www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 December 10, 1992 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 92-43 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Provisions of Recent Housing Legislation and Mortgage Insurance Premiums on 15-Year Mortgages This Mortgagee Letter is to inform lenders about changes to our programs that are a result of recent enactment of new Housing legislation and to make several other changes for the benefit of lenders and prospective homebuyers. I. REVISED MAXIMUM MORTGAGE LIMITS - HIGH COST AREAS: As a result of the new legislation, HUD's statutory maximum mortgage limits for high cost areas have been increased. The new maximum limits have been increased from $124,875 to the lesser of: a) 95 percent (or 107 percent for 2-unit properties, 130 percent for 3-unit properties, and 150 percent for 4-unit properties) of the area's median house price (as determined by HUD), or b) 75 percent of the Federal Home Loan Mortgage Corporation's (Freddie Mac) maximum mortgage amounts in effect as of September 30, 1992. Accordingly, the new statutory limit for a one-family property in a high-cost area may be as much as $151,725 (excluding financed upfront MIP), which is 75 percent of Freddie Mac's limit of $202,300 in effect as of September 30, 1992. The Freddie Mac conforming limits and HUD's new maximum limits are shown below: 1-unit $202,300 Freddie Mac x 75% = $151,725 HUD statutory limit 2-units $258,800 Freddie Mac x 75% = $194,100 HUD statutory limit 3-units $312,800 Freddie Mac x 75% = $234,600 HUD statutory limit 4-units $388,800 Freddie Mac x 75% = $291,600 HUD statutory limit These revised statutory limits apply to loans insured under the following sections of the National Housing Act: Section 203(b) (Home Mortgages), Section 203(h) (Disaster Victims), Section 203(k) (Rehabilitation Mortgages), Section 220(d)(3)(A) (Urban Renewal), Section 222 (Service Members), Section 223(e) _____________________________________________________________________ 2 (Properties in Older Declining Urban Areas), Section 234(c) (Condominiums), Section 244 (Coinsurance), Section 245 (GPM/GEM), Section 251 (Adjustable Rate). Section 203(i) (Outlying Areas), is limited to 75 percent of the statutory limits shown above. These new mortgage amounts also apply to calculations of the principal limit under Section 255 (Home Equity Conversion Mortgages). The list of areas with mortgage limits above $124,875 will be published in the Federal Register in the next few weeks and they will be effective for loans insured on or after the date of publication in the Federal Register. HUD's mortgage limits are tied only to the Freddie Mac mortgage limits as of September 30, 1992, so future increases in the Freddie Mac limits will have no effect on the HUD maximum mortgage limits shown above. II. LOAN-TO-VALUE RATIOS - PROPERTIES ABOVE $125,000: In addition to raising the maximum insurable mortgage to the amounts described above, the 1992 Housing legislation limits the percentage of financing of any amount above $125,000 to 90 percent of the amount above $125,000. Therefore, the new loan-to-value limits are: 97 percent of first $25,000 of value, 95 percent of such value in excess of $25,000 and up to $125,000, and 90 percent of such value in excess of $125,000. This new loan-to-value limit applies to all properties, including those in Alaska, Hawaii, Guam, and Virgin Islands, as well as two, three and four unit properties, where the value or sales price exceeds the $125,000 threshold. For example, you would calculate the maximum mortgage amount for a property with a value (including closing costs) of $150,000 that is eligible for maximum financing, as follows: $150,000 - $125,000 = $ 25,000. $25,000 x .90 = $22,500 $125,000 - $25,000 = $100,000. $100,000 x .95 = $95,000 $ 25,000 - $0 = $ 25,000. $25,000 x .97 = $24,250 ________ Maximum mortgage $141,750 That portion of the value exceeding $125,000 is limited to 90 percent financing. For a quick check of the math when calculating maximum financing of properties exceeding $125,000, multiply the entire amount by 90 percent then add $6750 to the result. $150,000 x .90 = $135,000 and $135,000 + $6750 = $141,750. The additional downpayment requirement does not apply to loans for disaster victims insured under Section 203(h) of the National Housing Act. _____________________________________________________________________ 3 You are reminded that for three and four unit properties, the additional maximum mortgage calculations based on debt service also apply. See HUD Handbook 4155.1 Rev-4, paragraph 1-8(C) for details on these calculations. The higher downpayment requirements were effective the day the housing legislation was signed by the President. However, in order to avoid disruption to sales transactions that have already been consummated, HUD will enforce the higher downpayment requirements for purchase transactions involving sales contracts signed and for refinance transactions involving loan applications signed on or after the date of publication of the increased maximum mortgage amount limits in the Federal Register. III. LOANS TO VETERANS--SECTION 203(b)(2): The Housing legislation provided an exemption to the 97.75 percent maximum loan-to-value limits (or 98.75 percent if $50,000 or less) applied to the appraised value for loans to eligible veterans under Section 203(b)(2) of the National Housing Act. As stated on the back of the new mortgage credit analysis worksheet (HUD-92900-WS dated 10/92)), do not complete line 14f(2) for these transactions. For properties eligible for maximum ( >90 percent) financing, veterans are entitled to 100 percent of the first $25,000 of value, 95 percent of the amount between $25,000 and $125,000, and 90 percent of the amount above $125,0,00. You are reminded that the veteran's loan application must be accompanied by a Certificate of Veterans Status, Form VA-26-8261 to be eligible for the lower downpayment. In addition, only one-unit dwellings are eligible and the veteran must invest at least $200 in the transaction, which may include prepaid expenses. IV. MORTGAGE INSURANCE FOR DISASTER VICTIMS --- ADDITIONAL INSTRUCTIONS: In Mortgagee Letter 92-34, the Department advised lenders of the processing requirements for loan applications from victims of the recent hurricanes under Section 203(h) of the National Housing Act. In that letter, HUD stated that a borrower needed only to certify that he or she lived in the disaster area and that the residence was destroyed or damaged to the extent that reconstruction or replacement is necessary. However, we find it necessary to add additional requirements to this certification process for transactions involving sales contracts signed on or after January 1, 1993. These additional requirements are as follows: 1. The borrower must provide conclusive documentation that his or her residence was located in one of the areas declared a major disaster by the _____________________________________________________________________ 4 President before the hurricane. This documentation may be a valid driver's license, a voter registration card, utility bills, etc., showing the borrower's previous address. 2. The borrower must provide conclusive documentation of the destruction or damage of the previous residence to the extent that reconstruction or replacement is necessary. This documentation may be in the form of a report from an insurance company, an inspection report by an independent fee inspector or government agency or conclusive photographic evidence showing the destruction or damage. V. REVISED UNIFORM RESIDENTIAL LOAN APPLICATION (URLA): The URLA (FNMA Form 1003/FHLMC Form 65 dated 5/91) has been revised. The revised URLA (dated 10/92) will be required for loan applications taken on or after July 1, 1993. However, lenders may begin using the revised application immediately. Please note, however, that the "other" category under "Race/National Origin" shown in "Section X. Information for Government Monitoring Purposes" should not be used for HUD loan applicants. The borrower (or lender if the borrower does not wish to furnish this information) must continue to check one of the five remaining boxes shown in this section of the URLA. Checking "Other" is not acceptable to HUD. VI. MIP REFUND NETTING FOR REFINANCE TRANSACTIONS: HUD's telephone lines for refinance netting transactions have been overloaded because of the heavy volume of refinance transactions. Therefore, lenders are encouraged to use the ECHO or MORNET automated systems to obtain netting authorization codes for refinance transactions. Please contact United Communications Group/ECHO (800-929-4824) or Fannie Mae MORNET (800-752-6440) to receive information about these systems. To ease the overload on our telephone lines, netting authorization codes can now be obtained from HUD via facsimile machine. The facsimile telephone number is 202-708-9911 and is available 24 hours a day. HUD will return the authorization codes within two (2) business days. Lenders are urged to use this new facsimile service. VII. EXTENSION OF MCRV RECIPROCITY: The recent Housing legislation provided an extension to June 15, 1993 of reciprocity between HUD and the Department of Veterans Affairs (VA) for acceptance of Certificates of Reasonable Value issued by VA as evidence of subdivision approval. HUD will _____________________________________________________________________ 5 notify lenders by mortgagee letter should future legislation either terminate this reciprocity or provide for further extensions. Therefore, until further notice, lenders should continue to follow the procedures set forth in Mortgagee