www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 November 13, 1995 Mortgagee Letter 95-53 TO: ALL APPROVED MORTGAGEES ATTENTION: Originating and Servicing Lenders SUBJECT: Refinancing Section 235 Mortgages - SUPERSEDING MORTGAGEE LETTER REVISION TO THE SECTION 235(r) REFINANCING PROCEDURES This letter supersedes Mortgagee Letter 93-3 (and all prior letters) and sets forth the revised procedures for refinancing Section 235 mortgages with new mortgages insured under Section 235(r) of the National Housing Act. The regulations in Subpart H of 24 CFR 235.1200, et seq, were amended on November 8, 1995 at 60 F.R. 56498 to change the method of payment of the borrowers' reasonable and customary refinancing costs and financial incentive. In accordance with the amended regulations, the lender can now pay these expenses and seek reimbursement directly from HUD. This letter reflects the changes necessary to implement this method of recoupment by the lender, and other changes which are contained in the amended regulations. GENERAL Currently, HUD is subsidizing Section 235 mortgages with interest rates as high as 17-1/2 percent and desires to lower these higher interest rates to save the Federal subsidy. Approximately 23,000 Section 235 insured mortgages with interest rates of 9 percent or higher may be eligible to be refinanced. Only Section 235 mortgages for which a subsidy is currently being paid under an assistance payments contract (APC) are eligible for refinancing under the Section 235(r) Program. Mortgages where the subsidy has been suspended or terminated, or where an original ten year assistance payments contract has expired, cannot be refinanced under this program. However, these mortgages can be refinanced using Section 203(b) Streamline or Regular refinancing procedures found in HUD Handbook 4155.1, REV- 4, Chapter 4, Refinance, or to other mortgage types, such as, a conventional mortgage. HUD will only reimburse lenders for the borrowers' refinancing costs and financial incentive in connection with a Section 235(r) mortgage. In addition, the subsidy payments will only continue when the Section 235 mortgage is refinanced under 235(r), and the borrowers meet the requirements set forth in this letter. In all instances the assistance payments contract associated with the Section 235 mortgage being refinanced is terminated on the day before the date of disbursement of the mortgage proceeds of the refinancing mortgage. A recapture mortgage, which is associated with a 235(i) mortgage that is refinanced by a 235(r) mortgage, can be subordinated to these mortgages under the requirements and procedures contained in this letter. Lenders should contact the local HUD Field Office if the borrowers request a subordination of the recapture mortgage to other mortgage types. THE REVISED 235(r) PROGRAM A. General - The Department of Housing and Urban Development Reform Act of 1989 authorizes HUD to insure new mortgages under Section 235(r) of the National Housing Act that refinance 235 mortgages. B. HUD Handbook 4330.1, REV-5, Administration of Insured Home Mortgages, Chapters 10 and 11 - The recertification requirements and procedures found in Chapter 10 of HUD Handbook 4330.1, REV-5, must be used as the initial certification requirements and procedures for the 235(r) mortgage. Chapters 10 and 11 of this handbook apply to the servicing of the 235(r) mortgages. C. Mortgage Application Processing - Section 235(r) mortgage applications are to be processed and underwritten by Direct Endorsement (DE) lenders and underwriters. Furthermore, DE lenders and underwriters are not subject to the test cases requirement and Direct Endorsement approval by any HUD Field Office qualifies the lenders and underwriter to process and underwrite these applications in all Field Office jurisdictions. D. Prerequisites - The following prerequisites must be met before the borrowers may obtain a 235(r) mortgage to refinance their 235 mortgage: 1. the borrowers must be currently eligible for and receiving assistance under the old APC; 2. Section 235 mortgages with original 10 year APCs are eligible to be refinanced to Section 235(r) mortgages provided that the 10 year APC still has 6 months from the date of the closing the 235(r) mortgage remaining in its term; 3. the borrowers must be occupying the property, and will continue to occupy it, after the 235(r) mortgage is closed; 4. the borrowers must complete and execute a current form HUD-92900, Application of HUD/VA Insured Mortgage, and a form HUD-93100, Application for Homeownership Assistance under Section 235 of the National Housing Act, detailing the family's composition, income, employment and occupancy, and sign a certification averring its accuracy (Borrowers, who are members of a cooperative association operating a housing project and who are eligible for and receiving assistance payments under an APC, are not eligible to participate in the 235(r) Program.); and 5. the borrowers must not