ĐĎॹá>ţ˙ hjţ˙˙˙g˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙˙ěĽÁ7 đż$7bjbjUU "†7|7|$3˙˙˙˙˙˙lćććććććúŠŠŠŠ –Túé!>ööööööööh!j!j!j!j!j!j!$'# G%XŽ!ćöööööŽ!Đ ććööŁ!Đ Đ Đ öúćöćöh!Đ öh!Đ ˜Đ h!ććh!öę đ#JĽÝÇúŠđĘh!h!š!0é!h!Ÿ%ş Ÿ%h!Đ úúććććŮ U.S. Department of Housing and Urban Development H O U S I N G Special Attention of: Notice H 91-24 (HUD) Directors of Housing Field Office Managers Issued: 3/14/91 Directors of Housing Management Expires: 3/31/92 Chiefs of Loan Management Chiefs of Mortgage Credit Cross References: Supervisory Single Family Loan Specialists Subject: RESCISSION - Acceleration of Mortgages Subject to the Housing and Community Development Act of 1987 and the Department of Housing and Urban Development Reform Act of 1989 This Notice rescinds Notice H 90-72, dated September 28, 1990. Although this Notice does not contain major changes, for your convenience, all pertinent information from Notice H-90-72 is being repeated. Mortgagee Letter 90-35 , dated September 28, 1990, (some Field Offices may have received this Mortgagee Letter erroneously numbered 90-37), which also addresses "acceleration" will remain unchanged. Field Offices must refer to the Mortgagee Letter when applying the following procedures. Attached is a chart to assist with the application of the following mortgage acceleration procedures. I. Effective date of these procedures Mortgagee Letter 90-35 had an effective date of October 29, 1990. This "Notice" also has an effective date of October 29, 1990, Headquarters has made the decision not to accelerate any mortgages for failure to comply with the creditworthiness requirement if the assumption occurred prior to October 29, 1990. Although a creditworthiness review may have been required but was not performed on assumptions which occurred prior to the effective date of these procedures, neither Field Offices, Regional Offices nor mortgagees have to make decisions regarding the acceleration of the mortgages. II. The 1987 Act The 1987 Act requires the review of the creditstanding of each person who seeks to assume an FHA-insured mortgage within the first 12 months (owner-occupant originated) or __________________________________________________________________________ HSISI : Distribution: W-3-1,W-2(H)(OGC)(Z),W-3(A)(H)(ZAOO),W-4(H),R-1,R-2, R-3,R-3-1(H)(RC),R-3-2,R-3-3,R-6,R-6-1,R-6-2,R-7, R-7-1,R-7-2,R-8,R-8-1 Previous Editions Are Obsolete HUD 21B(3-80) GPO 871 902 _____________________________________________________________________ first 24 months (investor originated). The Act is not specific with respect to the action which must be taken if the purchaser's credit falls short of HUD's underwriting criteria. Obviously the decision to accelerate a mortgage that may not be in monetary default is serious. Therefore, we are insisting that mortgagees contact the Field Offices prior to taking such action. Field Offices must ensure that the assumption requirements have been correctly interpreted and that mortgagees have given buyers the opportunity to qualify prior to contacting Headquarters to discuss acceleration. Therefore, for uniformity in the decision making process, the decision whether to approve or reject acceleration of the mortgage will be made by the Field Office and/or Regional Office and Headquarters jointly on a case-by-case basis if, (1) a mortgage subject to the 1987 Act is assumed on or after October 29, 1990 and, (2) the assumption occurred within the 12 or 24 month time frame stated above and, (3) the credit of the purchaser was not reviewed prior to the sale and, (4) the purchaser was given the opportunity to credit qualify at the time the assumption was discovered but the purchaser's credit did not meet HUD's underwriting standards. The Department is taking this position with respect to acceleration of mortgages in this category because the 1987 Act allows it, and there has been confusion in the interpretation of the 12 and 24 month requirements and procedures. Also, only a limited number of mortgages should be affected by this requirement since the time frame for owner-occupant originated mortgages has already expired and the time frame for investor originated mortgages will expire in December 1991. For mortgages restricted by the 1987 Act which meet all of the four criteria listed above, Field Office and/or Regional Office must obtain pertinent information from the mortgagee prior to contacting Headquarters (Insured Servicing Branch) to discuss acceleration. Factors which should be taken into consideration and questions to ask are (1) whether the purchaser is an owner-occupant or an investor (2) if the seller is an investor, how long was title retained before selling the property (3) the length of time since the assumption (4) whether the payments have been kept current (payment history) (5) what are the 2 _____________________________________________________________________ purchaser's assets (6) the circumstances of each case which contributed to the omission of the creditworthiness review, and (7) did the purchaser cooperate with the mortgagee's request to perform the creditworthiness process when the assumption was discovered. The 1987 Act requires that the purchaser's credit be reviewed, therefore, if a purchaser refuses to cooperate with a credit review after an assumption has been discovered, it is not necessary to contact Headquarters. Field Offices must instruct the mortgagee to accelerate the mortgage. III. The 1989 Reform Act (effective December 15, 1989) The 1989 Reform Act requires that the person(s) who seeks to assume a mortgage subject to the Act be determined to be creditworthy prior to the assumption. If an assumption of a mortgage in this category occurs on or after October 29, 1990, and (1) the purchaser was not found to be creditworthy prior to the assumption, as required by this Act and (2) the purchaser could not be determined creditworthy at the time the assumption was discovered because the purchaser either would not cooperate with the creditworthiness process or his/her credit did not meet HUD's underwriting criteria; when the mortgagee requests guidance regarding what action to take, the Field Offices must tell the mortgagee to accelerate the mortgage. IV. Lender Monitoring (On-Site Reviews) This "Notice" must not be interpreted as authorization to disregard any previous monitoring instructions. (Refer to Handbook 4060.3 REV-2, Field Office Guide for Mortgagee Monitoring, dated September 1990). In addition to ensuring compliance with credit review requirements, Field Office staff must continue to review assumptions by investors of mortgages closed from February 5, 1988 to December 15, 1989, to verify that they have been paid down to the appropriate loan-to-value (LTV) ratio. Regardless of when the assumption occurred, acceleration of the mortgage is mandatory if investors refuse to comply with this requirement. The 1989 Reform Act, effective December 15, 1989, in general, prohibits investor assumptions. Therefore, for mortgages subject to the 1989 Act, with the exception of 203(K), and HUD-owned properties sold by Property Disposition, if assumed by an investor must be accelerated 3 _____________________________________________________________________ without further consideration regardless of when the assumption occurred. (Refer to ML 89-31, page 2, item 8, for LTV on 203(K) and HUD-owned properties.) For on-site reviews for both the 1987 and 1989 Acts, corrective action should also be taken as set forth in sections I, II and III of this "Notice". If you receive questions concerning what action HUD will take in the event of the acceleration of a mortgage due to non-compliance with the creditworthiness review process, the Department may consider pursuing a deficiency judgment against the selling mortgagor. If the mortgagee was aware of the assumption but failed to initiate the creditworthiness process, although the decision whether to accelerate the mortgage will be determined as outlined above, Field Offices must use judgment in determining what action to take against the mortgagee. Factors which should be considered are (1) is there a pattern for non-compliance with assumption requirements and (2) what are the circumstances of each case. Resolution of the problem should be attempted at the Field Office or Region level with referral to the Mortgagee Review Board or referral to the Office of Lender Activities and Land Sales Registration for indemnification as alternatives if the situation warrants. In extreme cases it may be advisable to take action against a realtor who provides incorrect information to parties of assumption sales transactions which later leads to mortgage acceleration. If action against a realtor is indicated, Field Offices/Regional Offices must be able to clearly demonstrate what transpired during the assumption transaction which will support the allegation that the realtor was at fault. The realtor's conduct may then be reported by a letter outlining the situation to the local Board of Realtors. It is recommended that only realtors who have repeatedly caused the violation of HUD's assumption requirements be reported. Sincerely ______________________________________ Arthur J. Hill Acting Assistant Secretary for Housing-Federal Housing Commissioner Attachment 4 _____________________________________________________________________ MORTGAGE ACCELERATION REQUIREMENTS Procedures for the acceleration of assumed mortgages which were not processed in accordance with HUD's assumption requirements. ___________________________________________________________________________ MORTGAGE ACTION BY ACTION BY CATEGORY MORTGAGEE FIELD OFFICE =========================================================================== All assumptions prior None None to 10/29/90 =========================================================================== Form HUD-92900-signed 1) Perform credit review on or after 12/1/86 but prior to 12/15/89 A. Purchaser will not Instruct to accelerate assumed within 12/24 cooperate-Refer to months time frame on Field Office or after 10/29/90 ___________________________________________________ without B. Credit acceptable creditworthiness - no further action None review (If investor-see 2 below) ___________________________________________________ C. Unacceptable Refer to Notice, page 2, credit - Refer to para. 4. Obtain required Field Office information-Contact ISB Desk Officer ___________________________________________________ 2) Require Investor to pay down LTV A. Investor refuses Instruct to accelerate to pay down LTV - Refer to Field Office ___________________________________________________ B. Investor pays down LTV and credit is None acceptable-no further action ___________________________________________________ C. Investor pays down Refer to Notice, page 2, LTV but credit is para. 4. 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