www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 June 19, 1996 MORTGAGEE LETTER 96-29 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Reduction in Documentation/Paperwork for FHA-Insured Mortgages: The HUD Case Binder and the Lead-Based Paint Disclosure PAPERWORK REDUCTIONS In March, the Paperwork Reduction Working Group that was established in 1994 met to discuss the next phase in the Department's continuing efforts to achieve a more paperless environment. The Group is comprised of lenders, trade associations, government sponsored enterprises, and HUD staff. The focus of this Working Group was the paperwork involved with closing packages and the insuring process. Its goal was to determine the minimum that must be submitted to FHA in order to receive a Mortgage Insurance Certificate. When this effort began in 1994, the Department required approximately 50 items of documentation, totaling close to 100 pieces of paper, to be submitted to the local HUD office in order to receive insurance endorsement. We have dramatically reduced the amount of documentation to around 21 items involving approximately 40 pieces of paper. With technology initiatives becoming more sophisticated, the Department is committed to making doing business with FHA an endeavor that is as paperless as possible. Lenders are still required to assemble and underwrite a complete origination package, as is specified in outstanding instructions. However, we realize that in order for the Department to make a sound decision to insure a loan, not all of the documentation currently required needs to be in the HUD case binder. Recommendations by the Group are reflected in the accompanying charts detailing the 2 revised HUD case binder, which is effective immediately for Direct Endorsement cases only. For Pre-closing and HUD processed case binders, lenders will still have to submit all of the documentation required by Handbook 4165.1 REV- 1 CHG 3, Endorsement for Insurance for Home Mortgages as amended by Mortgagee Letters 94-55, 95-11, and 95-31. Also, for Pre-closing and HUD processed case binders for Home Equity Conversion Mortgages (HECM), lenders will still have to submit all of the documentation required by Handbook 4235.1 REV-1 as amended by Mortgagee Letter 95-54. A revised Pre-Endorsement Review Checklist is also attached to this Mortgagee Letter (not for HECM mortgages). Also, we have eliminated the HUD Application for Property Appraisal and Commitment, Form HUD-92800. Since appraisers are selected by the lender, we agree that the form has outlived its usefulness and no longer needs to be completed by the lender. Lenders are to retain in their origination binders all those documents currently required by HUD Handbook 4165.1 REV-1 CHG 3 and/or 4235.1 REV-1. The requirement that lenders maintain origination binders for at least two years from the date of endorsement remains the same. Documents that are printed from an imaged or electronic file are acceptable for submission for mortgage insurance. Lenders may also use imaging technology to archive origination files. LEAD-BASED PAINT DISCLOSURE Regarding the revised Lead-based Paint Disclosure Form in Mortgagee Letter 96-10, we have discovered clarification concerning its design is necessary. We decided to inform homebuyers of the importance of a home inspection at the time the sales contract was executed due to a recommendation made by the Business Practices Working Group. Instead of creating another disclosure form, we decided to include it in the existing lead- based paint disclosure form. Therefore, for those who wish to do so, we do not have any objection to separating these two unrelated disclosure issues into two separate forms. The same is true for the HUD Real Estate Owned Lead-based paint disclosure, which is slightly different than the disclosure form in Mortgagee Letter 96-10. As many of you may already know, a new industry wide regulation will be taking effect on September 6, 1996 for owners of more than four residential dwelling units and on December 6, 1996, for owners of one to four residential dwellings units concerning lead-based paint disclosure in all pre-1978 residential properties. As a result of this new regulation, FHA will no longer have a separate form and a separate set of procedures for lead-based paint disclosure. This regulation, commonly referred to as the Section 1018 rule, mandates the use of a new Environmental Protection Agency (EPA) pamphlet for disclosure of the hazards of lead-based paint for those properties built prior to 1978. It also gives homebuyers the opportunity to inspect the property within 10 days (or some other mutually agreed upon amount of time) of signing the sales contract. On or after December 6, 1996, lenders will no longer be obligated to provide proof of disclosure in order to obtain FHA insurance endorsement. Until that time, lenders are expected to follow the instructions in Mortgagee Letter 96-10. The EPA pamphlet, Protecting your Family From Lead in Your Home, is available through the Government Printing Office at (202) 512-1800 in bulk copies ($26.00/50 copies), stock # 055-000-00507-9. Single copies are available from the National Lead Information Center at (800) LEAD-FYI and the hearing impaired can call TDD (800) 526-5456. With respect to the importance of a home inspection, the Department intends to convene an Appraisal Working Group within the next few months. This Group will discuss issues surrounding Valuation Condition Sheets, the differences between conventional and FHA appraisal standards, and the importance of home inspections. By December 6, 1996, we plan to have implemented the recommendations of the Group concerning home inspections. If you should have any questions concerning this mortgagee letter, please contact your local HUD office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments THE REVISED HUD CASE BINDER (for Direct Endorsement Cases ONLY) The left side of the binder The right side of the binder Mortgagee Assurance of Completion, Form HUD-92300, when applicable. Request for Insurance Endorsement, Form HUD-54111. This form should only be included in the binder by those