On September 30, 2014, HUD/FHA issued its long-awaited “Origination through Post-Closing/Endorsement” section of their new Handbook 4000.1. This section is the first published section of the consolidated SF Housing Policy Handbook. Last winter, members (myself included) of the Residential Loan Committee of the Mortgage Bankers Association (MBA) conducted a thorough review of this draft section and ended up with a little over 600 comments & suggestions for HUD to consider before their publication of the final document.
Now that this document has been officially “issued” efforts are underway by the Residential Loan Committee to assess what changes were made based on the industry comments sent to HUD/FHA and, more importantly, what substantive policy changes were made by HUD/FHA to their current policies.
Sadly, HUD/FHA failed to provide the industry with a listing of the major changes in underwriting policies that will be impacted by the issuance of this section of the 4000.1 Handbook. Also, recommended changes in the formatting of this section of the Handbook (i.e. there are many duplicative topics because this section of the Handbook is separated by cases that are manually underwritten from those that are underwritten via AUS/TOTAL) were not made as suggested.
One substantive change noted is that the lender must verify and document the deposit amount and source of funds if the amount of the earnest money deposit (EMD) exceeds 1% of the sales price or is “excessive” based on the Borrower’s “history of accumulating savings”. The current policy requires source of funds on EMD exceeding 2% of the sales price. It should be noted that HUD does not define the word “excessive” or provide any specific examples.
The good news here is that the new policies do not take effect until June 15, 2015 (case numbers issued on or after that date). So, there is still some time for the industry to provide feedback to HUD/FHA on any new policies deemed too restrictive or need further clarification.
Since the new HUD Secretary has already voiced his concerns about providing more access to credit for prospective homebuyers – will this message reach down to the appropriate staff in HUD’s Office of Housing when they receive constructive feedback on their draft Handbook from organizations like the MBA ?