ࡱ> %` abjbj"x"x m6@@T  444j 8!*!,nbnb!x!4!!!z#>## mmmmmmm$^phrm4&X#X#"&&m !!m4)))&j ! 8!m)&m))g 7m!V! $ &ji8m&n<bnits&\sp7ms47m#Z2$@)r$4$r###mmH)j###bn&&&&nnn$ DnnnH\j  September 19, 2008 MORTGAGEE LETTER 2008-25 TO: ALL APPROVED MORTGAGEES SUBJECT: Converting Existing Homes to RentalsUnderwriting Instructions Through this Mortgagee Letter, the Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHAs ability to help new homeowners. Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace. Due to FHAs concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter. The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as buy and bail where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure. Exceptions: Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see HYPERLINK "http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm"http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances: Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one years duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first months rent was paid to the homeowner. Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466. The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040). It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2. If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA. Sincerely, Brian D. Montgomery Assistant Secretary for Housing- Federal Housing Commissioner   PAGE  PAGE 2  U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-8000 ASSISTANT SECRETARY FOR HOUSING- FEDERAL HOUSING COMMISSIONER  HYPERLINK "http://www.hud.gov" www.hud.gov espanol.hud.gov *,KLW P U   ; F ; ? 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F(GDICW+!b !b     X, !% %     Rp@Times New Roman!e%wb3XU! ȯ ^0̯ ̯ ȯ 0ͯ @˯ U! 0ͯ 0V*(ͯ XU! dȯ ^0(z!e̯ Pȯ tͯ ˯ U! ~ǯ t! ! pͯ ! ! t! 0z t! 3r0h! 8ů [(wt!edv%   Rp Courier New ï |||ߙ||ï lǯ |||]w@0 =į 4wį dLƯ 3wLƯ m&w!e%w\z ۬0,կ  ,կ ԯ ړww|į d"0 =$Ư wwdv%  Rp @Times New Roman ï |||ߙ||ï lǯ |||]w@0 =į 4wį dLƯ 3wLƯ m&w!e%w\ ۬0,կ  ,կ ԯ ړww|į d"dv%  TTX,UU@@LP n-% % +6x' % & % !7w%  TTX/pUU@@L6wP TTq/UU@@L6wP -" % % +% %  QX,P0 ~(???ϟϟϟϟ'π7&" WMFC ^~ϟw~ϟs~fϿ>g?oy3?o?>|???9y?`>??Ϝ??π~>|}ϿgϿ??~8p8p8p 8p{8p?8p?8p8p?8p8p8p8p8p98pq8p|8p>?8p?8p?8p?8p8p8p8p8p8p8p8p8p8p8p8p}8p8p8p8p?8p8p8p8p8p8p8p?C8p8p8p8p8p8p8p8p8p8p8p8p8p8p8p8p?p?p?p>?8p?;p?=;p?=?;p=?;p?;p??;p;p?;;;?;x;{;{;{;{0;{;{{>?{{{|{<{<{<{{{{{{{?{{w{g{{{{{{{c{G{{3￿{{?{{￿{￿{?{?{{{{?{7{;{۾{{?|{{?{{{{?x{????c?<8?cg~??>8??x.xl?d__ % % +5% % !4%   TT`UU@@4L4P TT`UU@@4L4P -" % % % 0 % K( ( ( ( % % " % ( " " FGDIC Rp@Times New RomanG: Times ew RomanhtA*0ko0lN0(dv% TXtUU@@X_LpSeptember 19, 20087+7 +Q7++111111TTtUU@@_LP z4 TTXxUU@@XLP 5 T ]UU@@ HLxMORTGAGEE LETTER 2008n]MGBLGLBBBABAAG1111TT]UU@@HLP-e TX#]UU@@HLP2501TT$W]UU@@$HLP z4 TTXaUU@@XLP 5 TTXGUU@@X2LP AR5 % T`XJUU@@XLTTO:/CBMTTJUU@@LP ~TTJUU@@LP ,TJ UU@@L|ALL APPROVED MORTGAGEESaGBBG;;GMGBG]LGBLGLBB7% TT L UU@@ LP , % TTX&" WMFC >0UU@@XLP 5 TTX4UU@@XLP 5 % T|X0UU@@XL\SUBJECT:7GB0BFBTT1UU@@1LP T$ UU@@$LConverting Existing Homes to RentalsG171++ 71B0& 70M0Q+& 1G+7 1%TT I UU@@ LP cTH UU@@H LUnderwriting InstructionsG67+*H+61%7& *7+ 07&% TTUU@@LP , TTXUU@@XwLP - TTX UU@@XLP - T w UU@@` LhThrough this <1 11010&TT w UU@@` LPMXT Kw UU@@` L`ortgagee 1 0+0++TTL w