HUD/FHA’s Origination Through Post-Closing Handbook (4000.1) consolidates & supersedes numerous Mortgagee Letters, Notices, etc. that have been issued in past years and provides users with one, updated & consolidated document containing the current FHA underwriting policies.
Lenders beware – this Handbook also enacts many changes to current FHA policies & procedures. Many of these changes will make it more difficult to qualify a prospective borrower from obtaining FHA financing. The focus of this Blog Post, however, is to list some of the positive policy changes being proposed.
HUD/FHA has had its “Origination Through Post-Closing” Handbook (4000.1) posted on its website for several months. They have conducted conference calls as well as live training sessions on the proposed major policy & procedural changes it will be implementing on September 14, 2015 (unless another time extension is granted). Yet, many lenders are not fully aware of the substantive changes being proposed.
My past three monthly Newsletters have focused on these changes and I have written several Blog Posts on this topic as well. These are all recommended reading for those who want the “CliffsNotes” version of these policy changes.
I have browsed through the 4000.1 Handbook looking for what I consider to be “positive” policy and/or procedural changes. My “top five” examples are as follows:
- When manually underwriting a loan transaction where the borrower will be expected to pay HOA fees, these fees must be counted when computing the borrower’s qualifying ratios. In the 4000.1 Handbook (page #273), it is indicated that the portion of the HOA fees that is attributable to utilities (if applicable) may be subtracted from the HOA fees that are used in calculating the qualifying ratios. HUD’s current Handbook is silent on this topic.
- Section 203(k) Maximum Mortgage Worksheets have been created for use by lenders processing 203(k) loan applications (see page #327). Previously, the HUD Form 9-2700 was utilized for this purpose and this Form was not very thorough or user-friendly.
- The maximum Combined Loan To Value Ratio (CLTV) for secondary financing provided by private individuals and other organizations on 203(k) loan transactions is 110% of the After Improved Value (see page #327). Previously, such financing could not exceed the applicable LTV limit and there was much confusion as to how to calculate the LTV and correct MIP.
- The non-residential portion of the total floor area of a property may not exceed 49% (page #427). Previously, any non-residential area of a property (on a Sec. 203(b) transaction) could not exceed 25% of the total Gross Livable Area (GLA) of a property.
- HUD is no longer mandating that Mortgagees conduct annual site visits of its Branch Offices. Although it is stated that a “Fair Housing Poster” must be prominently displayed in the Mortgagee’s Home Office and any Branch Offices that deal with borrowers and the general public (see page #497) – no specific requirement is made in the 4000.1 Handbook relative to an annual or periodic review of a Mortgagee’s Branch Offices.
It is anticipated that the changes outlined above will be beneficial in terms of qualifying more borrowers and/or properties for FHA financing once these policies become effective. However, there are far more numerous changes being implemented that will make it more difficult in qualifying prospective FHA borrowers.
Stay tuned for any updates and/or changes being taken the upcoming weeks.