09.03.15   •   Document Updates

Document Changes: FHA Security Instruments, Riders, and Disclosures

Over the past 1.5 years, FHA has been consolidating their current Single Family Handbooks, nearly 40 years’ worth of Mortgagee Letters, and Housing Notices into a single, consolidated new Handbook (FHA Single Family Handbook 4000.1), which is gradually being implemented (see http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1 for details).

As a result of these changes, many of our FHA documents are changing. Such changes can be generally categorized as follows:

  1. Updates to current documents or substantively replacing them with new ones.
  2. Creating new documents.
  3. Retiring obsolete documents.

With some exceptions (which will be noted), all of these changes will apply to loans with a case assignment date of September 14, 2015 or later (“FHA Case Number Assignment Date On or After 09/14/2015” = “Yes”).

Our changes are as follows:

Updates to Current Documents

FHA Security Instruments

FHA has published a new “Model Mortgage Forward” document and accompanying Instructions (available for download at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/model_documents), which replace the current model form found in FHA Single Family Handbook 4155.2 ch. 12.A Exhibit 2.

Due to the transition period between old and new requirements, we will be creating a whole new series of FHA security instruments to replace the current ones (see table below).

Please note that we have tried to follow the text in the new “Model Mortgage Forward”, as well as its Instructions, as closely as possible, thus some of the provisions and structures found in the older FHA instruments will not be in the latter (e.g. the new FHA Ohio security instrument will not be an open-end mortgage, like the old one).

In addition, some deviations have been made due to state law (e.g. the sentence “All or part of the purchase price of the Property is paid for with the money loaned” will print under the Legal Description in the Minnesota security instrument, due to the provisions of Minn. Stat. Ann. § 507.03, even though this language is not specifically called for in the Instructions).

Also, while not appearing in the Instructions, FHA Single Family Handbook 4000.1 Pt. II.A.8.a.xv.(B).(2) requires specific text to appear on an instrument for a 203(k) loan. We will be configuring this text to print accordingly just below the definition of “Rider” (since the text refers to the Rehabilitation Rider).

ANMT for TW 115466 Table 1

FHA Promissory Notes

As previously announced, our FHA promissory notes have already been updated to match the new model “ARM Note” and “Note Forward” forms and Instructions (see http://www.docutechcorp.com/document-updates-more-fha-note-changes). However, as noted in this announcement, an update to the cross-reference in the notes to the security instruments is necessary, due to the newer instruments.

As a result, we have updated the last Subsection of our standard FHA notes to refer to Section 14 of the instruments, rather than Section 13. We have also removed the California-specific language in the last Subsection of the notes, since the language in the model notes concerning acceleration will now match what is in the new “Model Mortgage Forward” and thus comply with the provisions of Cal. Civ. Code § 2924.5, which requires the acceleration language in both documents to match.

FHA Riders

In addition to new model instruments and notes, FHA has published new model riders (see http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/model_documents). As a result, we are updating our standard riders to match the new model forms, as applicable. Other riders (e.g. the FHA MERS Rider) will also be updated to reflect new cross-references in the security instruments:

ANMT for TW 115466 Table 2

Please note that our standard FHA 1-4 Family Riders (Cx11509 & Cx16249) will be retired (as described below).

FHA Forms and Disclosures

The content and/or print configurations of the following standard documents will be updated as a result of the new Handbook’s provisions:

  • Certification and Authorization (Cx13). Among other provisions requiring the borrower’s consent to use his personal information for processing a loan, FHA Single Family Handbook 4000.1 Pt. II.A.1.a.i.(D).(1) requires the following:

“The Mortgagee must obtain the Borrower’s consent for use of the Borrower’s information for any purpose relating to the origination, servicing, loss mitigation, and disposition of the Mortgage or Property securing the Mortgage, and relating to any insurance claim and ultimate resolution of such claims by the Mortgagee and FHA.”

While Cx13 contains consents related to processing the loan, it does not currently contain consents relating to post-closing activities. As a result, we will be modifying Cx13 to disclose the following language when “Base Type = FHA”:

“I HEREBY CONSENT TO ALLOW MY INFORMATION TO BE USED FOR ANY PURPOSE RELATING TO THE ORIGINATION, SERVICING, LOSS MITIGATION, AND DISPOSITION OF MY MORTGAGE LOAN OR THE PROPERTY SECURING SUCH MORTGAGE, AND ALSO RELATING TO ANY INSURANCE CLAIM AND ULTIMATE RESOLITUOIN OF SUCH CLAIMS BY THE MORTGAGEE AND THE FEDERAL HOUSING ADMINISTRATION.”

  • FHA Amendatory Clause/Real Estate Certification (Cx38). Pt. II.A.1.a.i.(E).1.(a).(i) requires the following:

“If the Borrower does not receive form HUD-92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value, before signing the sales contract, the sales contract must be amended before closing to include an amendatory clause that contains the following language [FHA Amendatory Clause/Real Estate Certification.]”

Currently, Cx38 is setup to print when “Document Package Type” equals either “Initial Disclosures” or “Closing.” Due to FHA’s requirement that this document be provided before closing, we will be removing the “Closing” condition so that this document only prints in Initials.

  • Borrowers Identity of Interest Certification (Cx2072). The text of the two certifications in this form have been modified (see Pt. II.A.8.a.[A].[1].[a] & [b]) and we will be updating Cx2072 accordingly. In addition, the following documents which also contain these certifications will be updated:
    • HUD Borrower/Consultant Certification (Cx11396)
    • Identity-of-Interest Certifications (Cx14869)
    • Consultant’s Identity-Of-Interest Certification (Cx15426)
    • Identity-of-Interest Certifications (Cx15689)
    • FHA 203(k) Identity-of-Interest Certifications (Cx16134)
    • Identity of Interest Certification (Cx17134)
  • For Your Protection Get a Home Inspection (Cx2283). Pt. II.A.1.a.ii.(A).(4) requires the following:

“Mortgagees are required to provide form HUD-92564-CN, For Your Protection: Get a Home Inspection, to prospective homebuyers at first contact, be it for pre-qualification, pre-approval, or initial application.”

As a result, we will be adding the condition “Document Package = Pre-Disclosure” to the document, so that it will print both in Pre-Disclosure and Initial Disclosure packages.

However, FHA Single Family Handbook 4000.1 Pt. II.A.8.j.vi requires the following (in relevant part):

“During the construction period, the interest rate may be variable. The Mortgagee and the Borrower must enter into an agreement that:

  • Documents the range in which the interest rate may float during construction;
  • Documents the point of interest rate lock-in;
  • Specifies that the permanent Mortgage will not exceed a specific maximum interest rate; and
  • Permits the Borrower to lock in at a lower rate, if available and they have not already locked in a rate.”

As a result of this requirement, we will be modifying the FHA-version of Cx5338 to print the following disclosures when the third box in Section 2(A) is selected (“Construction Interest Rate Type = Prime Rate Plus”), which is the only selection where the interest rate is variable (“floats”) during the Construction Only phase:

“My interest rate during the Construction Phase may be as low as [minimum interest rate (field 1704)]% and as high as [maximum interest rate (field 44238)]%. I understand that I may “lock-in” my rate at a lower rate, if available and if I have not already locked-in a rate. If Lender and I enter into an agreement to lock-in the rate during this Phase, the locked-in rate will begin to be applied as of the effective date of such agreement.”

The following disclosure will also print in Section 2(B) under the same conditions:

“My maximum rate during the Permanent Phase will not be more than as specified in the Note.”

  • FHA Identity of Interest Certification (Cx14285). This document was previously provided pursuant to FHA Single Family Handbook 4155.1 ch. 2.B.2, in order to determine whether there is an “identity of interest” between parties in a transaction (familial or business). This was primarily done because the Maximum Loan-to-Value (LTV) ratios are capped lower in such transactions.

While “identity of interest transactions” can still exist under the new Handbook, the definitions for such transactions as well as the Maximum LTV ratio caps have changed (see FHA Single Family Handbook 4000.1 Pt. II.A.2.b.ii). As a result, Cx14285 is being completely revised.

  • 203(k) Applicant Acknowledgment (Cx15487). This document outlines the fact that contingency funds are placed into an interest bearing escrow account and how any surplus funds in such account are disbursed after a final release has been processed (see FHA Single Family Handbook 4240.4 REV-2 ch. 5-2[E]).

These procedures have slightly, but noticeably, changed under the new Handbook (see FHA Single Family Handbook 4000.1 Pt. II.A.8.a.xviii.[C].[2] through [4]). As a result, Cx15487 will be completely revised, include the selections at the end of the document in which the borrower elects to have surplus funds disbursed.

In a live webinar dated August 25, 2015 representatives from HUD stated that HUD’s model forms are “just model forms” and that they need to be modified if the circumstances warranted such. Specifically, they indicated that the verbiage in the model Settlement Certification concerning the settlement agent preparing the CD must be modified or deleted if the agent did not prepare the CD.

We will be modifying the phrase “which I have prepared” in the settlement agent’s certification section on Cx19494 to not print based on a new indicator, “Settlement Agent Prepared Closing Disclosure”.

New FHA Documents

The following new documents will now be provided:

  • Verification of VA Benefits (Cx3952). VA Form 26-8937 is now required in cases where a veteran’s disability benefits are factored into the borrower’s qualifications for a loan (see FHA Single Family Handbook 4000.1 Pt. II.A.4.c.xii.[A].[2].[b] & II.A.5.b.xii.[A].[2].[b]). We will be configuring Cx3952 to print for FHA loans, but only if one of the borrowers on the loan is a veteran.
  • Conditional Commitment (Cx4566, Cx4733, & Cx4734). Under the older FHA regulations, it was optional to provide this form or a copy of the appraisal report to the borrower (see FHA Single Family Handbook 4155.2 ch. 4.4.h). As a result, we have provided this document on an “upon request” basis.

However, this form will be required by no less than eight parts of the new Handbook, so we will be configuring our copies of this form to print generically for everyone now, under the document’s current configurations.

“Confirm that the Settlement Statement or similar legal document and the Settlement Certification, if applicable, are complete and signed by the Borrower, seller (except in case of HUD Real Estate Owned (REO) Sales), and settlement agent.” (FHA Single Family Handbook 40001. Pt. II.A.7.b.v)

“’Settlement Statement’ refers to the closing disclosure required under Section 4 of the Real Estate Settlement Procedures Act” (Ibid. GLOSSARY) which, thanks to Dodd-Frank, was amended to include the Integrated Disclosures (see 12 USCA § 2603).

  • FHA Lock-In Agreement (Cx19817). This document is being created due to the following provision:

“The Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing.” (FHA Single Family Handbook 4000.1 Pt. II.A.6.a.x.[B].[3])

While we do provide either a standard lock-in agreement or commitment agreement in all but four jurisdictions (Arizona, Ohio, Puerto Rico, and Utah), a fair number of these standard agreements are either “available upon request” (the state does not require such agreements, but they are provided due to other requirements, such as a statute of frauds limitation) or only print under special conditions (e.g. we only provide a standard lock-in agreement for CRMLA licensees in California).

As a result, it is necessary to provide a lock-in agreement for those circumstances which are not already covered by a standard lock-in agreement. Therefore, we will be creating a standard FHA lock-in agreement which will print under the following circumstances:

  • Base Type = FHA
  • FHA Case Number Assignment Date On or After 09/14/2015 = Yes
  • Lock-In Fee Charged on Loan = Yes
  • Print FHA Lock-In Agreement = Yes
  • Rate Lock Initiated? = Yes
  • State Code = AL, AK, AZ, AR, CA, CT, GA, HI, IL, IN, IA, KS, KY, LA, ME, MN, MO, NE, NV, NH, NC, ND, OH, OK, PA, PR, RI, SC, SD, UT, VT, WA, WV, WI

This document will print in some states in which a standard lock-in agreement is already being provided under special circumstances. To prevent more than one agreement appearing in a package, we have created a new field (“Print FHA Lock-In Agreement”) with global mappings that will trigger Cx19817 to print only when our standard lock-in agreement is not printing.

For example, in California, standard Cx7442 will print when “California License Type = CA Residential Mortgage Lending Act.” In such a case, “Print FHA Lock-In Agreement” would equal “No” and Cx19817 will not print. However, if “California License Type” equals another condition (e.g. “CA Finance Lenders Law”), then “Print FHA Lock-In Agreement” will equal “Yes” and Cx19817 will print instead of Cx7442.

For clients who are currently utilizing an “upon request” agreement in a particular state, we will set Cx19817 to not print for such client in that state.

  • FHA Construction-to-Perm Disclosure (Cx19830). Pt. II.A.8.j.vii requires the following in connection with construction-to-permanent loans:

“In addition to standard FHA documents, the following documents must be used:

(B) A disclosure issued to the Borrower explaining that the Mortgage is not eligible for FHA mortgage insurance until after a final inspection, or the issuance of a certificate of occupancy by the local governmental jurisdiction, whichever is later.”

To comply with this requirement, we will be providing new Cx19830 which discloses the information required. This document will print under the following conditions:

  • Base Type = FHA
  • Document Package Type = Closing
  • FHA Case Number Assignment Date On or After 09/14/2015 = Yes
  • Loan Purpose = Construction to Perm

Obsolete FHA Documents

According to our research, the following documents are no longer required under the new FHA Handbook:

  • Draw Request (Cx46). Unlike our standard 203(k) Draw Request (Cx3399), Cx46 is provided in all FHA “New Construction” loan packages. Under the new Handbook, a draw request is only specifically required for 203(k) loans (see FHA Single Family Handbook 4000.1 Pt. II.A.7.d.ii.[C], II.A.8.a.xviii.[C].[1].[a], & II.A.9.k.iii.[A]) and, as such, Cx46 is not required.

However, since draw requests are standard for construction loans, plus the fact that our client’s construction loan agreements may have provisions which are tied to this document, we will continue to provide it generically.

  • HUD Appraised Value Disclosure (Cx3261). Originally required under FHA ML 92-15 (which has not been superseded), this document is not currently required under the new Handbook. However, since its original requirements have not been superseded, we will continue to provide this document on an “upon request” basis for the time being.
  • 203(k) and Streamlined (k) Maximum Mortgage Worksheet (Cx3398). While formerly required under FHA Single Family Handbook 4240.4 REV-2, it is unclear from the new Handbook as to whether this document is still required or not.

Transmittal: Handbook 4000.1 (06/15/15) states the following:

“Removed Maximum Mortgage Worksheet (HUD-92700) from ‘Uniform Case Binder Stacking Order’ consistent with the updated Section 203(k) guidance which has removed this form requirement.”

In addition, a reference to this form has been removed from the new model Rehabilitation Loan Agreement and nowhere is this form mentioned in the new Handbook . . . except at Ibid. 4000.1 Pt. II.A.8.a.xvi, which states the following:

“For applications to be endorsed prior to the availability of data delivery functionality in FHAC, the Mortgagee must detail the data delivery requirements shown above on form HUD-92900-LT, or include the applicable 203(k) Maximum Mortgage Calculation Worksheet.”

Also, Q&As concerning this form have occurred in at least one of HUD’s webinars concerning the new Handbook, the answers to which indicate that this form is still required.

We are in the process of contacting HUD and receiving clarification on this point. In the interim, we will continue to provide this document.

  • Energy Efficient Mortgage Program (Cx3949). Formerly required (for a temporary period) under FHA ML 95-46, this document is not required under the new Handbook – particularly since, according to ML 95-46, notice about FHA’s EEM program is included in the “Important Notice to Homebuyers” disclosure and thus, a separate disclosure is no longer necessary.

We will, therefore, configure this document to print when “FHA Case Number Assignment Date On or After 09/14/2015” equals “No.”

  • Request for Certificate of Veteran Status (Cx3953). VA Form 26-8261a was formerly required for FHA loans under FHA ML 2004-24, but is not required under the current text of the new Handbook. However, according to the Transmittals to the Handbook, ML 2004-24 has not yet been superseded. Therefore, we will continue to provide this document for the time being.
  • FHA 1-4 Family Rider (Cx11509). This document has never been required by FHA, which only requires a “Borrowers Contract Hotel and Transient” agreement to be executed in connection with investment properties (see FHA Single Family Handbook 4000.1 Pt. II.A.1.b.iv.[A].[4] & [B]). However, in the distant past investors have requested that such a rider print for FHA loans. We have decided to “phase out” this document, since it is not required under the new Handbook and we are unaware of any current investor requirements for which this document should print. Therefore, we will configure this document to print when “FHA Case Number Assignment Date On or After 09/14/2015 = No.”
  • FHA Negative Equity Positions Disclosure (Cx15200). This document has been provided pursuant to the provisions of FHA ML 2014-23 & 2010-23. According to Transmittal: Handbook 4000.1 (06/15/15), both of these MLs have been superseded and no provision in the Handbook is provided which requires the disclosures in this document anymore. As a result, we will configure this document to print when “FHA Case Number Assignment Date On or After 09/14/2015” equals “No.”
  • FHA Authorization to Apply Unused Escrow Funds (Cx17980). This document was provided pursuant to both FHA Single Family Handbook 4155.1 ch. 3.A.1 and FHA ML 2013-29 to allow the borrower to elect to apply “unused funds” in an escrow account to various purposes.

According to the Transmittals, both this Handbook and ML have been superseded. In addition, FHA Single Family Handbook 4000.1 Pt. III.A.1.l.ii.(E) defers to Federal regulations (specifically RESPA) in determining how “unused funds” are to be applied.

As a result, we will be retiring Cx17980, by configuring it to print when “FHA Case Number Assignment Date On or After 09/14/2015” equals “No.”

  • Good Neighbor Next Door (GNND) Documents. Under current requirements, special disclosures, promissory notes, and security instruments are required to be prepared and provided in connection with FHA’s GNND program (see HN 2007-07). However, under the new Handbook, no such special documents (except for form HUD-9549-D) are required (see Supra III.A.3.g) – which is problematic, because FHA’s model notes and Forward Mortgage are not compatible with the GNND program (e.g. the discounted list price of the home, based on occupancy, is not covered under these documents), thus leaving a bit of a “black hole” in which a special note and mortgage is required, but neither is provided for under the Handbook.

Since none of our current clients are using this program, we will discontinue all of our GNND documents and place the following “hard-stop” warning in ConformX should any clients attempt to use the GNND program:

“Documents for The FHA Good Neighbor Next Door Program will need to be updated before proceeding. Please contact your Account Manager.”

If any clients desire to utilize this program in the future, they will need to contact their Account Manager and request updated documents, which we will then research and provide.

Pending Updates

FHA has yet to publish revised versions of the rest of their 203(k) documents (which should be posted on http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/sample_documents once completed) and an updated version of form HUD-92900-A (see 80 FR 27998 [2015]). Once HUD publishes their updated forms, we will update this announcement accordingly.

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These FHA changes will be available on September 10, 2015. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

 

September 3, 2015
TW 115466 and 104627, Various Document Requests