maturity date of the 235(r) mortgage. L. Subordinate Financing to the Section 235(r) Mortgage - Existing junior mortgages cannot be subordinated to the Section 235(r) mortgage with one exception: If HUD and/or a government unit (Federal, State or local government agency or instrumentality) are the second and/or third lienholders then these existing junior mortgages can be subordinated to the Section 235(r) mortgage. (See next section for details) M. Recapture Mortgages : 1. Execution of a Modification and Subordination Agreement to the Recapture Mortgage (or Deed of Trust) and Execution of a New Recapture Note - Old 235(i) mortgages and old 235 revised recapture 10 mortgages where a firm commitment was issued after May 27, 1981, have a recapture mortgage (or deed of trust) and note which is a junior mortgage that allows for the recapture by HUD of Section 235 assistance payments made on behalf of the mortgagors. HUD will allow the modification and subordination of the recapture mortgage to the 235(r) mortgage where the originating mortgagee has followed the instructions set forth in Attachment 7, Instructions to Complete the Modification and Subordination Agreements for HUD's Recapture Mortgage. These instructions require that the mortgagors, the originating mortgagee and HUD, or its designee, execute Attachment 7-A, Mortgage Modification and Subordination 15 _____________________________________________________________________ Agreement, or Attachment 7-B, Deed of Trust Modification and Subordination Agreement. In addition, the mortgagors must execute a new recapture note on the date of closing of the 235(r) mortgage. (Appendix 56, Note, HUD Handbook 4330.1, REV-3; See handbook instructions for details.) The DE underwriter, who underwrites and certifies the 235(r) case which includes the subordination of the recapture mortgage, or a corporate officer of the DE mortgagee, who has the authority to legally obligate the mortgagee, is delegated by HUD the limited authority, as its authorized official (designee), to execute on HUD's behalf the modification and subordination agreement. (This authorization is not applicable to Section 203(b) Streamline refinancing with Section 235 recapture mortgage subordination as set forth on pages 25 through 27.) These authorized officials must execute the respective agreement on or before the date of closing of the 235(r) mortgage. The originating mortgagee, or its agent, must have the respective agreement properly recorded concomitant with the recordation of the new 235(r) mortgage. The recorder's office must be instructed by the originating mortgagee, or its agent, to send the original agreement to the local HUD Field Office (ATTN: Documents Officer). The recapture mortgage will retain the same provisions with the exceptions contained in the respective modification and subordination agreement. Since the conditions requiring the payment of the recapture mortgage will not have occurred, the modified and subordinated mortgage will not be due and payable. Therefore, the amount of recapture will not be computed at the time of the modification and subordination of the recapture mortgage, but will be computed at a future date when the amount is required to be paid to HUD. The amount of the recapture will continue to be calculated under the procedures set forth in Chapter 11 of HUD Handbook 4330.1, REV-3, and will represent the lesser of the total amount of assistance paid by HUD (less handling charges) or half of the net appreciation of the property, which is based on a contract of sale, or an appraisal, when the property is sold, less the original purchase price of the property and reasonable costs of sale and qualified improvements. The mortgagors must be informed of the effects of the modification and subordination of the recapture mortgage and must execute Appendix 44, Notice to Buyer, in HUD 16 _____________________________________________________________________ Handbook 4330.1, REV-3. The title of the appendix title must be changed to read "Notice to Mortgagors". A copy of Appendix 44 must be furnished to the mortgagors. Within 5 days after the closing date of the 235(r) mortgage, the originating mortgagee, or its agent, must send a copy of the modification and subordination agreement, the new recapture note and the original of the newly executed Appendix 44 to the local HUD Field Office (ATTN: Documents Officer). These documents are sent to the local HUD Field Office separate from the case binder. 2. A Recapture Mortgage (or Deed of Trust) can be Subordinated to a Junior Mortgage (or Deed of Trust) Held or Insured by a Government Unit - Some old 235(i) mortgages were originally processed, underwritten and executed where a government unit financially assisted the mortgagor in becoming a homeowner. These government units obtained or insured a second mortgage and HUD's recapture mortgage was secured as a third mortgage. In refinance transactions where a government unit has agreed to subordinate the second mortgage to a 235(r) mortgage and retain its second lien status, HUD will allow the modification and subordination of the recapture mortgage to the 235(r) (first) mortgage and the government unit's subordinated second mortgage. The same subordination requirements and procedures as set forth in Subparagraph M-1, above, apply. Attachments 7-A through 7-D cannot be used to subordinate a government unit's second mortgage. The government unit will have to use their own. 3. Originating Mortgagee's Certification of HUD's Lien Priority after Recordation of the Modification and Subordination Agreement - The originating mortgagee must certify to HUD, after the concomitant recordation of the 235(r) mortgage and the modification and subordination agreement, that HUD holds a second lien priority, or a third lien priority if the recapture mortgage is subordinated to a mortgage held or insured by a government unit. This certification is set forth in HUD Handbook 4000.4, REV-1, Change 1, Mortgagee's Certification, Appendix 4. 4. Assumption of a Modified and Subordinated Recapture Mortgage and Note - The recapture mortgage, which is modified and subordinated to the 235(r) mortgage, can be assumed by a future purchaser if he meets the requirements for the assumption of the 235(r) mortgage which are set forth in the mortgage and the requirements 17 _____________________________________________________________________ for assumption of the recapture mortgage as set forth in HUD Handbook 4330.1, REV-3. The future purchaser will be required to execute a new recapture note when the assumption is consummated. N. Section 235 Mortgages Directory - The Reform Act authorizes HUD, upon the request by any HUD-approved mortgagee, to disclose specific information on mortgages insured under Section 235 that meet the criteria for refinance. Mortgagees can obtain a Section 235 Mortgages Directory that contains the mortgagors' name (last known), property address, FHA case number, ADP code, endorsement date, original mortgage balance and interest rate for each mortgage that may be eligible for refinancing under the 235(r) Program. The directory is organized by state, zip codes within the state and the mortgagors' name. Old 235 mortgages with interest rates of nine percent or more are contained in the directory. Mortgagees must send a written request for the directory. The written request must include the information set forth in Attachment 8, 235 Mortgages Directory - Written Request, and it must be sent to the address designated on the attachment. Attached to the written request must be a money order or certified check which is payable to the U.S. Department of Housing and Urban Development for the amount required to purchase the quantity desired ($50.00 each hard copy, $150.00 each set of floppy disks or $250.00 each magnetic tape). O. Check Lists to Assist the Originating Mortgagee, or its Agent - The application processing and documents disposition requirements set forth in this letter are arduous. To assist the originating mortgagee, or its agent, the following check lists have been developed for 235 refinancing transactions and may be used with the 235(r) Program (i.e., Attachments 9 -A through 9-D) and the 203(b) Refinance and Streamline Refinance procedures (i.e., Attachments 9-B and 9-D): 1. Attachment 9-A, 235(r) Application Processing - Questions and Answers/Check List, is used during the pre- and post-application processing which takes place prior to the application being sent to the DE underwriter for underwriting; 2. Attachment 9-B, 235(r) or 203(b) Documents Disposition/Check List For The 235(r) Case Binder And The Origination And Servicing Files, is used (after the 235(r) or 203(b) mortgage has been closed) to: complete the origination file, prepare for shipment those documents that are included in the case binder and are sent to the local HUD Field Office for insurance, and establish the new servicing file; 18 _____________________________________________________________________ 3. Attachment 9-C, 235(r) Documents Disposition For The New APC Account/Check List, is used for shipment of those documents that must be sent to HUD, Subsidy Accounting Branch, to establish the new APC account for the billing of 235(r) assistance payments by the new servicing mortgagee; and 4. Attachment 9-D, Recapture Mortgage (Deed of Trust) Modification and Subordination Agreement Disposition/ Check List, is used for shipment of those documents that must be sent to the local HUD Field Office. P. Section 235 Payoff Statements - Any 235 mortgage refinanced under Section 235(r) or Section 203(b) must comply with the servicing requirements on Pages 27 through 33. Q. Subsequent Section 235(r) to Section 235(r) Refinancings - To assure the originating mortgagee and investor that HUD's policy to allow the eligible upfront costs to be recouped in subsequent 235(r) refinancings does not cause early prepayments of a 235(r) mortgage, HUD is setting forth the following requirement: Mortgagors must pay all the upfront costs with any subsequent Section 235(r) to Section 235(r) refinancing that occurs within 60 months of the date of the first payment to principal and interest on the 235(r) mortgage. This prohibition does not apply if the mortgagors paid the upfront costs for the Section 235(r) mortgage being refinanced. 235(r) APPLICATION PROCESSING A. The 235(r) Mortgage Application - The following forms and documents represent the 235(r) mortgage application which must be processed and completed by the originating mortgagee prior to the issuance of a 235(r) FHA case number and ADP code. After HUD has issued the 235(r) FHA case number and ADP code, the 235(r) mortgage application is submitted to the DE underwriter for review and underwriting. 1. Form HUD-92900, Application for HUD/FHA insured Mortgage (OMB 2502-0059, 3/94) - Form HUD-92900 must be completed and certified by the originating mortgagee and executed by the mortgagors. The originating mortgagee must complete the instructions attached to the form HUD-92900 and must enter the old 235 FHA case number and ADP code in the lower left-hand corner of Item 4A, Name and Address of Lender. 19 _____________________________________________________________________ The application is not subject to an appraisal, a face-to-face interview, or a photo identification. A credit report does not need to be obtained, unless, a mortgage credit analysis is required. An old 235 mortgage which is no more than two payments delinquent (as of the date of execution of the 235(r) mortgage) may be refinanced under the 235(r) Program. For details on including delinquent interest in the 235(r) mortgage amount see Page 7. 2. Form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act (ORB 2502-0190, 10/94) : a. The Originating Mortgagee must process and complete a form HUD-93100 - A form HUD-93100 must be processed and completed by the originating mortgagee and executed by the mortgagor. The originating mortgagee must follow the instructions set forth on form HUD-93100 and the procedures found in HUD Handbook 4330.1, REV-3, Chapter 10. In addition, the originating mortgagee must enter the old 235 FHA case number and ADP code in Item D, Mortgagee's Name, Address, and City, State and Zip Code, in the lower left-hand corner. If the mortgagee pays the refinancing costs and the cash financial incentive to the mortgagors, the following paragraphs must be inserted in "Notes" on Page 2 of 2 and become part of form HUD-93100: "I (we) have been informed by the originating mortgagee that I (we) may wish to seek tax advice from a professional, who is qualified to give such advice, as to the tax consequences associated with the mortgagee paying a financial incentive to me (us) and also paying the refinancing costs for and on my (our) behalf. Furthermore, I (we) understand that seeking tax advice is a voluntary action and does not constitute a requirement in the consideration of my (our) mortgage application." _____________________________________________ Mortgagor's Signature Date If the mortgagee pays the upfront costs, add the following paragraph before the mortgagor's signature: "I (we) also understand that if I (we) refinance the 235(r) mortgage to another 235(r) mortgage within 60 months of the date of the first payment to principal and interest on the 235(r) mortgage that I am (we 20 _____________________________________________________________________ are) obligated to pay all the costs to refinance." Note: When the Section 235(r) mortgage application is taken, the instructions found on form HUD-93100 must be followed to compute the Formula Two assistance payments for the first year. The "Factor Method" cannot be used to compute the first year's assistance payments. This method computes in one step the Formula Two assistance payments by using factors which have been developed for the direct application to the original principal balance. Factor tables will be made available for the servicing of Section 235(r) mortgages. These tables will be distributed in the near future. b. Review and Execution of form HUD-93100 - The DE underwriter must review, verify and execute form HUD-93100 and its supporting documentation (e.g., verification(s) of employment) when the 235(r) mortgage is underwritten. The DE underwriter is the authorized official, who determines the mortgagors, eligibility for assistance and the amount of the assistance payments for the new APC. The DE underwriter will complete Item K, Review and Eligibility, and execute form HUD-93100 when the application is approved per the requirements of this letter. 3. 235(r) Mortgage Application Verifications and Related Issues : a. Requests for Verification - At the time of the 235(r) mortgage application the originating mortgagee is required to evidence the mortgagors' social security number(s) in accordance with the procedures in HUD Handbook 4155.1, REV-3, Chapter 1, and must obtain the mortgagors, authorization to verify their employment and account information on their old 235 mortgage. Verification(s) of Employment - The originating mortgagee must obtain the verification of the mortgagors, employment and income per the requirements set forth in HUD Handbook 4330.1, REV-3, Chapter 10. Verification of the 235 Mortgage Account - The originating mortgagee must verify the 235 mortgage account and must obtain documentation that supports the processing and underwriting of the Section 235(r) 21 _____________________________________________________________________ or Section 203(b) mortgage that refinance the old 235 mortgage under the requirements of this letter. The mortgagors should send the servicing mortgagee a written request setting forth the need for the information that is found in the Section 235 Payoff Statement requirements on Pages 27 through 33. This written request must also serve as a written notice to the servicing mortgagee that the mortgagors intend to prepay the old 235 mortgage. (See HUD Handbook 4330.1, REV-3, Chapter 5, for details on "Prepayments"). b. Written Verification by the Servicing Mortgagee - Upon receipt of the mortgagors' written request for verification of the old 235 mortgage account, the servicing mortgagee is required to respond by issuing a written verification as set forth in the Section 235 Payoff Statement requirements on Pages 27 through 33, and is required to send the mortgagors a notice that is similar to Appendix 8(A) of HUD Handbook 4330.1, REV-3. HUD's prepayment requirements are found in Chapter 5 of HUD Handbook 4330.1, REV-3. The written verification from the servicing mortgagee should be addressed to the originating mortgagee. Any negative response by the servicing mortgagee will cause the application processing to cease and must be corrected before the application processing can continue. An exception is made for the negative response which states that the mortgagors are not eligible for and receiving assistance payments wherein the application must be rejected. 4. Verification Deficiencies - The servicing mortgagee may encounter problems in issuing the written verification with attachments. In most cases, the problem is correctable and the servicing mortgagee must be given the opportunity to correct the deficiency. The deficiency should be corrected within a time frame that does not exceed 30 calendar days. (See Paragraph B, Verification Deficiencies, on Pages 30 through 32.) 235(r) FHA CASE NUMBERS As with other programs, to start case processing, the originating mortgagee must contact the local HUD Field Office for a case number. Besides the routine case information the originating mortgagee must also provide the old 235 FHA case number and ADP code. Once the old 235 FHA case number has been verified the local HUD Field Office will issue the new 235(r) FHA 22 _____________________________________________________________________ case number and ADP code. Originating mortgagees must enter the new 235(r) ADP code in Item 2B, Section of the Act, of form HUD-92900. (See Attachment 1, 235 Mortgages, for additional details on the 235(r) ADP (Suffix) codes.) 235(r) UNDERWRITING CRITERIA DE underwriters must comply with the following 235(r) underwriting requirements: A. The 235 Mortgage Application - The 235(r) mortgage application (form HUD-92900, form HUD-93100 and the verifications) must be processed and completed in accordance with the requirements and procedures set forth in this letter. DE underwriters must review these documents for conformity to these requirements and procedures. No appraisal is required for the 235(r) mortgage application. B. Form HUD-92900-WS - DE underwriters must complete Items 1 through 14 and Item 15 (a) through (g) of form HUD-92900-WS, or complete the entire work sheet if a mortgage credit analysis is required, and must approve or reject the mortgage application. C. Other Duties - The DE underwriter must: advise the mortgagors in writing of the application's acceptance or rejection, execute form HUD-93100 as the authorized official if the mortgagors meet the requirements set forth in this letter, and execute Appendix 3, Underwriter Certification, HUD Handbook 4000.4, REV-1, Change 1. If the 235(r) mortgage application includes the subordination of the recapture mortgage, the DE underwriter must approve the subordination of the recapture mortgage as a condition of the 235(r) mortgage approval. On or before the date of closing of the 235(r) mortgage, the authorized DE mortgagee official or the DE underwriter must execute a Mortgage Modification and Subordination Agreement (Attachment 7-A) or Deed Of Trust Modification and Subordination Agreement (Attachment 7-B). APPROVING A MORTGAGE APPLICATION WHERE THE MORTGAGORS ARE ELIGIBLE FOR A SECTION 235(r) MORTGAGE, BUT ARE NM ELIGIBLE FOR THE CONTINUATION OF ASSISTANCE PAYMENTS Mortgagors, who are eligible for and receiving assistance under the old Section 235 mortgage, are eligible for a Section 235(r) mortgage even though the DE underwriter determines that the mortgagors are able to pay the Section 235(r) mortgage's full 23 _____________________________________________________________________ monthly payments with 20 percent (or 28 percent, if an old Section 235 Revised Recapture 10 mortgage) of their adjusted monthly income. In most cases, this situation is caused by refinancing to a lower interest rate where the Section 235(r) mortgage's full monthly payments are equal to or less than the mortgagors' share of the full monthly payments under the old Section 235 mortgage. When this situation occurs, the Section 235(r) application is approvable. On the date of closing of the Section 235(r) mortgage, the mortgagors must execute Attachment 6, Acknowledgment of 235(r) Assistance Payments Suspension. Within 5 days after receiving the 235(r) MIC the originating mortgagee is required to complete and execute form HUD-93114, Notice of Suspension, per the instructions attached to the form and the additional instructions set forth in the next two paragraphs. Furthermore, the instructions found in Paragraph J-5, Section 235(r) Assistance Payments Billings, on Pages 13 through 15 must be followed. The originating mortgagee must check (\/) "Suspension." Furthermore, the originating mortgagee must enter the new Section 235(r) FHA case number and ADP code in Items 1, FHA case number, and in Item 18, Reinstatements Only, lower left-hand corner, the old 235 FHA case number and ADP code. The originating mortgagee must check "Reason 7" in Item 15 and must enter the reason for the suspension by entering the following statement: "The Section 235(r) mortgage instruments have been executed by the mortgagors, who have qualified for the mortgage, and the case was endorsed on (enter the date) by HUD. The new APC is suspended retroactive to the date of closing (enter the date) of the Section 235(r) mortgage." The executed form HUD-93114 (original) must be attached to form HUD-93100 in accordance with the requirements on Pages 13 through 15, Paragraph J-5, Section 235(r) Assistance Payments Billings. The following instructions must be employed when a Section 235(r) application is approved and the mortgagors and/or mortgagee is notified of the approval: The approval letter sent to the mortgagors must state that the assistance payments will be suspended under the new APC until the annual, or mortgagor requested, recertification is performed and the mortgagee subsequently determines that the assistance payments will be reinstated, terminated or continue to be suspended; and 24 _____________________________________________________________________ REFINANCING AN OLD 235 MORTGAGE TO A NEW 203 (b) MORTGAGE A. Clarification of the 203(b) Refinance Procedures : Any 235 mortgage can be refinanced under the procedures set forth in HUD Handbook 4155.1, REV-3, Chapter 4, Section 2, Refinance. These procedures allow mortgagors to obtain a new 203(b) mortgage to refinance their old 235 mortgage and other indebtednesses (e.g., junior mortgages, such as, the HUD-held "recapture" mortgage). The new 203(b) mortgage amount must be supported by an appraisal (value) and can include: the existing principal indebtednesses, costs of refinancing (closing costs and reasonable discount points), and the costs of required repairs and improvements. These procedures require a new appraisal, a face-to-face interview, a photo identification and a mortgage credit analysis. The maximum mortgage amount is limited by the loan-to-value ratios and by the applicable statutory limit. (See Paragraphs 2-2 and 2-4, HUD Handbook 4155.1, REV-3, Chapter 2) Section 235(i) mortgages can, also, be refinanced under these procedures where an appraisal must be obtained to establish the current value of the land and its improvements and the amount to be recaptured under the provisions of the recapture mortgage. For clarification, the amount of recapture which is a subordinate lien and any overpayments of assistance payments (which have been properly advanced to the old 235 mortgage account as part of the remaining principal due under the mortgage note) can be included in