In late July, the Federal Housing Administration (FHA) made several important revisions to the Single Family Policy Handbook 4000.1. The new guidance is part of a series of changes recently announced by the Biden-era FHA, including guidance related to COVID-19 recovery loss mitigation options. Describing the changes as primarily “enhancements and revisions” and “technical edits,” the agency states in its release that it:
remains committed to making it easier for mortgagees to conduct business by maintaining and enhancing Handbook 4000.1 with regularly scheduled updates to ensure it remains the comprehensive source of policy guidance for single family mortgage originators, servicers, and other stakeholders.
A redlined version of the newly amended Handbook can be found here.
Summary of Changes
In particular, the FHA issued amendments to all five sections of the Single Family Policy Handbook:
Section I: Doing Business with FHA
The amended Handbook clarifies lender approval policies, in part by specifying that a lender must, at all times, meet all eligibility requirements in order to do business with the FHA. The Handbook also has additional details related to policies and processes regarding merged, acquired, or reorganized entities. For instance, the amended Handbook contains information related to the reinstatement of L1 authority for mortgagees created by merger, acquisition, or reorganization resulting in a new FHA Lender Identification Number.
In addition, the amendments clarify that mortgagees must submit test case files for the test case phase of Title II Direct Endorsements using the FHA Catalyst: Case Binder Module. Mortgagees must ensure that (1) all required certifications are executed, and (2) a complete case file post-closing is submitted that includes all required origination, underwriting, and closing documents as specified in the Uniform Case Binder Stacking Order. This requirement has been relocated from Section II to Section I of the Handbook.
Section II: Origination through Post-Closing / Endorsement
The amendments to Section II create exceptions to the requirement for partial waivers for current hazard, liability, and flood insurance coverage for certain common interest communities that do not qualify as a site condominium. In addition, this section contains updates related to developer/builder-to-unit owner transfer-of-control protocols to more closely align with both market practices and state and local requirements, as well as policy guidance related to student loan payment calculations from ML 2021-13 and an exception for student loans in COVID-19 forbearances.
Section III: Servicing and Loss Mitigation
FHA made several substantive amendments to Section III of the Handbook. First, the FHA clarifies that, upon the borrower’s voluntary termination of mortgage insurance, the mortgagee is required to notify the borrower that the partial claim promissory note and subordinate mortgage amounts owed by the borrower will become immediately due and payable upon termination if provided for under the terms of the borrower’s partial claim promissory note. The revised Handbook also revises the submission guidelines for voluntary termination.
Second, the Handbook now creates a deadline of five business days before the conveyance for mortgagees to submit documentation to P260 regarding requests to exceed property preservation allowances.
Third, FHA has included a requirement that the mortgagee must review eligible borrowers for COVID-19 Advance Loan Modification. This guidance incorporates the COVID-19 forbearance policies contained in ML 2021-15.
Finally, the amended Handbook pushes the effective date of Section III, Appendices 4.0 (relating to FHA-HAMP calculations) and 5.0 (related to HUD’s Schedule of Standard Possessory Action Attorney Fees and Deed-in-Lieu of Foreclosure Attorney Fees) to March 31, 2022, pursuant to ML 2021-14.
Section IV: Claims and Disposition
In Section IV of the Handbook, the FHA now clarifies that a mortgagee is required to submit additional reports and screenshots from a tax monitoring service to P260 in order to establish entitlement to reimbursement for tax bills.
Section V: Quality Control, Oversight and Compliance
The amendments to Section V of the Handbook contain several new requirements applicable to both forward and reverse mortgages. In particular, for mortgages not approved to submit electronic Case Binders (eCBs) to FHA, the mortgage must provide the requested case binders using the FHA Catalyst: Case Binder Module to the FHA. In addition, all case binders must be submitted to FHA within 10 business days of the agency’s transmittal of a request for post-endorsement technical review.
Additionally, Section V has been amended to incorporate early payment default (EPD) policies requiring field review for at least 10% randomly selected from the overall population of EPDs. The new Handbook also contains a new requirement that the mortgagee review all property documentation and appraisal reports for completeness, technical accuracy, and overall quality in compliance with the Property Acceptability Criteria and Appraiser and Property Requirements for Title II forward and reverse mortgages.