FOR REFERENCE USE ONLY - HUD...2019/12/16 · FOR REFERENCE USE ONLY This version of the Single...

FHA Single Family Housing Policy Handbook

FOR REFERENCE USE ONLY

This version of the Single Family Housing Policy Handbook (SF Handbook) / HUD Handbook 4000.1 shows Tracked Changes to text since the last publication, to show all changes including deleted text. The links in this version are not active. The page numbers from the transmittal letter from the official version on HUDCLIPS are approximate for this Tracked Changes version.

Handbook 4000.1

FHA Single Family Housing Policy Handbook Table of Contents

FHA Single Family Housing Policy Handbook TABLE OF CONTENTS

I. DOING BUSINESS WITH FHA .................................................................1 A. FHA LENDERS AND MORTGAGEES .............................................................................. 1

Types of Program Approvals .................................................................................................... 2 a. Title I................................................................................................................................... 2 b. Title II ................................................................................................................................. 2 Types of Approved Mortgagees................................................................................................ 2 a. Supervised Mortgagee ........................................................................................................ 3 b. Nonsupervised Mortgagee .................................................................................................. 3 c. Government Mortgagee ...................................................................................................... 4 d. Investing Mortgagee ........................................................................................................... 4 Application and Eligibility Requirements for Approval ........................................................... 5 a. Title I and Title II Program Applications ........................................................................... 5 b. Online Application.............................................................................................................. 5 c. Eligibility Requirements ..................................................................................................... 8 d. Processing of Applications ............................................................................................... 25 e. Application Approval........................................................................................................ 25 f. Application Denial ............................................................................................................ 25 Branch Offices ........................................................................................................................ 25 a. Registration ....................................................................................................................... 25 b. Single Family Lending Area............................................................................................. 26 c. Managers........................................................................................................................... 26 d. Net Branching Prohibition ................................................................................................ 27 Supplemental Mortgagee Authorities ..................................................................................... 27 a. Title II Direct Endorsement Authority .............................................................................. 27 b. Title II Single Family Lender Insurance Authority .......................................................... 34 c. Title I Manufactured Housing Loan Direct Endorsement Authority................................ 37 d. Title II Multifamily Accelerated Processing Authority .................................................... 37 e. Title II Direct Endorsement Lender Condominium Project Review and Approval Process

Authority (Effective 10/15/2019) ..................................................................................... 37 Post-Approval Operations....................................................................................................... 42 a. Operating Requirements and Restrictions ........................................................................ 42 b. Providing Information to FHA.......................................................................................... 42 c. Compliance with Law....................................................................................................... 43 d. Servicing of FHA-Insured Mortgages .............................................................................. 43 e. Employee Compensation .................................................................................................. 44 f. Conflicts of Interest........................................................................................................... 44 g. Payment of Operating Expenses ....................................................................................... 44 h. Prohibited Payments ......................................................................................................... 44 i. Staffing.............................................................................................................................. 45 j. Use of Contractors ............................................................................................................ 45 k. Affiliates ........................................................................................................................... 46 l. Branch Office Requirements............................................................................................. 46

Handbook 4000.1 Effective Date: 09/14/2015 | Last Revised: 10/24/2019 *Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates

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m. Fair Housing Notice.......................................................................................................... 47 n. Advertising........................................................................................................................ 47 Post-Approval Changes .......................................................................................................... 49 a. Requirements for All Post-Approval Changes ................................................................. 49 b. Information Updates ......................................................................................................... 50 c. Change in Corporate Officer............................................................................................. 50 d. Change in Partnership or Principal Owners ...................................................................... 50 e. “Doing Business As” Names ............................................................................................ 51 f. Relocation to a Different State.......................................................................................... 51 g. Liquid Assets or Net Worth Deficiency............................................................................ 51 h. Operating Loss .................................................................................................................. 51 i. Fidelity Bond .................................................................................................................... 52 j. Errors and Omissions Insurance ....................................................................................... 52 k. Principal Activity Change of Nonsupervised Mortgagee ................................................. 52 l. Servicing for Investing Mortgagees .................................................................................. 52 m. Fiscal Year End Date ........................................................................................................ 52 n. Supervision Change .......................................................................................................... 53 o. Business Form................................................................................................................... 53 p. Bankruptcy........................................................................................................................ 53 q. Lending License(s)............................................................................................................ 54 r. Mergers, Acquisitions, and Reorganizations .................................................................... 54 s. Conservatorship, Receivership, or Transfer of Control .................................................... 60 t. Cease Operations .............................................................................................................. 60 u. Unresolved Findings or Sanctions .................................................................................... 61 Annual Recertification ............................................................................................................ 61 a. General Requirements....................................................................................................... 61 b. Online Certification .......................................................................................................... 62 c. Annual Recertification Fee ............................................................................................... 63 d. Financial Data Submission ............................................................................................... 63 e. Rejection of a Mortgagee’s Recertification Package ........................................................ 64 f. Recertification Extension Requests .................................................................................. 64 g. Failure to Recertify ........................................................................................................... 65 Voluntary Withdrawal of FHA Mortgagee Approval ............................................................. 65 a. Standard ............................................................................................................................ 65 b. Required Documentation .................................................................................................. 65 c. Reapplication .................................................................................................................... 65

B. OTHER PARTICIPANTS ................................................................................................... 65 Appraisers ............................................................................................................................... 65 a. FHA Appraiser Roster ...................................................................................................... 65 b. Application and Approval Process.................................................................................... 66 c. Renewal............................................................................................................................. 67 d. Post-Approval Requirements ............................................................................................ 68 203(k) Consultants .................................................................................................................. 70 a. 203(k) Consultant Roster .................................................................................................. 70 b. Application and Approval Process.................................................................................... 70 Direct Endorsement Underwriters .......................................................................................... 74