the new 203(b) mortgage amount if the value supports the new 203(b) mortgage amount. Existing junior mortgages including HUD's recapture mortgage cannot be subordinated to the new 203(b) mortgage under these procedures. Furthermore, the APC associated with the old 235 mortgage is terminated by the servicing mortgagee. Any 235 mortgage refinanced under these procedures must comply with: HUD Handbook 4330.1, REV-3, Chapter 11, Recapture of Assistance Payments (if there is a recapture mortgage), and the servicing requirements on Pages 27 through 33. See Paragraph D on Page 27 for information concerning the Upfront and Periodic Mortgage Insurance Premiums. B. Amendment to the Streamline Refinance Procedures : The refinance procedures set forth in HUD Handbook 4155.1, REV-3, Chapter 4, Section 3, Streamline Refinance, apply to the refinance of a Section 235 mortgage to a Section 203(b) mortgage. The handbook specifically prohibits the 25 _____________________________________________________________________ subordination of the recapture mortgage to the new 203(b) mortgage when the refinance is without an appraisal. In Mortgagee Letter 91-22, the Streamline Refinance Procedures with and without an appraisal were amended to allow for the subordination of the recapture mortgage to the new 203(b) mortgage. Any 235 mortgage can now be refinanced under these procedures where the mortgagor can obtain a new 203(b) mortgage to refinance their old 235 mortgage and have the recapture mortgage subordinated. The mortgagors are not subject to a face to face interview or a photo identification and a credit report does not have to be obtained. Furthermore, the monthly payment under the Section 203(b) Streamline mortgage cannot exceed the amount that the borrowers are currently paying under the old Section 235 mortgage (i.e, the borrowers, share of the old Section 235 monthly payment). If no appraisal is performed, the unpaid principal balance, the advance for Section 235 overpayments and the Upfront Mortgage Insurance Premium (UFMIP) can be incorporated into the new 203(b) mortgage amount; or, if an appraisal is performed and sufficient value is reflected, the unpaid principal balance, the advance for Section 235 overpayments and the UFMIP plus the costs of refinancing (closing costs and reasonable discount points) can be incorporated into the new 203(b) mortgage amount. The new 203(b) mortgage amount cannot exceed the original 235 mortgage amount. The Section 235 Payoff Statement requirements on Pages 27 through 30 set forth the original 235 mortgage amount. See Paragraph D, below, for information concerning the Upfront and Periodic Mortgage Insurance Premiums. Other existing principal indebtednesses, the costs of required repairs and improvements, cash out by the mortgagor and the amount of recapture cannot be included in the new 203(b) mortgage amount even though the value supports them. Only the Refinance Procedures on Page 25 will allow these items to be included in a new 203(b) mortgage amount. Existing junior mortgages including HUD's recapture mortgage can be subordinated to the new 203(b) Streamline mortgage under these procedures. When a Section 235 recapture mortgage is to be subordinated to a new 203(b) mortgage which is processed under the Streamline Procedures, the subordination requirements and procedures set forth on Pages 15 through 17 (Subparagraphs M-1 through M-3) of this letter must be followed with these 26 _____________________________________________________________________ exceptions: the authorized official at the local HUD Field Office must execute on HUD's behalf the subordination documents (the DE underwriter and/or lender are not authorized to execute these subordination documents under the Section 203(b) streamline procedures), the mortgagors do not execute a new recapture note, the recapture mortgage (or deed of trust) is not modified, and Attachment 7-C or Attachment 7-D is substituted for Attachment 7-A or Attachment 7-B, respectively. The APC associated with the old 235 mortgage is terminated by the servicing mortgagee, and cannot be continued or reinstated for the new 203(b) mortgage. Any 235 mortgage refinanced under these procedures must comply with the servicing requirements on Pages 27 through 33. C. Future Assumptions of a Subordinated Recapture Mortgage (Or Deed of Trust) and Note - The recapture mortgage, which is subordinated to the 203(b) Streamline mortgage, cannot be assumed by a future purchaser and the recapture procedures set forth in Chapter 11 of HUD Handbook 4330.1, REV-3, must be followed by the new servicing mortgagee when the property is sold or refinanced by the mortgagors. D. Upfront and Periodic Mortgage Insurance Premiums (MIPs) - Section 203(b) mortgages that result from regular or streamline refinance procedures are subject to upfront and periodic mortgage insurance premiums that went into effect on July 1, 1991. To understand the requirements of these MIPs, refer to: HUD Handbook 4000.2, Rev-2, Mortgagees' Handbook, Application through Insurance (Single Family); Mortgagee Letter 92-43, Single Family Loan Production - Provisions of Recent Housing Legislation and Mortgage Insurance Premiums on 15 Year Mortgages; and Mortgagee Letter 91-26, Single Family Insurance Processing for Risk Based Mortgage Insurance Premiums. SERVICING MORTGAGEES OF THE OLD 235 MORTGAGES The servicing mortgagee is an integral part of any refinance transaction that involves any FHA-insured mortgage. HUD and originating mortgagees must rely on the servicing mortgagee to provide information that accurately reflects the mortgage account and that documents the servicing file. The servicing mortgagee must provide information which is germane to the mortgage account when requested in writing by the mortgagors and must comply with the requirements set forth in this letter. 27 _____________________________________________________________________ These requirements become effective when requested in writing by the mortgagors to release a preliminary or final payoff statement for any old 235 mortgage refinanced under the requirements and procedures in this letter. A. Section 235 Payoff Statements - The following requirements may be in addition to those standards used by the servicing mortgagee when a payoff statement is issued. The servicing mortgagee must maintain a copy of the payoff statement in the servicing file for later HUD use. (See Servicing File Retention on Page 32.) 1. 235 Mortgage Account - Financial Data - The servicing mortgagee must itemize on these payoff statements the following: a. actual unpaid principal balance that includes adjustments for prepayments and advances, such as, overpayments of assistance payments*, real estate taxes, hazard insurance, etc.; b. current interest and the delinquent interest; c. fees and late charges; and the d. grand total of these amounts that is necessary to prepay (in full) the old 235 mortgage. * When overpayments of assistance payments are advanced to the Section 235 mortgage account, it is assumed throughout this letter that the servicing mortgagee has paid to HUD these overpayments. Special Instructions: If the servicing mortgagee has sent a form HUD-93102 (billing) to HUD for the assistance payment respective to the mortgage account, but has not received and credited the mortgage account, or if the servicing mortgagee anticipates that it will submit a new form HUD-93102 (billing) during the period of time that the payoff statement is valid, the servicing mortgagee must adjust the grand total cited in the above paragraph by the amount of those assistance payments. 2. 235 Mortgage Account - Secondary Data - The servicing mortgagee must itemize on these payoff statements the following: a. FHA case number and ADP code; b. the original principal balance; c. note interest rate; 28 _____________________________________________________________________ d. interest rate floor; e. escrow balances; f. any partial payment accepted by the servicing mortgagee that is held in a trust account pending disposition; g. the original term (in months) of the mortgage; h. the remaining term (in months) of the mortgage; i. the number of delinquent payments and/or partial prepayments; j. the amount of overpayments which has been properly advanced to the mortgage account and is included in the actual unpaid principal balance; k. the total amount of assistance payments which have been paid by HUD (beginning with the first assistance payment); and the l. date of the first monthly amortization payment under the mortgage (or deed of trust) and note. 3. Required Attachments - The following attachments are required to be provided by the servicing mortgagee: a. copy of the original form HUD-93100 which was executed by HUD when the old 235 mortgage was underwritten; b. copy of the old APC if an old Section 235 revised recapture 10 mortgage is being refinanced; c. copy of the original sales contract (if available) which was executed when the old 235 mortgage was underwritten; d. copy of Appendix 8(A), Mortgagee Notice to Mortgagor, HUD Handbook 4330.1, REV-3, which is furnished to the mortgagors; and e. any substitute documents as described in the Paragraph B, Verification Deficiencies, on Pages 30 through 32. 4. Certifications - The servicing mortgagee must certify (affirmatively or negatively) the following: a. within the preceding 12 months the mortgagors have 29 _____________________________________________________________________ (or, have not) completed and executed form HUD-93101, Mortgagor's Recertification of Family Composition and Income; b. has (or, has not) completed and executed form HUD-93101-A, Recertification of Income and Family Composition Section 235(b) - Statistical Report; c. that the mortgagors are (or, are not) currently eligible for assistance and are (or, are not) receiving assistance payments under the old APC; d. that HUD is (or, is not) due an amount for the overpayment of assistance payments and that HUD has (or, has not) been refunded any overpayments, if applicable; and Note: Any amount of overpayments of assistance payments must be immediately refunded to HUD by the servicing mortgagee. Otherwise, the Section 235(r) or Section 203(b) mortgage application cannot be approved by the DE underwriter. e. that the Section 235 Payoff Statement and attachments are an accurate representation of the old 235 mortgage account. B. Verification Deficiencies - Servicing mortgagees may encounter problems in issuing the written verifications with attachments. In most cases, the problem is correctable and the servicing mortgagee must be given the opportunity to correct the deficiency. The deficiency should be corrected within a time frame that does not exceed 30 calendar days. 1. The Mortgagors' Recertification/Servicing Mortgagee's Certification - The servicing mortgagee, who has not obtained the mortgagors' completed and executed form HUD-93101 within the preceding 12 months (or longer) and/or who has not completed and executed form HUD-93101-A within the preceding 12 months (or longer), must be given an opportunity to correct this servicing deficiency. The servicing mortgagee is required to review and make retroactive corrections for the recertification(s) that were not obtained and completed in the three year period preceding the last anniversary date. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. 30 _____________________________________________________________________ 2. The old Original form HUD-93100 is not Available - The form HUD-93100 which was issued by HUD for the last mortgage assumption can substitute for the old original form HUD-93100, as long as, the old original form is not available to the servicing mortgagee. The servicing mortgagee, who is not able to issue the written response because it does not have the old original form HUD-93100 or the original form HUD-93100 from the last mortgage assumption, must state in the written verification that it does not have the form, but it has determined the mortgagors, income contributions percentage and/or interest rate floor (as a percentage) from the mortgage account's records. The servicing mortgagee must certify in the written response that to the best of their knowledge these percentages are the same as those that were authorized by HUD when the old original form HUD-93100 was executed. 3. The Original Sales Contract is not Available - The servicing mortgagee, who does not have a copy of the original sales contract, can substitute a copy of the original form HUD-1, Settlement Statement, that was executed at the closing of the old 235 mortgage. If copies of the original sales contract or original form HUD-1 are not available, the servicing mortgagee must state in the written verification that it does not have a copy. A substitute copy of the original sales contract may be obtained from the mortgagors if they are the original mortgagors of the old 235 mortgage. If a copy cannot be found, a copy of the original appraisal or form HUD-92900 can be substituted. 4. The old 235 Mortgage was not Properly Assumed - A servicing mortgagee that discovers that the mortgagors did not properly qualify for assumption of the old 235 mortgage per the requirements set forth in HUD Handbook 4330.1, REV-3, must be given an opportunity to correct this servicing deficiency. The servicing mortgagee must correct this servicing deficiency for the period of time that the mortgagors were not properly qualified. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. 5. The old APC was not Properly Reinstated, Suspended or Terminated - A servicing mortgagee that discovers that the old APC was not properly reinstated, suspended or 31 _____________________________________________________________________ terminated, must be given an opportunity to correct this servicing deficiency. The servicing mortgagee must correct this servicing deficiency to the date that the deficiency first occurred and must take the proper action per HUD Handbook 4330.1, REV-3. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. If the old APC should have been suspended or terminated the mortgage application must be rejected because the mortgagors are not eligible for a 235(r) mortgage. C. Responsibility and Accountability after the Prepayment or Payment in Full of the old 235 mortgage - The servicing mortgagee of the old 235 mortgage will be held accountable and responsible under the old contract of mortgage insurance (MIC) and the old APC for its servicing and administration of the old 235 mortgage which is paid in full because of a prepayment or by payment of the last scheduled payment required under the mortgage and note. Specifically, servicing mortgagees must have complied with the provisions found in 24 CFR 235, Subparts B and G, and HUD Handbook 4330.1, REV-3. In those cases, where the old 235 mortgage has been paid in full, the servicing mortgagee will retain the responsibility to refund to HUD (with interest at 7 percent per annum) any overpayments of assistance payments and handling charges which are associated with the old 235 mortgage and where the overpayments of assistance payments were the result of mortgagee's fraud, misrepresentation or failure to meet contractual obligations. Any refunds paid to HUD which result from a payment in full of the old 235 mortgage will be credited by HUD to the total amount due from the servicing mortgagee. D. Servicing File Retention - The servicing mortgagee must maintain the old 235 mortgage records for at least three years after the payment in full and must furnish the mortgage records (when requested) during a review or audit conducted by HUD, or its agents. This requirement corresponds to 24 CFR 235.365. E. Terminations of the Old 235 MIC and APC - The servicing mortgagee must submit to HUD, within 15 days after the old 235 mortgage is paid in full, form HUD-27050-A, Mortgage Insurance Termination - Application for Premium/Distributive Payments, and must submit to the originating mortgagee, within 15 days after the old 235 mortgage is paid in full, a 32 _____________________________________________________________________ copy of form HUD-27050-A, above, and form HUD-93114, Notice of Termination, for the old APC. The servicing mortgagee cannot continue to apply to HUD for assistance payments when the old 235 mortgage is paid in full. The last assistance payment is the first day of the month of the payment in full. Any assistance payments or handling charges for periods after that date are overpayments and must be refunded to HUD. Should you have any questions concerning the mortgage application processing and underwriting requirements and procedures please contact the Housing Development Division (Single Family Mortgage Credit Branch), or concerning the servicing requirements and procedures please contact the Housing Management Division (Single Family Loan Management Branch), of the local HUD Field Office. Very sincerely yours, Arthur J. Hill Assistant Secretary for Housing - Federal Housing Commissioner Attachments 33 _____________________________________________________________________ DOCUMENTS REQUIRED BY THIS MORTGAGEE LETTER FORMS: 1. form HUD-1, Settlement Statement, approved under OMB 2502-0265, 10/93. 2. form HUD-300, Monthly Summary of Assistance Payments, approved under OMB 2502-0081, 10/94. 3. form HUD-27050-A, Termination of Mortgage Insurance, approved under OMB 2502-0414, 7/93. 4. form HUD-59100, Mortgage Insurance Certificate (MIC), approved under OMB 2502-0059, 3/94. 5. form HUD-92900, Application for HUD/VA Insured Mortgages, approved under OMB 2502-0059, 3/94. 6. form HUD-92900-WS, Mortgage Credit Analysis Work Sheet, approved under OMB 2502-0059, 3/94. 7. form HUD-92004-G, Request for Verification of Employment, approved under OMB 2502-0059, 3/94. 8. form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act, approved under OMB 2502-0190, 10/93. 9. form HUD-93101-A, Mortgagee's Certification of the Mortgagor's Verification of Family Composition and Income, approved under OMB 2502-0082, 10/93. 10. form HUD-93102, Mortgagee's Certification and Application for Assistance and Interest Reduction Payments, approved under OMB 2502-0081, 10/94. 11. form HUD-93114, Notice of Suspension of 235 Assistance Payments, approved under OMB 2502-0094, 12/92. 12. form HUD-93114, Notice of Termination of 235 Assistance Payments, approved under OMB 2502-0094, 12/92. APPENDICES FROM HUD HANDBOOK 4330.1, REV-3. Administration of Insured Home Mortgages: 1. Appendix 44, Notice to (Buyers) Mortgagors 2. Appendix 56, Note 3. Appendix 8(A), Mortgagee Notice to Mortgagors ATTACHMENTS: See Attachments _____________________________________________________________________ ___________________________________________________________________________ ATTACHMENT 1 235 MORTGAGES ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 2 PAGE 1 OF 3 ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 2 PAGE 2 OF 3 ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 2 PAGE 3 OF 3 ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 3 PAGE 1 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 3 PAGE 2 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ ATTACHMENT 4 PAGE 1 OF 2 ACKNOWLEDGMENT OF MORTGAGOR(S) GENERAL INSTRUCTIONS THE LANGUAGE ON ATTACHMENT 4, PAGE 2, SHOULD BE TYPED ON THE MORTGAGEE'S STATIONARY, COMPLETED BY THE MORTGAGEE AND EXECUTED BY THE MORTGAGORS. THE MORTGAGEE SHOULD WITNESS THE MORTGAGORS' EXECUTION. INSTRUCTIONS TO COMPLETE ATTACHMENT 4, PAGE 2 1. FHA CASE NUMBERS - ENTER THE OLD SECTION 235 REVISED RECAPTURE 10 FHA CASE NUMBER AND ENTER THE SECTION 235(r) FHA CASE NUMBER. 2. ITEM #1, EXPIRATION DATE OF THE NEW ASSISTANCE PAYMENTS CONTRACT - REFER TO THE SECTION 235 PAYOFF STATEMENT FOR THE DATE OF THE FIRST SCHEDULED MONTHLY AMORTIZATION PAYMENT WHICH WAS DUE ON THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE. ADD 10 YEARS TO THIS DATE. THE RESULT IS THE EXPIRATION DATE OF THE ORIGINAL 10 YEAR TERM THAT, NOW, BECOMES THE EXPIRATION DATE FOR THE NEW ASSISTANCE PAYMENTS CONTRACT. ENTER THE RESULT IN ITEM #10 3. ITEM #2, INTEREST RATE FLOOR AS A PERCENTAGE - REFER TO THE SECTION 235 PAYOFF STATEMENT AND/OR ATTACHMENTS. THE INTEREST RATE FLOOR AS A PERCENTAGE CAN BE FOUND ON THE COPY OF THE OLD ORIGINAL FORM HUD-93100, WHICH WAS EXECUTED BY HUD AND IS ASSOCIATED WITH THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE (OLD MORTGAGE), OR (IF APPLICABLE) THE ORIGINAL FORM HUD-93100 WHICH WAS EXECUTED BY HUD AT THE LAST ASSUMPTION OF THE OLD MORTGAGE, OR (IF APPLICABLE) THE SERVICING MORTGAGEE'S CERTIFICATION WHICH SETS FORTH THE MORTGAGORS' INCOME CONTRIBUTIONS PERCENTAGE AND INTEREST RATE FLOOR. ENTER THE INTEREST RATE FLOOR, WHICH IS FOUND ON ITEM G-6 OF FORM HUD-93100 OR (IF APPLICABLE) THE INTEREST RATE FLOOR CERTIFIED BY THE SERVICING MORTGAGEE, IN ITEM #2. _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 4 PAGE 2 OF 2 ACKNOWLEDGMENT OF MORTGAGOR(S) NOTE: THE LANGUAGE ON THIS PAGE SHOULD BE TYPED ON THE MORTGAGEE'S STATIONARY. OLD 235 FHA CASE NUMBER: _________________________ NEW 235(r) FHA CASE NUMBER: ______________________ BY SIGNING BELOW, I (WE) ACKNOWLEDGE MY (OUR) UNDERSTANDING THAT: THE ASSISTANCE PAYMENTS CONTRACT FOR THE SECTION 235(r) MORTGAGE IS FOR THE UNEXPIRED TERM OF THE OLD SPECIAL ASSISTANCE PAYMENTS CONTRACT WHICH HAD AN ORIGINAL TERM OF TEN YEARS. THE NEW ASSISTANCE PAYMENTS CONTRACT EXPIRES ON ( ITEM #1 ) UNLESS TERMINATED PRIOR TO THAT TIME BECAUSE I (WE) BECOME INELIGIBLE FOR CONTINUED ASSISTANCE (PURSUANT TO TITLE 24 OF THE CODE OF FEDERAL REGULATIONS, SECTION 235.375). ONCE THE ASSISTANCE PAYMENTS CONTRACT EXPIRES, ASSISTANCE PAYMENTS TERMINATE UNLESS THE SECRETARY OF HUD CONTRACTS TO CONTINUE THE ASSISTANCE PAYMENTS. THE NEW ASSISTANCE PAYMENTS CONTRACT CONSISTS OF 24 CFR PART 235, SUBPART C, AND THE FINAL RULE PUBLISHED IN THE FEDERAL REGISTER (57 FR 62452, December 30, 1992). THE AMOUNT OF ASSISTANCE PAYMENTS MADE EACH MONTH ON MY (OUR) BEHALF SHALL BE BASED ON THE LESSER OF: (1) THE DIFFERENCE BETWEEN: (a) TWENTY-EIGHT PERCENT OF THE MY (OUR) FAMILY'S ADJUSTED MONTHLY INCOME; AND (b) THE MONTHLY PAYMENT REQUIRED UNDER THE MORTGAGE FOR PRINCIPAL, INTEREST, TAXES, HAZARD INSURANCE AND MORTGAGE INSURANCE PREMIUM; OR, (2) THE DIFFERENCE BETWEEN: (a) THE MONTHLY PAYMENT REQUIRED UNDER THE MORTGAGE FOR PRINCIPAL, INTEREST, AND MORTGAGE INSURANCE PREMIUM; AND (b) THE MONTHLY PAYMENT WHICH WOULD BE REQUIRED FOR PRINCIPAL AND INTEREST IF THE MORTGAGE BORE AN INTEREST RATE OF ( ITEM #2 ) PERCENT. ______________________________________________ MORTGAGOR DATE ______________________________________________ MORTGAGOR DATE ______________________________________________ MORTGAGEE - WITNESS DATE _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 5 MORTGAGEE'S CERTIFICATION OF THE DATE OF DISBURSEMENT OF THE SECTION 235(r) MORTGAGE PROCEEDS USAGE: This mortgagee's certification 18 used to establish the date of disbursement of all section 235(r) mortgage proceeds. The term of the now Assistance Payments Contract (APC) or new Assistance Payments contract 10 (APC 10) commences on the date of disbursement of the Section 235(r) mortgage proceeds. GENERAL INSTRUCTIONS: The following is to be typed on the mortgagee's stationary and executed by an authorized mortgagee official. "Name of Mortgagors: ________________________________________ Old FHA Case Number: ______________________________________ New FHA Case Number: ______________________________________ We, (name of company), mortgagee at the time of closing of this mortgage and on the date of disbursement of the Section 235(r) mortgage proceeds, certify that all Section 235(r) mortgage proceeds were disbursed on _____(date)_____ and that all mortgage proceeds were disbursed to the mortgagors, or to their creditors for their account and with their consent. Furthermore, we understand that the date of disbursement is the date on which the new contract term of the Assistance Payments Contract or new Assistance Payments Contract 10 commences. _____________________________________ Authorized Official - Signature/Date " _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 6 ACKNOWLEDGMENT OF 235(r) ASSISTANCE PAYMENTS SUSPENSION Re: FHA Case Number Property Address: _____(Address)________________________________ _____(City)___________________________________ _____(State and Zip Code)_____________________ I (we), (Name of the Mortgagors), acknowledge that the lender, (Name of Lender), has informed me (us) that I (We) have been approved for a Section 235(r) mortgage under the National Housing Act and that the lender, beginning on the date of closing, will execute a form HUD-93114, Notice of Suspension, which is sent to the Department of Housing and Urban Development (HUD) and instructs HUD to suspend the Assistance Payments Contract associated with the Section 235(r) mortgage. I (we), also, understand that this suspension will be re-evaluated on an annual basis by the lender or as I (we) request where the lender may further suspend, reinstate or terminate the Assistance Payments Contract associated with the Section 235(r) mortgage. If the assistance payments are suspended for three continuous years, I (we) understand that the lender is required by HUD to terminate the Assistance Payments Contract. ________________________________ _____________________________ Mortgagor's Signature Date Lender's Lender Date _______________________________ Mortgagor's Signature Date _____________________________________________________________________ ATTACHMENT 7 PAGE 1 OF 4 INSTRUCTIONS TO COMPLETE THE MODIFICATION AND/OR SUBORDINATION AGREEMENTS FOR HUD'S RECAPTURE MORTGAGE OR DEED OF TRUST WHICH IS SUBORDINATED TO A SECTION 235(r) OR SECTION 203(b) (STREAMLINE) MORTGAGE OR DEED OF TRUST INSTRUCTIONS - OVERVIEW MODIFICATION AND/OR SUBORDINATION OF HUD'S RECAPTURE MORTGAGE OR DEED OF TRUST: 1. USE OF THE MODIFICATION AND/OR SUBORDINATION AGREEMENTS (AGREEMENT) - THE MORTGAGEE MUST USE THE APPROPRIATE SAMPLE AGREEMENT (ATTACHMENT) FOR A RECAPTURE MORTGAGE OR DEED OF TRUST THAT IS SUBORDINATED TO A SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST. 2. ATTACHMENTS TO BE USED : ATTACHMENT 7-A, MORTGAGE MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) MORTGAGE. ATTACHMENT 7-B, DEED OF TRUST MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) DEED OF TRUST. ATTACHMENT 7-C, MORTGAGE SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE). ATTACHMENT 7 -D, DEED OF TRUST SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE) 3. MORTGAGORS' EXECUTION OF THE AGREEMENT - THE MORTGAGORS WILL EXECUTE THE AGREEMENT CONCOMITANT WITH THE SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST AND, IF APPLICABLE (235(r) PROGRAM ONLY), THE NEW RECAPTURE NOTE. THE MORTGAGORS WILL BE THE FIRST PARTY (MORTGAGE) OR THE GRANTOR (DEED OF TRUST). _____________________________________________________________________ ATTACHMENT 7 PAGE 2 OF 4 4. EXECUTION OF THE AGREEMENT : a. SECTION 235(r) CASES - THE DIRECT ENDORSEMENT UNDERWRITER, OR THE AUTHORIZED MORTGAGEE OFFICIAL, IS AUTHORIZED TO COMPLETE THE AGREEMENT ON BEHALF OF HUD FOR SECTION 235(r) CASES. (SEE THE MORTGAGEE LETTER FOR ADDITIONAL DETAILS) THE UNDERWRITER, OR THE AUTHORIZED MORTGAGEE OFFICIAL, WILL COMPLETE THE AGREEMENT PER THE GENERAL AND SPECIFIC INSTRUCTIONS WHICH PRECEDE THE RESPECTIVE ATTACHMENTS AND WILL EXECUTE ON HUD'S BEHALF THE RESPECTIVE AGREEMENT AS THE SECOND PARTY (MORTGAGE) OR BENEFICIARY (DEED OF TRUST). b. SECTION 203(b) STREAMLINE CASES - THE AUTHORIZED OFFICIAL AT THE LOCAL HUD FIELD OFFICE WILL EXECUTE THE AGREEMENT AS THE SECOND PARTY (MORTGAGE) OR BENEFICIARY (DEED OF TRUST) ON OR BY THE CLOSING DATE OF THE SECTION 203(b) STREAMLINE MORTGAGE OR DEED OF TRUST. 5. MORTGAGEE'S EXECUTION OF THE AGREEMENT - THE MORTGAGEE WILL EXECUTE THE AGREEMENT AS THE THIRD PARTY (MORTGAGE) OR LENDER (DEED OF TRUST) WHERE, AS THE HOLDER OF THE SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST, THE MORTGAGEE AFFIRMS THE AGREEMENT WHICH ALLOWS THE MORTGAGE OR DEED OF TRUST TO HAVE THE FIRST LIEN PRIORITY. 6. TRUSTEE'S EXECUTIONS OF THE AGREEMENT - IF THE STATE LAW REQUIRES, THE TRUSTEES OF THE RECAPTURE DEED OF TRUST MUST BE MADE PARTIES TO THE RESPECTIVE AGREEMENT, AND THE TRUSTEES MUST, ALSO, EXECUTE THE AGREEMENT WITH ALL OTHER PARTIES. 7. MORTGAGEE'S CERTIFICATION OF HUD'S LIEN PRIORITY - THE MORTGAGEE WILL CERTIFY THAT HUD'S LIEN PRIORITY IS A SECOND LIEN PRIORITY, OR A THIRD LIEN PRIORITY IF A UNIT OF GOVERNMENT SUBORDINATED A SECOND LIEN PRIORITY WHICH IT HAS HELD SINCE THE ORIGINAL CLOSING OF THE OLD 235 MORTGAGE. _____________________________________________________________________ ATTACHMENT 7 PAGE 3 OF 4 THE MORTGAGEE'S CERTIFICATION (APPENDIX 3) IS FOUND IN HUD HANDBOOK 4000.4, REV-1, CHANGE 1. THE ORIGINAL CERTIFICATION MUST BE INCLUDED IN THE CASE BINDER WHEN THE CASE IS SENT TO THE LOCAL HUD FIELD OFFICE FOR ENDORSEMENT. A COPY MUST BE SENT TO THE DOCUMENTS OFFICER OF THE LOCAL FIELD OFFICE WITH A COPY OF THE AGREEMENT. A COPY MUST BE RETAINED IN THE ORIGINATION AND SERVICING FILES. 8. RECORDATION - THE ORIGINATING MORTGAGEE WILL BE REQUIRED TO HAVE THE AGREEMENT PROPERLY RECORDED AND MUST INSTRUCT THE RECORDER'S OFFICE TO MAIL THE RECORDED AGREEMENT TO THE LOCAL HUD FIELD OFFICE. (SEE THE MORTGAGEE LETTER FOR ADDITIONAL DETAILS). 9. DOCUMENTS DISTRIBUTION - SEE THE MORTGAGEE LETTER FOR ADDITIONAL INSTRUCTIONS. 10. CONFORMITY TO STATE LAW - THE ATTACHMENTS 7 - A THRU 7 - D SHOULD BE CONFORMED TO STATE AND LOCAL LAW, IF NECESSARY, BY LOCAL COUNSEL. NEW RECAPTURE NOTE REQUIREMENTS: 1. USE OF A NEW RECAPTURE NOTE : a. NEW RECAPTURE NOTE - THE NEW RECAPTURE NOTE IS FOUND IN HUD HANDBOOK 4330.1, REV-3, APPENDIX 56, NOTE, AND MUST BE USED IN CONJUNCTION WITH THE GENERAL AND SPECIFIC INSTRUCTIONS SET FORTH FOR THE RESPECTIVE ATTACHMENTS. b. MORTGAGORS' EXECUTION - WHEN AN OLD RECAPTURE MORTGAGE OR DEED OF TRUST IS SUBORDINATED TO A SECTION 235(r) MORTGAGE OR DEED OF TRUST, THE MORTGAGORS MUST EXECUTE A NEW RECAPTURE NOTE CONCOMITANT WITH THE EXECUTIONS OF THE SECTION 235(r) MORTGAGE OR DEED OF TRUST AND AGREEMENT. _____________________________________________________________________ ATTACHMENT 7 PAGE 4 OF 4 c. INSCRIPTION OF THE FHA CASE NUMBERS - ON THE BOTTOM LEFT-HAND CORNER OF THE NEW RECAPTURE NOTE THE MORTGAGEE MUST TYPE THE OLD AND NEW FHA CASE NUMBERS RESPECTIVE TO THE 235(r) REFINANCE TRANSACTION. THE FHA CASE NUMBERS MUST BE PREFIXED BY THE WORDS, "OLD" AND "NEW". _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) MORTGAGE WITH A RECAPTURE MORTGAGE UNDER SECTION 235(r) ATTACHMENT 7 - A, MORTGAGE MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) MORTGAGE. GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 MORTGAGE IS REFINANCED BY A SECTION 235(r) MORTGAGE, THE RECAPTURE MORTGAGE (OR DEED OF TRUST) WILL BE MODIFIED AND SUBORDINATED TO THE SECTION 235(r) MORTGAGE. THE MORTGAGORS WILL EXECUTE THIS MODIFICATION AND SUBORDINATION AGREEMENT AND A NEW RECAPTURE NOTE WHICH REPRESENTS THE AGGREGATE AMOUNT OF ASSISTANCE PAYMENTS PAID BY HUD ON BEHALF OF THE ORIGINAL AND ASSUMING MORTGAGORS UNDER THE OLD 235 MORTGAGE AND THE ASSISTANCE PAYMENTS PAID ON BEHALF OF THE MORTGAGORS UNDER THE SECTION 235(r) MORTGAGE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 235(r) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE 235(r) MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE SECTION 235(r) MORTGAGE 8 EXECUTION DATE OF THE ORIGINAL RECAPTURE MORTGAGE 9 AND 10 LIBER AND FOLIO 11 AND 12 COUNTY AND STATE IN WHICH THE RECAPTURE MORTGAGE IS RECORDED 13 MAXIMUM AMOUNT OF THE RECAPTURE MORTGAGE 14 EXECUTION DATE OF THE SECTION 235(r) MORTGAGE 15 SECTION 235(r) FHA CASE NUMBER 16 EXECUTION DATE OF THE OLD 235 MORTGAGE 17 OLD 235 FHA CASE NUMBER 18 235(r) MORTGAGE AMOUNT 19 LEGAL DESCRIPTION 20 THRU 23 SAME AS 9 THRU 12, ABOVE 24 EXECUTION DATE OF THE OLD RECAPTURE NOTE 25 NAME OF THE 235(r) MORTGAGORS 26 EXECUTION DATE OF THE NEW RECAPTURE NOTE THAT IS REQUIRED TO BE EXECUTED _____________________________________________________________________ ATTACHMENT 7 - A 2 27 OLD 235 FHA CASE NUMBER 28 SECTION 235(r) FHA CASE NUMBER 29 OLD 235 FHA CASE NUMBER 30 TOTAL ASSISTANCE PAYMENTS PAID BY HUD (SEE SECTION 235 PAYOFF STATEMENT) 31 EXECUTION DATE OF THE NEW 235(r) MORTGAGE 32 SECTION 235(r) FHA CASE NUMBER 33 OLD 235 FHA CASE NUMBER 34 SECTION 235(r) FHA CASE NUMBER 35 THRU 37 WITNESS 38 THRU 40 FIRST PARTY (MORTGAGORS), SECOND PARTY (HUD'S DESIGNEE, I.E., DE MORTGAGEE) AND THIRD PARTY (MORTGAGEE) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - A SAMPLE - TO BE USED WITH A 235(r) MORTGAGE Modification and Subordination Agreement (Mortgage) OLD 235 FHA Case No.: #1 NEW 235(r) FHA Case No.: #2 This Agreement made the #3 day of #4 , 19 #5 among #6 (Owner), party of the first part (hereinafter called First Party) and Secretary of the Department of Housing and Urban Development, party of the second part (hereinafter called Second Party) and #7 , party of the third part (hereinafter called Third Party). WHEREAS, First Party executed a mortgage dated #8 and recorded in Liber #9 Folio #10 of the Land Records of #11 County, State of #12 made payable to the Second Part in the principal sum of $ #13 ; and WHEREAS , First Party and Second Party agree to an amendment to said Mortgage to include as evidence of indebtedness an additional Note which has been executed for the repayment to the Second Party of assistance payments paid by the Second Party on a mortgage to be insured pursuant to section 235(r) of the National Housing Act (hereinafter called Act) on behalf of any party to the mortgage dated #14 which is identified as FHA Case No. #15 . Such repayment is in addition to the repayment required for the Mortgage dated #26 and identified as FHA Case No. #17 , which Mortgage is being refinanced with proceeds of the section 235(r) mortgage; and WHEREAS, Third Party has agreed to make a loan of $ #18 to be secured by a mortgage covering #19 description ; to be insured under section 235(r) of the Act; provided the Second Party will agree that the lien of said mortgage shall be prior and superior to any right, title, interest, claim or lien which the Second Party may have in or to said premises; _____________________________________________________________________ 2 ATTACHMENT 7 - A SAMPLE NOW, Therefore, in consideration of the premises and the promises of the parties contained herein, each to the other, the benefits to be derived, the parties hereby covenant and agree as follows: 1. Said First Party and Second Party hereby amend the Mortgage made payable to the Second Party and recorded in Liber #20 Folio #21 of the Land Records of #22 County, State of #23 so that the language following the principal sum in the first WHEREAS clause shall read as follows: " ... but not to exceed an amount computed under the terms of a Note executed by said party on #24 , and Note executed by #25 on #26 , with interest'? if any, according to the terms of the Notes." 2. Said First Party and Second Party further amend said Mortgage so paragraph numbered 1 of the Addendum shall read as follows: "A. The debt secured by this instrument shall include not only the Notes recited above but also any assistance paid by the Secretary in accordance with section 235 of the National Housing Act on behalf of any party to the mortgage (including any party who takes title to the property subject to the said Mortgage or assumes said Mortgage) identified as FHA Case No. #27 and to the mortgage identified as FHA Case No. #28 (both of which shall be referred to hereinafter as Insured Mortgage). The amount of assistance paid as of the date of the execution of this Agreement in connection with the mortgage identified as FHA Case No. #29 is $ #30 which is being refinanced by the mortgage dated #31 and identified as FHA Case No. #32 . This instrument and the Notes recited above shall remain as the security and evidence of indebtedness, respectively, of the amount of assistance paid under FHA Case No. #33 and shall also be the security and evidence of indebtedness for any additional payments made under the mortgage identified as FHA Case No. #34 ." 