www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 October 11, 1995 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 95-47 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production and Servicing - Special Program, Underwriting, and Servicing Policies to Assist Victims of Presidentially-Declared Major Disaster Areas This Mortgagee Letter is to advise you of actions taken by the Department to assist victims of Hurricane Opal. The areas affected by the hurricane and the date of the President's declaration(s) are included as a separate attachment. The procedures described below are in effect immediately and will remain in effect for one year from the date of the President's declaration. MORTGAGE ORIGINATIONS I. 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 repair is necessary, are eligible for 100 percent financing. The requirements for the program are as follows: o The borrower's previous residence must have been in the disaster area and must have been destroyed or damaged to such an extent that reconstruction or replacement is necessary. The borrower must provide conclusive evidence to the above. Documentation showing a permanent residence in the affected area before flooding includes a valid driver's license, a voter registration card, utility bills, etc. Documentation regarding destruction of the residence may include an insurance report, an inspection report by an independent fee inspector or government agency, or conclusive photographic evidence showing the destruction or damage. The borrower may have been the owner of the property or shown on the rental agreement of the property affected. 2 o The borrower is eligible for 100 percent financing. No downpayment is required. However, prepaid expenses must be paid by the seller, in cash by the borrower, or through premium pricing (as described in HUD Handbook 4155.1 REV-4, Change-1). o The mortgage insurance premium is the same as for Section 203(b) mortgages. The upfront premium may be financed into the mortgage amount and the borrower will also be charged the annual premium. o Maximum mortgage amounts are the same as for Section 203(b). o The program is limited to one-unit detached homes only. Two, three, and four unit properties may not be purchased under the Section 203(h) program, nor are condominium units eligible. 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 Adjustable rate mortgages (ARMs) may not be used with Section 203(h). II. SECTION 203(k) REHABILITATION MORTGAGES. 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) is hereby waived and will not apply to properties in the disaster area. 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 ready for occupancy for eligibility under Section 203(k). III. CONSTRUCTION/PERMANENT MORTGAGES. Lenders are encouraged to use the construction/permanent mortgage program in the areas affected. Mortgagee Letter 92-25 and HUD Handbook 4155.1 REV-4, Change-1 contain complete processing guidelines. IV. UNDERWRITING. The Department recognizes that victims of the disaster may have to incur debts to replace personal property. Victims of the disaster will be allowed to have a total fixed payment to gross income ratio of 43 percent without compensating factors. The 43 percent ratio can also be exceeded with appropriate compensating factors. This provision will apply to all FHA-insured mortgages regardless of the insurance program. 3 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 areas affected, the Department is extending 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 storm. VI. ENDORSEMENT OF DELINQUENT MORTGAGES. The HUD Offices located in the affected areas have been granted authority, on a case-by-case basis, to endorse mortgages that are delinquent, provided the delinquency is due to disaster-related circumstances. Documentation requirements will be established by the individual HUD Offices. As a rule, this policy applies to cases where the loan closed before the disaster and the homeowner may have become delinquent in his payments because of temporary disruptions in employment. MORTGAGE SERVICING Moratorium on Foreclosures, Servicing Actions, Property Damage, Assignment Applications, and FEMA's Mortgage Assistance Payments. (Chapter 14, FEDERAL NATIONAL DISASTERS, of HUD Handbook 4330.1 REV-5, Administration of Insured Home Mortgages, contains the provisions summarized below.) I. Moratorium on Foreclosures. A moratorium on foreclosures on property directly affected by the disasters is in effect for a 90-day period from the date the President declared a disaster to have existed. The moratorium applies to the initiation of foreclosures AND foreclosures already in process. II. Servicing Actions. In addition to the moratorium, HUD "strongly recommends" servicing actions for properties directly affected by the disaster and where it affected the mortgagor's financial viability. This includes actions such as special written forbearance, refinancing, waiving late charges, and the suspension of reporting delinquencies. III. Dealing with Property Damage. Mortgagees must follow standard procedures, including assuring that hazard insurance claims are filed and settled expeditiously, and expediting turning proceeds over to the mortgagor. 4 DO NOT retain hazard insurance proceeds to make up an existing arrearage without the written consent of the mortgagor. IV. Processing Assignment Applications. HUD encourages mortgagees to use HUD Exhibit Letters and grant "good cause" deadline extensions. V. FEMA's Mortgage Assistance Payments. Mortgagees must inform mortgagors regarding this program. Appendix 26A of HUD Handbook 4330.1 REV-5 contains recommended language for this purpose. If you have any questions regarding these issues, please contact your local HUD Office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments PRESIDENTIALLY DECLARED D ISASTER AREAS Hurricane Opal/October 4, 1995 ALABAMA: Baldwin, Barbour, Bullock, Coffee, Covington, Conecuh, Crenshaw, Dale, Elmore, Escambia, Geneva, Henry, Houston, Lee, Macon, Mobile, Montgomery, Pike, Russell, and Tallapoosa counties FLORIDA: Bay, Calhoun, Escambia, Franklin, Gadsden, Gulf, Holmes, Jackson, Lee, Leon, Liberty, Okaloosa, Santa Rosa, Wakulla, Walton, & Washington counties GEORGIA: Bartow, Carroll, Chattooga, Clay, Cobb, Coweta, Dade, Douglas, Fannin, Fayette, Floyd, Fulton, Gilmer, Habersham, Haralson, Harris, Murray, Muscogee, Polk, Rabun, Randolph, Quitman, Talbot, Towns, Union, Walker, White, and Whitfield counties NORTH CAROLINA: t/b/a Other counties in all four or additional states may be added following damage assessment by the Federal Emergency Management Agency (FEMA). Lenders should rely on FEMA for updated disaster area information.