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In honor of David Letterman’s recent departure from television, I have compiled a Top Ten list of concerning policies in HUD/FHA’s draft 4000.1 Handbook.
Number 10: The Mortgagee must re-verify, in writing or electronically if available, employment, income, assets, gift funds, source of funds and mortgage or rental payments as part of a pre-closing (or pre-funding) review. (Page 506)
Although such re-verifications are obtained as part of a post-closing review, it would be too time-consuming to process these re-verifications on pre-closing cases as these cases are typically processed within 24-48 hours and it would not be feasible to process these requests in an expeditious manner. (Note: HUD will now be mandating that lenders process pre-closing reviews as part of their overall QC review process)
Number 9: The Mortgagee must require properties to hook-up to public utilities whenever feasible. However, no guidelines are provided to lenders as to what is considered to be feasible (Pages 123 & 450)
Number 8: Appraisers must now operate all conveyed appliances (i.e., a dishwasher) and observe their performance. (Page 442)
Number 7: The source of funds must be documented for Earnest Money Deposits and for any recent deposits or recently opened accounts that exceed 1% of the Sales Price. The previous threshold was 2%. (Page 172 & 177)
Number 6: Deferred obligations (such as Student Loans) must now be counted as a recurring obligation. In the past, student loans, for example, deferred more than 1 year did not have to be counted as a recurring obligation. (Page 142)
Number 5: The lender now must average income for the past two years for hourly wage earners & whose hours vary. (Page 150)
Number 4: The 4000.1 is silent on whether or not a Tax Service Fee may be charged to an FHA borrower. (Note: The 4155.1 prohibited such charges for FHA borrowers)
Number 3: On a Rate & Term refinance, the LTV is now limited to 85% for a borrower who has occupied the subject property as their Principal Residence for fewer than 12 months or has owned it less than 12 months. (Page 360)
Number 2: Installment debt, with 10 or fewer payments remaining, must now be included as recurring debt if the amount is more than 5% of monthly income. (Pages 139 & 211)
The Number 1 Concern with FHA’s Draft Handbook: Appraisers must report on the sales history of the comp sales for a 3 year period which is up from 1 year of comp sales. (Appraisal Report & Data Delivery Guide pages 42 & 160)
Since HUD extended the effective date for these policies from June 15, 2015 until September 14, 2015, HUD senior staff will have more time to reconsider many of these policy changes. While this is not funny, it is my hope that many of these proposed policies will be modified.
