www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 August 28, 1996 MORTGAGEE LETTER 96-48 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Production - Reduction in Up-Front Mortgage Insurance Premiums (UFMIP) for First-Time Homebuyers Who Receive Housing Counseling On June 6, 1996, President Clinton announced that he had directed FHA to reduce the up-front mortgage insurance premium (UFMIP) for first-time homebuyers who receive housing counseling. For these borrowers, the UFMIP is reduced from the current 2.25 percent to 2.00 percent. This reduction in UFMIP will take effect for any FHA insured loan subject to an upfront premium for which the mortgage is executed on or after September 3, 1996. Purchase money mortgages with a term of more than 15 years insured under the following Sections of the National Housing Act are eligible for the reduced UFMIP: Section 203(b), Home Mortgage Insurance; 203(h), Mortgage Insurance for Disaster Victims; 203(i), Home Mortgage Insurance in Outlying Areas; 203(n), Single Family Cooperative Program; 245(a), GPMs and GEMs (except on condominiums); 251, Adjustable Rate Mortgages (except on condominiums). The annual MIP schedule remains the same and is shown on attachment A. A first-time homebuyer is an individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase (closing date) of the property. A first-time homebuyer includes any individual that has only owned with a former spouse while married. A first-time homebuyer would also include an individual who has only owned a principal residence not permanently affixed to a permanent foundation, or a property that was not in compliance with State, local, or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure. 2 Housing counseling is required for any first-time homebuyer to obtain the reduction in the UFMIP. We prefer that counseling be completed prior to the purchase of the property and before loan application, but counseling received after the loan application is taken, but prior to the closing, is acceptable. Counseling completed up to one year prior to the purchase of the property is also acceptable. Counseling may be provided by a HUD-approved Housing Counseling Agency or other nonprofit or for- profit organization engaged in homebuyer education which meets FHA, Fannie Mae, or Freddie Mac requirements. Regardless of the source, the first-time homebuyer should not pay a fee for counseling. If the organization charges a fee to counsel first- time homebuyers, the mortgagee may absorb this cost, as well as the real estate agent, seller, or other party in the transaction. No adjustment in the borrower's acquisition cost should be made due to such payment. Counseling needs of individual homebuyers may vary; therefore the Department has not established a minimum time duration for the counseling sessions. It is anticipated that most first-time homebuyers will require between 15 and 20 hours of counseling. Counseling may be done in a classroom setting, face-to-face, or via electronic media. In order to make the lower UFMIP available to the widest audience of first-time homebuyers and prevent unnecessary duplication of housing counseling programs which are currently available, FHA will accept housing counseling which may have been received by a potential homebuyer in preparation for loan programs currently offered by both Fannie Mae and Freddie Mac (e.g., Fannie Mae's Community Home Buyer's Start-up Mortgages, Fannie 97 Program as well as Freddie Mac's Affordable Gold, Affordable Gold 97, or CDL Alliances). By accepting housing counseling provided under the program requirements of the Government Sponsored Enterprises, FHA hopes to assure that homebuyers can maximize their choice of available loan programs. For information purposes only, a comparison chart of Fannie Mae, Freddie Mac, and FHA counseling requirements is attached to this Mortgagee Letter (attachment B). In order for the counseling to be acceptable, it should include: I. What an individual needs to know to become a homebuyer A. The process of buying a home B. Key players and their roles C. Home quality 1. Obtaining a home inspection 2. The purpose of the appraisal II. What an individual needs to know to remain a homeowner A. Debt management B. Home maintenance III. What homeowners need to know if they have trouble making payments A. Early intervention B. Community resources Lenders must document that housing counseling has been completed by the borrower by including a certification (attachment C) in the endorsement file. The certification should be a statement, similar to the attachment, signed by the lender confirming that housing counseling which meets FHA, Fannie Mae, or Freddie Mac requirements has been completed. The certification must state whether the counseling was delivered by the lender or a third party and whether the counseling was done face-to-face, in a classroom, or via electronic media. The Computerized Home Underwriting Management System (CHUMS) has been modified to accept counseling as a data element. To ensure that the correct amount of premium is charged and to eliminate problems at mortgage insurance endorsement, the Request for Insurance Endorsement (Form HUD-54111, attachment D) has been modified to capture information on housing counseling for first- time homebuyers. As shown in item number 22, the counseling question has three options; lender, third-party, and none. The counseling field will be mandatory only when the borrower is a first-time homebuyer. The Chums Lender Access System (CLAS) will be modified for this change in early 1997. Until then, those lenders that do not use CLAS are required to complete the entire revised HUD-54111 (Attachment D) with Item 22 appropriately marked. For those lenders that electronically request endorsements, the field office will enter the counseling information from the counseling certification form. In either case, the counseling certification form must be placed on the top right hand side of the endorsement package. The local FHA office endorsing the loan will be responsible for entering the counseling information into the Computerized Home Underwriting Management System (CHUMS). Should you have any questions regarding this letter, please contact your local FHA office. Sincerely, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments (4)