www.hudclips.org 


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

 
December 9, 1994
 
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
 
Mortgagee Letter 94-57
 
TO:     ALL APPROVED MORTGAGEES
 
SUBJECT:Single Family Loan Production - HOW Insurance Company
10-Year Warranty Plan
 
On October 7, 1994, the State of Virginia temporarily enjoined
the HOW Insurance Company (HOWIC), a risk retention group based in
Virginia, Home Owners Warranty Corporation (HOW), a District of
Columbia corporation and their parent company, Home Warranty
Corporation (HWC), a Delaware corporation, from doing business
throughout the country.  It is our understanding that the State of
Virginia Insurance Commissioner has been appointed as Special Receiver
for HOWIC, HOW, and HWC.  These corporations cannot assume any new
risks, enroll additional homes, pay additional claims or solicit
additional business.
 
Accordingly, high ratio loans closed on or after October 7, 1994,
with HOW warranties will not be eligible for FHA insurance endorsement
unless the builder:  (1) obtained a Conditional Commitment/DE
Statement of Appraised Value prior to starting construction and had
all three construction inspections performed by a HUD fee or DE staff
inspector; or (2) replaces the HOW warranty with another HUD-accepted
10-year warranty plan (the names of HUD accepted 10-year warranty
plans are listed in Change 1 of Handbook 4145.1 REV-2); or (3)
completed construction of the dwelling at least one year prior to the
application for mortgage insurance.
 
As an additional alternative to facilitate the closing and
insurance of transactions, HUD will allow the builder to paydown the
mortgage to a 90 percent loan-to-value ratio to make it eligible for
insurance, provided the sales contract was signed on or before October
7, 1994.  HUD will not consider this payment as a seller concession
for purposes of the 6 percent rule.  In these cases, HUD will make no
adjustment to the appraised value or the borrower's acquisition costs
to reflect the payment.
 
2
 
In addition, high ratio loans closed on or after October 7, 1994,
using a Department of Veterans Affairs (VA) Certificate of Reasonable
Value (CRV) issued with a HOW warranty will not be eligible for FHA
insurance endorsement.  However, any VA CRV issued under any other
basis will be eligible for FHA insurance purposes.
 
If you have any questions, please contact your local HUD Office.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner