www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 21, 1997 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 97-23 TO: ALL APPROVED MORTGAGEES ATTENTION: Single Family Servicing Managers 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 expanded actions taken by the Department to assist victims of spring floods in North Dakota, South Dakota and Minnesota. The President's declaration of major disaster area for North Dakota was signed on April 7, 1997 and includes all 53 counties. The President's declaration of major disaster area for South Dakota was signed on April 7, 1997 and includes all 66 counties. The President's declaration of a major disaster area for Minnesota was signed on April 8, 1997 and includes Benton, Big Stone, Brown, Chippewa, Clay, Kittson, Lac Qui Parle, Marshall, Norman, Pennington, Polk, Red Lake, Roseau, Sherburne, Stearns, Swift, Traverse, Washington, Wilking, Wright, and Yellow counties. On April 15, 1997, Aitkin, Anoka, Becker, Blue Earth, Carver, Dakota, Goodhue, Grant, Hennepin, Houston, Kandiyohi, Lake of the Woods, Le Sueur, Lincoln, Mahnomen, Morrison, Nicollet, Ramsey, Redwood, Renville, Scott, Sibley, Stevens, Wabasha and Winona counties were added to the declaration. On April 16, 1997, St. Louis county was added to the declaration. On April 18, 1997, Cass, Clearwater, McLeod, Otter Tail, Todd and Wadena counties were added to the declaration. Finally, on April 23, 1997 Beltrami, Douglas and Pope counties were added to the declaration. Mortgagee Letter 97-02 provides detailed instructions with regard to special origination and servicing procedures for mortgagors affected by these disasters. The procedures described below are expanded relief options to further address the needs of disaster victims. These enhanced measures are in effect immediately and will remain in effect for one year from the date of the Presidential declaration. Any counties added to the declaration will be eligible for disaster relief and the same procedures will apply. MORTGAGE ORIGINATION I. MORTGAGE INSURANCE FOR DISASTER VICTIMS. Section 203(h) of the National Housing Act was designed 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 for the purchase of a home. The 203(h) program has been expanded and can now be used as a refinance vehicle to include payoff of the old mortgage, costs of refinance, and the cost of repairs up to 100 percent of appraised value. FHA expects that the borrower will use any insurance proceeds exceeding the cost of repairs to reduce the existing mortgage balance. The borrower then could initiate an application for a Section 203(h) refinance loan and could combine the outstanding balance of the previous loan with any additional costs associated with the repair of the property. The maximum mortgage is limited to the lesser of the following calculations: 1) 100 percent of the estimate of after repaired appraised value, not to exceed the maximum mortgage limit in the area where the property is located, or 2) the unpaid principal balance, costs of refinance and costs of repairs. The lender is required to certify that all repairs have been completed before the mortgage is executed. These Section 203(h) refinance loans cannot be completed on a streamline basis and the borrower cannot receive any cash back from the transaction. II. UNDERWRITING Mortgagors whose homes were completely destroyed can qualify for a new mortgage loan without considering the existing mortgage payments. This will enable homeowners to obtain a loan at a higher loan to value than the 203(b) program and begin the mortgage application process while the insurance negotiations and/or settlements are being processed. The existing mortgage debt must be satisfied prior to the approval of any new mortgage debt. MORTGAGE SERVICING Chapter 14, FEDERAL NATIONAL DISASTERS, of HUD Handbook 4330.1 REV-5 , Administration of Insured Home Mortgages contains servicing provisions which apply to FHA loans affected by a Declaration of Disaster. Enhanced servicing options are outlined below: I. MORATORIUM ON FORECLOSURES A moratorium on foreclosures on a property directly affected by the disasters is in effect for a six (6) month period from the date the President declared a disaster to have existed. The moratorium applies to the initiation of foreclosures AND foreclosures already in progress. (Previously, this moratorium was for a ninety (90) day period.) II. SERVICING ACTIONS In addition to the moratorium, HUD "strongly recommends" lenders use relief options such as special forbearance, mortgage modification, refinancing, partial claims and waiver of late charges. Use of these actions is particularly applicable for homeowners whose properties were directly affected by the disaster or whose employment income has been temporarily curtailed as a result of the disaster. Mortgagee Letter 96-61 provides detailed references to the use of these servicing tools as well as incentives and claims instructions. To enable more homeowners to obtain assistance during this disaster period, the debt ratio under the Partial Claim process has been expanded. Previously, homeowners were required to meet debt ratios in a range of 29 percent to 50 percent. The debt ratio is now expanded to range from 29 percent to 60 percent. III. LENDER COUNSELING FHA representatives will be contacting lenders servicing loans in the affected areas to coordinate assistance to homeowners who fall behind on mortgage payments due to the flooding. 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