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a. Program Overview............................................................................................................ 74 b. DE Underwriter Eligibility ............................................................................................... 74 c. Mortgagee’s Approval Process ......................................................................................... 75 d. Post-Approval Requirements ............................................................................................ 75 Nonprofits and Governmental Entities ................................................................................... 75 a. Program Overview............................................................................................................ 75 b. Application and Approval Process.................................................................................... 79 c. Post-Approval Requirements .......................................................................................... 100 Real Estate Brokers............................................................................................................... 106 a. Definition ........................................................................................................................ 106 b. Requirements .................................................................................................................. 107 c. Application and Registration Process ............................................................................. 107 d. Annual Recertification .................................................................................................... 107 Closing Agents...................................................................................................................... 108 a. Requirements .................................................................................................................. 108 b. Application and Approval Process.................................................................................. 108 Additional Other Participants ............................................................................................... 109

II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT ...110 A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES ............. 110

Origination/Processing.......................................................................................................... 111 a. Applications and Disclosures.......................................................................................... 111 b. General Mortgage Insurance Eligibility .......................................................................... 134 Allowable Mortgage Parameters ........................................................................................... 158 a. Maximum Mortgage Amounts ........................................................................................ 158 b. Loan-to-Value Limits...................................................................................................... 161 c. Required Investment ....................................................................................................... 164 d. Maximum Mortgage Term .............................................................................................. 164 e. Mortgage Insurance Premiums ....................................................................................... 164 Underwriting the Property .................................................................................................... 166 a. Property Acceptability Criteria ....................................................................................... 166 b. Required Documentation for Underwriting the Property ............................................... 181 c. Conditional Commitment Direct Endorsement Statement of Appraised Value ............. 181 Underwriting the Borrower Using the TOTAL Mortgage Scorecard (TOTAL).................. 182 a. Underwriting with an Automated Underwriting System ................................................ 182 b. Credit Requirements (TOTAL)....................................................................................... 186 c. Income Requirements (TOTAL)..................................................................................... 202 d. Asset Requirements (TOTAL) ........................................................................................ 227 e. Final Underwriting Decision (TOTAL).......................................................................... 253 Manual Underwriting of the Borrower ................................................................................. 256 a. Credit Requirements (Manual) ....................................................................................... 256 b. Income Requirements (Manual) ..................................................................................... 278 c. Asset Requirements (Manual)......................................................................................... 302 d. Final Underwriting Decision (Manual)........................................................................... 329 Closing .................................................................................................................................. 347 a. Mortgagee Closing Requirements................................................................................... 347


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b. Mortgage and Note ......................................................................................................... 353 c. Disbursement of Mortgage Proceeds .............................................................................. 354 Post-Closing and Endorsement ............................................................................................. 355 a. Pre-Endorsement Review................................................................................................ 355 b. Mortgagee Pre-Endorsement Review Requirements ...................................................... 355 c. Inspection and Repair Escrow Requirements for Mortgages Pending Closing or

Endorsement in Presidentially-Declared Major Disaster Areas ..................................... 358 d. Procedures for Endorsement ........................................................................................... 360 e. Endorsement and Post-Endorsement .............................................................................. 368 Programs and Products ......................................................................................................... 370 a. 203(k) Rehabilitation Mortgage Insurance Program ...................................................... 370 b. Disasters and 203(h) Mortgage Insurance for Disaster Victims ..................................... 404 c. Energy Efficient Mortgages............................................................................................ 407 d. Refinances....................................................................................................................... 413 e. Refinance of Borrowers in Negative Equity Positions Program (Short Refi) [EXPIRED]

......................................................................................................................................... 433 f. Section 251 Adjustable Rate Mortgages......................................................................... 436 g. Section 248 Mortgages on Indian Land .......................................................................... 439 h. Section 247 Single Family Mortgage Insurance on Hawaiian Home Lands .................. 442 i. New Construction ........................................................................................................... 446 j. Construction to Permanent.............................................................................................. 453 k. Building on Own Land.................................................................................................... 457 l. Weatherization ................................................................................................................ 459 m. Solar and Wind Technologies......................................................................................... 462 n. Assumptions.................................................................................................................... 466 o. HUD Real Estate Owned Purchasing ............................................................................. 469 p. Condominiums (Effective 10/15/2019) .......................................................................... 477 203(k) Consultant Requirements .................................................................................... 498497 a. Overview ................................................................................................................... 498497 b. Consultant Duties ...................................................................................................... 498497 c. Consultant Fee Schedule ........................................................................................... 499498 d. Improvements Standards ........................................................................................... 500499 e. Consultant 35 Point Checklist ................................................................................... 501500 f. Architectural Exhibit Review ................................................................................... 506505 g. Preparing the Work Write-Up and Cost Estimate ..................................................... 507506 h. Feasibility Study ....................................................................................................... 507506 i. Draw Request Inspection .......................................................................................... 507506 j. Change Order ............................................................................................................ 507506 k. Additional Required Documentation ........................................................................ 508507

B. TITLE II INSURED HOUSING PROGRAMS REVERSE MORTGAGES .......... 510509 C. CONDOMINIUM PROJECT APPROVAL (EFFECTIVE 10/15/2019)................. 511510

Definitions....................................................................................................................... 511510 Project Eligibility ............................................................................................................ 511510 a. Classifications and Ineligible Characteristics ........................................................... 511510 b. Phasing ...................................................................................................................... 512511


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c. General Condominium Project Approval Requirements .......................................... 513512 d. Construction Types ................................................................................................... 531529 e. Two- to Four-Unit Condominium Project ................................................................ 534532 f. Manufactured Home Condominium Projects ........................................................... 534533 Project Approval Submission ......................................................................................... 535533 a. Condominium Project Approval ............................................................................... 535533 b. HUD Review and Approval Process......................................................................... 536534 c. Direct Endorsement Lender Review and Approval Process ..................................... 537536 d. Reconsideration of Rejected or Withdrawn Condominium Projects ........................ 538536

D. APPRAISER AND PROPERTY REQUIREMENTS FOR TITLE II FORWARD AND REVERSE MORTGAGES .......................................................................................... 539538 Commencement of the Appraisal.................................................................................... 539538 a. Information Required before Commencement of Appraisal .................................... 539538 b. Additional Information Required Before Commencement of an Appraisal on New

Construction.............................................................................................................. 540539 General Appraiser Requirements.................................................................................... 540539 Acceptable Appraisal Reporting Forms and Protocols ................................................... 541540 a. Additional Required Documentation for Appraisals of New Construction.............. 542541 b. Application of Minimum Property Requirements and Minimum Property Standards by

Construction Status ................................................................................................... 542541 c. Minimum Property Requirements and Minimum Property Standards ..................... 544543 d. Gross Living Area..................................................................................................... 558557 e. Appliances................................................................................................................. 560559 f. Swimming Pools ....................................................................................................... 560559 g. Utilities – Mechanical Components .......................................................................... 561560 h. Roof Covering........................................................................................................... 563562 i. Structural Conditions ................................................................................................ 563562 j. Defective Paint .......................................................................................................... 563562 k. Attic Observation Requirements ............................................................................... 563562 l. Foundation ................................................................................................................ 564563 m. Crawl Space Observation Requirements .................................................................. 564563 n. Environmental and Safety Hazards ........................................................................... 565564 o. Repair Requirements................................................................................................. 566565 p. Utility Services .......................................................................................................... 568567 q. Onsite Sewage Disposal Systems ............................................................................. 572571 Valuation and Reporting Protocols................................................................................. 572571 a. Photograph, Exhibits and Map Requirements .......................................................... 572571 b. Intended Use and Intended Users of Appraisal ......................................................... 573572 c. Development of the Market Value............................................................................ 574573

......................................................................................................................................... 586585 Property Acceptability Criteria for Manufactured Housing for Title II Insured Mortgages

a. Definitions................................................................................................................. 586585 b. Standard .................................................................................................................... 586585 c. Foundation Systems .................................................................................................. 587586 d. Running Gear ............................................................................................................ 588587 e. Perimeter Enclosure .................................................................................................. 589588


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f. HUD Certification Label........................................................................................... 589588 g. Data Plate .................................................................................................................. 589588 h. Flood Zone ................................................................................................................ 590589 i. Additions to Manufactured Housing ......................................................................... 590589 j. Measurement Protocols............................................................................................. 590589 k. Sales Comparison Approach for Manufactured Housing ......................................... 590589 l. Estimate of Cost New for Manufactured Housing .................................................... 590589 Condominium Projects.................................................................................................... 591590 a. Definition .................................................................................................................. 591590 b. Standard .................................................................................................................... 591590 c. Required Analysis and Reporting ............................................................................. 591590 d. Site Condominium .................................................................................................... 591590 e. Manufactured Housing Condominium Projects ........................................................ 592591 Valuation of Leasehold Interest ...................................................................................... 592591 a. Definition .................................................................................................................. 592591 b. Standard .................................................................................................................... 592591 c. Required Analysis and Reporting ............................................................................. 592591 Additional Appraisal Requirements for 223(e) Mortgages ............................................ 593592 Unimproved Property Appraisal ..................................................................................... 593592 a. Definition .................................................................................................................. 593592 b. Standard .................................................................................................................... 593592 c. Required Analysis and Reporting ............................................................................. 593592 Update of Appraisal ........................................................................................................ 594593 Market Conditions Addendum, Fannie Mae Form 1004MC/Freddie Mac Form 71, Instructions Applicable to FHA Appraisals .................................................................... 595594 a. Standard .................................................................................................................... 595594 b. Required Analysis and Reporting ............................................................................. 595594 Programs and Products ................................................................................................... 596595 a. Section 248 Indian Land Program ............................................................................ 596595 b. Section 247 Hawaiian Home Lands Program ........................................................... 599598 c. Standard 203(k) and Limited 203(k) Rehabilitation Mortgages ............................... 599598 d. Special Energy-Related Building Components ........................................................ 601600 e. HUD Real Estate Owned Properties ......................................................................... 604603 Mixed Use One- to Four-Unit Single Family Properties ................................................ 608607 a. Definition .................................................................................................................. 608607 b. Required Analysis and Reporting ............................................................................. 608607

E. TITLE I INSURED PROGRAMS .............................................................................. 609608 F. APPRAISER AND PROPERTY REQUIREMENTS FOR TITLE I ...................... 609608

III. SERVICING AND LOSS MITIGATION........................................ 610609 A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES ....... 610609

Servicing of FHA-Insured Mortgages ............................................................................ 610609 a. Servicing in Compliance with Law ........................................................................... 610609 b. Responsibility for Servicing Actions ........................................................................ 611610 c. Providing Information to HUD ................................................................................. 613612


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d. Communication with Borrowers and Authorized Third Parties ............................... 613612 e. Payment Administration ........................................................................................... 614613 f. Servicing Fees and Charges ...................................................................................... 618617 g. Escrow....................................................................................................................... 619618 h. Insurance Coverage Administration ......................................................................... 624623 i. Mortgage Insurance Premium Remittance................................................................ 626625 j. Post-Endorsement Mortgage Amendments .............................................................. 627626 k. Mortgage Insurance Premium Cancellation and Termination .................................. 633631 l. Mortgage Insurance Termination.............................................................................. 636634 m. Disclosures................................................................................................................ 638636 n. Record Retention – Servicing File............................................................................ 639637 Default Servicing ............................................................................................................ 640639 a. Mortgages in Delinquency or Default....................................................................... 640639 b. HUD Default Servicing Contact ............................................................................... 641639 c. Reporting to Consumer Reporting Agencies and the IRS ........................................ 641639 d. Late Charges ............................................................................................................. 641640 e. Partial Payments for Mortgages in Default ............................................................... 642641 f. Lien Status ................................................................................................................ 644642 g. Imminent Default ...................................................................................................... 644642 h. Early Default Intervention ........................................................................................ 644643 i. Loss Mitigation Review Process............................................................................... 659657 j. HUD’s Loss Mitigation Program .............................................................................. 666665 k. Home Retention Options........................................................................................... 672671 l. Home Disposition Options........................................................................................ 695694 m. Loss Mitigation Incentives........................................................................................ 724723 n. Non-Monetary Default.............................................................................................. 724723 o. Distressed Asset Stabilization Program .................................................................... 726725 p. Claims Without Conveyance of Title ....................................................................... 726725 q. Reinstatement............................................................................................................ 730728 r. Foreclosure................................................................................................................ 731730 s. Acquiring Possession ................................................................................................ 744743 t. Conveyance of Acquired Properties ......................................................................... 748746 u. Deficiency Judgments............................................................................................... 777775 Programs and Products ................................................................................................... 778776 a. Adjustable Rate Mortgages....................................................................................... 778776 b. Assumptions.............................................................................................................. 783782 c. Presidentially-Declared Major Disaster Areas .......................................................... 786785 d. Hawaiian Home Land Mortgages (Section 247 Mortgages) .................................... 792791 e. Insured Mortgages on Indian Land (Section 248 Mortgages) .................................. 795794 f. Section 222 Mortgages ............................................................................................. 796795 g. Good Neighbor Next Door........................................................................................ 799798 h. HOPE for Homeowners ............................................................................................ 802801 i. Nehemiah Housing Opportunity Grants Program ..................................................... 805804 j. Servicing FHA-Insured Mortgages for Servicemember-Borrowers ......................... 806805 k. Section 235 Mortgages ............................................................................................. 809808

B. TITLE II INSURED HOUSING PROGRAMS REVERSE MORTGAGES .......... 877876 Handbook 4000.1 Effective Date: 09/14/2015 | Last Revised: 10/24/2019 *Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates

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C. TITLE I INSURED PROGRAMS .............................................................................. 877876

IV. CLAIMS AND DISPOSITION ......................................................... 878877 A. TITLE II CLAIMS ....................................................................................................... 878877

Claim Submission Process.............................................................................................. 878877 a. Preparation and Submission of Claims ..................................................................... 878877 b. Claim Status .............................................................................................................. 884883 c. Claim Review File .................................................................................................... 884883 Claim Types .................................................................................................................... 886885 a. Claim Type 01 - Conveyances.................................................................................. 886885 b. Claim Type 02 - Assignment or Single Family Loan Sale Program ........................ 909908 c. Claim Type 05 - Supplemental Claims/Remittances ................................................ 914913 d. Claim Type 06 - Claims Without Conveyance of Title ............................................ 921919 e. Claim Type 07 - Pre-Foreclosure Sales .................................................................... 924922 f. Claim Type 31 - Special Forbearance....................................................................... 927925 g. Claim Type 32 - Loan Modification ......................................................................... 927926 h. Claim Type 32 ** - FHA-HAMP Loan Modification .............................................. 928926 i. Claim Type 33 ** - FHA-HAMP Partial Claim ....................................................... 928926 Payment of Claims.......................................................................................................... 928927 a. Processing of Claim Forms....................................................................................... 928927 b. Method of Payment ................................................................................................... 930928 c. Disbursement of Claim ............................................................................................. 930928 d. Negative Claim Amount ........................................................................................... 930928 e. Advice of Payment and Title Approval .................................................................... 930928 Withdrawal or Cancellation of Conveyance Claims ....................................................... 930929 a. Withdrawal of Application for Insurance Benefits ................................................... 930929 b. Cancellation of Insurance Benefits due to Reconveyance........................................ 931929 Post-Claim Reviews........................................................................................................ 935933 a. Definition .................................................................................................................. 935933 b. Standard .................................................................................................................... 935934 c. Selection of Claims for Review ................................................................................ 936934 d. Frequency of Reviews............................................................................................... 936934 e. Notification to Mortgagee of Claim Review ............................................................ 936934 f. HUD’s Initial Report................................................................................................. 936934 g. Mortgagee Response Procedures to HUD’s Initial Report ....................................... 936935 h. Findings Based on Mortgagee Response .................................................................. 936935 i. Mortgagee Response Procedures to HUD’s Follow-Up Report ............................... 937935 j. Referral for Collections............................................................................................. 937935 k. Referral for Enforcement Review............................................................................. 937935 Debt Collection and Administrative Offset .................................................................... 937935 a. Demand Letter [Text was deleted in this section.] ................................................... 937936 b. Notice of Intent to Collect Administrative Offset ..................................................... 938936 c. Initiation of Offset Action......................................................................................... 938936

B. TITLE II DISPOSITION............................................................................................. 939937 Management and Marketing Program ............................................................................ 939937


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a. HUD Contractors ...................................................................................................... 939937 b. Nondiscrimination Policy ......................................................................................... 939937 c. P260 Portal................................................................................................................ 939937 REO Property Disposition .............................................................................................. 940938 a. Property and Sales Condition ................................................................................... 940938 b. List Price ................................................................................................................... 941939 c. Marketing Tools ........................................................................................................ 941939 d. Prospective Buyers.................................................................................................... 943941 e. Lead-Based Paint ...................................................................................................... 950948 f. Sales Timeline........................................................................................................... 951949 g. Bid Submission ......................................................................................................... 958956 h. Bid Acceptance During Competitive Sales Periods .................................................. 959957 i. Selection of Winning Bid.......................................................................................... 960958 j. Inspection Contingency ............................................................................................ 964962 k. Closing ...................................................................................................................... 965963

C. TITLE I CLAIMS......................................................................................................... 973971 D. TITLE I DISPOSITION............................................................................................... 973971

V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE ..... 974972 A. QUALITY CONTROL OF LENDERS AND MORTGAGEES .............................. 975973

Quality Control Program Overview ................................................................................ 975973 a. Purpose of Quality Control Program ........................................................................ 975973 b. Definitions................................................................................................................. 975973 c. Standard .................................................................................................................... 976974 d. Required Documentation .......................................................................................... 977975 Institutional Quality Control Program Requirements ..................................................... 977975 a. Who May Perform Quality Control .......................................................................... 977975 b. Operational Compliance ........................................................................................... 978976 c. Identifying Patterns................................................................................................... 982980 d. Fraud, Misrepresentation, and Other Findings ......................................................... 983981 Loan Level Quality Control Program Requirements ...................................................... 985983 a. Loan File Selection ................................................................................................... 985983 b. Loan Sample Risk Assessment ................................................................................. 988986 c. Origination and Underwriting Loan File Compliance Review ................................. 989987 d. Quality Control Reviews of Specialized Mortgage Programs .................................. 993991 e. Servicing Loan File Compliance Review ................................................................. 993991 f. Ineligible Participants ............................................................................................... 994992 Data Integrity .................................................................................................................. 995993 a. Standard .................................................................................................................... 995993 b. Required Documentation .......................................................................................... 996994

B. QUALITY CONTROL OF OTHER PARTICIPANTS............................................ 996994 Direct Endorsement Underwriter.................................................................................... 996994 Nonprofits and Governmental Entities ........................................................................... 996994 a. Quality Control Plan Overview ................................................................................ 996994


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b. Quality Control Plan Findings and Corrective Action.............................................. 997995 c. Fraud, Misrepresentation, and Other Findings ......................................................... 997995 Real Estate Brokers......................................................................................................... 998996 Closing Agents................................................................................................................ 998996 Additional Other Participants ......................................................................................... 998996

C. MORTGAGEE MONITORING ................................................................................. 999997 Cooperation with HUD Investigations and Reviews ...................................................... 999997 Institutional Mortgagee Monitoring................................................................................ 999997 a. Title I Lender Monitoring Reviews .......................................................................... 999997 b. Title II Mortgagee Monitoring Reviews ................................................................... 999997 c. Servicer Tier Ranking System II............................................................................. 1000998 d. DELRAP Mortgagee Monitoring Reviews (Effective 10/15/2019) ..................... 10031001 Loan Level Monitoring ............................................................................................... 10041002 a. Title I Loan Reviews............................................................................................. 10041002 b. Title II Loan Reviews ........................................................................................... 10041002

D. MONITORING OF OTHER PARTICIPANTS.................................................... 10051003 Appraisers ................................................................................................................... 10051003 203(k) Consultants ...................................................................................................... 10051003 Nonprofits and Governmental Entities ....................................................................... 10051003 a. Monitoring of Governmental Entities and HUD-approved Nonprofits ................ 10051003 b. Monitoring of HUD Homes Participants .............................................................. 10061004 c. Monitoring FHA Mortgagor Participants ............................................................. 10061004 d. Monitoring of Secondary Financing Program Participants .................................. 10061004 Real Estate Brokers..................................................................................................... 10071005 Closing Agents............................................................................................................ 10071005 Additional Other Participants ..................................................................................... 10071005

E. ENFORCEMENT..................................................................................................... 10071005 Referrals for Non-Compliance.................................................................................... 10071005 Employee Improprieties Attributed to the Mortgagee ................................................ 10071005 Program Office Actions and Sanctions ....................................................................... 10081006 a. Actions and Sanctions Against Mortgagees ......................................................... 10081006 b. Loan Level Actions and Sanctions ....................................................................... 10161014 Mortgagee Review Board Actions and Sanctions ...................................................... 10161014 a. Actions and Sanctions........................................................................................... 10161014 b. Procedures............................................................................................................. 10201018 Actions and Sanctions Against Individuals and Other Program Participants ............. 10221020 a. Limited Denial of Participation ............................................................................ 10221020 b. Suspension ............................................................................................................ 10231021 c. Debarment............................................................................................................. 10241022 d. Civil Money Penalties........................................................................................... 10251023 e. Specific Program Participants............................................................................... 10251023

APPENDIX 1.0 – MORTGAGE INSURANCE PREMIUMS ............. 10331031 APPENDIX 2.0 – ANALYZING IRS FORMS ...................................... 10351033 Handbook 4000.1 Effective Date: 09/14/2015 | Last Revised: 10/24/2019 *Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates

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APPENDIX 3.0 – POST-ENDORSEMENT FEES AND CHARGES BY HOC (APPLIES TO SERVICING ONLY)............................................ 10381036

APPENDIX 4.0 – HUD SCHEDULE OF STANDARD ATTORNEY FEES (APPLIES TO SERVICING ONLY)............................................ 10451043

APPENDIX 5.0 - FIRST LEGAL ACTIONS TO INITIATE FORECLOSURE AND REASONABLE DILIGENCE TIME FRAMES (APPLIES TO SERVICING ONLY) ...................................................................... 10481046

APPENDIX 6.0 - PROPERTY PRESERVATION ALLOWANCES AND SCHEDULES (APPLIES TO SERVICING ONLY) .................. 10511049

A. MAXIMUM PROPERTY PRESERVATION ALLOWANCES ......................... 10511049 B. WINTERIZATION SCHEDULE............................................................................ 10541052 C. GRASS CUT SCHEDULE....................................................................................... 10541052


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I. DOING BUSINESS WITH FHA A. FHA Lenders and Mortgagees

I. DOING BUSINESS WITH FHA

A. FHA LENDERS AND MORTGAGEES

The Doing Business with FHA section in this FHA Single Family Housing Policy Handbook (SF Handbook) covers Federal Housing Administration (FHA) approval and eligibility requirements for both Title I lenders and Title II Mortgagees, as well as other FHA program participants. The term “Mortgagee” is used throughout for all types of FHA approval (both Title II Mortgagees and Title I lenders) and the term “Mortgage” is used for all products (both Title II Mortgages and Title I loans), unless otherwise specified.

A Mortgagee must fully comply with all of the following approval and eligibility requirements in order to be approved by FHA to participate in the origination, underwriting, closing, endorsement, servicing, purchasing, holding, or selling of FHA-insured Title I or Title II Mortgages.

The requirements outlined below in subsections 1 through 9 apply to both Single Family (one-to four-units) and Multifamily Mortgagees. If there are any exceptions or program-specific requirements that differ from those set forth below, the exceptions or alternative program requirements are explicitly stated or hyperlinked to the appropriate guidance. Terms and acronyms used in this SF Handbook have their meanings defined in the Glossary and Acronyms and in the specific section of the SF Handbook in which the definitions are located.


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I. DOING BUSINESS WITH FHA A. FHA Lenders and Mortgagees 1. Types of Program Approvals

Types of Program Approvals

FHA approves Mortgagees separately for participation in the Title I and Title II programs. FHA approval is conveyed to a specific legal Entity and cannot be shared with or extended to other Entities, such as a parent or subsidiary, or any Affiliates of the Mortgagee.

a. Title I

i. Definition

A Title I Mortgagee is a Mortgagee that (a) holds a valid Title I contract of insurance and is approved by FHA, or (b) held a Title I contract that has been terminated or suspended but remains responsible for servicing or selling the Title I Mortgages that it holds and is authorized to file insurance claims on these Mortgages.

ii. Standard

A Title I Mortgagee may be approved to originate, underwrite, close, endorse, service, purchase, hold, or sell loans under the Property Improvement program and/or the Manufactured Housing program. Unless otherwise specified, Title I Mortgagees must meet the same approval requirements and follow the same procedures as Title II Mortgagees.

b. Title II

i. Definition

A Title II Mortgagee is a Mortgagee that has been approved to participate in Title II and/or Title XI programs under the National Housing Act (12 U.S.C. § 1707 et seq. and 12 U.S.C. § 1749aaa et seq.).

ii. Standard

A Title II Mortgagee may be approved to originate, underwrite, close, endorse, service, purchase, hold, or sell FHA Single Family insured Mortgages or multifamily Mortgages.

Types of Approved Mortgagees

FHA approves Mortgagees as one of the following four types: Supervised, Nonsupervised, Government, or Investing.


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I. DOING BUSINESS WITH FHA A. FHA Lenders and Mortgagees 2. Types of Approved Mortgagees

a. Supervised Mortgagee

i. Definitions

Supervised Mortgagee

A Supervised Mortgagee is a financial institution that is a member of the Federal Reserve System (FRS) or whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) (collectively, “Federal Banking Agencies”).

Large Supervised Mortgagee

A Large Supervised Mortgagee is a Supervised Mortgagee that has consolidated assets greater than or equal to the threshold for audited financial reporting established by the Federal Banking Agency with oversight of the Mortgagee. Thresholds are codified at 12 CFR §§ 363.1(a), 562.4(b)(2) and 715.4(c), and are subject to change.

Small Supervised Mortgagee

A Small Supervised Mortgagee is a Supervised Mortgagee that has consolidated assets below the threshold for audited financial reporting established by the Federal Banking Agency with oversight of the Mortgagee. Thresholds are codified at 12 CFR §§ 363.1(a), 562.4(b)(2), and 715.4(c), and are subject to change.

ii. Standard

A Supervised Mortgagee must meet the general approval requirements set forth below.

iii. Activities Authorized

A Supervised Mortgagee may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA-insured Mortgages.

b. Nonsupervised Mortgagee

i. Definition

A Nonsupervised Mortgagee is a lending institution that has as its principal activity the lending or investing of funds in real estate Mortgages, consumer installment notes or similar advances of credit, the purchase of consumer installment contracts, or from a directly related field. A directly related field is something directly related to the lending or investing of funds in real estate Mortgages, not simply actions relating to real estate in general.


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I. DOING BUSINESS WITH FHA A. FHA Lenders and Mortgagees 2. Types of Approved Mortgagees

ii. Standard

A Nonsupervised Mortgagee must meet the general approval requirements set forth below and:

meet FHA’s principal activity requirement by deriving at least 50 percent of its gross revenue from: o its activities in lending or investing of funds in real estate Mortgages; o consumer installment notes or similar advances of credit; o the purchase of consumer installment contracts; or o a directly related field;

have an acceptable business form; demonstrate creditworthiness; and have an acceptable funding program.


A Nonsupervised Mortgagee may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA-insured Mortgages.

c. Government Mortgagee

i. Definition

A Government Mortgagee is a federal, state, or municipal governmental agency, a Federal Reserve Bank, a Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac), or the Federal National Mortgage Association (FNMA, or Fannie Mae).

ii. Standard

A Government Mortgagee must meet the general approval requirements set forth below.


A Government Mortgagee may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA-insured Mortgages.

d. Investing Mortgagee

i. Definition

An Investing Mortgagee is an organization that invests funds under its own control.

ii. Standard

An Investing Mortgagee must meet the general approval requirements set forth below and:


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I. DOING BUSINESS WITH FHA A. FHA Lenders and Mortgagees 3. Application and Eligibility Requirements for Approval

have staff capable of managing the Mortgagee’s activities relating to its FHA-insured Mortgages;

have an acceptable business form; demonstrate creditworthiness; and have an acceptable funding program.


An Investing Mortgagee may purchase, hold, or sell FHA-insured Mortgages. An Investing Mortgagee may only service FHA-insured Mortgages if it receives prior approval.

iv. Activities Not Authorized

An Investing Mortgagee may not originate, underwrite, or close FHA-insured Mortgages in its own name or submit applications for FHA mortgage insurance.

Application and Eligibility Requirements for Approval

a. Title I and Title II Program Applications

An applicant for FHA approval may apply for Title I and Title II approval separately or in the same application.

b. Online Application

An applicant seeking FHA approval must submit an online application containing all information and documentation required to demonstrate eligibility for approval as provided in this section. Applicants must ensure that all information contained in and documentation submitted with the application is true, complete, and up to date as of the date of submission of the application.

i. Application Information

Standard

The applicant must provide the following information as part of a completed application for FHA approval:

general information (such as the applicant name, date the applicant was established, Taxpayer Identification Number (TIN), Nationwide Mortgage Licensing System and Registry Unique Identifier (NMLS ID), etc.);

contact information (the primary contact information for all inquiries related to the application);

addresses (the geographic and mailing addresses for the applicant’s home office);

Mortgagee type (the type of FHA Mortgagee approval being sought: Supervised, Nonsupervised, Government, or Investing);


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Mortgagee function (the functions being sought: originate/underwrite, service, and/or hold);

FHA program participation (the FHA program participation being sought: Title I, Title II Single Family, and/or Title II Multifamily);

Corporate Officers (the names, titles, and Social Security Numbers (SSN) for all Corporate Officers who will be directly involved in managing, overseeing, or conducting FHA business and the designated Officer in Charge); and

Principal Owners (the names, SSN or TIN, and percent ownership).

Required Documentation

The applicant must submit all of the application information in the online application.

ii. Application Documentation

Standard

The applicant must provide supporting documentation to demonstrate that it is eligible for FHA approval.


The applicant must submit all eligibility documentation listed in the table below that is required for the type of approval being sought. This documentation must be submitted in the online application.

Documents Required for Application

Supe

rvise

dM

ortg

agee

Non

supe

rvise

dM

ortg

agee

Gov

ernm

ent

Mor

tgag

ee Inve

stin

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ortg

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Fede

rally

Regu

late

d1

Not

Fed

eral

lyRe

gula

ted

Business Formation Documents Commercial Credit Report of Mortgagee Credit Reports of Principal Owners and Corporate Officers

1Federally regulated refers to an entity that is a member of the FRS or whose accounts are insured by the FDIC or the NCUA. Handbook 4000.1 Effective Date: 09/14/2015 | Last Revised: 10/24/2019 *Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates

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Documents Required for Application

Supe

rvise

dM

ortg

agee

Non

supe

rvise

dM

ortg

agee

Gov

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ent

Mor

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ee Inve

stin

gM

ortg

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Fede

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Regu

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Fed

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ted

Resumes of Corporate Officers Resume of Officer in Charge State License or Registration Financial Reports Funding Program Fidelity Bond Errors and Omissions Insurance Quality Control Plan

iii. Certification of Compliance

Standard

As part of its application, the applicant, through a Corporate Officer, must complete a series of certification statements that address the applicant’s compliance with FHA requirements.


The certification statements must be completed in the online application by a Corporate Officer of the applicant who has been included in the list of Corporate Officers in the online application.

Unable to Certify

If an applicant is unable to certify to any of the certification statements, the applicant must submit a detailed explanation in the online application for each certification that it is unable to complete. The document must:

explain in detail the reason(s) why the applicant is unable to certify; be on the applicant’s letterhead; be dated; be signed by the Corporate Officer who signs the application; and


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contain language certifying that, if approved, the applicant will comply with all FHA requirements.

FHA Review

FHA will review the applicant’s explanation for being unable to certify and communicate to the applicant any additional information or documentation needed to render a final decision regarding the applicant’s ability to complete the application process.

iv. Application Fee

Standard

The applicant must pay a nonrefundable application fee when submitting an application for approval. Applicants applying for both Title I and Title II approval, whether simultaneously or separately, will only be assessed a single application fee.

Exception

Applicants applying for approval as Government Mortgagees or applicants organized as nonprofits are not required to pay an application fee.


The application fee must be submitted as part of the online application.

c. Eligibility Requirements

i. Business Form

Standard

A Nonsupervised or Investing Mortgagee must be organized in one of the following acceptable business forms. A sole proprietorship is not an acceptable business form.

(1) Corporation

(a) Definition

A Corporation is an Entity chartered in the United States or its territories.

(b) Standard

The corporation must be organized in accordance with federal and state laws regarding corporations and must provide for permanent succession.


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(c) Required Documentation

The corporation must submit copies of its articles of incorporation and bylaws with its application.

(2) Limited Liability Company

(a) Definition

A Limited Liability Company (LLC) is organized under applicable state law which creates a legal Entity with a combination of the legal and tax attributes of corporations and partnerships.

(b) Standard

The LLC must: consist of two or more members, unless its single member is a

corporation or LLC consisting of two or more persons or members; each natural person must be of legal age as recognized by the state of

incorporation at the time such natural person becomes a member; have a minimum term of existence of 10 years from the date of

application; and provide for succession and continuance in the event of the withdrawal

or death of a member.


The LLC must submit its Articles of Organization and operating agreement with its application. The Articles of Organization and operating agreement must contain language addressing the requirements listed in the FHA LLC Standard section above.

The application must include the names and TINs of all members.

(3) Series Limited Liability Company

(a) Definition

A Series LLC is a specific type of LLC that is composed of separate membership interests, which are divided into individual series.

(b) Standard

The Series LLC must comply with all requirements for approval of an LLC. The Series LLC must be organized in accordance with state law that does not conflict with FHA requirements.


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The Series LLC’s operating agreement must stipulate that: no series may participate in FHA programs unless the approved

Mortgagee owns 100 percent of the membership interests in that series; and

the approved Mortgagee remains fully liable for the debts, liabilities, obligations and expenses of any and all series that participate in FHA programs.


The Series LLC must submit its Articles of Organization and operating agreement with its application.

The application must include the names and TINs of all series participating in FHA programs and of all members in the series participating in FHA programs.

(4) Partnership

(a) Definition

A Partnership is a for-profit business operation between two or more Entities that share ownership and management responsibilities.

(b) Standard

The partnership must: 1. be organized in accordance with relevant state law; 2. have a term of existence that continues for a minimum term of 10

years from the date of application; and 3. be structured to continue to exist even if a partner withdraws.

Each general partner must be a corporation or other chartered institution consisting of two or more individuals.

The partnership must designate a managing general partner, who: has as its principal activity the management of one or more

partnerships, all of which are Mortgagees, lenders, or property improvement or Manufactured Housing loan lenders; and

has exclusive authority to deal directly with the Secretary or its designee on behalf of each partnership.


The partnership must submit its partnership agreement. The partnership agreement must contain language addressing the requirements listed in the FHA Partnership Standard section above.


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The partnership must submit the names and TINs of all general partners as well as the names and SSNs of all officers and directors of the managing general partner.

(5) Nonprofit

(a) Definition

A nonprofit is a charitable organization or corporation, civic league, social welfare organization, or local employee association organized for purposes other than profit.

(b) Standard

The nonprofit must be recognized as exempt from taxation by the Internal Revenue Service (IRS) under Internal Revenue Code (IRC) Section 501(a) as an entity described in Sections 501(c)(3) and (4).

A nonprofit organized as a corporation, LLC, or partnership must also comply with all requirements for the applicable business form.


The nonprofit must provide a copy of its IRS exemption letter. The nonprofit must submit all Business Formation Documents required of its business form.


The Mortgagee must submit its Business Formation Documents in the online application.

ii. Mortgagee Name

Definitions

(1) Institution Name

The Mortgagee’s Institution Name is the legally registered corporate name associated with the Mortgagee’s home office.

(2) “Doing Business As” Name

The “Doing Business As” (DBA) name is any registered name or alias that the Mortgagee has a legal right to use.


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Standard

The Mortgagee must use as its institution or DBA name the name shown on its Business Formation Documents or for which it has received approval from its state of formation. The Mortgagee is prohibited from using any restricted word in, or as part of, its institution or DBA name in a manner that would violate the Helping Families Save Their Homes Act of 2009 (Pub.L. 111–22) or 18 U.S.C. § 709, which places restrictions on “federal,” “government,” or “national” and related words, unless the Mortgagee is exempt from these statutory prohibitions.

The Mortgagee’s institution name and all DBA names used by a Mortgagee for conducting FHA business must be registered with FHA. The Mortgagee must use only those names that are registered with FHA in advertising and promotional materials related to FHA programs.


A Nonsupervised or Investing Mortgagee must submit its Business Formation Documents. A Supervised Mortgagee must submit a copy of the state license or registration for its home office as verification of its institution name.

The Mortgagee must submit documentation from the state showing it is legally approved to use its institution name or DBA name, if the name differs from that shown on its Business Formation Documents.

iii. Office Facilities

Definitions

(1) Home Office

The Mortgagee’s Home Office is the main office from which it manages its FHA business.

(2) Branch Offices

Branch Offices are all other offices from which a Mortgagee conducts FHA business.

Standard

(1) Home Office

A Mortgagee must designate a headquarters or “home office” for its FHA business. A Mortgagee’s home office does not have to be its corporate office.


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The Mortgagee’s home office must have a staff of at least two full-time employees. The Mortgagee may not rely on a shared receptionist to satisfy this full-time employee requirement.

A Mortgagee’s home office facility must: be located in a commercial space that is separate from any other Entity

(except for reception-type entrances or lobbies); be clearly identified, including having a permanently affixed business sign

and other means of identification commonly used by businesses, so that the general public and other businesses will know, at all times, exactly which Entity is being represented and is conducting business; and

display a fair housing poster if the Mortgagee deals with Borrowers and the general public.

(2) Branch Offices

Mortgagees must also register any branch offices that will conduct FHA business in accordance with the requirements set forth in the Branch Office requirements section of this SF Handbook. This includes any branches that will originate, underwrite, and/or service FHA-insured Mortgages.

The Mortgagee must ensure each registered branch office has at least one full-time employee. The Mortgagee may not rely on a shared receptionist or contractors to satisfy this full-time employee requirement.

The Mortgagee must display a fair housing poster in branch offices that deal with Borrowers and the general public.


FHA will verify compliance with the office facilities requirements through any onsite visits. The Mortgagee must maintain an up-to-date list of all offices meeting the standard.

iv. Ownership and Personnel

The Mortgagee must comply with the following requirements for its ownership and personnel.

Principal Owners

(1) Definition

A Principal Owner is any individual or Entity meeting the following thresholds or roles for the applicable business form:


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Business Form Principal Owners Publicly Traded Corporation 10% or more ownership Private or Close Corporation 25% or more ownership Limited Liability Company All Members Partnerships All Partners

(2) Standard

The Mortgagee must ensure that none of its Principal Owners are suspended, debarred or otherwise excluded from participation in FHA programs (see Restricted Participation).

(3) Required Documentation

A Supervised, Nonsupervised, or Investing Mortgagee must identify all Principal Owners. The Mortgagee must submit this information in the online application.

Personnel Requirements

(1) Corporate Officers

(a) Definitions

(i) Corporate Officers of Nonsupervised and Investing Mortgagees

A Corporate Officer is a natural person who serves as one of the following positions for a Nonsupervised or Investing Mortgagee:

owner; President; Vice President in charge of managing or overseeing any aspect of

the Mortgagee’s FHA business; Chief Operating Officer (COO); Chief Financial Officer (CFO); Director; Corporate Secretary; Chief Executive Officer (CEO); General Counsel; Chairman of the Board; General Partner; or member or manager of an LLC.

(ii) Corporate Officers of Supervised and Government Mortgagees

A Corporate Officer is a natural person who serves as one of the following positions for a Supervised or Government Mortgagee:


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President; Vice President in charge of managing or overseeing any aspect of

the Mortgagee’s FHA business; Chief Operating Officer (COO); Chief Financial Officer (CFO); Director; Corporate Secretary; Chief Executive Officer (CEO); General Counsel; Chairman of the Board; General Partner; or specifically designated staff member(s) of a Government

Mortgagee.

(b) Standard

The Mortgagee must ensure that no Corporate Officers are suspended, debarred or otherwise excluded from participation in FHA programs (see Restricted Participation).

The Mortgagee must ensure its Corporate Officers only represent a single Mortgagee, unless the following criteria are met:

the Entities represented have some or all of the same Corporat

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