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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

January 19, 1989
Mortgagee Letter 89-5
(Supplemental)
TO:  All Approved Mortgagees
SUBJECT:  Revised Requirements - Implementation of the Housing
          and Community Development Act of 1987 - Single Family
          Provisions - (ML 88-2); Assumption Processing - Time
          Frame
 
     This is a revision and expansion of the loan-to-value (LTV)
ratio requirements as initially set forth in Mortgagee Letter 88-2
dated February 5, 1988.  A time frame to process an assumptor's
credit package is also established by this memorandum.
 
     Delete paragraph 3, page 3, of ML 88-2 , under Investor
Mortgagors and add the following information:
 
ASSUMPTIONS-LOAN-TO-VALUE RATIOS
 
     The loan-to-value ratios for investor mortgagors and owner-
occupant mortgagors who purchase an insured property as a secondary
residence, in cases where the seller is released from liability, must
be based on either the value established by the original appraisal or
the value established by a current, as-is appraisal, by an FHA-
approved appraiser.
 
     The LTV ratios which must be invoked are as follows:
 
     (1)  An insured high ratio loan to value mortgage or an 85% loan
          to value mortgage for a secondary residence originated by
          an owner occupant, if assumed by an investor, must be paid
          down to 75% LTV.
 
     (2)  An insured high ratio loan to value mortgage originated by
          an owner occupant, if assumed as a secondary residence must
          be paid down to 85% LTV.
 
     (3)  A section 203(K) insured mortgage originated by an owner
          occupant, if assumed by an investor or by a buyer who will
          use it as a secondary residence, must be paid down to 85%
          LTV.
                                                                2
 
     The sales contract should indicate whether, in the case of an
assumption, the original appraised value will be used to determine
the LTV ratio or if an appraisal to obtain the current market value
must be performed.  If the sales contract provides that an appraisal
must be performed, the lender must compare the two appraisals and use
the greater of the two to calculate the LTV ratio.
 
     The financed one-time MIP must not be included in calculating
loan-to-value.  The calculation is to be based on the loan amount
less the one-time MIP.
 
     These requirements are effective for all original transactions
involving a HUD conditional commitment, HUD Master Conditional
Commitment, VA Certificate of Reasonable Value or Master Certificate
of Reasonable Value issued, or an appraisal or Master Appraisal
signed by a Direct Endorsement (D.E.)  Underwriter, on or after
February 5, 1988, where the seller is being released of liability and
continue throughout the term of the mortgage.
 
     D.E. lenders who are processing assumptions, and have their own
FHA approved staff appraisers must use them to determine the current
appraised value.  All other lenders must contact the local HUD Office
which has jurisdiction over the property and request the assignment
of a HUD fee appraiser.  The appraiser must use HUD standards and
methodology and must use a URAR (Uniform Residential Appraisal
Report).  A customary desk review will be performed by the D.E.
underwriter or HUD field staff, as appropriate.  These appraisals
must be completed within the established time frame allotted for all
FHA appraisals.  The URAR must be part of the loan file at the time
of the creditworthiness review.
 
PROCESSING TIME FRAME FOR ALL FHA ASSUMPTION CREDIT PACKAGES
 
     Lenders must perform all credit reviews prior to assumption and
must complete the processing within 45 days of receipt of the
completed credit package.
 
     Questions concerning this Mortgagee Letter should be directed to
your local HUD Field Office.
 
                          Sincerely yours,
                          Thomas T. Demery
                          Assistant Secretary