UU@@L` LPL;Tl 3w UU@@` LXetter++ Tl3 w UU@@3` LX, the1+T (w UU@@` 5L Federal Housing Administration (FHA) takes steps to 6+1+ +G01&00G1M1& +10 6GG +1+&&+0&1 TX{ ' UU@@X Lpimmediately respoMM+0+*. +&11T4({  UU@@( QLnd to an unscrupulous practice arising in the housing mortgage market that poses 111*111&+ 01111&1 +++++&1011+101&10M1 0+0+M+ 1+1+11&*& TX _a UU@@XJ Lpa risk to FHA, FHA+ &116GG6GGTT` a UU@@`J LP- T a UU@@J LLapproved lenders, and consequently to FHA s ability to help new homeowners. +1111+1+01+ &+01+10&+01+1.16GG &+1.11+11+G10M+1G1+ &TT a UU@@J LP , TTd  UU@@ LP - T J UU@@3 4LRecently, FHA and others in the mortgage industry haB+++1.6GG+1111+ %11+L1 0+0+111%!.1+TX  J UU@@ 3 LPve1+T J UU@@ 3 L| observed an increasing 11&+ 1+0+11+ ++&10T jJ UU@@3 L`number of 11M1+ 1  TpXN  UU@@X [Lhomeowners who have chosen to vacate their existing principal residence and purchase a new 11M+1G1+ %G111+1++01&+111++++1+*2%101 1+1* +&1+1+++1011 +1+&++1+F TtX >3 UU@@X \Lresidence. This has been occurring as some homeowners, given the rising price of fuel, are +&1+1++<1&1+%1++11++1 10+&&0M+10M+0G1+ &01+11+ &101++1  1++ + TX7  UU@@X ?Lrelocating to homes nearer their employment, or are taking adva +1++10110M+&1++ * 1+ *M12.M+11 + *+110+11+T 7 W UU@@ Lntage of other home buying 1+0+1 11+ 11M+12.10 TPX  UU@@X +Lopportunities arising in the marketplace. 1111 11+%+ %1010+M+ 1+0+++TT  UU@@ LP , TTX  UU@@Xz LP - TTX UU@@X LP ,Tx UU@@ L\Due to G1+1Tl UU@@ LXFHA s6GG %T XUU@@ KL concern that some homebuyers in these transactions may attempt to provide +11++ 10+&0M+10M+12.+ &10+&+ &" WMFC +1&++10&M,.++M111 101+ TX {UU@@Xd`L misleading information regarding the rental income of the property being vacated to qualify for M%++1101 1 M*10 *0+ 1101+ +1+1+0M+1 1+1 11+ .1+101++++1111*!. 1 Td j{UU@@dLTthe 1+ TX~UU@@XLhnew mortgage, 1+GM1 0+0+Tp~UU@@LXFHA is6GG&T ~ UU@@#L instituting underwriting guidance 1%110111+ G 10010+1++T ~ UU@@  Lddesigned to1+&01+11T ~UU@@ L assure that the homebuyer can +&%1 +0+1+11M+02.+ ++1 T|XdUU@@XM]Lmake payments on the full debt service of both mortgages. Consequently, beginning with case M+1+1,.M+1&111+ 01+0&+ 0++1 011M10+0+&B11&+11*1.1,01110G1++&+ TlXh UU@@X0Lnumber assignments on or after the date of this 11M1+ +%&01M+0&111+ + 1+1++10&TT h UU@@ LPMXT hH UU@@  L`ortgagee 1 0,0++TTI h UU@@I LPL;T` h UU@@ LTett+T h}UU@@ !Ler and until further notice, the + +1110 11+ 11++1+ % TXsMUU@@X6Lunderwriting analysis may 111+ G 10+1+.&&M*/Rp @Times New Roman#1 0|ˮ0`1 0G: Times ew Roman / 0pˮ030lN0(dv% TdtMUU@@t6LTnot 11% T AMUU@@ 6BLconsider any rental income from the property being vacated except +11&1+ +2. +1+1+1M+ 0M1*1 11+.1+101++++1*2++1 TXQUU@@XLunder circumstances described111+ + +0M&*1++&1+&* 1+1TQUU@@ L` in this 11%TTQuUU@@LPMXTvQ UU@@v L`ortgagee 10+0++TT Q UU@@ LPL<Tl Q UU@@ LXetter++ T< QUU@@ (L. The exclusion of rental income from <1+*2*1%111  *1+1+0M+ 1L TXK7UU@@X !Lproperty being vacated is being i1 11+ .1+101++++1&1+10TL7UU@@L ?Lnstituted on a temporary basis while FHA further analyzes this 1%1*110++L01 +!