have received payments for the costs of refinancing and/or a cash financial incentive, nor can 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. E. Requirements of the 235(r) Program 1. Mortgage Amount - The 235(r) mortgage amount cannot exceed the lesser of: (a) the unpaid principal balance of the mortgage being refinanced, including any advances properly made by the mortgagee under the terms of that mortgage (e.g., Section 235 overpayments, real estate taxes, hazard insurance, etc.) and any current interest due and delinquent interest up to two (2) months; or (b) the original principal amount of the mortgage being refinanced. The Section 235(r) mortgage amount must be rounded down to the nearest $50.00 increment before applying the P + I factors and the initial and periodic MIP factors. 2. Mortgage Term - The maximum term of the 235(r) mortgage cannot exceed the remaining term of the 235 mortgage being refinanced as of the date of closing the 235(r) mortgage, rounded down to a whole year. For example, if the remaining term of the 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. 3. Periodic Mortgage Insurance Premiums - The 235(r) mortgage is subject to periodic MIP. The premiums are included in the borrowers' monthly mortgage payments and escrows must be established for the payment of these premiums to HUD. 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. 4. Interest Rates - The 235(r) interest rate and the interest rate floors on the mortgages being refinanced 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. (a) 235(r) Interest Rate - Originating lenders may negotiate an interest rate that does not exceed the GNMA coupon rate plus a margin of one-half of one percent (50 basis points). The GNMA coupon rate is based on the closing price for three-month forward delivery contracts closest to par but not exceeding par on one of the following dates, whichever date the rate is the higher: (1) The date the Direct Endorsement lender's underwriter signs the Mortgage Credit Analysis Worksheet (form HUD-92900 WS), or (2) The date the mortgage is closed. There must be at least a three percentage point (300 basis points) decrease between the interest rate on the 235 mortgage being refinanced and the 235(r) interest rate. (b) Interest Rate Floor - The interest rate floor that is associated with the old APC is the interest rate floor for the new APC. Instructions to compute the P+I payments at the interest rate floor are found on form HUD-93100. 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 borrowers are obligated to pay under the 235(r) mortgage and the monthly payment for principal and interest which the borrowers 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 Formula Two when the 235(r) mortgage is processed and underwritten and when subsequent assistance payments are recomputed by the new servicing lender. 5. Monthly Mortgage Payments (a) Borrowers' Share of the Monthly Mortgage Payments - The borrower must have sufficient income to make their share of the monthly mortgage payments with 20 percent of adjusted monthly income (or 28 percent if a mortgage with a 10 year APC is being refinanced). (b) Borrowers' Current Share Increases by $50.00 - A mortgage credit analysis (as described in HUD Handbook 4155.1, REV-4, Mortgage Credit Analysis for Mortgage Insurance on One-to-Four Family Properties) must be performed when the borrower' share of the full monthly payment increases more than $50.00 per month under the 235(r) mortgage. 6. Borrowers' Refinancing Costs and Financial Incentive - (a) Refinancing Costs - The refinancing costs which the originating lender can pay for the borrowers and be reimbursed by HUD are: (1) the one percent (1%) loan origination fee; (2) the borrowers' prepaid interest (up to the first 10 days of prepaid interest); (3) actual closing costs that are reasonable and customary for refinancing transactions, and (4) actual discount points associated with the 235(r) interest rate used in the mortgage instruments (see Appendix 2 for an explanation and example on computing the discount points), plus two (2) discount points as a lender's incentive. (b) Financial Incentive - The amount is set at $450.00 and payable by the lender at closing. (c) Borrowers' Option - Borrowers can elect to pay all or a part the refinancing costs stated above, but they will not be reimbursed for these costs. Only the lender can be reimbursed for its payment of these costs on behalf of the borrowers. The borrowers also have the option to decline the incentive payment. (d) Reimbursements of Costs - Lenders, which seek reimbursement of these costs they have paid, must complete Attachment 9, Lender's Certification, with the required attachments. See Appendix 4 for the records retention requirements. 