3. The Second Party covenants and agrees with said Third Party that said mortgage, to be insured under section 235(r), securing a loan to First Party shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Second Party may have in or upon said premises. _____________________________________________________________________ 3 ATTACHMENT 7 - A SAMPLE In Witness Whereof, the said First Party, Second Party and Third Party have duly executed this Agreement the day and year first above written. ________#35___________________ ________________#38_______________ Witness First Party ________#36___________________ ________________#39_______________ Witness Second Party ________#37___________________ ________________#40_______________ Witness Third Party (Acknowledgments required by State law) _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) DEED OF TRUST WITH A RECAPTURE DEED OF TRUST UNDER SECTION 235(r) ATTACHMENT 7 - B, DEED OF TRUST MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) DEED OF TRUST. GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 DEED OF TRUST IS REFINANCED BY A SECTION 235(r) DEED OF TRUST, THE RECAPTURE DEED OF TRUST WILL BE MODIFIED AND SUBORDINATED TO THE SECTION 235(r) DEED OF TRUST. THE MORTGAGORS WILL EXECUTE THIS MODIFICATION AND SUBORDINATION AGREEMENT AND A NEW RECAPTURE NOTE WHICH REPRESENTS THE AGGREGATE AMOUNT OF ASSISTANCE PAYMENTS PAID BY HUD ON BEHALF OF THE ORIGINAL AND ASSUMING MORTGAGORS UNDER THE OLD 235 DEED OF TRUST AND THE ASSISTANCE PAYMENTS PAID ON BEHALF OF THE MORTGAGORS UNDER THE SECTION 235(r) DEED OF TRUST. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 235(r) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE OWNER OF THE PROPERTY 7 NAME OF THE SECURED PARTY OF THE SECTION 235(r) DEED OF TRUST 8 AND 9 EXECUTION DATE AND RECORDATION DATE OF THE ORIGINAL RECAPTURE DEED OF TRUST 10 AND 11 LIBER AND FOLIO 12 AND 13 COUNTY AND STATE IN WHICH THE RECAPTURE DEED OF TRUST IS RECORDED 14 MAXIMUM AMOUNT OF THE RECAPTURE DEED OF TRUST 15 EXECUTION DATE OF THE OLD 235 DEED OF TRUST 16 OLD 235 FHA CASE NUMBER 17 235(r) DEED OF TRUST AMOUNT 18 AND 19 EXECUTION DATE OF THE SECTION 235(r) DEED OF TRUST 20 SECTION 235(r) FHA CASE NUMBER 21 LEGAL DESCRIPTION 22 EXECUTION DATE OF THE OLD RECAPTURE DEED OF TRUST 23 NAME OF THE GRANTORS _____________________________________________________________________ ATTACHMENT 7 - B 2 24 EXECUTION DATE OF THE NEW RECAPTURE DEED OF TRUST NOTE 25 OLD 235 FHA CASE NUMBER 26 SECTION 235(r) FHA CASE NUMBER 27 OLD 235 PHA CASE NUMBER 28 TOTAL-ASSISTANCE PAYMENTS PAID BY HUD (SEE SECTION 235 PAYOFF STATEMENT) 29 EXECUTION DATE OF THE OLD 235 DEED OF TRUST 30 OLD 235 FHA CASE NUMBER 31 OLD 235 FHA CASE NUMBER 32 SECTION 235(r) FHA CASE NUMBER 33 EXECUTION DATE OF THE NEW 235(r) DEED OF TRUST 34 SECTION 235(r) FHA CASE NUMBER 35 THRU 37 WITNESS 38 THRU 40 GRANTORS (MORTGAGORS), BENEFICIARY (HUD DESIGNEE, I.E., DE MORTGAGEE) AND LENDER (MORTGAGEE) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - B SAMPLE - TO BE USED WITH A 235(r) DEED OF TRUST Modification and Subordination Agreement (Deed of Trust) OLD 235 FHA Case No.: #1 NEW 235(r) FHA Case No.: #2 This Agreement made this #3 day of #4 , 19 #5 by and among, #6 owner of the real property described in this Agreement, hereinafter referred to as "Grantor" Secretary of Housing and Urban Development, present owner of the Note secured by the deed of trust first described in this Agreement, hereinafter referred to as "Beneficiary", and #7 , beneficiary named in the the deed of trust secondarily described in the Agreement, herein-after referred to as "Lender". WHEREAS, Grantor is a party to a Deed of Trust dated #8 and recorded #9 in Liber #10 folio #11 of the Land Records of #12 County, State of #13 to secure a Note made payable to the Beneficiary in the principal sum of $ #14 (hereinafter called the recapture Deed of Trust) and, WHEREAS, the said Grantor and Beneficiary agree to an amendment to the recapture Deed of Trust to include as evidence of indebtedness an additional Note which has been executed f or the repayment to the Beneficiary of assistance payments paid by the Beneficiary in connection with a Deed of Trust to be insured by the Beneficiary pursuant to section 235(r) of the National Housing Act on behalf of any party to said Deed of Trust. Such repayment is in addition to the repayment required for the Deed of Trust dated #15 and identified as FHA Case No. #16 which Deed of Trust is being refinanced. WHEREAS, Grantor has executed, or is about to executer a Deed of Trust to be recorded concurrently with this Agreement to secure a Note for the sum of $ #17 dated #18 , 19 #19 , FHA Case No. #20 in favor of the Lender, which Deed of Trust is to be insured under section 235(r) of the National Housing Act and conveying in trust real property described as follows: #21 description _____________________________________________________________________ 2 ATTACHMENT 7 - B SAMPLE and, WHEREAS, it is the intention and understanding of all parties to this Agreement that the lien or charge of the Deed of Trust last above mentioned, and of any renewals, replacements, modifications or extensions of that Deed of Trust, shall be and remain at all times prior and superior to the recapture Deed of Trust first above mentioned. Now, therefore, in consideration of the premises, the promises of the parties contained herein, each to other, the benefits to be derived, the parties hereby covenant and agree as follows: 1. The said Grantor and Beneficiary agree that the recapture Deed of Trust shall be amended as follows: a. The language following the principal sum in the first WHEREAS clause shall be changed to read: "... but not to exceed an amount under the terms of a Note executed by said party on #22 , and Note executed by #23 on #24 with interest, if any, according to the terms of the Notes, and ..." b. Paragraph numbered 1 of the Addendum shall be amended to read as follows: (1) The debt secured by this instrument shall include not only the Notes recited above but also any assistance paid by the Secretary in accordance with Section 235 of the National Housing Act on behalf of any party to the Deed of Trust (including any party who takes title to the property subject to the said Deed of Trust or assumes said Deed of Trust) identified as FHA Case No. #25 and to the Deed of Trust identified as FHA Case No. #26 , both of which shall be referred to hereinafter as the (insured Deed of Trust). The amount of assistance paid as of the date of the execution of this Agreement in connection with the Deed of Trust identified as FHA Case No. #27 is $ #28 , which Deed of Trust is being refinanced by Deed of Trust dated #29 and identified as FHA Case No. #30 . This instrument and the Notes recited above shall remain as the security and _____________________________________________________________________ 3 ATTACHMENT 7 - B SAMPLE evidence of indebtedness, respectively, of the amount of assistance paid in connection with the FHA Case no. #31 and shall also be the security and evidence of indebtedness for any additional payments made in connection with the Deed of Trust identified as FHA Case No. #32 . 2. The Beneficiary hereby covenants and agrees with said Lender that said Deed of Trust dated #33 arid identified as FHA Case No. #34 to secure a loan made by Lender to Grantor shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Beneficiary may have in or upon said premises. In Witness Whereof, the said Grantor, Beneficiary, and Lender have duly executed this Agreement the day and year first above written. ____________#35_________________ ____________#38______________ Witness Grantor ____________#36_________________ ____________#39______________ Witness Beneficiary ____________#37_________________ ____________#40______________ Witness Lender (Acknowledgments required by State law) _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) MORTGAGE WITH A RECAPTURE MORTGAGE UNDER SECTION 203(b) ATTACHMENT 7 - C, MORTGAGE SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE) GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 MORTGAGE IS REFINANCED BY A SECTION 203(b) MORTGAGE, THE RECAPTURE MORTGAGE WILL BE SUBORDINATED TO THE SECTION 203(b) MORTGAGE. THE RECAPTURE MORTGAGE WILL NOT BE MODIFIED AND THE GRANTORS WILL NOT EXECUTE A NEW RECAPTURE NOTE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 203(b) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE SECTION 203(b) MORTGAGE 8 EXECUTION DATE OF THE ORIGINAL RECAPTURE MORTGAGE 9 AND 10 LIBER AND FOLIO 11 AND 12 COUNTY AND STATE IN WHICH THE RECAPTURE MORTGAGE IS RECORDED 13 MAXIMUM AMOUNT OF THE RECAPTURE MORTGAGE 14 SECTION 203(b) MORTGAGE AMOUNT 15 LEGAL DESCRIPTION 16 THRU 18 WITNESS 19 THRU 21 FIRST PARTY (MORTGAGORS), SECOND PARTY (HUD) AND THIRD PARTY (MORTGAGEE) NOTE: RECAPTURE MORTGAGE SUBORDINATION AGREEMENTS RESPECTIVE TO SECTION 203(b) STREAMLINE TRANSACTIONS MUST BE EXECUTED BY THE AUTHORIZED OFFICIAL AT THE LOCAL HUD FIELD OFFICE. _____________________________________________________________________ 1 OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - C SAMPLE - TO BE USED WITH A 203(b) MORTGAGE (STREAMLINE REFINANCE) Subordination Agreement (Mortgage) OLD 235 FHA Case No.: #1 NEW 203(b) FHA Case No.: #2 This Agreement made the #3 day of #4 , 19 #5 among #6 (owner), party of the first part (hereinafter called First Party) and Secretary of the Department of Housing and Urban Development, party of the second part (hereinafter called Second Party) and #7 recorded in Liber #9 Folio #10 of the Land Records of #11 County, State of #12 made payable to the Second Part in the principal sum of $ #13 ; and WHEREAS, Third Party has agreed to make a loan of $ #14 to be secured by a mortgage covering #15 description ; to be insured under section 203(b) of the National Housing Act; provided the Second Party will agree that the lien of said mortgage shall be prior and superior to any right, title, interest, claim or lien which the Second Party may have in or to said premises; NOW, Therefore, in consideration of the premises and the promises of the parties contained herein, each to the other, the benefits to be derived, the parties hereby covenant and agree as follows: The Second Party covenants and agrees with said Third Party that said mortgage, to be insured under section 203(b), securing a loan to First Party shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Second Party may have in or upon said premises. _____________________________________________________________________ 2 7 - C SAMPLE In Witness Whereof, the said First Party, Second Party and Third Party have duly executed this Agreement the day and year first above written. __________ #16_______________ _________________#19_______________ Witness First Party __________ #17_______________ _________________#20_______________ Witness Second Party __________ #18_______________ _________________#21_______________ Witness Third Party (Acknowledgments required by State law) _____________________________________________________________________ REFINANCING OF AN OLD 235(i) DEED OF TRUST WITH A RECAPTURE DEED OF TRUST UNDER SECTION 203(b) ATTACHMENT 7 - D, DEED OF TRUST SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) DEED OF TRUST. (STREAMLINE REFINANCE) GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 DEED OF TRUST IS REFINANCED BY A SECTION 203(b) DEED OF TRUST, THE RECAPTURE DEED OF TRUST WILL BE SUBORDINATED TO THE SECTION 203(b) DEED OF TRUST. THE RECAPTURE DEED OF TRUST WILL NOT BE MODIFIED AND THE GRANTOR WILL NOT EXECUTE A NEW RECAPTURE NOTE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 203(b) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE 203(b) DEED OF TRUST 8 AND 9 EXECUTION DATE AND RECORDATION DATE OF THE ORIGINAL RECAPTURE DEED OF TRUST 10 AND 11 LIBER AND FOLIO 12 AND 13 COUNTY AND STATE IN WHICH THE RECAPTURE DEED OF TRUST IS RECORDED 14 MAXIMUM AMOUNT OF THE RECAPTURE DEED OF TRUST 15 SECTION 203(b) DEED OF TRUST AMOUNT 16 AND 17 EXECUTION DATE OF THE SECTION 203(b) DEED OF TRUST 18 SECTION 203(b) FHA CASE NUMBER 19 LEGAL DESCRIPTION 20 EXECUTION DATE OF THE SECTION 203(b) DEED OF TRUST 21 SECTION 203(b) FHA CASE NUMBER 22 THRU 24 WITNESS 25 THRU 27 GRANTORS (MORTGAGORS), BENEFICIARY (HUD) AND LENDER (MORTGAGEE) NOTE: RECAPTURE MORTGAGE SUBORDINATION AGREEMENTS RESPECTIVE TO SECTION 203(b) STREAMLINE TRANSACTIONS MUST BE EXECUTED BY THE AUTHORIZED OFFICIAL AT THE LOCAL HUD FIELD OFFICE. _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - D SAMPLE - TO BE USED WITH A 203(b) DEED OF TRUST (STREAMLINE REFINANCE) Subordination Agreement (Deed of Trust) OLD 235 FHA Case No.: #1 NEW 203(b) FHA Case No.: #2 This Agreement made this #3 day of #4 , 19 #5 by and among, #6 , owner of the real property described in this Agreement, hereinafter referred to as "Grantor", Secretary of Housing and Urban Development, present owner of the Note secured by the deed of trust first described in this Agreement, hereinafter referred to as "Beneficiary", and #7 , beneficiary named in the deed of trust secondarily described in the Agreement, hereinafter referred to as "Lender". WHEREAS, Grantor is a party to a Deed of Trust dated #8 and recorded #9 in Liber #10 folio #11 of the Land Records of #12 County, State of #13 to secure a Note made payable to the Beneficiary in the principal Bum Of $ #14 (hereinafter called the recapture Deed of Trust) and, WHEREAS, Grantor has executed, or is about to execute, a Deed of Trust to be recorded concurrently with this Agreement to secure a Note for the sum of $ #15 dated #16 , 19 #17 , FHA Case No. #18 in favor of the Lender, which Deed of Trust is to be insured under section 203(b) of the National Housing Act and conveying in trust real property described as follows: #19 description _____________________________________________________________________ 2 ATTACHMENT 7 - D SAMPLE and, WHEREAS, it is the intention and understanding of all parties to this Agreement that the lien or charge of the Deed of Trust last above mentioned, and of any renewals, replacements, modifications or extensions of that Deed of Trust, shall be and remain at all times, prior and superior to any rights, title, interest, claim, or lien which the Beneficiary may have in or upon said premises as set forth in the recapture Deed of Trust first above mentioned. Now, Therefore, the said Beneficiary covenants and agrees with said Lender that said Deed of Trust dated #20 and identified as FHA Case No. #21 to secure a loan made by Lender to Grantor shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Beneficiary may have in or upon said premises. In Witness Whereof, the said Grantor, Beneficiary, and Lender have duly executed this Agreement the day and year first above written. ______________#22_________________ ______________#25______________ Witness Grantor ______________#23_________________ ______________#26______________ Witness Beneficiary ______________#24_________________ ______________#27______________ Witness Lender (Acknowledgments required by State law) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 8 SECTION 235 MORTGAGES DIRECTORY WRITTEN REQUEST INSTRUCTIONS TO COMPLETE THIS ATTACHMENT: 1. DETERMINE THE AMOUNT OF THE REMITTANCE. 2. ATTACH A MONEY ORDER OR CERTIFIED CHECK FOR THE AMOUNT OF THE REMITTANCE TO THIS ATTACHMENT. 3. THE MONEY ORDER OR CERTIFIED CHECK IS PAYABLE TO: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT. 4. CLEARLY PRINT OR TYPE ON THE MONEY ORDER OR CERTIFIED CHECK AND THE ENVELOPE ADDRESSED TO HUD: "235 MORTGAGES DIRECTORY". 5. MAIL TO: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT SYSTEMS MANAGEMENT BRANCH P.O. BOX 23296 WASHINGTON, DC 20026-3296 MORTGAGEE'S NAME: _________________________________________ ADDRESS: _________________________________________ ADDRESS: _________________________________________ CITY: _________________________________________ STATE: _________________________________________ ZIP CODE: _________________________________________ CONTACT PERSON: _________________________________________ AREA CODE & TELEPHONE #: _________________________________________ QUANTITY DESIRED: HARD COPIES (@ $50.00 PER COPY) ________________ FLOPPY DISKS (@ $150.00 PER SET) ________________ MAGNETIC TAPES (@ $250.00 PER TAPE) ________________ TOTAL REMITTANCE: $ ____________________ _____________________________________________________________________ ATTACHMENT 9 - A 235(r) APPLICATION PROCESSING QUESTIONS AND ANSWERS CHECK LIST PAGE 1 OF 3 MORTGAGEE'S NAME: ______________________________ DATE: __________________ MORTGAGORS' NAME: ____________________ OLD FHA CASE NUMBER: _____________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: ___________________ NEW FHA CASE NUMBER: _________ (AND ADP CODE) ___________________________________________________________________________ USAGE: The questions and answers (Q's A's) and the check list are designed to assist the originating mortgagee in the processing of the 235(r) mortgage application. The mortgagee letter and Handbook 4330.1, REV-3, are the source documents which must be referred to for specific guidance. The cited page numbers represent references to the mortgagee letter and the handbook citations are specifically indicated. (Y = YES, N = NO, ? = TO BE DETERMINED AT UNDERWRITING) ___________________________________________________________________________ PRE-APPLICATION Q's AND A's (CIRCLE ONE): ITEM (O) DESCRIPTION ELIGIBILITY - (see Mortgage Letter, Paragraph D, Prerequisites, Pages 4 and 5) 1. Y/N ARE THE APPLICANTS 235 MORTGAGORS? 2. Y/N ARE THE APPLICANTS THE OWNER OCCUPANTS? 3. Y/N ARE THE APPLICANTS, AS MORTGAGORS, ELIGIBLE FOR ASSISTANCE AND RECEIVING ASSISTANCE PAYMENTS UNDER THE OLD ASSISTANCE PAYMENTS CONTRACT (APC) THAT IS ASSOCIATED WITH THE OLD 235 MORTGAGE? 4. Y/N WILL THE REFINANCE CAUSE A REDUCTION IN THE PRINCIPAL AND INTEREST PAYMENTS? 5. Y/N ARE THE APPLICANTS MEMBERS OF A COOPERATIVE? 6. Y/N HAVE THE MORTGAGORS REFINANCED UNDER THE SECTION 235(r) IN THE LAST 60 MONTHS? IF "YES", DID THE LENDER PAY THE REFINANCING COSTS. IF "YES", THE MORTGAGORS MUST PAY THESE COST IN THIS SECTION 235(r) REFINANCE TRANSACTION. NOTE: QUESTIONS 1 THRU 5 MUST BE "YES" AND QUESTION 6 MUST BE "NO" TO BEGIN PROCESSING A 235(r) MORTGAGE APPLICATION. OPPOSITE RESPONSES WOULD INDICATE THAT THE APPLICANTS ARE NOT ELIGIBLE FOR A SECTION 235(r) MORTGAGE. MORTGAGE CREDIT ANALYSIS - (See mortgagee Letter, Paragraph D, Conditions, on Pages 5 and 6.) 1. Y/N/? WILL THE APPLICANTS' SHARE OF THE FULLY MONTHLY PAYMENT UNDER THE 235(r) MORTGAGE INCREASE BY MORE THAN $50.00? IF YES, A MORTGAGE CREDIT ANALYSIS IS REQUIRED. _____________________________________________________________________ ATTACHMENT 9 - A PAGE 2 OF 3 SUBORDINATION OF THE RECAPTURE MORTGAGE OR DEED OF TRUST HELD BY HUD (See Mortgagee Letter, Paragraph M, Recapture Mortgages, beginning on Page 15.) ITEM (O) DESCRIPTION 1. Y/N/? IS A RECAPTURE MORTGAGE OR DEED OF TRUST ASSOCIATED WITH THE OLD 235 MORTGAGE? 2. Y/N IF YES TO THE ABOVE QUESTION, DO THE APPLICANTS (MORTGAGORS) AGREE TO THE MODIFICATION AND TO SUBORDINATION AGREEMENT PROVISIONS OF THE RECAPTURE MORTGAGE OR DEED OF TRUST? CHECKLIST FOR 235(r) APPLICATION PROCESSING (CONSISTING OF ITEMS A, B AND C, BELOW): (\/) ITEM DESCRIPTION A. FORM HUD-92900.1, APPLICATION FOR HUD/VA INSURED MORTGAGE, (SEE PAGES 19 and 20): _____ 1. OLD 235 FHA CASE NUMBER AND ADP CODE ENTERED IN THE LOWER LEFT-HAND CORNER OF ITEM 4A, NAME AND ADDRESS OF LENDER. _____ 2. THE FORM WAS REVIEWED AND EXECUTED BY THE APPLICANTS (MORTGAGORS). _____ 3. THE FORM WAS COMPLETED AND CERTIFIED BY THE ORIGINATING MORTGAGEE. NOTE: THE INSTRUCTIONS ON THE FORM MUST BE COMPLETED BY THE ORIGINATING MORTGAGEE. THE APPLICATION IS NOT SUBJECT TO AN APPRAISAL, A FACE TO FACE INTERVIEW, A PHOTO IDENTIFICATION OR CREDIT REPORT, UNLESS, A MORTGAGE CREDIT ANALYSIS IS REQUIRED. B. FORM HUD-93100, APPLICATION FOR HOMEOWNERSHIP ASSISTANCE UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, (SEE PAGE 20 THROUGH 21): _____ 1. ENTER THE OLD 235 FHA CASE NUMBER AND ADP CODE IN THE LOWER LEFT-HAND CORNER OF ITEM D, MORTGAGEE'S NAME, ADDRESS AND ZIP CODE. _____ 2. THE FORM WAS REVIEWED AND EXECUTED BY THE APPLICANTS (MORTGAGORS). _____ 3. THE FORM WAS COMPLETED BY THE ORIGINATING MORTGAGEE. _____ 4. IF A 235 REVISED RECAPTURE 10 MORTGAGE IS BEING REFINANCED, ATTACHMENT 4 (ACKNOWLEDGMENT OF MORTGAGOR(S)) WAS REVIEWED AND EXECUTED BY THE MORTGAGORS, WHO ARE GIVEN A COPY. _____ 5. IF A RECAPTURE MORTGAGE OR DEED OF TRUST IS BEING MODIFIED AND SUBORDINATED, APPENDIX 44 OF HANDBOOK 4330.1, REV-31 NOTICE TO MORTGAGORS, IS EXECUTED BY THE APPLICANTS (MORTGAGORS) AT THE TIME OF MORTGAGE APPLICATION. _____________________________________________________________________ ATTACHMENT 9 - A PAGE 3 OF 3 NOTE: THE INSTRUCTIONS ON THE FORM MUST BE COMPLETED BY THE ORIGINATING MORTGAGEE. THE DIRECT ENDORSEMENT UNDERWRITER WILL: REVIEW THE FORM, DETERMINE THE APPLICANTS' (MORTGAGORS') CONTINUED ELIGIBILITY FOR ASSISTANCE AND THE AMOUNT OF THE ASSISTANCE PAYMENTS UNDER THE NEW APC; COMPLETE EXECUTE ITEM K, REVIEW AND ELIGIBILITY; AND EXECUTE THE FORM HUD 93100. C. VERIFICATIONS AT APPLICATION (SEE HANDBOOK 4330. 1, REV-3). 1. MORTGAGOR'S VERIFICATIONS AND WRITTEN REQUEST: _____ a. VERIFICATIONS OF INCOME, EMPLOYMENT, ETC. (SEE CHAPTER 10 OF HUD HANDBOOK 4330.1, REV-3, FOR DETAILS) _____ b. EVIDENCE OF THE APPLICANTS' (MORTGAGORS') SOCIAL SECURITY NUMBER(S). _____ c. THE WRITTEN REQUEST, WHICH AUTHORIZES THE RELEASE OF INFORMATION (VERIFICATIONS) AND REPRESENTS A NOTICE TO PREPAY OF THE OLD 235 MORTGAGE, WAS SENT TO THE SERVICING MORTGAGEE. _____ 2. SERVICING MORTGAGEE'S VERIFICATIONS: LETTER FROM THE SERVICING MORTGAGEE IS RECEIVED BY THE ORIGINATING MORTGAGEE AND INCLUDES THE REQUIRED STATEMENTS AND CERTIFICATIONS PLUS THE ATTACHMENTS. (SEE MORTGAGEE LETTER, SERVICING REQUIREMENTS BEGINNING ON PAGE 27.) POST-APPLICATION Q's AND A's (CIRCLE ONE): ITEM (O) DESCRIPTION GENERAL 1. Y/N IS THIS APPLICATION BETTER SUITED TO A SECTION 203(b) MORTGAGE UNDER THE REFINANCE OR STREAMLINE REFINANCE PROCEDURES? IF YES, INFORM THE APPLICANTS (MORTGAGORS) OF THE REFINANCING ALTERNATIVES. (SEE HUD HANDBOOK 4155.1, REV-3) 2. Y/N AFTER A PRELIMINARY EVALUATION OF THE APPLICATION, ARE THE APPLICANTS (MORTGAGORS) SUBJECT TO A MORTGAGE CREDIT ANALYSIS? IF YES, OBTAIN THE REQUIRED DOCUMENTS AND ATTACH THEM TO THE APPLICATION. NOTE: THE ORIGINATING MORTGAGEE SHOULD OBTAIN (AND COMPLETE) THE APPLICATION (ITEMS A, B AND C, AND THE Q's AND A's) PRIOR TO CONTACTING THE LOCAL HUD FIELD OFFICE FOR THE SECTION 233(r) CASE NUMBER AND ADP CODE. _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) __________________________________________________________________________ ATTACHMENT 9 - B 235(r) DOCUMENTS DISPOSITION/CHECK LIST FOR THE 235(R) OR 203(B) CASE BINDER AND THE ORIGINATION AND SERVICING FILES PAGE 1 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 9 - B PAGE 2 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 9 - C 235(r) DOCUMENTS DISPOSITION FOR THE NEW APC ACCOUNT CHECK LIST PAGE 1 OF 2 MORTGAGEE'S: __________________________________ DATE: ____________________ MORTGAGORS' NAME: _________________________ NEW FHA CASE NUMBER: __________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: ___________________DATE OF CLOSING: ______________ ___________________________________________________________________________ DOCUMENTS DISPOSITION FOR ESTABLISHING THE NEW ASSISTANCE PAYMENTS CONTRACT ACCOUNT WITH HUD, OFFICE OF FINANCE AND ACCOUNTING. USAGE: This chock list will assist the originating mortgagee, or its agent, with the documents disposition to set up an account with the Subsidy Accounting Division, so that, HUD will be able to process the mortgagee's application (billings on Form HUD-93102s, Mortgagee's Certification and Application for Assistance or Interest