/1+&&G0+6GG 11+ +1+.,+&0& TX:UU@@X_L situation to determine whether permanent measures may need to be taken. This will assure that &1+1111*+ M1+G0+1+ 1+ M+1+0M++&1 +%M,.1++111++1*1;1&F+&%1 +1*TT:UU@@LPa+TT:*UU@@LP  TdX UU@@X YLhomeowner either has sufficient income to make both mortgage payments without any rental 11M+1G1+ *1+ 1+&%1 ++11+0M+1M+1*101L1 0+0+1,/M+1&G111*2. +1+ TxX$UU@@X~LV&WMFC\income 1+1M+T|$2UU@@~]Lor has an equity position not likely to result in defaulting on the mortgage on the property 1 1+%+1+10.11&10101+.1 +&111+ +010111+L1 0+0+111+1 11+. T`X UU@@X.Lbeing vacated. In either case, this guidance 1+101++++11+1+ *+&+0&011*1++T  UU@@ Lhis directed to%1 +++11TP  UU@@ +L preventing the practice known as  buy and 1 +1+1101+1 +*++111G1+%+12.+11 TX  ~UU@@Xg<Lbail where the homebuyer purchases, for example, a more aff1++G1+ +1+01M+11., 11 +1+&+& 1 *2+L1++M1 ++ T8 ~UU@@ g'Lordable dwelling with the intention to 1 1+0+1G+00G11+0+0100 TtX/ UU@@X1Lcease making payments on the previous mortgage. +++&+M+1101,.M+1&011+1 +101&M1 0+0+T\0 UU@@0 -LAlthough the property being vacated will not G101011+111+ .1+101++++1G01 TtXgUU@@XP\Lhave a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly 1+1++M10+0+1&1 +12.6GG&1 1110101 01+ +&M,.+1111%6FGM,.1+11 ++. TXk:UU@@XLtnegatively affected1+0+1+.+ +++1T;kUU@@; Ld should that&11101+Tk UU@@!L property result in a foreclosure1 11+ . +&11*1 ++1&1 +TX k UU@@ LP. TT k UU@@ LP , TTXQUU@@X:LP - % TXTUU@@X L`Exceptions<2++011%' % LdXX!??% ( TTT"UU@@LP:TT#TNUU@@#LP , TTX:UU@@X#LP - Th>\UU@@ZLRental income on the property being vacated, reduced by the appropriate vacancy factor as B+1+1*1M+011+1 01+ .1+101++++1 +11++12.1++11 11 +*1+++1,.!++1 +& T #UU@@ ?Ldetermined by the jurisdictional FHA Homeownership Center (see 1++ M1+12.1+1&0+11*6GGG0M+1G1+ %11B+1+ &++% 666666666666666666666666666666666666 6 66 6  6 66 6  6 66 6  6 66 6  6 66 6 66666666666666666666   ."System-@Times Roman-  2 9 (, 'S2 I0U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT    2 I& (, '@Times New Roman-+2 W?WASHINGTON, DC 20410  2 W-(2 W8000 2 W (@Times New Roman- 2 h (@Times New Roman- 2 r[ (, '@Times New Roman-:2 }[ASSISTANT SECRETARY FOR HOUSING 2 }-( 2 } (#2 [FEDERAL HOUSING 2 COMMISSIONER 2  (- 2 [ (, '@"Arial- 2  (, '@Times New Roman-2 ) www.hud.gov:2 i espanol.hud.gov- 2  (, '-- .  @Times New Roman- Courier New- @Times New Roman-   2 .[[.o (- -Ae.[--,@d.[-  2 .[[.d@ ( 2 ._[.d@ ('- -i.[--i A :;.[(???ϟϟϟϟ'π7~ϟw~ϟs~fϿ>g?oy3?o?>|???9y?`>??Ϝ??π~>|}ϿgϿ??~8p8p8p 8p{8p?8p?8p8p?8p8p8p8p8p98pq8p|8p>?8p?8p?8p?8p8p8p8p8p8p8p8p8p8p8p8p}8p8p8p8p?8p8p8p8p8p8p8p?C8p8p8p8p8p8p8p8p8p8p8p8p8p8p8p8p?p?p?p>?8p?;p?=;p?=?;p=?;p?;p??;p;p?;;;?;x;{;{;{;{0;{;{{>?{{{|{<{<{<{{{{{{{?{{w{g{{{{{{{c{G{{3￿{{?{{￿{￿{?{?{{{{?{7{;{۾{{?|{{?{{{{?x{????c?<8?cg~??>8??x.xl?d__- -p]--,n]-   2 ]]n ( 2 ]]n ('- -- -  - -'"System-  ''@Times New Roman- &2 [September 19, 2008    2  ( 2 [ (+2 MORTGAGEE LETTER 2008   2 a-(2 f25 2 u ( 2 [ ( 2 [ (- 2 [TO:  2 v ( 2  (..2 ALL APPROVED MORTGAGEES   - 2  (- 2 [ ( 2 '[ (- 2 9[SUBJECT:   2 9 (A2 9$Converting Existing Homes to Rentals        2 9(12 9Underwriting Instructions    - 2 9^ ( 2 J[ ( 2 \[ (2 n Through this   2 nM( 2 n ortgagee  2 nL( 2 n%etterC2 n@, theC[2 nY5 Federal Housing Administration (FHA) takes steps to     %2 [immediately respoG 2 Qnd to an unscrupulous practice arising in the housing mortgage market that poses   &2 [a risk to FHA, FHA  2 -(}2 Lapproved lenders, and consequently to FHAs ability to help new homeowners.      2  ( 2  (Y2 4Recently, FHA and others in the mortgage industry ha   2 ve/2  observed an increasing 2 f number of  2 [[homeowners who have chosen to vacate their existing principal residence and purchase a new     2 [\residence. This has been occurring as some homeowners, given the rising price of fuel, are     j2 [?relocating to homes nearer their employment, or are taking adva   42 ntage of other home buying  L2 [+opportunities arising in the marketplace.   2 Q ( 2 [ ( 2 [ (.2 Due to : 2 FHAso |2 K concern that some homebuyers in these transactions may attempt to provide     2 2[`misleading information regarding the rental income of the property being vacated to qualify for   2 2the  2 C[new mortgage,   2 CFHA is @2 C# instituting underwriting guidance  2 C designed toe:2 C assure that the homebuyer can  2 U[]make payments on the full debt service of both mortgages. Consequently, beginning with case      S2 g[0number assignments on or after the date of this    2 gtM( 2 g ortgagee  2 gL( 2 gett=2 g!er and until further notice, the e-22 y[underwriting analysis may   @Times New Roman- 2 ynot -n2 yBconsider any rental income from the property being vacated except   72 [under circumstances described 2   in this  2 <M(2 J ortgagee  2 L( 2 ettersG2 (. The exclusion of rental income from    =2 [!property being vacated is being iej2 ?nstituted on a temporary basis while FHA further analyzes this    2 [_situation to determine whether permanent measures may need to be taken. This will assure that         2 a( 2  (2 [Yhomeowner either has sufficient income to make both mortgage payments without any rental        2 [income : 2 ]or has an equity position not likely to result in defaulting on the mortgage on the property t P2 [.being vacated. In either case, this guidance  2 `is directed toL2 + preventing the practice known as buy and c e2 [<bail where the homebuyer purchases, for example, a more aff    F2 'ordable dwelling with the intention to   U2 [1cease making payments on the previous mortgage.    O2 -Although the property being vacated will not  2 [\have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly      (2 +[negatively affecteds2 +  should that=2 +! property result in a foreclosureo2 +.  2 + ( 2 <[ (-2 N[ Exceptions - @ !BP[-  2 N:( 2 N ( 2 `[ (2 rZRental income on the property being vacated, reduced by the appropriate vacancy factor as  j2 ?determined by the jurisdictional FHA Homeownership Center (see       -՜.+,D՜.+,x4 px  HUD~L' =Assistant Secretary for Housing-Federal Housing Commisioners Title X4<@LT  _PID_HLINKS_NewReviewCycle_AdHocReviewCycleID_EmailSubject _AuthorEmail_AuthorEmailDisplayName_PreviousAdHocReviewCycleID _ReviewingToolsShownOnceA !`4http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm d6http://www.hud.gov/ XPosting to HUDClips - Converting Existing Homes to Rentals - Underwriting InstructionsDhylia.D.Hughes@hud.govHughes, Dhylia Dh  !"#%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^`abcdefghijklmnopqrstuvwxyz{|}~Root Entry F`Data 1Table$NtWordDocumentm6SummaryInformation(_DocumentSummaryInformation8CompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q