August 31, 2005

> **MORTGAGEE LETTER 2005-33**

**TO: ALL APPROVED MORTGAGEES**

**SUBJECT:** Underwriting and Servicing Policies to Assist Victims of
Presidentially-Declared

> Major Disaster Areas

A Presidential Major Disaster Declaration puts into motion federal
recovery programs designed to help victims of hurricanes, earthquakes,
floods, tornados, other severe weather or major fires, which the
President determines warrants supplemental federal aid. Among federal
assistance for victims of these disasters is FHA's Section 203(h)
mortgage insurance program as well as other actions undertaken by HUD
following the President's declaration.

When the President declares a disaster, certain mortgage origination and
mortgage servicing actions are triggered and mortgagees should refer to
HUD Handbooks 4155.1 REV-5, *Mortgage Credit Analysis for Mortgage
Insurance*, and 4330.1 REV-5, *Administration of Insured Home
Mortgages*, for further guidance. The mortgagee must check with the
Federal Emergency Management Agency (FEMA) to obtain the specific
affected counties and corresponding declaration dates. This information
can be found on the Internet at http://www.fema.gov/disasters or by
calling the local FEMA office.

The procedures described in this letter are in effect whenever a
disaster is Presidentially-Declared and remain in effect for one year
from the date of the President\'s declaration. Any areas added to the
declaration will also be eligible for disaster relief and the same
provisions will apply.

Future reminders of HUD's underwriting and servicing policies to assist
disaster victims will only refer to these handbooks and mortgagee
letter.

**[I. MORTGAGE ORIGINATIONS]{.underline}**

Chapter 2 of HUD Handbook 4155.1 REV-5, *Mortgage Credit Analysis for
Mortgage Insurance*, contains the provisions for the Section 203(h)
program summarized below.

[Mortgage Insurance for Disaster Victims]{.underline}

HUD has a special mortgage insurance program under Section 203(h) of the
National Housing Act to assist disaster victims. Under this program,
individuals or families whose residences were destroyed or damaged to
such an extent that reconstruction or replacement is necessary are
eligible for 100 percent financing. The previous residence must have
been in the disaster area and the borrower may have been the owner of
the property or a renter of the property affected.

## Section 203(k) Rehabilitation Mortgages 

The requirement for a dwelling to be completed more than one year
preceding the date of the application for mortgage insurance under
Section 203(k) does not apply to properties in the disaster area.
Damaged residences are eligible for Section 203(k) mortgage insurance
regardless of the age of the property. The residences need only to have
been completed and ready for occupancy for eligibility under Section
203(k). The percentage of financing, however, is determined by the type
of mortgage being made, i.e., normal loan-to-value ratios apply to
Section 203(k) mortgages made in these areas. The mortgage insurance
premium is the same for all other Section 203(k) mortgages.

> [Construction/Permanent Mortgages]{.underline}

Lenders are encouraged to use the construction/permanent mortgage
program in the areas affected. Chapter 2 of HUD Handbook 4155.1 REV-5
contains complete processing guidelines.

[Underwriting]{.underline}

The Department recognizes that victims of a disaster may have to incur
debts to replace personal property. Victims of the disaster will be
allowed to have a total fixed payment to gross income ratio of 45
percent without compensating factors. The 45 percent ratio can also be
exceeded with appropriate compensating factors. This provision will
apply to all FHA-insured mortgages regardless of the insurance program.

Disaster victims with Secretary-held mortgages are eligible for new
FHA-insured mortgages provided the borrower was current with the
forbearance agreement at the time of the disaster and all payments for
the preceding twelve months were made within the month due.

[Submission of Closed Loans]{.underline}

For lenders located in the areas affected, the Department is extending
the time for submission of closed loans for insurance endorsement from
60 days to 90 days after the date of closing. This will provide lenders
additional time to locate and reconstruct loan packages where documents
may have been destroyed by the disaster.

[Endorsement of Delinquent Mortgages]{.underline}

The Homeownership Centers (HOCs) have been granted authority, on a
case-by-case basis, to endorse mortgages that are delinquent, provided
the delinquency is due to disaster-related circumstances. As a rule,
this policy applies to cases where the loan closed before the disaster
and the homeowner may have become delinquent in the mortgage payments
because of temporary disruptions in employment.

**[II. MORTGAGE SERVICING]{.underline}**

Chapter 14 of HUD Handbook 4330.1 REV-5, *Administration of Insured Home
Mortgages*, contains the provisions summarized below.

[Moratorium on Foreclosures]{.underline}

A moratorium on foreclosures on property directly affected by the
disasters is in effect for a ninety (90) day period from the date the
President declared a disaster to have existed. The moratorium applies to
the initiation of foreclosures AND foreclosures already in process.

> [Servicing Actions]{.underline}

In addition to the moratorium, HUD strongly recommends servicing actions
for homeowners whose properties were directly affected by the disaster.
This includes such actions as special forbearance, mortgage
modification, refinancing, and waiver of late charges. HUD also offers a
partial claim program to help address problems of unresolved arrearages.
Subsequent to the foreclosure moratorium, lenders are encouraged to
consider alternatives to foreclosure such as pre-foreclosure sales and
deeds in lieu of foreclosure if the homeowner is not in a position to
\"cure\" the mortgage delinquency.

Refer to Mortgagee Letters 00-5, 02-17, 03-19, and 05-18, for FHA
program requirements and incentive payments associated with the above
referenced servicing approaches. Further, for loans on properties
affected by these disasters, the maximum pre-foreclosure sales period is
extended an additional two months, and the minimum appraised as-is value
of the property is reduced to 58 percent, without requiring the lender
to seek a variance approval from HUD's National Servicing and Loss
Mitigation Center in Oklahoma City.

[**III. DEALING WITH PROPERTY DAMAGE**]{.underline}

Mortgagees must follow standard procedures, including assuring that
hazard insurance claims are filed and settled expeditiously. Mortgagees
must release appropriate proceeds to the mortgagor and [must
not]{.underline} retain hazard insurance proceeds to make up an existing
arrearage without the written consent of the mortgagor.

**[IV. Provide Temporary Housing and Shelter]{.underline}**

HUD will work with FEMA to identify vacant public housing and HUD-owned
properties that can be used as temporary housing for those forced from
their homes.

The information collection requirements contained in this document have
been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB
control number 2502-0059. In accordance with the Paperwork Reduction
Act, HUD may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection displays a
currently valid OMB control number.

If you have any questions concerning this Mortgagee Letter involving
mortgage origination issues, please contact your local Homeownership
Center in Atlanta at 888-696-4687, in Denver at 800-543-9378, in
Philadelphia at 800-440-8647 and in Santa Ana at 888-827-5605. For
questions regarding servicing issues, please contact the National
Servicing Center at 888-297-8685.

Sincerely,

Brian D. Montgomery

Assistant Secretary for Housing-

Federal Housing Commissioner