www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 12, 1992 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 92-15 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production : Miscellaneous Changes to Underwriting Guidelines and Documentation Requirements I. SIMULTANEOUS REVIEW OF THE APPRAISAL AND MORTGAGE CREDIT APPLICATION: Although HUD instructions require the Direct Endorsement (DE) lender to notify the borrower of the property's appraised value before it underwrites the borrower's credit, simultaneous review of the appraisal and mortgage credit application is permissible if the DE lender discloses to the borrower that the appraised value may be adjusted by the lender's DE underwriter. The disclosure shown below becomes part of the official file submitted to HUD for endorsement and must be signed by the borrower(s). "I (we) understand that my (our) application for a FHA-insured mortgage is being processed under the Direct Endorsement (DE) program. The lender has advised me (us) that the appraiser has assigned a value of $ ___________ to the property being purchased. I am (we are) aware that the final determination of value for mortgage insurance purposes will be made by the DE underwriter after he/she reviews the report. It is understood that I (we) may elect to cancel the application or renegotiate with the seller if the DE underwriter reduces the value below the amount set forth in the sales contract or requires additional repairs for which the seller will not be responsible." II. INTEREST CREDITS AT CLOSING: To reduce the burden on borrowers whose loans were scheduled to close at the end of the month but did not due to unforeseen circumstances, lenders and borrowers may agree to credit the per diem interest to the borrower and have the mortgage payments begin the first of the succeeding month. For example, the borrower was to close March 30th with her first payment due May 1st. However, the loan did not close until April 6th. Instead of requiring the borrower to pay per diem interest through April with _____________________________________________________________________ the mortgage payments beginning in June, the lender may agree to have the borrower's mortgage payment remain May 1st and refund the interest normally collected through April 6th. This change will reduce the unanticipated per diem interest burden to the borrower. However, this procedure is only permitted on those loans that close within the first 7 calendar days of the month. III. SELLER PAYMENT OF BORROWER'S SALES COMMISSION ON PRESENT RESIDENCE: If the borrower is purchasing a property with a mortgage to be insured by HUD and is also selling his or her present residence and the builder or seller of the property being purchased agrees to pay any portion of the borrower's sales commission on the present house, that amount must be treated as a sales concession and subtracted dollar-for-dollar from the sales price. Similarly, if the borrower does not pay a real estate commission on the sale of a present home, this constitutes a sales concession if the real estate broker or agent is involved in both transactions and the seller of the property purchased by the borrower pays a real estate commission exceeding that typical for the area. In these situations, the amount paid by the seller above the normal real estate commission is considered a sales concession and must be subtracted from the sales price of the property being purchased. IV. REVISED MORTGAGE CREDIT ANALYSIS WORKSHEET (HUD-92900-WS): As part of HUD's ongoing efforts to evaluate borrower characteristics that affect mortgage insurance risks, lenders must indicate on the HUD-92900-WS the dollar amount of gifts of the downpayment and closing costs received by the borrower(s). Future versions of the HUD-92900-WS worksheet will be modified as shown in the attached example. Lenders may choose to modify their present supply of worksheets by simply writing "Gifts - $ ___________" in the Remarks section. This requirement is effective for cases involving sales contracts signed on or after June 15, 1992. V. DIRECT ENDORSEMENT UNDERWRITER APPROVAL--REVISED PROCEDURES: If a Direct Endorsement underwriter has already been approved by one HUD Field Office, the Department will now grant automatic approval of the underwriter in any HUD Field Office where the lender is approved to do business. To request approval from any additional HUD Field Offices where the lender is approved (or is requesting approval) to do business, the DE underwriter's approval request must include a copy of his or her previous approval, CHUMS identification number, social security number, and a statement that the underwriter has not had administrative sanctions taken against him or her by any _____________________________________________________________________ HUD Field Office. The local HUD Field Office will check the underwriter's social security number against the CAIVRS file and, if acceptable, enter the underwriter's CHUMS identification number into CHUMS for that Field Office. The underwriter is not required to provide documentation showing familiarity with market conditions in the geographic area. In addition, once a lender has successfully completed the pre-closing review stage and has been granted unconditional approval, the lender need not submit pre-closing test cases to additional HUD Field Offices. Pre-closing reviews are only required for lenders new to the Direct Endorsement program. The lender requesting approval in additional Field Office jurisdictions must only provide satisfactory evidence of its unconditional approval status. VI. ALTERNATE DOCUMENTATION PROGRAM--ADDITIONAL INFORMATION: In Mortgagee Letter 91-51, you were advised regarding alternate documentation procedures for income and asset verification. These original instructions required the telephone interviewer for income verification to, among other things, confirm the borrower's salary range. Most employers are unwilling to provide salary information in a telephone interview. If the employer refuses to provide salary information, the telephone interviewer need only note this on the lender's certification. Employer telephone numbers should be obtained from the public telephone book rather than the loan application. Some lenders have requested permission to use Form IRS 8821 instead of Form IRS 4506. We have no objection to the use of IRS 8821 or any other document that provides for the Internal Revenue Service to send a taxpayer's tax returns directly to the lender upon request. Lenders are responsible for obtaining tax returns directly from the Internal Revenue Service on alternative document loans and self-employed borrower loans which are selected for quality control reviews. Lenders must establish procedures and use forms which comply with this requirement, but may use whatever IRS form or procedure to obtain the tax returns that is most convenient and appropriate to their quality control operations. VII. UNDERWRITING NON-FIXED RATE MORTGAGES: The Department is concerned that non-fixed rate mortgages are being used to qualify marginal borrowers who cannot reasonably be expected to have income increases commensurate with the anticipated increase in the mortgage payment. This is especially true at lower interest rate levels since the one percent per year increase represents a greater percentage increase in the mortgage payment than does a one percent increase at higher interest rate levels. _____________________________________________________________________ We are not at this time establishing minimum qualifying rates, prohibiting the use of compensating factors, nor are we requiring employers to provide borrowers with a letter assuring increases in income. Lenders should, however, consider the eventual increase in mortgage payments to assure the borrower will not be adversely affected. Unless otherwise stated, these requirements are effective immediately. If you have any questions regarding these issues, please contact your local HUD office. Very sincerely yours, Arthur J. Hill Assistant Secretary for Housing-Federal Housing Commissioner Attachments _____________________________________________________________________ Mortgage Credit Analysis Worksheet __________________________________________________________________________ ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** ___________________________________________________________________________ Form HUD-92900-WS (12/91) ref. handbook 4155.1 *U.S. Government Printing Office: 1992 -- 312-218/60150