www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 March 30, 1995 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 95-15 TO: ALL APPROVED MORTGAGEES SPECIAL ATTENTION: Servicing Managers (Single Family) SUBJECT: Termination of Assistance Payments Contracts - Revised Recapture/10 Program The National Housing Act, 12 USC 1715z, as amended by the Housing and Urban-Rural Recovery Act of 1983, Public Law 98-181, limits Section 235 assistance payments to a 10-year period. Consequently, all assistance payments contracts must terminate ten years after the due date of the first monthly installment of principal and interest toward the mortgage loan. The assistance payments contracts under the 10-year Program, which commenced in 1985, have already begun to expire. The bulk of these terminations will occur in calendar years 1995 and 1996. The purpose of this letter is to alert mortgagees of this fact and to provide additional information and advice which may be helpful. Upon termination of the assistance payments contracts, the homeowners become responsible for the full payments due under the mortgage. Although homeowners received notice of the 10-year assistance limitation at the time of loan origination (and acknowledged same in writing), there will be some homeowners who will be financially unable to pay their full mortgage installments after their assistance payments end. HUD is requesting -- among other servicing measures -- that such homeowners be given an opportunity to refinance their mortgages under HUD's streamline refinancing program. We are therefore encouraging lenders "pro-actively" to identify those mortgages in their portfolios which are affected by the expiration of the 10-year assistance contracts. HUD also encourages mortgagees to participate, to the greatest extent possible, in the streamline refinancing program which can, in many cases, accomplish such shared goals as avoiding lender foreclosure expenses, while at the same time permitting homeowners to retain their properties. At current interest rates, streamline refinancing often results in a significant reduction in the principal and interest portion of the mortgage installment, which would partially offset the loss in subsidy. The Department expects lenders to recognize streamline refinancing as an opportunity to assist homeowners in reducing their mortgage payments as well as the risk of foreclosure. 2 Subordination of the recapture lien would also occur as part of the refinancing. It is strongly recommended that, no later than thirty (30) days prior to expiration of the assistance payments contract (except in those instances where the contracts have already expired), lenders notify homeowners in writing of the imminent termination of assistance. The letter should also advise homeowners that upon termination of the assistance payments contract, they will be responsible for the full mortgage payments. Furthermore, homeowners should be informed that if they are unable to make the full mortgage payments, they can contact the lender in an effort to refinance their mortgages under HUD's streamline refinancing program. Homeowners should also be referred to HUD-approved housing counseling agencies so that they may be provided appropriate assistance. The Department has notified HUD-approved housing counseling agencies of this issue. SEE ATTACHMENT NO. 1 OF THIS LETTER FOR A COPY OF THE LETTER WHICH MORTGAGEES MAY USE FOR NOTIFYING HOMEOWNERS OF THIS MATTER. (Any deviations from this suggested format must still contain substantially the same information.) Attachment No. 2 of this letter provides instructions regarding streamline refinancing. We appreciate your cooperation in this matter. Questions pertaining to this Mortgagee Letter should be directed to the Single Family Division in the local HUD Office which has jurisdiction over the property. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachment ATTACHMENT 1 NOTICE TO HOMEOWNER PLEASE READ THIS CAREFULLY Mortgagor: ______________________ Date: __________________ Address: ______________________ Loan #: _________________ ______________________ FHA #: __________________ THIS IS TO ADVISE THAT THE ASSISTANCE YOU RECEIVE MONTHLY (OR WHICH MAY CURRENTLY BE IN SUSPENDED STATUS) UNDER THE SECTION 235 REVISED RECAPTURE/10 PROGRAM, AND PAID BY THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), WILL TERMINATE ON __(date)_____________________. The National Housing Act, 12 USC 1715z, as amended by the Housing and Urban-Rural Recovery Act of 1983, Public Law 98-181, limits Section 235 assistance payments to a 10-year period. You were advised of the 10-year limitation at the time of loan origination. At loan closing, you were provided a "Notice to Buyer" advising that the assistance payments contract would terminate ten (10) years after the due date of the first monthly installment toward principal and interest on the mortgage loan. You were required to sign two copies of the Notice, one of which was retained by you. Effective __(date)__________________, you will be responsible for the full mortgage payments in the amount of $______________. If you are unable to make the full mortgage payments, we may be able to refinance your mortgage under HUD's streamline refinancing program. Streamline refinance would probably result in a significant reduction in the principal-and-interest portion of your mortgage installment, which would partially make up for the loss in the Section 235 assistance. However, YOU MUST CONTACT US IMMEDIATELY ON RECEIVING THIS NOTICE IF YOU WISH TO DISCUSS THIS MEASURE. The telephone no. is ________________________. You may also contact a HUD-approved housing counseling agency from the enclosed list. HUD-approved housing counseling agencies have been advised to provide assistance and guidance to homeowners regarding this matter and also in locating other resources -- financial and otherwise -- through State and local governments. Again, if you need assistance, we urge you to act now. ATTACHMENT 2 INSTRUCTIONS FOR PROCESSING UNDER THE STREAMLINE REFINANCE PROGRAM 1. For the new streamline refinancing mortgage, the Mortgage Insurance Premium will be a one-time premium of 3.8% upfront, with no annual premiums. If the lender requires that a full credit review be performed, including appraisal, etc, the new mortgage will not be processed as a streamline refinance but rather as a regular refinance, and the premium will be 2.25% upfront with the normal risk-based annual premium. 2. Under streamline refinancing, if the new Principal and Interest (P&I) payment is less than the mortgagor's required monthly payment of principal and interest under the subsidized mortgage, lenders can approve the new mortgage automatically. However, in those cases where the new P&I is greater than the homeowner's required monthly payment for P&I due under the subsidized mortgage, lenders must make a determination as to whether the homeowner can reasonably be expected to make the new payments of principal and interest. See HUD Handbook 4155.1 REV-4 and Mortgagee Letter 94-7 dated February 2, 1994, for specific guidelines regarding the streamline refinancing program. *U.S. Government Printing Office: 1995 - 387-734/20058