lenders that do not use a CHUMS Lender Access System to request insurance endorsement. Builder's Certification of Plans, Specifications, and Site, Form HUD- 92541, when applicable. Uniform Residential Appraisal Report (URAR). Only include the actual two page form, the photographs of the subject property and comparables, and the sketch of the subject property. Photographs and sketches are not required for those cases involving a VA-CRV. Nothing is required for streamline refinance transactions WITHOUT an appraisal. Compliance Inspection Report Form HUD-92051 or other acceptable documentation, when applicable. Statement of Appraised Value, Form HUD-92800.5b and the Valuation Condition Sheet, except for properties sold by HUD. Builder's Warranty, Form HUD-92544, and 10-Year Warranty, OR VA Certificate of Reasonable Value or VA Master Certificate of Reasonable Value, when applicable. The Mortgage Credit Analysis Worksheet, Form HUD 92900-WS. Credit report and any credit explanations except for streamline refinance transactions. Uniform Residential Loan Application and the Form HUD 92900-A. Page five of this form does not need to be included in the binder since it refers only to mortgages insured by the Department of Veterans Affairs. Asset verification documentation, including gift letters, except for streamline refinance transactions. HUD-1 Settlement Statement. Income verification documentation except for streamline refinance transactions. HUD-1 Addendum. Evidence of Social Security Number or Employer Identification Number. If evidenced by the asset or income verifications, it need not be included. Certified copy of the Security instrument and Note and all applicable riders. Purchase Contract and any addenda. Certification regarding Hotel and Transient Use, for investors as required by 203.16 and on all two, three and four unit properties. Notice to Purchasers, which informs borrowers about home inspections and the hazards of lead-based paint. Request for Late Endorsement documentation, when applicable. Local health authority approval for individual water and sewer systems. ************************************ ************************************ ************** This form will be eliminated as of December 5, 1996. THE REVISED HUD CASE BINDER FOR HOME EQUITY CONVERSION MORTGAGES (For Direct Endorsement Cases ONLY) The Right Side of the Binder (HUD does not require any documents on the left side of the Binder) Request for Insurance Endorsement, Form HUD 54111-A. This form should only be included in the binder by those lenders that do not use a CHUMS Lender Access System. Uniform Residential Appraisal Report (URAR). Only include the actual two page form, the photographs of the subject property and comparables, and sketch of the subject property. Statement of Appraised Value, Form HUD- 92800.5b and the Valuation Condition Sheet. Uniform Residential Loan Application and the Form HUD-92900-A. Page five of this form does not need to be included in the binder since it refers only to mortgages insured by the Department of Veterans Affairs. Evidence of calculations for principal limit and monthly payment amount, if any. Certified copy of the Security Instrument and Note and all applicable riders and the loan agreement. Certified copy of the second Security Instrument and Note and all applicable riders. Credit Report (For Federal debts) Certification regarding Hotel and Transient Use on all two, three, and four unit properties. Title Insurance Commitment or other acceptable title evidence. Mortgagee's election of assignment or shared premium option. Evidence of Social Security Number. Evidence the mortgagor received counseling. Pre-Endorsement Review Checklist CASE NUMBER Not to be used for HECM This list represents the pre-endorsement review documents required by 24 CFR 203.255 and represent Statutory and Regulatory requirements. 1. Was the case submitted MORE than 60 days AFTER the date of loan closing? Y N If yes, does the case meet the requirements of Late Submission Processing (4165.1 Chapter 3)? Note: Loan must be current to endorse. 2. Form HUD-54111 (DE request for Insurance Endorsement) or alternative. Y N Is the 54111 completed or the 9100 screen pre-filled sufficiently to execute the CHUMS screens? 3. Original Uniform Residential Loan Application (URLA). Y N Is the URLA signed by lender and borrower? (Lender's signature on the initial application is acceptable in lieu of lender's signature on final URLA) 4. Form HUD-92900-A (Addendum to the URLA). Y N Are all four pages signed and/or certified by the appropriate parties? 5. Are Special Certification and Forms executed as applicable? i.e., Hotel and Transient Use, Y N well or septic local approval letter, local code letter for 221(d)(2), etc. 6. Note and Security Instrument (mortgage or deed of trust). Y N a. Is the face page of the note and the security instrument marked "certified copy"? Are the note and security instrument signed or conformed? b. Is the principal mortgage amount or maturity date greater than that approved by the DE underwriter? c. Does the note contain all nine paragraphs of the model note? d. Does the security instrument contain paragraph 9 entitled "Ground for Acceleration of Debt" and paragraph 17 entitled "Foreclosure Procedures"? e. Are all riders indicated in paragraph 4(D) of the note and on the last page of the security instrument completed and signed or conformed? 7. Form HUD-1 (Loans Settlement Statement) and Addenda. Y N Is the Settlement Statement complete and signed? Are certifications signed? 8. Original Uniform Residential Appraisal Report (URAR). Y N Does the URAR contain the appraiser's signature and date? If this case involves a VA conversion, does the file contain a copy of the VA CRV? 9. Form HUD-92541, Builder Certification (for new construction). Y N Is the 92541 complete and signed and dated by the builder? 10. Form HUD-92051, Compliance Inspection Report(s). Y N Is the 92051 complete and signed and dated by an approved inspector? 11. Ten Year Warranty Insurance (application, if required for new construction). Y N Is the property address (including unit number if Condo/PUD) correct? Completed by: date