MCA Monthly Update - April 2009

Welcome to the MCA Monthly Update. To help you stay compliant and up-to-date, each newsletter we send in the future will contain underwriting tips, processing tips, a quality control update, and an FHA update. For this month, we thought it would be helpful to summarize a few of HUD’s official mortgagee letters for the year. We hope that you find the content informative and useful. As always, your feedback is appreciated.

FHA UPDATE

HUD frequently publishes updates, known as Mortgagee Letters, containing new policies and other information for lenders. For the year 2009, HUD has already posted 14 letters. Below is a very brief summary of five of them, along with our interpretation:

· Annual Renewal of FHA Approval: Letter 09-01. “In order to maintain its status as an FHA-approved mortgagee, a mortgagee is required, among other things, to timely file annual audited financial statements that meet the requirements of the Secretary, sign and submit a yearly verification report and pay an annual fee for its main and registered branch offices.

…If a mortgagee fail[s] to meet one or more of the…annual renewal requirements, the Department [sends] a Notice of Violation… The Mortgagee Review Board may, among other things, impose penalties and/or withdraw the mortgagee’s FHA-approval or permit the Department to enter into a settlement agreement… If a mortgagee’s FHA-approval is terminated, that mortgagee may not reapply for FHA approval until 12 months after the effective date of their termination.”

MCA Interpretation – FHA is going to be tougher on late renewals by brokers and lenders, and may not allow a late renewal at all.

· Loan Limit Increases for FHA: Letter 09-07. Under both HERA and ESA, and thus under ARRA as well, the FHA national floor limits remain set at the 65 percent amount (the “floor,”) by property size.

MCA Interpretation – FHA has changed the loan limit floor and ceiling. To check for the loan limit in each area, go to https://entp.hud.gov/idapp/html/hicostlook.cfm

· Limits on Cash-Out Refinances: Letter 09-08. “Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value.”

· Adoption of Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) and Appraisal Reporting Requirements for Properties located in Declining Markets: Letter 9-09. “In order to ensure greater transparency and accuracy of appraisals performed for FHA-insured financing, FHA will adopt the Market Conditions Addendum (Fannie Mae Form 1004MC/ Freddie Mac Form 71, released November 2008).”

MCA Interpretation – Appraisals performed after April 1, 2009 must include the market condition addendum. FHA lenders are responsible for poor or fraudulent appraisals.

· Mortgagee Monitoring: Letter 09-12. “While not an exhaustive list, it is imperative that you ensure your organization:

- implements and maintains a comprehensive quality control plan,

- reviews all loans with early payment defaults;

- does not engage in false or misrepresentative advertising;

- fully documents the stability and amount of borrower(s) income; and,

- does not charge excessive and unallowable fees to the borrower.”

To view the complete letters, visit www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm. The remaining letters address multiple topics, including free education and outreach flyers to distribute to FHA borrowers, Tier 1 rankings with increased loss mitigation incentives, guidance for the HECM for Purchase program, etc.

For more information on FHA compliance, visit www.MortgageComplianceAdvisors.com.