U.S. Department of Housing and Urban Development Washington, D.C. 20410-8000 February 16, 1994 OFFICE OF THE ASSISTANT SECRETARY TI-427 FOR HOUSING-FEDERAL HOUSING COMMISSIONER MEMORANDUM FOR: ALL TITLE I LENDING INSTITUTIONS Attn: Installment Loan Department SUBJECT: Waiver of Selected Title I Regulations to Benefit the Victims of the California Earthquake The Department is interested in making Title I property improvement loans more readily available to the victims of the Northridge earthquake in Southern California to assist them in repairing or rebuilding their homes. In addition, the Department wants to encourage lenders to use all available forbearance measures to assist existing Title I borrowers who have experienced a loss of income or other financial difficulties resulting from the earthquake. To make Title I assistance available more quickly for earthquake victims and to ease their financial burden, the Department has agreed to waive the following provisions of the Title I regulations. Waiver of the Equity Requirement Section 201.20(a)(3) of the Title I regulations requires that, for any property improvement loan in excess of $15,000, the borrower must have equity in the property being improved at least equal to the loan amount. The Department has agreed to waive the equity requirement for any property improvement loan or combination of such loans on the same property, as long as the total principal balance does not exceed $25,000. This waiver will make it possible for greater numbers of earthquake victims to use the Title I property improvement loan program and will greatly expedite processing. Waiver to Expedite Improvements in Emergency Situations Section 201.20(b)(3) of the Title I regulations provides that the proceeds of a property improvement loan may be used only for improvements that are started after loan approval. The Department has agreed to waive this provision to allow borrowers to make emergency repairs to their properties before final loan approval. However, the lender will have to document the loan file giving the reasons why it was necessary to begin work before final loan approval. _____________________________________________________________________ 2 Waiver to Permit the Financing of Certain Fees and Charges Section 201.25(c) of the Title I regulations lists certain fees and charges which may not be included in the loan amount or otherwise financed or advanced by other parties to the loan transaction. The Department has agreed to waive §201.25(c) to permit the following fees and charges to be financed in the Title I loan, as long as the maximum loan amounts in 201.10(a) are not exceeded: o A loan origination fee, not to exceed one percent of the loan amount ( §201.25(c)(1)); and o Recording fees, recording taxes, filing fees and documentary stamp taxes ( §201.25(c)(3) and (4)). This waiver will reduce the initial cash investment required to obtain a Title I loan. Waiver to Extend Claim Filing Period Section 201.54(b)(1) of the Title I regulations provides that insurance claims on property improvement loans must be filed with the Department within nine months after the date of default. The Department has agreed to waive this provision and permit claims to be filed up to twelve months after the date of default. However, to receive this waiver, the lender will have to document the loan file to show that the borrowers experienced a loss of income or other financial difficulties directly attributable to the earthquake, and that additional time to provide forbearance was required. Conditions on the Waivers Waivers of §201.20(a)(3), 201.20(b)(3), 201.25(c) and 201.54(b)(1) of the Title I regulations will be applicable only under the following conditions: o The loan proceeds can only be made available for the repair of damage that resulted from the Northridge earthquake or aftershocks. Borrowers must be able to demonstrate to the satisfaction of the lender that the property was damaged by the earthquake or aftershocks. o Regardless of what earthquake damage a property has sustained, the loan proceeds may only be used to improve or protect the basic livability and utility of the property, as required by § 201.20(b)(2). Therefore, the list of improvements which may not be financed with a Title I property improvement loan, found in HUD Handbook 1060.2 REV-5, Appendix A, remains in effect. _____________________________________________________________________ 3 o The property to be repaired must be located within the disaster area designated by the President, which includes Los Angeles, Ventura and Orange Counties. o These waivers shall be applicable only to loans for which the credit application is received on or before December 31, 1994, unless the waivers are extended prior to that date. Title I property improvement loans originated in accordance with these instructions will be closely monitored by the Department, and any violations will be subject to appropriate action. For Further Information If you have any questions about this letter, please write to Robert J. Coyle, Director, Title I Insurance Division, 490 L'Enfant Plaza East, Suite 3214, Washington, DC 20024, or call the Department at 202-755-7400. Sincerely, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner