FHA Mortgages

FHA Updates Single Household Coverage Handbook 4000.1

fha-updates-single-household-coverage-handbook-4000-1

At the end of July, the Federal Housing Administration (EFH) made several important revisions to the Manual for Single Parent Family Policy 4000.1. The new guidelines are part of a series of changes recently announced by the Biden-era FHA, including guidelines on options to mitigate COVID-19 recovery losses. The agency describes the changes mainly as “enhancements and revisions” and “technical changes” and states in their press release that they:

Remains committed to making life easier for mortgage borrowers by maintaining and expanding the 4000.1 manual with regular updates to ensure it remains the comprehensive source of policy guidance for single family mortgage lenders, servicers, and other stakeholders.

A redlined version of the newly revised manual can be found here.

Summary of changes

In particular, the FHA has made changes to all five sections of the Single Parent Family Policy Handbook:

Section I: Doing Business with FHA

The amended manual clarifies the approval guidelines for lenders, in part by stating that a lender must meet all approval requirements at all times to do business with the FHA. The manual also provides additional details on policies and processes related to merged, acquired, or reorganized companies. For example, the amended manual includes information on restoring L1 authority to mortgage creditors resulting from a merger, acquisition, or reorganization resulting in a new FHA Lender Identification Number.

Additionally, the changes clarify that mortgage holders must submit test case files for the test case phase of Title II Direct Endorsements using the FHA Catalyst: Case Binder Module. Mortgage holders must ensure that (1) all required certifications are carried out, and (2) a complete case file is submitted upon closing that includes all required origin, drawing and closing documents as specified in the Uniform Case Tie Stacking Order. This requirement has been moved from Section II to Section I of the manual.

Section II: Creation through post-closing / endorsement

The changes in Section II create exemptions from the requirement to partially waive ongoing hazard, liability and flood coverage for certain communities of common interest that are not considered condominiums. Additionally, this section includes updates to the protocols for transferring control from developer / builder to builder to allow for closer alignment with market practices and state and local requirements, as well as guidelines for calculating student loan payments from ML 2021-13 and a Exception for Student Loans in COVID-19 Forbearance.

Section III: Maintenance and Damage Control

The FHA made several significant changes to Section III of the manual. First, the FHA clarifies that if the borrower voluntarily terminates the mortgage insurance, the mortgagee is obliged to inform the borrower that the debtors’ debtors and subordinated mortgage amounts owed by the borrower will become due and payable immediately upon termination, subject to the terms of the debtor’s debt of the borrower. The revised manual also revises the filing guidelines for voluntary termination.

Second, the manual now provides a five working day grace period prior to the transfer by which mortgage holders must submit documents regarding requests to exceed property maintenance allowance on P260.

Third, the FHA added a requirement that the mortgage holder screen eligible borrowers for a COVID-19 pre-modification of the loan. These guidelines include the COVID-19 forbearance guidelines contained in ML 2021-15.

Finally, the amended manual postpones the effective date of Section III, Appendices 4.0 (relating to FHA-HAMP calculations) and 5.0 (relating to HUD’s Schedule of Standard Possessory Action Attorney Fees and Deed-in-Lieu of Foreclosure Attorney Fees) on March 31, 2022, according to ML 2021-14.

Section IV: Claims and Disposals

In Section IV of the manual, the FHA now clarifies that a mortgagee must submit additional reports and screenshots from a tax monitoring service to P260 in order to determine a claim for a tax reimbursement.

Section V: Quality Control, Oversight and Compliance

The changes to Section V of the guide include several new requirements that apply to both forward and reverse mortgages. In particular, for mortgages that are not approved for submitting electronic case binders (eCBs) to the FHA, the mortgage must submit the requested case binders to the FHA using the FHA Catalyst: Case Binder module. In addition, all case files must be submitted to the FHA within 10 working days of submitting a technical review application after approval by the agency.

In addition, Section V has been amended to include early payment default (EPD) guidelines, which require a field test of at least 10% at random from the total population of EPDs. The new manual also includes a new requirement that the mortgagee must review all property documentation and valuation reports for completeness, technical accuracy and overall quality in accordance with the property acceptability criteria and the appraiser and property requirements for Title II forward and reverse mortgages.

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