Letters 89-1 and 89-9. VIII. SECTION 203(K) ESCROW COMMITMENT CERTIFICATION: Form HUD-314, Escrow Commitment Certification, has been revised. A copy of the revised form is attached and must be used for Section 203(k) transactions involving sales contracts signed on or after January 1, 1993, (if it involves an escrow commitment). The escrow commitment procedure is described in HUD Handbook 4240.4 Rev-2. IX. MORTGAGE INSURANCE PREMIUMS FOR MORTGAGES WITH TERMS OF 15 YEARS OR LESS: On October 14, 1992, HUD published an interim rule in the Federal Register reducing the Upfront Mortgage Insurance Premium and annual mortgage insurance premiums applicable to mortgages with terms of 15 years or less. These regulations will provide for a more equitable premium structure for these lower risk mortgages. For all 15-year or shorter term mortgages closed on or after December 26, 1992 (except streamline refinances exempt from the annual premium), the Upfront Mortgage Insurance Premium is 2.0 percent of the amount of the insured principal obligation of the mortgage. For those loans with loan-to-value ratios less than 90 percent (excluding the amount of the Upfront MIP), no annual premium will be charged. For loan-to-value ratios greater than or equal to 90 percent, but less than or equal to 95 percent, an annual premium of 0.25 percent will be collected for the first four years of the mortgage term. For those loans with LTVs greater than 95 percent, an annual premium of 0.25 percent will be collected for the first eight years of the mortgage term. On any refinance where the MIP refund exceeds the Upfront MIP required on the new loan, the overage will be refunded directly to the borrower from HUD. So that the borrower will not be burdened with additional out-of-pocket expenses, the lesser of the MIP refund or the new upfront MIP at 2.0 percent should be subtracted from the unpaid principal balance before calculating the new mortgage amount. Mortgagees are required to continue to complete form HUD-27001 and forward it to the address shown on the form, even though the MIP refund may exceed the Upfront MIP required on the new loan. _____________________________________________________________________ 6 X. SUMMARY OF MUTUAL MORTGAGE INSURANCE FUND PREMIUM AMOUNTS (APPLICABLE FOR MORTGAGES CLOSED ON OR BEFORE SEPTEMBER 30, 1994): The following Sections of the National Housing Act require a payment of an Upfront MIP as well as an annual premium: * 203(b), Home Mortgage Insurance * 203(h), Mortgage Insurance for Disaster Victims * 203(i), Home Mortgage Insurance in Outlying Areas * 203(n), Single Family Cooperative Program * 245(a), GPMs and GEMs (except on condominiums) * 251, Adjustable Rate Mortgages (except on condominiums) * 244, Coinsurance _______________________________________________________ UPFRONT AND ANNUAL MIP PREMIUM CHART (MORTGAGE TERM GREATER THAN 15 YEARS) ____________Annual_____________________ Upfront L-T-V Ratio Premium Years _____________________________________________________ 3.00 89.99 & Under .50 7 _____________________________________________________ 3.00 90.00 - 95.00 .50 12 _____________________________________________________ 3.00 5.01 & Over .50 3 _____________________________________________________ _______________________________________________________ Streamline refinances of mortgages closed before July 1, 1991, where the new mortgage will carry a term greater than 15 years, are subject to an Upfront MIP of 3.8 percent, but are not subject to the annual premium. See Mortgagee Letter 92-14 for details regarding streamline refinances exempt from the annual premium. _____________________________________________________________________ 7 _______________________________________________________ UPFRONT AND ANNUAL MIP PREMIUM CHART (MORTGAGE TERM 15 YEARS OR LESS) ____________Annual_____________________ Upfront L-T-V Ratio Premium Years _____________________________________________________ 2.00 89.99 & Under None n/a _____________________________________________________ 2.00 90.00 - 95.00 .25 4 _____________________________________________________ 2.00 5.01 & Over .25 8 _____________________________________________________ _______________________________________________________ Streamline refinances of mortgages originated before July 1, 1991, where the new mortgage will carry a term of 15 years or less, are subject to a One-Time MIP of 2.4 percent (no annual premium is charged). 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 Attachment _____________________________________________________________________ __________________________________________________________________________ Escrow Commitment Certification ******************************************************************** * * * * * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ form HUD-314 (11/92) Page 1 of 1