www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 September 30,1992 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 92-34 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Program and underwriting changes to assist disaster victims of recent hurricanes This Mortgagee Letter is to advise you of actions taken by the Department to assist victims of the recent hurricanes in Florida, Louisiana, and Hawaii. The President's declaration of a major disaster in the State of Florida was signed on August 24, 1992 and included the counties of Broward, Dade, Monroe, and Collier. The President's declaration of a major disaster in Louisiana was signed on August 26, 1992 and included Terreboone Parish. The President's declaration of a major disaster in Hawaii was signed on September 12, 1992 and included all the Islands. Unless otherwise indicated, the procedures in this Mortgagee Letter are effective immediately and will remain effective for one year from the date of the President's declaration. 1. MORTGAGE INSURANCE FOR DISASTER VICTIMS. HUD has a special mortgage insurance program under Section 203(h) of the National Housing Act to assist disaster victims. Under this program, individuals or families, whose residences were destroyed or damaged to such an extent that reconstruction or replacement is necessary, are eligible for 100 percent financing under Section 203(h). The requirements for the program are as follows: o The borrower's previous residence must have been in the disaster area and the residence was destroyed or damaged to such an extent that reconstruction or replacement is necessary. The borrower must certify that he lived in the disaster area and that his residence was destroyed or _____________________________________________________________________ 2 damaged to the extent that reconstruction or replacement is necessary. This certification must be included as part of the borrower's loan application. The borrower may have been the owner of the property or a renter of the property destroyed. o The borrower is eligible for 100 percent financing. No downpayment is required and the 57 percent limit on closing costs does not apply. Prepaid charges must be paid by the borrower in cash. o The mortgage insurance premium amount is the same as Section 203(b), the upfront premium can be financed in the mortgage and the borrower will also pay the annual premium. o Mortgage limits are the same as Section 203(b). o The borrower must purchase a one family unit. Two, three, and four unit properties may not be purchased under this program. o The borrower's application for mortgage insurance must be submitted to the lender within one year of the President's declaration of the disaster. o These mortgages are eligible for processing under the Direct Endorsement program. o Condominium units are not eligible for purchase under Section 203(h). II. SECTION 203(k). The requirement for a dwelling to be completed more than one year preceding the date of the application for mortgage insurance under Section 203(k) will not apply to properties located in the disaster areas. Damaged residences will be eligible for Section 203(k) mortgage insurance regardless of the age of the property. The residence need only to have been completed and occupied for eligibility under Section 203(k). III. CONSTRUCTION/PERMANENT MORTGAGES. The pilot program, announced in Mortgagee Letter 92-25, has been expanded to include the States of Louisiana and Hawaii. _____________________________________________________________________ 3 IV. UNDERWRITING. The Department recognizes that victims of the hurricanes may have recently incurred debts to replace personal property. Victims of the disasters will be allowed to have a total fixed payment to gross income ratio of 43 percent without compensating factors. The 43 percent ratio can be exceeded with appropriate compensating factors. This provision will apply to an FHA-insured mortgages regardless of the insurance program. Disaster victims with Secretary-held mortgages are eligible for new FHA-insured mortgages provided the borrower was current with the forbearance agreement at the time of the disaster and all payments for the preceding twelve months were made within the month due. V. SUBMISSION OF CLOSED LOANS. For lenders located in the disaster areas, the Department has extended the time for submission of closed loans for insurance endorsement from 60 days to 90 days after the date of closing. This will provide lenders additional time to locate and reconstruct loan packages where documents may have been destroyed by the hurricanes. VI. ENDORSEMENT OF DELINQUENT MORTGAGES. The Coral Gables, New Orleans and Honolulu Offices have been given the authority, on a case by case basis, to endorse mortgages that are delinquent, provided the delinquency is due to hurricane-related circumstances. Documentation requirements will be established by the Field Offices. Primarily, this policy will apply to cases where the loan was closed prior to the hurricane and the homeowner may have become delinquent in his payments because of temporary disruptions in employment. 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 *U.S. Government Printing Office 1992 - 342-362/60297