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

December 16, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
MORTGAGEE LETTER 93-41
   TO:  ALL APPROVED MORTGAGEES
   SUBJECT:  Single Family Loan Production - Guidance for underwriting
             insured mortgages in areas affected by the closing of a
             military installation or major manufacturing facility
 
          In the past few months, the Department of Defense has announced
   that a number of military installations will be closed or will
   significantly scale back their operations.  In addition, large employers
   in a number of cities have announced the closing or downsizing of major
   manufacturing facilities.  The purpose of this Mortgagee Letter is to
   provide additional guidance to lenders for underwriting insured
   mortgages in areas where these events occur.  Although we believe that
   most persons will not attempt to purchase a home if they know that their
   employer has announced that it will cease or significantly scale back
   operations, several lenders and HUD Field Offices have indicated that
   guidance on this issue is necessary.
 
          As you know, the most important factor for approving a
   prospective borrower for an insured mortgage is the determination that
   the borrower will have stable and sufficient income to make the mortgage
   payment.  In areas where a major employer has stated that there will be
   a substantial reduction (or elimination) of its workforce, the lender
   must be careful to make prudent judgments with regard to the stability
   and sufficiency of the future income of loan applicants that work for
   that employer.
 
          Accordingly, the Department is providing the following guidance
   to lenders that process applications from borrowers that are employed by
   an entity that has publicly announced that major reductions in its
   workforce will occur at the facility that employs the applicant:
 
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     1.   Do not use the Department's "Alternative Documentation program"
          that was announced in Mortgagee Letter 91-51  to approve these
          loan applicants.  Instead, the lender must use the Department's
          standard processing procedures.
 
     2.   Under the standard processing procedures, the lender must obtain
          a verification of employment (VOE).  If the VOE does not indicate
          a good probability of continued employment lasting at least 24
          months, then in order to approve the applicant, the lender must
          make a determination that the applicant has reasonable prospects
          of obtaining other alternative employment in the same or similar
          occupation and so indicate on the Mortgage Credit Analysis
          Worksheet (Form HUD-92900WS).
 
     3.   An applicant should only be rejected if the lender cannot
          determine that the applicant has reasonable prospects of
          obtaining other employment in the same or similar occupation and
          either a) there is absolute certainty the entire operation will
          cease or, b) the verification of employment does not indicate
          a good probability of continued employment.
 
     By providing the above guidance, it is not the Department's intent to
add to the economic distress of an area, so we want to reemphasize that the
above guidance is only applicable when there is a public announcement of a
base or factory closing or reduction in the workforce and the loan
applicant works directly for that employer.
 
     If you have any questions, please contact your local HUD Field Office.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
 
                                           *U.S. G.P.O.:1993-301-054:80246