Reduction Payments). These documents are sent separate from the documents sent to the local HUD Field Office for endorsement and the documents associated with a recapture mortgage. The originating mortgagee must send these documents as a group within 5 days after receiving Form HUD-59100, Mortgage Insurance Certificate. HUD will not be responsible for any document sent individually and will not acknowledge the account set up. Furthermore, the new servicing mortgagee cannot bill HUD for any assistance payments associated with the new Assistance Payments Contract (APC) prior to the account sat up, but can request a retroactive change (initial submission of Form HUD-93102) in the assistance payments for those periods for which assistance payments are due the servicing mortgages under the new APC (the assistance payments are eligible to begin on the date of the first monthly amortization payment under the mortgage (or, deed of trust) and note). The following documents must be sent to: U.S. Department of Housing and Urban Development Office of Finance and Accounting Room 3206 Washington, D.C., 20410. _____________________________________________________________ _____________________________________________________________________ ATTACHMENT 9 - C PAGE 2 OF 2 ___________________________________________________________________________ ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) __________________________________________________________________________ ATTACHMENT 9 - D RECAPTURE MORTGAGE (DEED OF TRUST) MODIFICATION AND SUBORDINATION AGREEMENT DISPOSITION/CHECK LIST PAGE 1 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ ATTACHMENT 9 - D PAGE 2 OF 2 ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ APPENDIX 1 FIRST ASSISTANCE PAYMENT COMPUTATION: In the examples below, assume a 30-year, $15,000 mortgage with interest at eight and one-half percent, an interest rate floor at five percent, and insured under Section 235(r). The payment to principal and interest under the mortgage is $115.35. The lender requires monthly escrow deposits for MIP, taxes, and hazard insurance premiums of $8.72, $15.25, and $3.09, respectively. The mortgagors have not purchased homeowner's insurance and have insured the property against fire and extended coverage only. Total family income is $6,200 per year which includes annual wages of $4,500, and a Veterans Affairs pension of $1,500, and the employer's verification is silent on the question of whether it will or will not continue. There are two minor children in addition to the homeowner and his spouse. Add the assumptions that the proceeds of the mortgage were fully disbursed and the term of the assistance payments contract began on January 6, with the first regular monthly payment under the mortgage due on March 1. The assistance payment due March 1 would be computed in accordance with the instructions in paragraph 1. An assistance payment would also be due February 1, however, computed as described below. a. Interest Collected at Closing. In this situation, interest from January 6 through January 31 is collected at closing, and no additional payment is required from the mortgagors until the first regular monthly payment on March 1. The assistance payment due February 1 is computed as follows: (1) Formula One. Principal $ 0 Interest (25 days) 88.54 Taxes 0 Insurance 0 MIP 0 _______ 88.54 Less: 20% of mortgagors' adjusted income for 25 days . . . . . . . . . . . . . . . $70.85 ($425mo. / 30 days x 25 x 20% = $70.85) Formula One Assistance Payment $17.69 ======= _____________________________________________________________________ 2 (2) Formula Two Payment to P&I at 8 1/2% (no principal due) $88.54 MIP 0 ______ $88.54 Less: *P&I at 5% for 25 days (no principal due) 52.00 ______ Formula Two assistance payment $36.54 ====== (*15,000 x .05 / 12 / 30 x 25 = $52,000) In this example, the lesser of the two assistance payment is that computed under Formula one, $17.69. The mortgagee may bill for this amount on February 1, but is not required to do so. The mortgagee is also entitled to a handling charge for February 1, whether or not it chooses to bill for assistance. In this example, the mortgagee has the option of billing for the partial assistance payment so long as it is less than $85.00, which represents the mortgagors, share of the first regular mortgage payment. The mortgagee will normally have this option if it routinely collects interest at closing. b. Adjusted Mortgage Payment. In this situation, interest from January 6 through January 31 is collected as a part of a payment due on February 1, which includes full installments to principal and escrows but a reduced payment to interest. The assistance payment must be billed and is computed as follows: (1) Formula One. Principal $ 9.10 Interest (25 days) 88.54 MIP 8.72 Taxes 15.25 Hazard Insurance 3.09 ________ Payment due February 1 $124.70 Less: 20% of mortgagor's adjusted income for 25 days . . . . . . . . . . . . . . . .$ 70.85 ($425mo. / 30 x 25 x 20% = $ 70.85) Formula One Assistance Payment $ 53.85 ======= _____________________________________________________________________ 3 (2) Formula Two. Payment to P&I at 8 1/2% $ 97.64 (Principal = $9.10 Interest for 25 days = $88.54 HIP 8.72 _______ Total $106.36 *P&I at St for 25 days 70.05 Formula Two Assistance Payment 36.21 ======= Computed as follows: 5.37 x 15 = $80.55 = P&I for one month at 5% $15,000 x .05 / 12 = 62.50 = Interest for one month at 5% $80.55 - $62.50 = $18.05 = Principal for one month at 5% $62.50 / 30 x 25 = $52.00 = Interest for 25 days at 5% $18.05 + $52.00 = $70.05 In this case, the lesser of the two assistance payments is that computed under Formula Two, $36.31. The payment due February 1 will include $36.31 in assistance and a mortgagors' payment of $70.05, for a total of $106.36. Subsequent payments, beginning March 1, will include assistance of $43.52 and mortgagors' payments of $80.55, as established by the computations described in paragraph 1. _____________________________________________________________________ TABLE OF CONTENTS Page 1 of 3 REVISION TO THE SECTION 235(r) REFINANCING PROCEDURES.................. 1 GENERAL................................................................ 2 Definitions....................................................... 3 THE REVISED 235(r) PROGRAM............................................. 3 General........................................................... 3 HUD Handbook 4330.1, REV-3, Administration of Insured Home Mortgages, Chapters 10 and 11........................... 4 Section 235(r) Mortgage Application Processing.................... 4 Prerequisites and Conditions of the 235(r) Program................ 4 The 235(r) Mortgage Amount........................................ 7 The 235(r) Mortgage Term.......................................... 7 The 235(r) "Periodic" Mortgage Insurance Premiums................. 7 Interest Rates and Related Issues................................. 8 235(r) Interest Rate................................... 8 The Interest Rate Floor................................ 9 Upfront Costs of the 235(r) Mortgage and Related Issues....................................................... 10 Upfront Costs.......................................... 10 Mortgagors' Financial Incentives....................... 10 Mortgagors' Option to Pay the Upfront Costs ........... 10 Mortgagors' Prepaid Expenses........................... 10 First Section 235(r) Assistance Payments............... 11 Form HUD-1, Settlement Statement....................... 11 The Characteristics of the New Assistance Payments Contract (New APC) and 235(r) Assistance Payments Billings..................................................... 12 The New 235(r) APC..................................... 12 The New 235(r) APC's Contract Term..................... 12 The New APC 10......................................... 12 Date of the 235(r) Mortgage Proceeds Disbursement.......................................... 12 Section 235(r) Assistance Payments Billings ........... 13 The 235(r) Mortgage (or Deed of Trust) Provisions and Allonge Amending Note for Section 235(r)..................... 15 Subordinate Financing to the Section 235(r) Mortgage.............. 15 Recapture Mortgages............................................... 15 Execution of a Modification and Subordination Agreement to the Recapture Mortgage (or Deed of Trust) and Execution of a New Recapture Note.................................................. 15 A Recapture Mortgage (or Deed of Trust) can be Subordinated to a Junior Mortgage (or Deed of Trust) Held or Insured by a Government Unit........... 17 Originating Mortgagee's Certification of HUD' Lien Priority after Recordation of the Modification and Subordination Agreement.............. 17 Assumption of a Modified and Subordinated Recapture Mortgage and Note........................... 17 _____________________________________________________________________ TABLE OF CONTENTS Page 2 of 3 Section 235 Mortgages Directory.............................. 18 Check Lists to Assist the Originating Mortgagee, or its Agent....................................................... 18 Section 235 Payoff Statements................................ 19 Subsequent Section 235(r) to Section 235(r) Refinancings................................................ 19 235(r) APPLICATION PROCESSING..................................... 19 The 235(r) Mortgage Application.............................. 19 Form HUD-92900, Application for HUD/FHA Insured Mortgage...................................... 19 Form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act........................................... 20 235(r) Mortgage Application Verifications and Related Issues........................................ 21 Verification Deficiencies.............................. 22 235(r) FHA CASE NUMBERS........................................... 22 235(r) UNDERWRITING CRITERIA...................................... 23 The 235 Mortgage Application................................. 23 Form HUD-92900-WS............................................ 23 Other Duties................................................. 23 APPROVING A MORTGAGE APPLICATION WHERE THE MORTGAGORS ARE ELIGIBLE FOR A SECTION 235(r) MORTGAGE, BUT ARE NOT ELIGIBLE FOR THE CONTINUATION OF ASSISTANCE PAYMENTS ........ 23 REFINANCING AN OLD 235 MORTGAGE TO A NEW 203(b) MORTGAGE.......... 25 Clarification of the 203(b) Refinance Procedures............. 25 Amendment to the Streamline Refinance Procedures............. 25 Future Assumptions of a Subordinated Recapture Mortgage (Or Deed of Trust) and Note........................ 27 Upfront and Periodic Mortgage Insurance Premiums (MIPS)...................................................... 27 SERVICING MORTGAGEES OF THE OLD 235 MORTGAGES..................... 27 Section 235 Payoff Statements................................ 28 235 Mortgage Account - Financial Data.................. 28 235 Mortgage Account - Secondary Data.................. 28 Required Attachments................................... 29 Certifications......................................... 29 Verification Deficiencies.................................... 30 The Mortgagors' Recertification/Servicing Mortgagee's Certification............................. 30 The old Original form HUD-93100 is not Available............................................. 31 The Original Sales Contract is not Available .......... 31 The old 235 Mortgage was not Properly Assumed............................................... 31 The old APC was not Properly Reinstated, Suspended or Terminated............................... 31 _____________________________________________________________________ TABLE OF CONTENTS Page 3 of 3 Responsibility and Accountability after the Prepayment or Payment in Full of the old 235 Mortgage.................. 32 Servicing File Retention......................................... 32 Terminations of the Old 235 MIC and APC.......................... 32 *U.S. G.P.O.:1993-342-362:80007