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**U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT**

WASHINGTON, D. C. 20410-8000

May 18, 1988

OFFICE OF THE ASSISTANT SECRETARY FOR

HOUSING-FEDERAL HOUSING COMMISSIONER

**Mortgagee Letter 88-15**

TO: ALL APPROVED MORTGAGEES

Streamline Refinance, Allowable Fees

1\. Required submission of Attachment A of [Mortgagee Letter
86-15]{.underline}

a\. Beginning 60 days from the date of this letter, all

applications underwritten by a Direct Endorsement (DE)

lender or submitted to HUD for processing must include

Attachment A of Mortgagee Letter [86-15]{.underline} (copy attached)
when

there is any amount of seller\'s or lender\'s contribution.

The procedure for completing the Attachment remains

unchanged.

Previously, Attachment A was required to be included with

the application only when the contribution exceeded the six

percent threshold.

b\. There has been some misunderstanding regarding the answer

to question No. 6 in Mortgagee Letter 86-23 (Questions and

Answers on Mortgagee Letter [86-15]{.underline} ). Some readers have

chosen to concentrate on the phrase \"\...will not generally

question processing that is within two points of the

tolerate quotes \...\" rather than the key sentence,

\"However, where it is evident that the lender is misstating

information to enable the seller to avoid adjustments in

the sales price, the Department will take immediate

administrative actions.\" Clearly HUD never intended to

establish an automatic two-point leeway on all

transactions.

On the other hand, it is not necessary to make any

adjustment or entry on Attachment A to reflect a favorable

or below market interest rate when the transaction involves

an existing property and there is no connection or

arrangement between the lender and seller.

2\. Assumption Policy

Questions continue to be asked as to what types of changes of

ownership trigger the HUD requirements for approval of the

substitute mortgagor as contained in both Mortgagee Letters 86-

[[15]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=MLET&s1=86-15%5Bno%5D&SECT1=TXTHLB&SECT5=MLET&u=./hudclips.cgi&p=1&r=1&f=G)
and 88-2.

The most recent questions relate to cases in which only a part

of the property is transferred. HUD considers the phrase \"\...a

part of the property\...\" as set forth in the assumption

provisions, to include a \"part interest in\" the property.

The general rule to follow is that the transfer of a party\'s

interest, other than by devise, descent or operation of law,

necessitates a creditworthiness determination. On the other

hand, parties added to the title subsequent to closing will not

require creditworthiness review.

3\. Streamline Refinance

a\. Adjustable Rate Mortgages (ARMS) - [Mortgagee Letter
87-24]{.underline}

allows streamline refinancing of a fixed rate mortgage to

an ARM when the \"worst case\" interest rate for the ARM does

not exceed the interest rate of the existing mortgage.

This rule is now being revised to permit ARM to ARM and

fixed rate to ARM streamline refinancing when the first

year interest rate of the new mortgage will be at least two

percent (200 basis points) below the interest rate of the

current mortgage. All other streamline refinance

requirements remain the same.

b\. Section 245(a) Graduated Payment Mortgages (GPM) - A GPM

which is eligible to be refinanced under the streamline

procedure without an appraisal to a fixed rate mortgage may

have a mortgage amount that exceeds the maximum mortgage

limit for the area, provided the new mortgage amount

results from the negative amortization inherent in the

program.

4\. Allowable Fees

We wish to remind you that Section 203.27 of the HUD regulations

specifically permits the lender to collect certain specified

fees from the borrower. A mortgagee, who collects any charge

that has not been authorized in advance as being reasonable and

customary, may be in violation of the regulations. The

acceptability of these charges and amounts that may be charged

are determined by the individual Field Offices.

The Department believes that courier fees charged by a lender

for sending loan documents to its underwriter for approval is

not an allowable charge and should not be charged to the buyer.

Courier fees or fees for express mailing for the payoff of a

mortgagor\'s loan on a refinance transaction are permissible and

may be paid by the mortgagor since it would be in the best

interest of the borrower to expedite the delivery of his payoff

check to the previous lender. With regard to courier fees to

and from the mortgagee\'s office and the settlement agent, we

will permit the borrower to pay these fees if charged by the

settlement office and provided there is a written request from

the borrower to do so.

If you have any questions, please contact the Mortgage Credit

Branch at (202) 755-6700.

Sincerely yours,

Thomas T. Demery

Assistant Secretary

Attachment

ATTACHMENT A

SUGGESTED FORMAT FOR PROVIDING INTEREST REDUCTION INFORMATION AND

COMPUTING MAXIMUM MORTGAGE AMOUNT FOR EXCESS FINANCING CONCESSION

TRANSACTION

1\. \$ Contract Sales Price

2\. Closing Cost to be 5. \$ HUD estimate of value

paid by purchaser 6. HUD estimate of

3\. Required repairs closing cost

to be paid by 7. Value plus closing

purchaser

4\. Acquisition Cost

8\. \$ Maximum mortgage amount based on the lesser of lines 4

or 7

9\. MIP to be financed in the mortgage

10\. Maximum mortgage amount including the MIP

11\. Amount of sellers contribution toward buydown

(payments for points, any type of interest payment, or

closing costs normally paid by the buyer (including

the one percent origination fee)).

List amounts in each category based on mortgage amount

on line 10

12\. 6 percent of line 10

13\. The amount that line 11 exceeds line 12

NOTE: If line 12 exceeds line 11, no further

calculations are necessary.

14\. \$ Contract sales price from line 1

15\. Minus amount on line 13

16\. Adjusted sales price

17\. Closing cost and/or required repairs to be paid by

purchaser - lines 2 and 3

18\. Corrected Acquisition cost

19\. Maximum mortgage amount based on the lesser of line 7

or 18