U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ...

1 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-8000 ASSISTANT SECRETARY FOR HOUSING - FEDERAL HOUSING COMMISSIONER Special Attention of: Transmittal: handbook All FHA-approved Mortgagees Issued: September 30, 2016 All Direct Endorsement Underwriters Effective Date: Multiple; See Below All FHA Roster Appraisers All FHA Roster Inspectors 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: 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) Asterisks (*) in document identify items with effective dates that differ from the September 30, 2016 effective date. Refer to Section 3 below for more information. Section I Doing Business with FHA 203(k) Consultants Application and Approval Process Incomplete Application; Nonprofits and Governmental Entities Application and Approval Process Incomplete Application; (C) Nonprofits and Governmental Entities Recertification Incomplete Recertification Application Provided additional guidance for prospective 203(k) Consultants and nonprofit and Governmental Entities who submit incomplete applications.

3 67, 92, 94 2 handbook Section handbook Changes Page Number(s) (A) HUD Homes Updated guidance for nonprofit programs purchasing HUD Homes. 70 Section II Origination through Post-Closing/Endorsement (A)(4)(c)(vi) Single Use of Signature Incorporated change as announced in E-SIGN waiver, dated May 19, 2016. 111 (E)(1)(a)(iii) Property Assessed Clean Energy; (B)(6)(e) Additional Requirements When Ordering an Appraisal; (A)(6) Property Assessed Clean Energy (A)(1) Automated Underwriting System Data Entry Requirements Mortgagees; (G)(2) Interested Party Contributions (TOTAL) Standard; (G)(2) Interested Party Contributions (Manual) - Standard; (B) Calculating Total Mortgage Payment; (A) Monthly Escrow Obligations; Property Assessed Clean Energy Incorporated PACE guidance to reflect ML 2016-11.

4 117, 125-126, 146-147, 177, 231, 306, 323, 341, 542-543 (B)(6) Ordering Appraisals Removed redundant language in Ordering Appraisals section. 123 (B)(7) Appraisal Effective Date; Information Required before Commencement of the Appraisal Clarified that the effective date of the appraisal cannot be a date before FHA case number assignment and provided additional guidance on the use of conventional or other government-guaranteed appraisals. 126, 480 (B)(2)(a) Other Parties to the Transaction - Standard Added Closing Agent and title company to list to make consistent with Section (A) Ineligible Participants Origination and Underwriting Reviews Standard. 138 (A)(1)(e) Required Flood Insurance Amount Removed and revised language to make consistent with 24 CFR 143 3 handbook Section handbook Changes Page Number(s) (A)(7) Dwelling Unit Limitation; (C) Dwelling Unit Limitations; (A) Dwelling Unit Limitation Moved section from (C) to (A)(7), and revised to clarify that guidance applies to Governmental Entities or nonprofit Borrowers.

5 Subsequent heading numbers were renumbered. Updated heading in (A) for consistency. 147-148, 335, 364 (F) Requirements for Living Unit; Appliances Clarified definition, standard, and reporting requirements for appliances. 164, 500-501 (P) Individual Residential Water Purification Systems; (A) Monthly Escrow Obligations; Individual Residential Water Purification Systems Added guidance for individual residential water purification systems. 170-173, 341, 511 Accept Risk Classifications Requiring a Downgrade to Manual Underwriting (TOTAL); (C) Undisclosed Mortgage Debt (TOTAL) Clarified guidance for when mortgage debt requires a downgrade to manual underwriting.

6 179, 188 (F)(1) Calculating Residual Income Clarified that total fixed payment should be part of residual income calculations. 327 Mortgage and Note - Definitions Updated definition of Mortgage. 345 (C) Uniform Case Binder Stacking Order Clarified requirement that, when applicable, Mortgagees must include Affiliated Business Arrangement disclosures in case binders. 355 (B) Maximum Mortgage Amount for Refinance Required Documentation Removed unnecessary language in 203(k) Maximum Mortgage Amount for Refinance section. 379 (A)(2)(a) Initial Draw at Closing Standard 203(k); (A)(2)(b) Initial Draw at Closing Limited 203(k) Amended origination fees and discount points as allowable disbursements at closing.

7 384 4 handbook Section handbook Changes Page Number(s) Data Delivery/203(k) Calculator Removed unnecessary lowest acquisition cost information and added credit for lead-based paint stabilization. 386 (A)(2)(b)(i) Calculating Maximum Mortgage Amount Standard; (B)(3)(a) Calculating Maximum Mortgage Amount for Simple Refinance Transactions - Standard Removed language regarding UFMIP refund applying only when the Mortgage included financed UFMIP. 411, 414 (A)(1)(b)(i) Rate and Term Payment History Requirements (Manually Underwritten) - Standard (B)(1)(b)(i) Simple Refinance Payment History Requirements (Manually Underwritten) Standard; (C)(2)(b)(i) Streamline Refinances Payment History Requirements - Standard Updated payment history requirements for No Cash-Out Refinances.

8 410, 413, 417-418 New Construction - Definitions Clarified that Properties less than one-year old subject to a second sale are treated like existing properties. 437 (A) Processing of an Assumption Initiating Processing Replaced reference to outdated HUD-92210, and updated with instructions to notify HUD of assumptions via FHA Connection. 456 (C)(2) Section 203(b) With Repair Escrow; (B) Section 203(b) With Repair Escrow; (C)(3) Section 203(b) With Repair Escrow; (D)(2) Section 203(b) With Repair Escrow Revised repair escrow amount to $10,000, in response to Final Rule Disposition of HUD-Acquired Single Family Properties; Updating HUD s Single Family Property Disposition Regulations, published August 11, 2016.

9 459, 463, 464 5 handbook Section handbook Changes Page Number(s) (B)(2) Investment Property Investor Buyer; (A)(3) Section 203(b) Investor Buyer Updated headings to clarify that the section is relevant for an Investor Buyer rather than general investors. 462, 463 Draw Inspection Fee Updated draw inspection fee guidance to reflect ML 2016-12. 469 (C)(7) Stationary Storage Tanks Revised language about stationary storage tanks and MPR/MPS. 490 Mechanical Components and Utilities Updated language for appraisal of mechanical components and utilities. 501 Plumbing System Clarified language for appraisal of plumbing systems. 503 Section III Servicing and Loss Mitigation (A) Termination of Mortgage Insurance Clarified language on termination of mortgage insurance.

10 575 Mortgages in Delinquency or Default Definitions Updated definition for consistency with the regulation. 579 (A)(2) Reasonable Effort in Arranging a Face-to-Face Interview Clarified that the Mortgagee must send the request for an interview by certificate of mailing or certified mail. 594 (A) Borrower s Financial Information Added language regarding Borrower s financial information, including new sub-sections on Living Expenses, Borrower Income, and Hardship. 598-598 Notice to Borrower after Loss Mitigation Review Added language regarding Mortgagee s Notice to the Borrower. 601-602 HUD s Loss Mitigation Program Definitions Removed Informal and Formal Forbearances from definition of Loss Mitigation Options, since they are workout tools.