7. Assistance Payments Contract and Billings - (a) HUD-93100 will reflect whether the borrowers continue to be eligible for assistance. (If the originating lender discovers during the review of form HUD-93100 that the borrowers were erroneously determined to be eligible for assistance under the old APC, then the lender must reject the application since these borrowers are not eligible for a 235(r) mortgage. The rejection must be in writing. If the borrowers question the rejection, they should be referred to the servicing lender for an explanation and a possible recertification of their eligibility under the old APC.) (b) New 235(r) APC - The issuance of the Mortgage Insurance Certificate (form HUD-59100, MIC) constitutes 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 lender, but rather 24 CFR Part 235, Subpart C, constitutes the new APC. This is also true for a new APC in connection with an original APC which was limited to ten years (new APC 10). (c) New APC Term - Except for a new APC 10, the 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. (d) New APC 10 Term - The term for the new APC 10 will be for the unexpired term of the original APC in connection with the mortgage being refinanced, provided that at least 6 months still remain on the original APC. (See Paragraph D-2 on Page 2) If not, the mortgage is not eligible for refinance under 235(r). If eligible, the term of the new APC 10 will commence on the date of disbursement of the 235(r) mortgage proceeds and will end on the expiration date of the original APC, 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 mortgage. (See Payoff Statement.) Attachment 4, Acknowledgment of Borrowers, must be executed by the borrowers on the date of closing of the 235(r) mortgage. (Use with new APC 10 only.) (e) Date Mortgage Proceeds Disbursement - The originating lender must execute Attachment 5, Lender's Certificate of the Date of Disbursement of the Section 235(r) Mortgage Proceeds. The date of disbursement is the date on which the contract term of the new APC or APC 10 commences. (f) Assistance Payments Billings - Once the Section 235(r) mortgage is endorsed the lender can begin billing HUD per the requirements set forth in HUD Handbook 4330.1, REV-5, Chapter 10. (g) First Assistance Payments - The first assistance payment may offset some of the borrowers' 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. Originating lenders 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 and new APC 10. These methods are set forth in HUD Handbook 4330.1, REV-5, and Appendix 1 sets forth a computational example. The method selected must be the one that is most advantageous to the borrowers. Originating lenders 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-5, Chapter 10. 8. 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 are contained in Handbook 4165.1, REV-1. The originating lender will have to make any 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. 9. Recapture Mortgages (a) Modification and Subordination Agreement and New Recapture Note - Where a firm commitment for a 235(i) mortgage was issued after May 27, 1981, there will be a recapture mortgage (or deed of trust) and note made payable to HUD which is a junior mortgage that allows for the recapture by HUD of Section 235 assistance payments made on behalf of the borrowers. HUD will allow the modification and subordination of the recapture mortgage to the 235(r) mortgage where the originating lender has followed the instructions set forth in Attachment 7, Instructions to Complete the Modification and Subordination Agreements for HUD's Recapture Mortgage. In addition, Attachment 7 contains the instructions for the execution of a new recapture note. The DE underwriter or corporate officer of the DE lender, who has the authority to legally obligate the lender, is delegated by HUD the limited authority, as its authorized 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.) These authorized officials must execute the respective agreement on or before the date of closing of the 235(r) mortgage. The originating lender, 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 lender, or its agent, to send the original agreement to the local HUD Field Office (ATTN: Director, Single Family Housing). 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. At that time, the amount of the recapture will be calculated under the procedures set forth in Chapter 11 of HUD Handbook 4330.1, REV-5. The borrowers 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 Handbook 4330.1, REV-5. The title of the appendix title must be changed to read "Notice to Borrowers". A copy of Appendix 44 must be furnished to the borrowers. Within 30 days after the closing date of the 235(r) mortgage, the originating lender, 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: Director, Single Family Housing). These documents are sent to the local HUD Field Office separate from the case binder. (b) Junior Mortgage or Deed of Trust Held or Insured by a Government Unit - Some 235(i) mortgages were originally processed, underwritten and executed where a government unit could financially assisted the borrowers in becoming a homeowners. These government units obtained or insured a second mortgage and HUD's recapture mortgage was secured as a third mortgage. 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. However, the government unit will have to supply its own subordination agreements. (c) Assumption of the Recapture Mortgage - The recapture mortgage, which is modified and subordinated to the 235(r) mortgage, can be assumed by a future purchaser if he/she meets the requirements the requirements for assumption of the recapture mortgage as set forth in HUD Handbook 4330.1, REV-5. The future purchaser will be required to execute a new recapture note when the assumption is consummated. 10. Section 235 Mortgages Directory - Lenders can obtain a Section 235 Mortgage Directory that contains the borrowers' 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. Old 235 mortgages with interest rates of nine percent or more are contained in the directory. Lenders must send a written request for the directory. Attachment 8, 235 Mortgages Directory - Written Request, should be used to order the directory. If that form is not used, then all the information on it should be supplied when ordering, plus the appropriate fee. 11. Subsequent Refinancings - Borrowers must pay all refinancing costs and are not entitled to an incentive with any subsequent 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 borrowers paid the refinancing costs and received no incentive for the Section 235(r) mortgage being refinanced. 235(r) APPLICATION PROCESSING A. Section 235(r) FHA Case Number - Originating lenders can call the local HUD Field Office to obtain a case number. Suffix codes for these mortgages are found in Attachment 1, 235(r) ADP Suffix Codes. B. Form HUD-92900, Application for HUD/FHA Insured Mortgage - The originating lender 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. The DE underwriter must complete Items I through 14 and Item 15 (a) through (g) of form HUD-92900-WS, or complete the entire form if a mortgage credit analysis is required, and must approve or reject the mortgage application. 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. C. Form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act - 1. Process and Complete form HUD-93100 - The originating lender must follow the instructions set forth on form HUD-93100 and the procedures found in HUD Handbook 4330.1, REV-5, Chapter 10. In addition, the originating lender 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 lender pays the refinancing costs and the cash financial incentive to the borrowers, the following paragraphs must be inserted in "Notes" on Page 2 of 2 and become part of form HUD-93100: "We have been informed by the originating lender that 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 lender paying a financial incentive to us and also paying the refinancing costs for and on our behalf. Furthermore, we understand that seeking tax advice is a voluntary action and does not constitute a requirement in the consideration of our mortgage application. We also understand that if we refinance to another 235(r) mortgage within 60 months of the date of the first payment to principal and interest on this 235(r) mortgage that we are obligated to pay all the costs to refinance." Borrowers' Signatures Date 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 are available for the servicing of Section 235(r) mortgages. 2. Review and Execution of form HUD-93100 - The DE underwriter is required to verify the following: (1) the borrowers' social security number(s) in accordance with the procedures in HUD Handbook 4155.1, REV-4, Chapter 1, (2) the borrowers' employment and income per the requirements set forth in HUD Handbook 4330.1, REV-5, Chapter 10, and (3) the 235 mortgage account. The DE underwriter must also obtain other documentation that supports the processing and underwriting of the mortgage in accordance with the requirements in this letter. UNDERWRITER AND LENDER CERTIFICATION The DE underwriter and lender will certify to the requirements above when the "Underwriter Certification" (Appendix 3, HUD Handbook 4000.4 REV-1, Change 1) and the "Mortgagee Certification" (Appendix 4, HUD Handbook 4000.4, REV-1, Change 2) are completed. However, the amendments to the regulations mentioned above made changes in the section numbers of subpart H of Part 235. Therefore, the following changes are made to Handbook 4000.4, Changes 1 and 2: Appendix 3 (1) The section number in Item 14 is changed to 24 CFR 235.1218(f). (2) The section number in Item 16 is changed to 24 CFR 235.1216(a). Appendix 4 (1) Page 1-The fourth item in paragraph 1 is changed to 235.1212. (2) Page 2-The sixth item under paragraph 3 is changed to 235.1218(a). (3) Page 4-The section numbers are changed as follows: (a) Paragraph 20---235.1218(b) (b) Paragraph 21---235.1218(c) (c) Paragraph 22---235.1218(d) (d) Paragraph 23---235.1218 ELIGIBILITY FOR A 235(r) MORTGAGE WITHOUT