Special Attention of: Transmittal: Issued: Effective Date

1 Special Attention of: Transmittal: Handbook All FHA-Approved Mortgagees Issued: October 26, 2021 All Direct Endorsement Underwriters Effective Date: Multiple; See Below All Eligible Submission Sources for Condominium Project Approvals All FHA Roster Appraisers All FHA-Approved 203(k) Consultants All HUD-Approved Housing Counselors All HUD-Approved Nonprofit Organizations All Governmental Entity Participants All Real Estate Brokers All Closing Agents 1. This Transmits: 1. Handbook , FHA Single Family Housing Policy Handbook. 2. Previously published updates to Handbook , FHA Single Family Housing Policy Handbook. 2. Explanation of Materials Transmitted: This revision to the FHA Single Family Housing Policy Handbook, or Handbook (Handbook), is being published to update existing sections.

2 Below is a list of content updates being made to the Handbook: Handbook Section Handbook Changes Page Number(s) Section I Doing Business with FHA (A)(2) Scope of Authority Definitions Test Case and Test Case Phase Added the definition of Test Case to that of Test Case Phase to align language with the entry in the Glossary and updated definition of Test Case Phase. 27 Post-approval Requirement Added language to require Mortgagees to update LI contact information in FHAC. 37 2 Handbook Section Handbook Changes Page Number(s) (B) FHA Mortgagor Clarified guidance regarding underwriting of HUD-approved Nonprofits as an FHA Mortgagor.

3 77 (B)(1)(d)(iii) HUD Homes Affordable Housing Program Plan Required Documentation; (B)(3)(a)(iii) Secondary Financing Affordable Housing Program Plan Required Documentation Updated guidance regarding the geographic requirement for nonprofits to align with guidance in (B)(2)(c)(iii) FHA Mortgagor Affordable Housing Program Plan Required Documentation. 91, 96 (B)(3)(b) Restrictions on Conveyance Provided guidance on restrictions on conveyance to align with 24 CFR 97-98 Section II Origination Through Post-Closing /Endorsement (B)(6)(d) Appraiser Independence Provided guidance to address selecting, retaining, and providing for payment of Appraisers by Mortgagees authorized third parties.

4 130 (B)(11) Appraisal Delivery Electronic Appraisal Delivery Updated guidance for use of the FHA Catalyst: EAD Module, per ML 2021-23. 135 (A)(9) Residency Requirements Removed guidance regarding citizens per ML 2021-12. 140 (A)(1) Special Flood Hazard Areas Updated terminology pertaining to Special Flood Hazard Areas. 148 (A) Requests for Local Increases Updated the time period for the look-back period for requests for local increases. 162 (I)(1) Deed-in-Lieu of Foreclosure (TOTAL) Definition; (I)(1) Foreclosure and Deed-in-Lieu of Foreclosure (Manual) Definition Added the definition of Deed-in-Lieu (DIL) of Foreclosure and renumbered subsequent sections.

5 194, 271 (L)(2) Contingent Liabilities (TOTAL) Standard; (N)(2) Contingent Liabilities (Manual) Standard Updated language to clarify the Mortgagee is not required to verify 12 months of timely payments for a divorce decree or other court order. 204, 281 3 Handbook Section Handbook Changes Page Number(s) (L)(4)(c) Court Ordered Divorce Decree or Other Court Order (TOTAL); (N)(3)(c) Court Ordered Divorce Decree or Other Court Order (Manual) Updated language for consistency. 204, 282 (C) Addressing Temporary Reduction in Income (TOTAL); (C) Addressing Temporary Reduction in Income (Manual) Added guidance for underwriting Borrowers affected by a government shutdown or similar pause in employment.

6 216, 293 (E)(3) Section 8 Homeownership Vouchers Calculation of Effective Income (TOTAL); (P)(1) Nontaxable Income (Grossing Up) (TOTAL) Definition; (E)(3) Section 8 Homeownership Vouchers (Manual) Calculation of Effective Income; (P)(1) Nontaxable Income (Grossing Up) (Manual) Definition Updated guidance for acceptability of grossing up Section 8 Homeownership Voucher income. 220, 231, 297, 308 (A)(3) Checking and Savings Accounts (TOTAL) Required Documentation; (A)(3) Checking and Savings Accounts (Manual) Required Documentation Removed written statement requirement for bank accounts co-held by a non-borrower. 238, 315 (F)(3) Gifts (Personal and Equity) (TOTAL) Required Documentation; (F)(3) Gifts (Personal and Equity) (Manual) Required Documentation; (B) Building on Own Land Minimum Required Investment Required Documentation Provided guidance regarding gifts of land to require proof of ownership by the donor and evidence of the transfer of title to the Borrower and added links to these requirements in the Building on Own Land product sheet.

7 241, 318-319, 4 Handbook Section Handbook Changes Page Number(s) (C) Housing Obligations/Mortgage Payment History (Manual) Aligned section title and language to be consistent with the TOTAL section. 266 (A) Energy Efficient Homes Expanded eligibility for stretch ratios to Manufactured Homes that are certified as ENERGY STAR. 340 (A) Good and Marketable Title; Assembly of Case Binder for Electronic Submission Provided guidance on title evidence that demonstrates good and marketable title. 354, 370 Required Documentation for Disbursement of Mortgage Proceeds Updated guidance to clarify that the Mortgagee must obtain the final acknowledged Closing Disclosure or similar legal document signed by the Borrower.

8 361 Assembly of Case Binder for Electronic Submission Updated policy related to assembly of case binders and provided new guidance for electronic file assembly and submission. Removed unnecessary appraisal forms from Case Binder requirements. 368-370 203(k) Rehabilitation Mortgage Insurance Program Overview; Property Eligibility Updated list of eligible projects to include the interior space of a condominium unit to conform with 24 CFR and updated the definition of Structure. 377-378 (A)(2) Types of 203(k) Rehabilitation Mortgages Limited 203(k); (A) Limited 203(k) Eligible Improvements; Maximum Mortgage Amounts for Energy Efficient Mortgages, Weatherization Items, and Solar Energy Systems Added hyperlinks to the Treasury Department's list of Qualified Opportunity Zones.

9 378, 386, 394 (B) Extension Requests; (A) Servicing Delinquencies Added guidance that Mortgages in forbearance must be treated as not delinquent for the purpose of administering the 203(k) repair escrow. 402, 410 5 Handbook Section Handbook Changes Page Number(s) (A)(2)(a) Payment History Requirements Standard Provided clarity that for both Mortgages underwritten through TOTAL Scorecard and manually underwritten Mortgages, the Mortgagee must document the payment history for the previous 12 months. 424 (C)(4)(c)(ii) Standard for Refinances without a Term Reduction or with a Term Reduction of Less Than Three Years; (C)(4)(c)(iii) Standard for Refinances with a Term Reduction of Three Years or More Updated Streamline Refinance s net tangible benefit guidance to specify the required minimum term reduction.

10 437 (C)(5)(b) Special Documentation and Procedures for Non-credit Qualifying Streamline Refinances Provided instructions for completing the Uniform Residential Loan Application ( urla ) for non-credit qualifying Streamline Refinance transactions to conform with updated urla Fannie Mae Form 1003/Freddie Mac Form 65. 441 Required Inspections for New Construction Financing; Required Documentation for New Construction Financing Expanded guidance to allow, in certain circumstances, a qualified trades person or contractor to provide the required inspections and certifications per 24 CFR 456-458, 458-459 (C) Units in Condominium Project or Legal Phase (Existing Less Than One Year) Updated language to clarify inspection requirements for units in condominium project or legal phase (existing less than one year).