www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 November 7, 1995 MORTGAGEE LETTER 95-51 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production and Servicing - Disaster Aid A Presidential Major Disaster Declaration puts into motion federal recovery programs designed to help victims of hurricanes, earthquakes, floods, tornados, other severe weather or major fires which the President determines warrants supplemental federal aid. Among federal assistance designed to provide housing for victims of these disasters is FHA's Section 203(h) mortgage insurance program as well as other actions undertaken by HUD following the President's declaration. Whenever the President declares an area a Major Disaster, the following mortgage origination and mortgage servicing actions are triggered. The Section 203(h) program is also described in HUD Handbook 4155.1 REV-4, Change 1, Mortgage Credit Analysis, with mortgage servicing procedures described in detail in Chapter 14 of HUD Handbook 4330.1 REV-5, Administration of Insured Home Mortgages. Although we will continue to provide lenders and servicers mortgagee letters listing those areas that have been declared major disasters, as well as the date the declaration was signed by the President, we do not believe it is necessary to repeat complete processing and servicing instructions following each disaster declaration. We strongly recommend that lenders maintain a copy of this mortgagee letter in their files and obtain the HUD handbooks described above if not already in their possession. Future mortgagee letters will only refer to these handbooks and this mortgagee letter. We also intend to communicate this information to the mortgage lending industry through our CHUMS Lender Access System (CLAS) as well as HUD's Home Page on the World Wide Web (http://www.hud.gov/). MORTGAGE ORIGINATIONS I. MORTGAGE INSURANCE FOR DISASTER VICTIMS. Under Section 203(h) of the National Housing Act, 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: <<>> 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 the disasterincludesavaliddriver'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 a shown on the rental agreement of the property affected. <<>> The borrower is eligible for 100 percent financing. No downpayment is required. Prepaid expenses may be paid by the seller, in cash from the borrower, or through premium pricing as described in Handbook 4155.1 REV-4, Change-1. <<>> 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. <<>> Maximum mortgage amounts are the same as for Section 203(b). <<>> 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. <<>> The borrower's application for mortgage insurance must be submitted to the lender within one year of the President's declaration of the disaster. <<>> These mortgages are eligible for processing under the Direct Endorsement program. <<>> 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. 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. 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. IV. SUBMISSION OF CLOSED LOANS. For lenders located in the areas affected, the Department will extend 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 disaster. VI. ENDORSEMENT OF DELINQUENT MORTGAGES. The FHA 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 FHA 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. 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, FHA "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. DO NOT retain hazard insurance proceeds to make up an existing arrearage without the written consent of the mortgagor. IV. Processing Assignment Applications. We encourage 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 .