CONTINUATION OF ASSISTANCE PAYMENTS Borrowers, who are eligible for and receiving assistance under the Section 235 mortgage, are eligible for a Section 235(r) mortgage even though the DE underwriter determines that the borrowers are able to pay the Section 235(r) mortgage's full monthly payments with 20 percent (or 28 percent for a Section 235 mortgage with a 10 year contract) 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 borrowers' 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 borrowers must execute Attachment 6, Acknowledgment of 235(r) Assistance Payments Suspension. Within 5 days after receiving the 235(r) MIC the originating lender 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. The originating lender must check ( /) "Suspension." Furthermore, the originating lender 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 lender 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 borrowers, 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." Note: The executed form HUD-93114 (original) must be attached to form HUD-93100. The approval letter sent to the borrowers must state that the assistance payments will be suspended under the new APC until the required recertifications are performed and the lender subsequently determines that the assistance payments will be reinstated, terminated or continue to be suspended. SERVICING LENDERS OF THE OLD 235 MORTGAGES The servicing lender must provide mortgage account information and issue a Section 235 Payoff Statement respective to the following requirements: A. 235 Mortgage Account - Financial Data - The servicing lender must itemize on these payoff statements the following: 1. actual unpaid principal balance that includes adjustments for prepayments and advances, such as, overpayments of assistance payments (which must have been repaid to HUD) real estate taxes, hazard insurance, etc.; 2. current interest and the delinquent interest; 3. fees and late charges; and 4. grand total of these amounts that is necessary to prepay (in full) the 235 mortgage. B. Mortgage Account - Secondary Data - The servicing lender must itemize on these payoff statements the following: 1. FHA case number and ADP code; 2. the original principal balance; 3. note interest rate; 4. interest rate floor; 5. escrow balances; 6. any partial payment accepted by the servicing lender that is held in a trust account pending disposition; 7. the original term (in months) of the mortgage; 8. the remaining term (in months) of the mortgage; 9. the number of delinquent payments and/or partial prepay- ments; 10. the amount of overpayments which has been properly advanced to the mortgage account and is included in the actual unpaid principal balance; 11. the total amount of assistance payments which have been paid by HUD (beginning with the first assistance payment); and 12. date of the first monthly amortization payment under the mortgage or deed of trust and note. C. Required Attachments - The following documents are to be attached to the payoff statement by the servicing lender: 1. copy of the original form HUD-93100 which was executed by HUD when the 235 mortgage was underwritten; 2. copy of the old APC if it was a ten year contract; 3. copy of the original sales contract (if available) which was executed when the 235 mortgage was underwritten; 4. copy of Appendix 8(C), Mortgagee Notice to Mortgagor, HUD Handbook 4330.1, REV-5, which is furnished to the borrowers; and 5. any substitute documents as described in Appendix 4, Verification Deficiencies. D. Certifications - The servicing lender must certify the following: 1. within the preceding 12 months the borrowers have (have not) completed and executed form HUD-93101,Mortgagor's Recertification of Family Composition and Income; 2. borrowers have (have not) completed and executed form HUD-93101-A, Recertification of Income and Family Composition Section 235(b) - Statistical Report; 3. the borrowers are (are not) currently eligible for assistance and are (are not) receiving assistance pay- ments under the old APC; 4. HUD is (is not) due an amount for the overpayment of assistance payments and that HUD has (has not) been refunded any overpayments, if applicable (Note: Any amount of overpayments of assistance must be immediately refunded to HUD by the servicing lender. Otherwise, the Section 235(r) application cannot be approved by the DE underwriter.); and 5. the Section 235 Payoff Statement and attachments are an accurate representation of the 235 mortgage account. E. Servicing File Retention - In accordance with 24 CFR 235.365, the servicing lender must maintain the 235 mortgage records for at least three years after the payment in full and must provide them to HUD, if requested, during any review or audit conducted by HUD, or its agents. If you have any questions concerning this letter, please contact the Director of Single Family Housing at the local HUD Field Office. Very sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner .