FISCAL INSTRUCTIONS

1\. ASSIGNMENT OF FHA CASE NUMBERS. The assignment of FHA case

numbers for firm commitments pertaining to mortgages where

assistance payments will be made will follow the procedures

outlined in Chapter 54 of Reference (1) of the Foreword. The

following section of the Act suffix codes will be assigned to

identify the home mortgage programs under Section 235:

ADP Section

ADP Section Of Act Suffix Code

Section Of Act Of Act Suffix Code If Pursuant To 223(e)

235(i) 235 335

235(j)(4) 216 316

233/235(i) 208 308

233/235(j)(4) 209 309

233/237/235(i) 211 311

233/237/235(j)(4) 212 312

237/235(i) 201 301

237/235(j)(4) 217 317

\* 235(i)(REV) 265 365 \*

a\. Section 235(j)(4) Cases. The release of individual

properties from the lien of a blanket mortgage which was

insured under Section 235(j) (1) will not require any

reporting under these procedures, either when the firm

commitment under Section 235(j) (4) is issued, or when the

individual mortgage is insured. Firm obligations for

assistance payments will have been established from previous

reporting of the 235(j)(1) transaction under procedures in

the Section 235(j) handbook, Reference (2).

b\. Department of Agriculture Cases. Any Section 235(i) cases

presented for insurance endorsement after issuance of a

commitment under an agreement with the Secretary of

Agriculture will not require any reporting under these

procedures. While FHA case numbers will be assigned by the

field office when the cases are presented for insurance

endorsement, all Agriculture-initiated cases will have firm

obligations for assistance payments established under special

arrangements with that Department. Details concerning

processing of these cases are contained in a separate

handbook, Reference (3).

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\(1\) (1) After the transaction has been closed by and between

the mortgagor and mortgagee and the mortgage proceeds

have been disbursed for the account of the homeowner,

the Farmers Home Administration county supervisor will

no longer participate in the transaction, unless there

is a deficiency in the closing exhibits which requires

correction and is brought to the attention of Farmers

Home Administration, or unless there is a complaint

from the homeowner relating to construction. The

mortgagee will submit to the local field office the

normal package of closing papers and after insurance

endorsement occurs the case will be an insured mortgage

transaction in every respect and without any

distinction as having been initiated under these

procedures. Any omissions or errors in the closing

exhibits will be called to the attention of the lender

in the usual manner.

\(2\) Since, prior to submission of the closing papers, the

field office normally will not have had any previous

knowledge of the transaction, an FHA case number will

not have been assigned. Even if there have been some

contacts, for purposes of seeking and furnishing

information, between the lender and/or county

supervisor and the field office representative, an FHA

case number is not to be assigned to these transactions

until after mortgage proceeds have been disbursed and

the mortgage is ready to be insured.

\(3\) The only difference in the assignment of a case number

for a case initiated by the Department of Agriculture

and one processed under regular field office procedures

is in the assignment of the section of the Act suffix

code. For agriculture-initiated cases the section of

the Act suffix code to be assigned and shown on FHA

Form 700-1 is \"235;\" whereas, for cases processed under

regular field office procedures the section of the Act

suffix code applicable to the section under which the

application was submitted, i.e., 203, 220, 221, etc.,

must be used and subsequently transferred to section

235(i) when it has been determined that the mortgagor

is eligible to receive assistance payments. See

paragraph 2.b.(1).

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\(1\) (4) In completing FHA Form 700-1, show program

identification code \"35\" and fee code \"80,\" no fee due.

\(5\) When preparing FHA Form 700-8, commitment issued, the

amount of the commitment must be the same as the

mortgage amount. The \"date commitment expires\" is to

be a date three months in the future in order to avoid

ADP rejects. In instances where a commitment has been

extended by the Farmers Home Administration the \"date

commitment expires\" is to be a date three months

subsequent to the extension date granted as shown in

the letter of extension. Extension letters are to be

included with closing papers when the mortgage is

submitted to the field office for insurance

endorsement.

\(6\) In completing Forms 9100-2 and 9100-3, the processing

copies of the mortgage insurance certificate, show

program code \"35.\" Program code 35 is the only means

available to identify the transaction in the

insurance-in-force ADP records as having been initiated

under this program. Extra care must be taken to see

that this important part of processing is not

overlooked.

\(7\) Immediately after the mortgage has been insured, as

evidenced by execution of the insurance endorsement on

the reverse of the mortgage insurance certificate, it

will be returned to the lender in the customary manner.

The lender must then identify all of the documents in

the transaction by placing the entire FHA case number

on each one.

\(8\) The following items must be forwarded to headquarters

together with similar documents produced in regular

case processing, and addressed and submitted under

regularly-prescribed procedures:

\(a\) FHA Form 2800, Mortgagee\'s Application for

Property Appraisal and Commitment.

\(b\) FHA Form 2900, Mortgagee\'s Application for

Mortgagor\'s Approval and Commitment.

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\(1\) (c) FHA Form 700-1, Application.

\(d\) FHA Form 700-8, Commitment.

\(e\) Form 9100-2, processing copy of the mortgage

insurance certificate.

\(f\) Case binder assembled in accordance with existing

instructions.

\(9\) Assistance payments and the monthly handling charge for

these homeowners will be billed to HUD together with

all other assistance payments and handling charges due

for the month. Assistance payments for these mortgages

will be computed on the same basis as all other

mortgages insured under section 235(i). Full

particulars concerning computation of assistance

payments are included in Reference (4).

c\. Mortgage Assistance Payment Certificate. For families

holding membership in a cooperative association that are

qualified to have assistance payments made in their behalf

under the provisions of section 235(d) of the Act, and who

qualify under 235(b) of the Act, separate case numbers are

not assigned. These cases are identified by using the

section 213 project number, followed by the unit number,

e.g., 012-23001-Unit 7. Assistance payments for these

transactions must be reported under the procedures outlined

herein.

\(1\) Upon approval of the mortgagee\'s application to have

assistance payments made in these cases, the field

office will execute and issue FHA Form No. 3130,

Mortgage Assistance Payment Certificate. A copy of the

form is included in this handbook as Appendix 16. The

issuance of this certificate is the evidence of an

assistance payment contract between the mortgagee and

HUD, as set forth in section 235.310(b) of the

regulations, and it firmly commits HUD to make

assistance payments as set forth in the certificate.

It may be executed only by the same officials that

have been delegated the authority to issue home

mortgage commitments.

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2\. FEE AND OTHER ADP CODES. Application fees for mortgages to be

insured under section 235(i) are the same as those for

mortgages insured under section 203, except for those initiated

by the Department of Agriculture. Therefore, the fee codes

shown in 63-1(e) of Reference (1) and on FHA Form No. 2641(f)

will be used when completing FHA Forms 700 for section 235(i)

cases. Also, the type of construction codes shown in 63-1(c)

and Form 2641(f) will be used, as applicable, for section

235(i) cases.

a\. Fees for Cases Initiated by the Department of Agriculture.

With respect to those transactions initiated by the

Department of Agriculture, the Farmers Home Administration

county supervisor will charge the prospective homeowner an

application fee, which will be the same as the Housing and

Urban Development-Federal Housing Administration\'s (HUD-FHA)

fee; i.e. \$40 for existing construction or substantial

rehabilitation; \$50 for proposed construction. These fees

will be paid by the prospective homeowner to the county

supervisor and retained by the Farmers Home Administration

as partial reimbursement for administrative expenses

connected with operation of this program. Fees for these

cases are not received by the mortgagee, nor will the

mortgagee be billed on the monthly fee billing statement.

The fee code to be inserted on FHA Form 700-1 for these

cases is \"80,\" no fee due.

Commitment extension fees will not be charged on these cases

by HUD-FHA. The Secretary of Agriculture will determine

whether extension fees will be charged on cases processed by

the Farmers Home Administration.

b\. Applications. An application for a conditional commitment

may not be submitted under section 235(i). In every instance

an application for a conditional commitment must be submitted

under another eligible section of Title II, and subsequently

transferred to section 235(i) when it has been determined

that the mortgagor is eligible to receive assistance

payments. Therefore, in preparing FHA Form 700-1 for these

transactions, the section of the Act suffix code may never be

shown as \"235.\" Instead, the section of the Act suffix code

for the section of the Act under which the application for

conditional commitment was submitted

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\(2\) will be shown on FHA Form 700-1.

\(1\) When it has been determined that the transaction

qualifies in every respect for a firm commitment under

section 235(i), FHA Form 700-2 will be prepared showing

a transfer to section 235(i). Form 2900, the mortgage

insurance certificate including Forms 9100-2 and

9100-3, and the note and mortgage must always show one

of the 235 section of the Act suffix codes as indicated

in the instructions under paragraph 1.

NOTE: The instructions in 2.b. and 2.b.(1) above do

not apply to cases initiated by the Department

of Agriculture. See Paragraphs 1.b.(3) and 1.b.(4).

c\. Conversion of Cases in Process. Outstanding commitments

which are converted to firm commitments under section 235(i)

will require the submission of FHA Form 700-2 in accordance

with outstanding instructions. Thereafter in all respects

the case will be treated as a section 235(i) case in

accordance with the instructions in this handbook. If an

outstanding commitment, previously issued without regard to

the section 235 program, is to be amended to permit its

conversion to section 235(i), the case will be treated in

all respects as if the commitment had originally been issued

subject to conversion to section 235(i) and the procedures in

this handbook will be followed.

d\. ADP Program Identification Codes. The following program

identification codes will be entered on the copies of the

mortgage insurance certificate for transactions under the

regular section 235(i) program:

Code Explanation

\(1\) 07 public housing properties sold by Federal, State,

or local governments or agencies thereof

\(2\) 08 properties located in redevelopment or urban

renewal areas

\(3\) 19 properties located in model city area

\(4\) 20 properties located in model city area in urban

renewal area

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\(5\) 21 properties located in periphery of model city area

\(6\) 22 properties located in periphery of model city area

in urban renewal area

\(7\) 23 family unit in condominium

\(8\) 24 family unit in condominium in urban renewal area

\(9\) 25 family unit in condominium in model city area

\(10\) 26 family unit in condominium in model city area in

urban renewal area

\(11\) 27 family unit in condominium in periphery of model

city area

\(12\) 28 family unit in condominium in periphery of model

city area in urban renewal area

\(13\) 35 cases originated by department of agriculture

\(14\) 00 all cases not in program codes shown above

3\. APPROPRIATIONS AND REPORTING - GENERAL. The Act provides, in

part, under section 235(h), that \"\...The aggregate amount of

outstanding contracts to make such payments shall not exceed

amounts approved in appropriation Acts\...\".

a\. Executing Contracts. With respect to executing contracts for

assistance payments and reporting such contractual

obligations, it is important to note the provisions of the

Anti-Deficiency Act, 31 U.S.C. 665, which provides in

pertinent part:

\"No officer or employee of the United States shall make or

authorize an expenditure from or create or authorize an

obligation under any appropriation or fund in excess of

the amount available therein; nor shall any such officer

or employee involve the Government in any contract or

other obligation, for the payment of money for any

purpose, in advance of appropriations made for such

purpose, unless such contract or obligation is authorized

by law.\"

b\. Accurate Records. The above quoted provision of the

Anti-Deficiency Act imposes the requirement to maintain an

accurate record of all contractual obligations.

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4\. ALLOCATION OF CONTRACT AUTHORITY. The Director, Subsidized

Housing Programs (D/SHP), will allocate contract authority to

the Regional Administrator on Form HUD-185, Regional Fund and

Contract Authority Assignment, for distribution to field

offices within the regional office jurisdiction. Field office

directors will receive their allocation of contract authority

from the Regional Administrator on Form HUD-185.1, Regional Fund

and Contract Authority Sub-Assignment. See Reference (5).

a\. Numbering Allocations. Contract authority allocations to

Regional Administrators are numbered for control purposes.

The numbers are assigned in sequence and therefore the

allocations to any one office will not necessarily have

numbers in sequence.

b\. Allocations of Contract Authority for Regular Programs. A

block allocation of contract authority will be made by the

central office to each regional office for regular programs

on Form HUD-185. Each field office will receive its share of

the block allocation for regular programs from the regional

office on Form HUD-185.1. Contract authority allocations for

special purpose programs other than Operation Breakthrough

and Military Housing will be included in the allocations for

regular programs. Separate allocations of contract

authority will be made for Operation Breakthrough and

Military Housing in accordance with the provisions of

paragraph c. below.

c\. Allocations of Contract Authority for Special Purpose

Programs. Allocations of contract authority for Operation

Breakthrough and Military Housing will be made by the central

office when it receives notice from the field office director

that he approved a reservation request for one of the special

purpose programs. The regional office will receive the

special purpose allocation from the central office on Form

HUD-185, and the field office will receive the allocation

from the regional office on Form HUD-185.1.

d\. Contract Authority Allocated to Field Office. Field office

directors are responsible for assuring that reservations and

firm obligations of contract authority do not exceed the

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amount of contract authority allocations actually received

on Form HUD-185.1.

e\. Transfers of Contract Authority. The withdrawal of contract

authority from the regional office or the transfer of

contract authority between regional offices will be

accomplished by the D/SHP issuing an increase/decrease

allocation on Form HUD-185 to the gaining and losing

regional offices. The Regional Administrator can transfer

contract authority between field offices within the region by

issuing a decrease assignment to the losing office on Form

HUD-185.1 and an increase assignment to the gaining office on

Form HUD-185.1. A copy of all Forms HUD-185.1 initiated by

the Regional Budget Officer is to be forwarded to the

Director, Subsidized Housing Programs, Attn: Financial

Services, Washington, D. C. 20411, and to the Comptroller,

Attn: Accounting Division, Washington, D. C. 20412.

f\. Recapture of Contract Authority. When there is a recapture

of regular contract authority because of expired

reservations, commitment expiration, or decreases in

reservations or firm obligations, the allocation will revert

to the director\'s allocation unless withdrawn on

Form HUD-185.1. When there is a recapture of special

purpose contract authority or for some other reason the

allocations are not expended, the allocations will revert to

the central office when the purpose for which the allocation

was made has not been accomplished. Withdrawal notice will

be on Form HUD-185 for the regional office and Form 185.1

for the field office.

5\. PRELIMINARY RESERVATION OF CONTRACT AUTHORITY. If a builder or

seller wants to be certain that contract authority will be

available, he should submit a request to the field office

director for a preliminary reservation of contract authority.

If contract authority is available, it will be reserved. A

preliminary reservation of contract authority is an advance

commitment that contract authority will be available for

assistance payments when homes are sold to families who qualify

for this assistance. A builder does not have to request that

contract authority be reserved; however, if a preliminary

reservation is not requested, there is no assurance that

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\(5\) contract authority will be available when he sells completed

units to eligible families. The fiscal procedures pertaining

to a preliminary reservation apply only to those cases when

the builder or seller, working with and through the field

office, wants to be certain that contract authority will be

available when needed.

a\. Form to Use. When a preliminary reservation of contract

authority is desired, the builder or seller must submit a

request on FHA Form 3122 to the field office director. A

preliminary reservation may only be requested for proposed

construction or substantial rehabilitation cases involving

five or more dwellings or units with respect to those

cases when it is proposed that the commitment will be

converted to section 235. Requests may not be made for

four or less dwellings.

\(1\) Before an approved subdivision report is issued, or

before the feasibility letter is issued in the case

of a condominium, or before a formal application for

a commitment is submitted for proposed construction

involving five or more dwellings when the builder or

seller wants an advance commitment of contract

authority, a preliminary reservation must be

requested and obtained from the field office

director.

\(2\) The amount of the preliminary reservation requested

should apply to the number of dwellings or units

which are estimated will be sold to families who

qualify for assistance payments under section

235(b). For example, if a subdivision of 100

single-family homes is planned and the builder

estimates that 25 of them will be sold to families

who qualify for assistance payments under section

235(b), then contract authority may be reserved to

cover annual assistance payments for 25 units. At

this point in processing, it is not possible or

necessary to identify the specific properties on

which the commitment may be converted to section

235\.

b\. Applications for Section 235 Assistance. Applications for

section 235 assistance arise in four basic ways as

described below:

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\(5\) (1) Builder applications under sections 203; 220(d)(3)(A);

221(d)(2); or 234 for five or more units for new

construction or for substantial rehabilitation with

ultimate sale to an eligible purchaser and conversion of

the conditional commitment to a section 235 firm

commitment. In these transactions, when the builder,

developer, or other party at interest wants an advance

commitment of contract authority, such interested party to

the transaction completes, signs, and delivers to the field

office a Form 3122, Request for Preliminary Reservation of

Contract Authority for Conditional Commitments.

\(a\) If the request is approved, either for the amount

requested or for an amount determined by the

director, the director or his designee will reserve

the contract authority and indicate such reservation

by signing the reservation panel on Form 3122 and

delivering the original to the party requesting the

reservation. Reservations will be numbered

sequentially from -1 up, by type. Special purpose

reservations will be so identified and will be

sequentially numbered from -1 up. The office will

maintain a master file containing the first copy of

each section 235(i) \"regular\" reservation; and a

separate master file by type of special purpose

contract authority, maintaining therein a copy of each

reservation issued. Thus, an office might have seven

or more files of preliminary reservations for section

235(i); e.g., \"Regular;\" \"Model Cities;\" \"Military

Housing;\" \"Substantial Rehabilitation;\" \"State and

Local;\" \"Breakthrough;\" and \"Others.\" Each file would

contain reservations sequentially numbered from -1 up

within that file.

\(b\) Each reservation must be based upon a standard amount

per unit, as determined by headquarters for current

needs. See Appendix 17.

\(c\) The effect of the issuance of a reservation by the

director or his designee is a commitment by the

Government that the contract authority for

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\(5\) the transaction has been reserved. Appendixes 2 and 3

show preliminary reservations for \"regular\"

transactions. Appendix 4 shows a preliminary

reservation under a special purpose contract

authority allocation.

\(d\) Each preliminary reservation issued must be recorded

on a separate Form 3123, Record of Section 235(i)

Preliminary Reservations. The purpose of Form 3123 is

\(1\) to record all preliminary reservations issued; (2)

to record the cancellation of all preliminary

reservations; and (3) to record section 235 firm

commitments issued pursuant to that reservation.

Appendixes 5 and 6 show Forms 3123 for a regular

reservation. Appendix 7 shows a Form 3123 for a

special purpose reservation.

\(2\) The second manner in applying for section 235

assistance is through applications for conditional

commitments for new or proposed construction or

substantial rehabilitation involving four or less requests

(units). These are cases when, typically, a small builder

wants assurance that section 235 contract authority will be

available when construction or rehabilitation is completed,

the property has been sold to an eligible purchaser, and a

request is submitted by the lender to convert the

conditional commitment to a firm commitment.

\(a\) These transactions will involve the issuance of a

\"convertible commitment\" under section 203;

220(d)(3)(A); 221(d)(2) or 234. The legend

\"Convertible to Section 235(i)\" is placed on the

conditional commitment. A convertible commitment,

when issued, represents a binding obligation on the

Government to execute the assistance payment contract

(by insuring the mortgage) provided all HUD

requirements are met.

\(b\) Each convertible commitment, when issued, must be

recorded on Form 3124, Record of Contract Authority

Obligated for Assistance Payments, using the

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standard amount.

\(c\) Convertible commitments will be charged to contract

authority made available for regular transactions or

special purpose transactions, as appropriate. A Form

3124 is a running record of all firm commitments and

convertible commitments. Separate records are

maintained on Form 3124 for regular transactions and

for special purpose transactions. Appendix 11

illustrates a Form 3124 for regular cases, and

Appendix 12 illustrates one maintained for military

housing cases.

\(3\) The third manner in applying for section 235 assistance

is when the lender submits a request for conversion of an

outstanding conditional commitment to a firm commitment

under section 235 when there has been no reservation or

obligation of contract authority. If a section 235 firm

commitment is issued, it is posted on Form 3124 when

issued as a firm obligation of contract authority.

\(4\) The fourth manner in applying for section 235

assistance is when the lender submits a concurrent

application for a conditional and a firm commitment under

section 235 involving new or proposed construction,

substantial rehabilitation, or existing construction. When

committed, these transactions represent a firm obligation

and are posted when issued on Form 3124.

NOTE: Firm commitments issued in the name of an operative

builder may be \"convertible\" so that contract authority

will be available if closed in the name of a qualified

owner-occupant.

6\. AMOUNT OF ANNUAL ASSISTANCE PAYMENT TO RESERVE OR OBLIGATE. For

purposes of obtaining a preliminary reservation of contract

authority and establishing firm obligations, all assistance

payments for home mortgages will be computed on a standard

amount per individual property or unit. Form 3119 has been

developed which shows the amount to reserve or obligate for

various numbers of mortgages, computed at the standard amount.

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\(6\) See Appendix 17. The chart shows the number of mortgages

sequentially from 1-up through 100; thereafter, the number of

mortgages are shown in increments of 5. Use of the chart will

avoid duplication of effort in making calculations and will help

prevent arithmetical errors. The contract authority to be

reserved or obligated is always full annual amounts as shown on

Form 3119 regardless of the contemplated date of first payment

to principal and interest under the mortgage.

a\. Changes in Amount to Reserve or Obligate. Because of

gradual increases (or decreases) in the average section

235 commitment amount, it may become necessary to change

the standard amount to reserve or obligate from time to

time. Field office directors will be advised of any change

in the standard amount and the effective date of the

change. At the same time, revised copies of FHA Form 3119

will be provided. All actions reported on and after the

effective date of any change must be based on the new

standard amount against section 235 contract authority

previously made available to the field office.

b\. Implementation. Upon receipt of instructions advising of a

change in the standard amount and the effective date, the

reservation, obligation or cancellation of contract

authority will require careful attention with respect to

FHA Forms 3122, 3123, 3124, 3138, and 3127 as follows:

\(1\) Form 3122 - All preliminary reservations of contract

authority issued by the field office on and after the

effective date must show the total amount reserved at

the new rate for each case approved for section 235

assistance.

\(2\) Form 3123 - The record of section 235(i) preliminary

reservations must be posted with the new standard

amount with respect to all firm commitments issued

pursuant to the reservation on and after the effective

date. This will be accomplished by entering in column

\(C\) the new standard amount for each unit canceled on

and after the effective date. This applies to all

open items on Forms 3123, notwithstanding that

reservations issued prior to the effective date were

computed at a different standard amount.

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\(6\) (3) Form 3124 - The record of contract authority obligated

for all convertible commitments and all section 235

firm commitments issued on and after the effective

date must be entered in the appropriate column at the

new standard amount for each case. Since the new

standard amount will be applicable to all open cases

on Form 3124, the new standard amount must be used in

reporting the cancellation of any firm obligation on

and after the effective date of the change.

\(4\) Form 3138 - The report on status of reservations and

obligations for the month ending prior to the

effective date will be prepared in accordance with

outstanding instructions at the old standard amount

for each section 235(i) and 235(j) case. The Form

3138 report for the month beginning with the effective

date is to be adjusted to provide for the new standard

reservation and obligation amount. The following

instructions required to accomplish the adjustment

refer to section 235(i) cases only; no adjustment is

to be made for any amounts applicable to section

235(j) transactions.

PRELIMINARY RESERVATIONS

\(a\) Line (4) - In the \"mortgages\" column, enter the

number of cases shown for the previous month on

line (8); multiply by the new standard amount

each section 235(i) case (only) to arrive at the

new opening balance of preliminary reservations.

(Since the Form 3138 report includes 235(i) and

235(j) cases, the gross amount must include a

dollar amount for any 235(j) cases that were

included in the closing balance on line (8) of

the previous report.)

\(b\) Line (5) - Compute all section 235(i)

reservations issued during the month at the new

standard amount per case.

\(c\) Line (7) - Compute the cancellation of section

235(i) reservations during the month at the new

standard amount per case.

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\(6\) (d) Line (7a) - Compute the conversions of

reservations to firm obligations during the

month at the new standard amount per case.

\(e\) Line (8) - The outstanding balance of preliminary

reservations must equal line (6) less line (7b).

In addition, the \"amount\" column must equal the

sum of the new standard amount per case

multiplied by the number of section 235(i) cases

shown in the \"mortgages\" column, plus any section

235(j) reserved contract authority. Double check

the calculations on line (8).

FIRM OBLIGATIONS

\(f\) Line (9a) - The balance of mortgages and units

for section 235(i) entered on line (13) of Form

3138 for the month ending prior to the effective

date are to be entered on this line, the date

(last day of the month) is also to be entered on

this line; multiply by the old standard amount,

each section 235(i) case to arrive at the

permanent balance of firm obligations. The

number of mortgages and units and the amount

entered on this line for section 235(i) cases

will not be changed, and the same figures will be

reported on each monthly report thereafter.

\(g\) Line (9b) - Record on line (9b) of Form 3138

prepared for the month beginning with the

effective date, only the outstanding balances of

firm obligations for section 235(j) since the

outstanding balances of firm obligations for

section 235(i) will be recorded on line (9a) as

the permanent balance of firm obligations.

Commencing with the next monthly report and for

each month thereafter the entries recorded on

line (13) of Form 3138 will include cumulative

firm obligations for section 235(j) and the

cumulative firm obligations for section 235(i)

since the effective date of change.

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\(h\) Line (10) - Compute all firm obligations (4 or

less units) made during the month at the new

standard amount per case.

\(i\) Line (10a) - Compute all firm obligations

converted from preliminary reservations (5 or

more units) during the month at the new standard

amount per case.

\(j\) Line (12) - Compute the cancellation of section

235(i) obligations during the month at the new

standard amount per case.

\(k\) Line (13) - The outstanding balance of firm

obligations must equal line (11) less line (12).

In addition, the \"amount\" column must equal the

sum of the new standard amount per case

multiplied by the number of section 235(i)

cases shown in the \"mortgages\" column, plus any

section 235(j) obligated contract authority.

Double check the calculations on line (13).

\(5\) Form 3127 - The monthly report of contract authority

obligated for the month beginning with the effective

date of the new standard amount, must have all

calculations for section 235(i) cases computed at the

new standard amount per case.

7\. RECORD OF PRELIMINARY RESERVATIONS FOR PROPOSED CONSTRUCTION

CASES. At the time a preliminary reservation of contract

authority is approved, the initial entries must be made on FHA

Form 3123, Record of Section 235(i) Preliminary Reservations.

This form is included in this handbook as Appendix 5.

a\. Entries on Form 3123. In panel 1, enter the name and

address of the sponsor and location or name of the

subdivision. The reservation number will be entered in

panel 2. In panel 3, indicate by checking the appropriate

box whether the contract authority reservation is for a

regular or special purpose program. If it is for a special

purpose program, show the particular kind of program

involved such as \"Model Cities,\" \'Military Housing,\" etc.

The total

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\(7\) number of cases; the number of cases estimated to be

eligible for assistance payments; and the amount of

preliminary reservation issued are to be shown in panels 4,

5, and 6, respectively. The date the reservation is

issued; the date it is reported on Form 3127; and the date

it expires are shown in panels 7, 8, and 9, respectively.

If it is necessary to extend the date the reservation

expires, that date will be entered in panel 10. Entries on

Form 3123 are from Form 3122.

NOTE: No amounts for the annual handling charge are

to be recorded on Form 3123; all amounts are

exclusive of handling charges. The amount entered in

panel 6 of Form 3123 is obtained from the

certification panel of Form 3122.

\(1\) Once the preliminary reservation is approved, the

subdivision report may be issued, or the Feasibility

Letter may be issued for a section 234(c) condominium,

or conditional commitments may be issued and normal

field office processing followed.

\(2\) Upon receipt from the lender of FHA Forms 2800,

Application for Commitment, entries will be made in

column (A) from \"1\" up for the total number of units

earmarked for assistance payments. If, for example,

it is estimated that in a proposed subdivision of 100

dwellings, 25 dwellings will be sold to families who

qualify for assistance payments under section 235, it

will be necessary to use 25 lines on Form 3123. This

is the initial identification of commitments to be

converted to section 235. Since it is not possible to

determine which particular dwellings will be sold

under section 235 procedures, no attempt should be

made to identify these 25 units with any particular

commitments, lot numbers, or property addresses. The

purposes of the unit designation are (a) to keep a

record so that the preliminary reservation may be

canceled and at the same time a firm obligation set up

on the books of account when the commitment is

transferred to section 235, and (b) to provide

information as to the necessity to record firm

obligations for any cases in

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\(7\) excess of the number for which a preliminary

reservation of contract authority was obtained. Any

commitment conversions to section 235 in excess of the

number for which a preliminary reservation was

received must be reported promptly on the monthly

report and on Form 3138 as a firm obligation. See

paragraph 10.

\(3\) Upon receipt of Form 2900, Mortgagee\'s Application for

Mortgagor\'s Approval and Commitment, and upon issuance

of a firm commitment under section 235, the section

235 case number will be entered in column (B) of Form

3123\. Section 235 case numbers will be entered on the

form in order as the firm commitments are issued.

\(4\) In panel 6, the amount of contract authority

preliminarily reserved will be entered. This will be

the standard amount per case as shown on Form 3119,

Appendix 17. Irrespective of the amount and term of

the firm commitment, the amount of preliminary

reservation to be canceled must be exactly the same

amount that was established or as adjusted due to a

change in the standard amount.

\(5\) At the end of the reporting month, the amount of

preliminary reservation to be canceled must be totaled

from column (C) and reported on the monthly report,

Form 3127. (See Appendix 8.) The date on which the

cancellation was recorded is entered in column (D).

\(6\) Concurrently, for each case when the commitment was

converted to section 235 and the preliminary

reservation canceled on the monthly report, the

initial entry of the section 235 case number must be

made on FHA Form 3124, Record of Contract Authority

Obligated for Assistance Payments Under Section 235.

Detail concerning the entries required on From 3124

and the flow of information with respect to firm

obligations are set forth in paragraph 8.

\(7\) All preliminary reservations of contract authority

must be canceled. They are canceled by entries on the

monthly report when

-an application is not submitted,

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-application is withdrawn,

-a firm commitment is issued under section 235,

-a firm commitment is issued under another

insuring section.

\(8\) In those cases that do not result in issuing firm

commitments under section 235(i) when a preliminary

reservation of contract authority was received, the

reservation must be canceled when it is determined

that firm commitments under section 235 will not be

issued. This can only be determined when all the

cases in the group have been sold.

\(9\) Field offices are solely responsible for assuring

that all preliminary reservations of contract

authority are timely canceled by appropriate entries

on the monthly report.

\(10\) Careful adherence to these procedures for recording

all prescribed entries on Form 3123 will permit field

office supervisory personnel, as well as inspection

and audit teams, to readily determine that preliminary

reservations of contract authority are being obtained

when needed, promptly and accurately canceled when

required, and that totals transferred to the monthly

report are complete and accurate.

NOTE: Any cancellation of a preliminary reservation

which does not result in issuance of a commitment

has the effect of adding back contract authority available

to the office for other transactions.

8\. RECORD OF CONTRACT AUTHORITY OBLIGATED FOR ASSISTANCE PAYMENTS

UNDER SECTION 235(b). Form 3124, Record of Contract Authority

Obligated for Assistance Payments Under Section 235(b), is a

running record of all firm obligations under section 235. The

form is illustrated as Appendix 11 for regular contract

authority and as Appendix 12 for special purpose contract

authority allocations.

a\. Maintaining the Record. This record must be maintained by

individual case number for the following types of

transactions:

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\(8\) (1) All conditional commitments issued under another

insuring section which may be converted to firm

commitments under section 235

(see paragraph 5.b.(2)(a));

\(2\) All firm commitments issued under section 235 whether

pursuant to a preliminary reservation or otherwise;

and

\(3\) All cases when a Form 3130, Mortgage Assistance Payment

Certificate, is issued on behalf of a family holding

membership in a cooperative association.

In category (1) above, if a preliminary reservation of

contract authority was obtained it must be canceled on

the monthly report. In categories (2) and (3) above, a

preliminary reservation of contract authority was not

obtained, and therefore must not be canceled.

b\. Amount to Obligate. In recording contract authority

obligated, a standard amount will be established for each

commitment or mortgage assistance payment certificate as

computed on Form 3119, Appendix 17.

c\. Classes of Transactions. Separate Form 3124 control

sheets must be maintained for regular section 235(i) cases

and those cases when assistance payments will be made for a

family holding membership in a cooperative association.

Also included in this category are proposed construction or

substantial rehabilitation cases involving four or less

dwellings which are committed under another section but

will be converted to section 235.

d\. Cancellation of Firm Obligations. For those proposed

construction cases involving four or less units committed

under another section of the Act, when the commitment is

marked \"Convertible to Section 235,\" the case numbers

entered in column (1) of Form 3124 will have a section of

the Act suffix code other than 235, e.g., 203, 221, etc.

When the commitments for these cases are converted to

section 235, the 3-digit suffix code will be changed. If

the commitment is not converted to section 235, but the

mortgage is endorsed for insurance under any other section

of the Act, or if the commitment expires or is canceled,

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\(8\) then the firm obligation must be canceled on the monthly

report and the date of the cancellation entered in column

(5).

e\. Monthly Review of Form 3124. Each month Form 3124 must be

reviewed to determine that any cases under sections other

than 235 which have been endorsed for insurance, or when

the commitments have expired or been canceled are reported

for cancellation of the firm obligation previously

established. Every case number on Form 3124 that is not

section 235 (except for 235(d) cooperative cases on which

Forms 3130 were issued) must eventually be converted to

section 235 and the mortgage endorsed under that section,

or the firm obligation must be canceled. Cancellation

results in a recovery to the field office of the contract

authority obligated for that case.

f\. \"Regular\" and \"Exception\" Income. Form 3124 provides for

entering separately the amount of firm obligation

applicable to proposed and existing construction. Columns

2(a) and 2(b) under proposed construction; and columns 3(a)

and 3(b) under existing construction provide for a further

separation of these amounts for those families having

regular limit income (not more than 135 percent of public

housing limits) and those having exception limit income

(more than 135 percent of public housing limits but not in

excess of 90 percent of section 221(d)(3) BMIR limits).

By posting the standard amount of the firm obligation for

each case in the appropriate column, the development of

totals for preparation of the monthly report will be

facilitated.

NOTE: When a conditional convertible commitment is issued,

it is to be reported under the \"regular\" income category;

however, if the firm commitment is for an \"exception\" income

mortgagor, it will be necessary to report a cancellation on Form

3127 of the obligation for the regular income and report a new

obligation under the exception income category.

\(1\) There is a statutory limitation that only 20 percent

of the contract authority may be used for exception

income families. Allocations of contract authority to

directors will not indicate any break as to amounts

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\(8\) that may be used for regular and for exception income

families. Each director is fully responsible for

determining that not more than 20 percent of the total

contract authority made available to him is utilized

for exception income families, unless permission to

exceed the limit is received in writing from the

Director, Subsidized Housing Programs. When

construction cost levels and income limits indicate

that a major portion of section 235(i) commitments

will be in the 20 percent category, the director shall

obtain prior clearance from the Director, Subsidized

Housing Programs.

\(2\) Exception income transactions may effectively be

monitored by a monthly review of Forms 3124. These

forms reflect a running record of all section 235 firm

commitments (from preliminary reservations and

conversions from conditionals) and all convertible

commitments. Not more than 20 percent of all contract

authority made available to the office may be used for

exception limit families. When entries in columns

2(b) or 3(b), which are the exception limit cases,

reach an average of six cases per Form 3124, the

matter should be called to the director\'s personal

attention, since the 20 percent limit is being

closely approached.

\(3\) When the 20 percent statutory limit has been reached

on a national basis, all directors will be notified

that the statutory limit has been reached. When this

occurs, no additional commitments may be issued for

exception income families.

g\. Assistance Payments for Cooperative Members and Mortgage

Assumptions. Under the provisions of section 235(b)(2)

and 235(c) of the Act, certain homeowners in special

categories are eligible to have assistance payments made in

their behalf which do not involve a new insured mortgage

transaction and do not require the assignment of a new

section 235(i) case number. There are four such special

categories, which are described below.

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\(8\) (1) Member of a Cooperative Association-If the

cooperative association of which the family is a

member operates a housing project financed with a

section 213 mortgage; if the construction or

substantial rehabilitation was completed within two

years prior to the filing of the application for

assistance payments; and if the dwelling unit has had

no previous occupant other than the family for which

assistance payments are being requested, assistance

payments may be made on behalf of such cooperative

member. After field office approval, Form 3130,

Mortgage Assistance Payment Certificate, is to be

issued to the mortgagee. The transaction is treated

as proposed construction. An FHA case number is not

assigned; the project number and unit number are

shown on Form 3130, e.g., 012-23001-Unit 7. A

preliminary reservation of contract authority is not

required. When Form 3130 is issued, it is reported as

a firm obligation of contract authority.

\(2\) Cooperative Member - Subsequent Owner - If the initial

cooperative member who has had assistance payments

made on his behalf transfers his cooperative

membership and occupancy rights to another person, and

if the mortgagee files application for such payments,

and the cooperative member qualifies, payments may be

made on behalf of such new cooperative member. The

assistance payment will be made under the assistance

payment contract evidenced by Form 3130, Mortgage

Assistance Payment Certificate, which was issued in

connection with the original transaction. The

assistance payment contract on behalf of the new

transferee cooperative member will be evidenced by

returning to the mortgagee a copy of FHA Form 3100,

Application for Homeownership Assistance Under Section

235 of the National Housing Act, marked to indicate

HUD\'s approval of the new cooperative member. This

transaction is regarded as a continuation of the

original assistance payment contract, since a new

insured mortgage is not involved. A preliminary

reservation of contract authority is not required; a

firm obligation of contract authority is not reported,

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\(8\) and the transaction is not to be recorded on Form 3124 or

included in any totals on the monthly report or Form 3138.

\(3\) Cooperative Member, Existing Cooperative

Project - Assistance payments may be made on behalf of a

family which is a member of a cooperative association

which operates an existing cooperative project and meets

prescribed HUD standards. To have assistance payments

made on behalf of such families, the cooperative member

must qualify as a displaced family or a family which

includes five or more minor persons, or a family occupying

low-rent public housing. Assistance payments may be made

on behalf of the cooperative member only after issuance of

a mortgage assistance payment certificate to the

mortgagee. The related mortgage must have been insured

under section 213. The FHA project number and the unit

number will be shown on Form 3130, Mortgage Assistance

Payment Certificate. A preliminary reservation of

contract authority is not required. When Form 3130 is

issued, it is reported as a firm obligation of contract

authority. For purposes of obligating contract authority

this type of transaction will be treated as an existing

construction transaction except pursuant to special

instructions which may be issued by the Comptroller. See

paragraph h.(1) hereafter.

\(4\) Assumption of Mortgage Insured Under Subsection 235(i) or

235(J) (4) - Assistance payments may be made on behalf of

a qualified home owner who assumes a mortgage which was

insured under subsection 235(i) or 235(j)(4), if

assistance payments have been made on behalf of the

previous owner. The assistance payment will be made under

the assistance payment contract evidenced by the mortgage

insurance certificate which was issued when the individual

mortgage was insured. The assistance payment contract on

behalf of the assuming mortgagor will be evidenced by

returning to the mortgagee a copy of FHA Form 3100,

Application for Homeownership Assistance Under Section 235

of the National Housing Act, marked to indicate HUD\'s

approval of the new mortgagor. This transaction is

regarded as a continuation

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\(8\) of the original assistance payment contract, since a new

insured mortgage is not involved. A preliminary

reservation of contract authority is not required; a firm

obligation of contract authority is not reported, and the

transaction is not to be recorded on Form 3124 or included

in any totals on the monthly report or Form 3138.

h\. Special Exceptions to Limitation on Existing Construction. A

prescribed portion of section 235 contract authority may be

used for assistance payments to enable any family meeting the

income and asset requirements to buy an existing dwelling or

unit in an existing project or membership in an existing

cooperative. The term \"existing\" as used here refers to an

existing dwelling or unit without need for substantial

rehabilitation. Allocations of contract authority to

directors will not indicate any break as to amounts that may

be used for existing construction; however, each director is

fully responsible for determining that the limitations are

not exceeded in his office.

NOTE: If a director reaches the prescribed limitation

for existing construction transactions, he may

request authority from the Director, Subsidized

Housing Programs to exceed the statutory percentage

limitation. If the prescribed limitation has not been

reached on a national level, as discussed in (2) below,

the authority will be granted by letter.

\(1\) Computation of the Statutory Limitation - The

applicable statutory limitation on existing

construction applies to all convertible commitments

and all section 235 firm commitments issued during

the particular fiscal year. The dollar limitation

available to each field office for existing

construction cases is the applicable percent of the

new contract authority allocation made available to

the field office. The new contract authority

allocation is the amount shown in the last column

of HUD Form 185.1 reduced by the sum of the amounts

shown in line (14) of all Forms 3138 as of June 30.

\(a\) For example, assume that HUD 185.1 showed

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\(8\) an allocation of \$1,597,018; the amount on line

\(14\) of Form 3138 as of June 30 was \$402,192; and

the statutory limitation is 30 percent

(administratively reduced to 20% to meet program

requirements). The limitation on existing

construction is 20 percent of \$1,194,826, the new

contract authority, or \$238,965.20. If the field

office receives a special purpose contract

authority allocation, the 20 percent limitation

applies to the total combined new contract

authority allocated to the office for both

regular and special purpose programs. The 20

percent limitation may be exceeded either for the

special purpose allocation or for the regular

allocation, provided the total contract authority

obligated for all existing construction cases

does not exceed 20 percent of the combined

allocation of new contract authority made

available to the office.

\(2\) Notice to Field Office Directors - If and when the

percentage limitation for existing construction

throughout the United States for a given year is

reached, the Comptroller will advise all field office

directors to charge existing construction for certain

types of cases as indicated in (3) below to contract

authority made available for proposed construction.

This will only be on the basis of total nation-wide

percentages. The fact that one or more field offices

may exhaust the amounts made available to them by

directive for existing construction will not warrant or

permit charging these cases to proposed construction

until instructions are received authorizing all field

offices to follow this procedure. It must be on a

nation-wide basis.

\(3\) Eligible Exceptions - The type of cases which come

under the special rule discussed above are as follows:

\(a\) An existing single-family dwelling or a family

unit in an existing condominium or cooperative

project which is to be occupied by one of the

following:

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\(8\) A family displaced by urban renewal or other

governmental action or by a major disaster;

A family moving from low-rent public housing; or

A family with five or more minor children under

21 years of age living in the house-hold.

\(b\) A dwelling unit released from a multifamily mortgage

insured under section 236 or released from the

mortgage on a project receiving federal rent

supplement assistance.

\(c\) A dwelling unit in a cooperative when the initial

cooperative member receiving assistance payments

under section 235 transfers his membership to a new

cooperative member who satisfies the section 235

eligibility requirements.

\(d\) An existing dwelling or a family unit in a

condominium project when assistance payments have

been made on behalf of the previous owner pursuant

to an individual mortgage insured under section

235(j)(4)(B).

\(e\) A one-family unit in a condominium project, which is

released from a multifamily project, on which the

construction or substantial rehabilitation was

completed within two years prior to the date of the

application for 235 assistance. The family unit

must have had no occupant previous to the 235

mortgagor.

NOTE: When existing dwellings or family units in

cooperative or condominium projects are involved,

the cooperative must be currently (or have been

previously) financed with a section 213 project mortgage

and the condominium, if it is more than 11 units, must be

currently (or have been previously) financed with a

HUD-FHA insured mortgage.

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\(8\) i. Accumulating Data on Forms 3124. In accumulating data

from Forms 3124 for entry of totals on the monthly

report, it will be necessary to total amounts in four

classes.

\(1\) Classes of Totals - The four classes of totals

are as follows:

\(a\) One summary total for all proposed

construction, regular limit income cases,

(column 2(a));

\(b\) One summary total for all proposed

construction, exception limit income cases,

(column 2(b));

\(c\) One summary total for all existing

construction, regular limit income cases

(column 3(a)); and

\(d\) One summary total for all existing

construction, exception limit income cases,

(column 3(b)).

\(2\) Transcribing Information to Monthly Report - Each

monthly report must have recorded thereon the

amount of the firm obligations relating to all

firm commitments issued under section 235, and

all conditional commitments for proposed

construction or substantial rehabilitation of

four or less dwellings which are convertible to

section 235. When the required amounts are

totaled and transcribed from Form 3124 to the

monthly report, the date that they were included

in the monthly report is entered in column (4) of

Form 3124. By recording these dates in column

\(4\) and carefully maintaining Form 3124 in the

manner prescribed above, all firm obligations

will be promptly reported, no case will be

reported more than once, and no case will be

omitted.

\(3\) Further Entries on Form 3124 - If the commitment

for any case entered on this form is canceled,

expires, or is not converted to section 235(i)

and endorsed, or if for any other reason the case

does not lead to insurance of the mortgage, the

amount of the firm obligation established for the

case, or as adjusted due to a change in the

standard amount, must be reported on

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the monthly report as a cancellation of a firm commitment

in order that the amount of contract authority obligated

may be released for use in another transaction. The date

that such amount is reported canceled on the monthly

report shall be entered in column (5) of the form. The

section of the Act suffix code of the case number shown in

column (1) of form 3124 for convertible commitments shall

be changed when the commitment is actually converted to

Section 235.

4\. Reporting Categories - Commitment expirations,

cancellations, and non-conversions to Section 235 must be

reported for the same category as the firm obligation was

established. That is, if the firm obligation was recorded

as a Section 235(i) proposed construction, regular limit

income, then the commitment expiration or cancellation

must be reported in the same category. Therefore,

commitment expirations and cancellations must be totaled

as to number of cases and amount of firm obligation to be

canceled into the following categories:

\(a\) Proposed construction, regular limit income;

\(b\) Proposed construction, exception limit income;

\(c\) Existing construction, regular limit income; and

\(d\) Existing construction, exception limit income.

9\. MONTHLY REPORT OF CONTRACT AUTHORITY OBLIGATED. The monthly

report shall be prepared on Form 3127 to cover the period from

the first workday of the month through the last workday of the

\* month. The original and one copy of the report shall be mailed

to the Office of Finance and Accounting, Attention: General and

Subsidiary Ledger Division in the special envelops provided, no

later than the close of business on the last workday of the

month. Negative reports are required unless the conditions

described in paragraph 11 have been met. Form 3138 must

accompany the report. See paragraph 10. \*

a\. Preparation of the Report. The report requires care in its

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\(9\) preparation since it is the basic source document used by the

Comptroller to record preliminary reservations issued, to

record preliminary reservations canceled by the office, to

record firm obligations on the books of account, and to

cancel firm obligations of contract authority. The total

amounts reported by all field offices on the monthly report,

representing net contractual obligations entered into for

section 235 housing throughout the United States, must be

charged against amounts authorized in appropriation Acts for

assistance payments. The information furnished is not based

on cumulative reporting. The report requires information

concerning transactions that occurred during the month, but

not for a prior period. Once a case has been reported in a

particular category, it is not again reported in that

category. Typically, a preliminary reservation of contract

authority will be issued and included in the totals on the

monthly report as a preliminary reservation issued. The

next time the case is reflected in the totals on the monthly

report, the preliminary reservation will be canceled and at

the same time it will be recorded as a firm obligation. If

the case is closed as an insured mortgage transaction under

section 235, it will not again be included on the monthly

report. If it is not closed as an insured mortgage under

section 235, the firm obligation must be canceled.

b\. Summary of Reporting Actions. The following summary of

reporting actions is designed as a guide in preparing the

monthly report.

\(1\) Report the issuance of a preliminary reservation of

contract authority on Form 3122 for all proposed

construction or substantial rehabilitation cases

involving five or more dwellings or units with respect

to those cases when it is proposed that the commitment

will be converted to section 235, if the builder wants

an advance commitment that assistance will be

available.

\(2\) Cancel the preliminary reservation of contract

authority on a case by case basis

\(a\) When the application is not submitted;

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\(9\) (b) When the application is withdrawn;

\(c\) When the application is rejected and the mortgage

will not be insured under section 235; or

\(d\) When a firm commitment is issued under section

235\. In this instance, cancel the amount

applicable to the firm commitment issued.

\(3\) Report a firm obligation of contract authority

\(a\) When a firm commitment is issued under section

235;

\(b\) When a conditional commitment is issued for

construction or substantial rehabilitation of

four or less dwellings under another section of

the Act convertible to section 235. (These

commitments are marked \"Convertible to Section

235.\");

\(c\) When a firm commitment is issued under section

235 for any existing or proposed construction

transaction; or

\(d\) When a mortgage assistance payment certificate is

issued on behalf of a cooperative member under

section 235(d) of the Act.

\(4\) Report a cancellation of a firm obligation of contract

authority

\(a\) When a commitment expires or is canceled;

\(b\) When a commitment will not be converted to

section 235; or

\(c\) When a firm commitment under section 235

does not lead to insurance endorsement and

a firm commitment is reissued under another

insuring section.

c\. Report Categories. The monthly report consists of two

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\(9\) basic categories - proposed construction and existing

construction, each category of which is broken as to regular

income and exception income. Part A of the report is for

use in reporting regular contract authority allocations.

Parts B, C, and D are for reporting special purpose programs

included in the block allocations for regular programs

(Model Cities, Substantial Rehabilitation, State and Local,

and others) and the two special purpose contract authority

allocations (Operation Breakthrough and Military Housing).

One part is used for each type of special purpose program,

e.g., Part B would be used for Model Cities transactions,

Part C would be used for Operation Breakthrough

transactions, etc.

Since a separate FHA Form 3138 must be prepared for each of

the two special purpose contract authority allocation

(Operation Breakthrough and Military Housing), these two

programs should be reported last on FHA Form 3127, or

together on a separate FHA Form 3127, if there is no more

space on the FHA Form 3127 used for reporting regular

contract authority allocations. See Appendixes 19 and 21.

\(1\) Within the two basic categories, the form has four

reporting sections as follows:

Section I - Preliminary Reservations Issued.

Section II - Preliminary Reservations Canceled.

Section III - Firm Obligations.

Section IV - Cancellation or Reduction of Firm

Obligations.

\(2\) Under the above sections, broken as to regular and

exception income categories, there are the following

breaks:

Section 235(i);

Section 235(j);

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\(9\) (Total all 235);

Section 236; and

Section 236 non-insured.

Information concerning entries on the monthly report

for section 235(j) transactions is contained in the

fiscal part of Reference (2). The entries on the

monthly report for section 236 transactions are

described in the fiscal part of Reference (6).

d\. Monthly Report - Section I. Section I of the report

pertains to preliminary reservations which have been

issued on Form 3122 that month. The source of the

information for reporting preliminary reservations issued

is from Form 3123, Record of Preliminary Reservations.

Panel 5 (number of cases) and panel 6 (amount, based on

the standard amount per unit) are used. When all Forms

3123 for reservations issued for the month are totaled,

the entry on the monthly report is made. The date of the

monthly report is shown in panel 8 of Form 3123. Forms

3123 are shown in Appendixes 5, 6, and 7. Forms 3127 are

shown in Appendixes 8 and 13.

\(1\) Income Category for Preliminary Reservations - It is

to be noted that spaces under columns (4) through

\(9\) of Form 3127 have been shaded for section 235(i)

cases. Since family income limit categories may not

be determined at the conditional commitment stage,

all preliminary reservations are set up as regular

limit income cases and the cancellation of the

preliminary reservation must be exactly as the

preliminary reservation was established. If the

mortgagor has income which falls within the

exception limit category, the firm obligation will

be reported in this special category.

e\. Monthly Report - Section II. Section II of the report

pertains only to cancellations of preliminary reservations

which have been issued on Form 3122. The \"feeder\" report

for this part of the report is from FHA Form 3123. Column

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\(9\) (C) shows the amount of preliminary reservation

canceled, and the date of the monthly report on which

it is canceled is entered in column (D). Under

Section II of the report, for section 235(i) cases,

enter in column (2) the number of cases on which the

preliminary reservation is to be canceled and in

column (3) enter the amount that was previously

reserved in Section I. It is important to remember

that, without exception, all preliminary reservations

of contract authority must be canceled if it is

determined that an application will not be submitted;

when an application is withdrawn or rejected; when a

firm commitment is issued under section 235 in those

cases when a preliminary reservation was established;

when the preliminary reservation is canceled by the

field office because conditional commitments were not

issued or construction was not started within the time

limits set forth on Form 3122 (as may have been

extended in writing by the field office); or in any

case when it is determined that a firm commitment

under section 235 will not be issued when a

preliminary reservation of contract authority was

issued. (Conditional commitments for proposed

construction involving four or less units may not have

a preliminary reservation of contract authority and

consequently no cancellation action is required in

connection with these transactions.)

NOTE: Failure to timely cancel a preliminary

reservation of contract authority results

in freezing contract authority which should be

made available for program operation. Directors

and field office supervisory personnel must be

continually alert to see that all cancellations

are reported in accordance with the foregoing

procedures. (When a preliminary reservation is

canceled outright because of failure to meet the

time requirements, it adds back to the contract

authority available to the office.)

f\. Monthly Report - Section III. Section III of the

report pertains to the establishment of firm

obligations by reason of any firm commitment issued

under section 235, irrespective of whether it was

pursuant to a preliminary reservation, or was

converted from a conditional (but not convertible)

commitment; and any conditional commitment

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\(9\) which is convertible to section 235(i), and is so marked on

the commitment. These convertible commitments are reported

as firm obligations when issued; they are not again

reported when they are converted to firm section 235

commitments. The \"feeder\" report for this part of the

monthly report is Form 3124. Forms 3124 are shown in

Appendixes 11 and 12. All firm obligations will be for

standard amounts obtained from Form 3119.

\(1\) Income Categories The total number of cases and total

annual assistance payments must be developed from

Forms 3124 for the following categories:

Regular limit income, proposed construction - from

column 2(a).

Regular limit income, existing construction - from

column 3(a).

Exception limit income, proposed construction - from

column 2(b).

Exception limit income, existing construction - from

column 3(b).

These totals will be entered on the appropriate lines

and under the appropriate construction and income

categories on Form 3127. The date the firm obligation

is reported will be entered in column 4 of Form 3124.

g\. Monthly Report - Section IV. Section IV of the report

requires entries to cancel any firm commitment issued

under section 235 and any convertible commitment which

expires or is canceled; and any convertible commitment

which is not converted to a firm commitment under section

235 for any reason. The \"feeder\" report for this part of

the monthly report is from column 5 of Form 3124. Since

the cancellation of firm obligations must be reported for

the same category as the firm obligation was established,

these must be totaled as to number of cases and standard

amount of obligation for proposed construction, regular

income from column 2(a); existing construction, regular

income from column 3(a);

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proposed construction, exception income from column 2(b);

and existing construction, exception income from column

3(b).

h\. Approval of Director. After all entries have been made in

the report as prescribed, the form shall be signed by the

employee who prepared it and then it shall be approved by

the Director or his designee. The original and one copy

\* shall be mailed to the Office of Finance and Accounting,

Attention: General and Subsidiary Ledger Division in the

special envelope provided no later than the close of \*

business on the last workday of the month, and a copy will

be retained in the field office files.

10\. FORM 3138, STATUS OF RESERVATIONS AND OBLIGATIONS. This form

must be prepared each month in conjunction with the Form 3127

monthly report. A single Form 3138 shall be prepared for all

regular contract authority allocations including those special

purpose programs included in the block allocations for regular

programs on Form HUD-185.1 (Substantial Rehabilitation, State

and Local, and others). A separate Form 3138 must be prepared

for each of the two special purpose contract authority

allocations (Operation Breakthrough and Military Housing). See

Appendix 20 for a complete Form 3138 for a regular contract

authority allocation and Appendix 22 for a complete Form 3138

for a special purpose contract authority allocation.

a\. Purpose of the Form. Form 3138 is designed to furnish the

field office director and his/her staff, the Assistant

\* Regional Administrator for Housing, and the Director,

Program Support Staff, Insured and Direct Loan Programs,

Headquarters with current information about the remaining

units and dollars that may be reserved and obligated. In

addition, it provides information as to the manner in which

contract authority has been encumbered, e.g., preliminary

reservations and firm obligations. By reference to

previous Forms 3138, it shows the overall progress being

made in converting preliminary reservations to firm

obligations.

b\. Distribution of Form 3138. The original of Form 3138

shall be stapled to the original and one copy of the Form

3127, and shall be sent to the Office of Finance and

Accounting, Attention: General and Subsidiary Ledger

Division; a copy shall be sent concurrently to the

Assistant Regional Administratof for Housing and to the

Director, Program Support Staff, Insured and Direct Loan

Programs, Headquarters. \*

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The field office shall maintain a copy of each Form 3138 in

a master file in the office, setting up one master file for

each regular contract authority allocation and each special

purpose contract authority allocation.

c\. Controls to Prevent Over-Obligation. In order to prevent

over-obligation of contract authority, the Director and key

staff personnel must be continually alert as to remaining

balances of available contract authority. Under no

circumstances may preliminary reservations or convertible

commitments be issued if such issuance would result in

obligating more than the remaining balance of available

contract authority. For this reason, when the outstanding

balance of available contract authority for any allocation

reaches the point when it is 10% or less of the original

contract authority, the Form 3138 report shall be prepared

on a daily basis. Daily preparation shall be made, using

Forms 3123 and 3124 in the same manner as when preparing

the monthly report. Unless required by special

instructions to the contrary, the daily Forms 3138 shall

not be distributed outside the field office; only the

monthly form prepared in conjunction with the Form 3127

monthly report, shall be distributed. When contract

authority has reached the 10% limit, each Director shall

issue special instructions to commitment appraisers to

avoid issuing convertible commitments which, if issued,

would result in exceeding the remaining balance of contract

authority.

d\. Completed Forms 3138. Appendixes 9 and 14 show completed

Forms 3138 for regular contract authority allocations;

Appendixes 10 and 15 show completed Forms 3138 for special

purpose contract authority allocations. Since the amount

of contract authority allocated to field office Directors

will not necessarily always be divisible by the standard

amount per unit, the number of units are not shown on lines

1, 2, 3, and 15 of Form 3138.

\*11. NEGATIVE REPORTS. Form 3127 and Form 3138 will not be required

from an Area or Insuring Office for the original Section 235

program provided there are no outstanding preliminary

reservations of contract authority, and where all cases for

which a firm obligation is outstanding (as indicated on Form

3124\) have been endorsed for insurance. If these conditions

have been met, the Area or Insuring Office Director shall so

certify on the next monthly Form 3138 submitted to the Office

of Finance and Accounting. Appendix 31 is a specimen, showing

such certification. Upon receipt of this certification, the

Office of Finance \*

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\* and Accounting will no longer require submission of Forms 3127

and 3138 from that office. This procedure applies only to the

Original Section 235 program and does not apply to the Revised

Section 235 program. \*

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12\. REVIEW AND APPROVAL OF FORM 3100. The review and approval of

Form 3100 are extremely important functions. The approval of

Form 3100 serves as a basis for making payment from appropriated

funds after the mortgage has been insured. A copy of the form

is shown in Appendix 1.

a\. Frequently Recurring Errors. Special care must be

exercised to avoid two frequently recurring errors. The

first type is mathematical, which reflects a lack of

attention to pertinent detail. The second type occurs when

the field office staff erroneously treats welfare or other

payments on behalf of minors as earnings of the minor and

deducts it from total family income to arrive at the

adjusted annual income. When these types of errors result

in an overpayment of assistance payments authorized by

appropriation Acts, it leaves HUD with no alternative but

to require repayment of the amount involved. As a result

of this action, the homeowner is in default under the

mortgage because of the overpaid assistance payments, and

at the same time his/her regular monthly mortgage payments

are increased because of improper treatment of income by

the field office. The homeowner may not be able to make

his/her share of the new (adjusted) monthly payment after

recomputing the assistance payment correctly, thus leading

to the probable loss of his/her home. The mortgagor\'s

inability to make a correctly computed monthly payment

would have been disclosed during mortgage credit processing

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\(12\) if the adjusted annual income had been properly

computed.

\(1\) Income last 12 months includes all income

received by all members of the family during the

last 12 months. Current income reflects the

income status of all members of the family at the

time of application. Expected income next 12

months represents the anticipated income for each

individual for the next year. Total annual

income is the greater of total current income (b)

or total expected income for the next 12 months

(c). A statement explaining the differences

between the total expected income for the next 12

months and either total income last 12 months or

total current income, above or below, must be

attached to all Forms 3100 submitted for

approval.

\(2\) In determining effective income on Form 2900-2,

all income of mortgagors, co-makers or endorsers

residing in the mortgaged property, which appears

on Form 3100 after deducting temporary income but

before deducting the 5% and allowance for minors,

shall be recognized as effective income. This

has the effect of allowing as effective income

all stable welfare payments, alimony, child

support, VA and Social Security benefits received

by the adult persons who reside in the property

and assume a liability for repayment of the

mortgage debt.

\(3\) The Act states that only earnings of minors shall

be excluded from income in determining

eligibility under section 235. Welfare, Social

Security and other payments made on behalf of

minors are not considered as income of the

minors, but as income of the person to whom paid.

\(4\) Care used in the reporting of income will avoid

creating a hardship situation for the mortgagor

and the difficult adjustment problems created for

both HUD and mortgagees.

\(5\) If at the time of insurance endorsement

information is available in the file that the

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originally-estimated mortgage payment has been

reduced by the lender to the extent that 20

percent of the mortgagor\'s adjusted monthly

income is sufficient to make complete monthly

mortgage payments, the mortgagee will be advised

that the mortgage will be insured under section

235 in accordance with the firm commitment.

However, since the mortgagor is ineligible to

have assistance payments made on his behalf, the

mortgagee will be advised that no assistance

payments or handling charges will be made by HUD

in connection with the mortgage and that Form

3114, Notice of Termination, Suspension, or

Reinstatement of Assistance Payment Contract,

should be submitted to Washington in accordance

with outstanding instructions. In these unusual

cases, endorsement for insurance under section

235 does not constitute execution of the contract

of assistance payments. No entries or fiscal

reporting on Forms 3127 or 3138 are to be made,

since the contract authority which has been

obligated will be recovered on the basis of the

information reported by the mortgagee on Form

3114\.

13\. PROCESSING INSTRUCTIONS FOR SECTION 235(i) TRANSACTIONS WHEN

CONTRACT AUTHORITY HAS BEEN EXHAUSTED. In any case when a

preliminary reservation has been requested and approved, or when

a convertible commitment has been issued, or when a firm

commitment has been issued under section 235, contract authority

will have been reserved or obligated, as appropriate. The

exhaustion of contract authority will not affect such

transactions. A reservation of contract authority is a

commitment by the Government that the contract authority for the

transaction has been reserved. Convertible and section 235 firm

commitments represent a binding obligation on the Government to

execute the assistance payment contract, provided all HUD

requirements are met. The procedures outlined below apply

prospectively to transactions initiated after contract authority

has be exhausted. These procedures do not apply retroactively

to transactions when contract authority has been reserved or

obligated.

a\. Requests for Preliminary Reservations. When the field

office has knowledge that section 235(i) contract authority

is no longer available, the mortgagee and sponsor shall be

advised

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\(13\) accordingly. If the mortgagee and sponsor want HUD

processing to continue under section 203,

221(d)(3)(A), 221(d)(2) or 234, as appropriate,

processing is to be continued. In such case, the

mortgagee must be advised in writing that section

235(i) contract authority is not available and that

the conditional commitment, if issued, may not be

converted to section 235 unless additional contract

authority is subsequently made available.

\(1\) If in any instance an office, contrary to

outstanding procedures, has accepted applications

for commitments for proposed construction

involving five or more units pending approval of

a request for a preliminary reservation, the

director must furnish the Director, Office of

Field Support, with the facts in the case and

request authority to grant a fee credit for the

application fees pursuant to the authority

contained in section 200.52a(f) of the HUD-FHA

regulations. Upon receipt of such authority, the

application may be rejected and fee credits

allowed the mortgagee, to be reflected on a

subsequent fee billing statement.

b\. Applications for Conditional Commitments Involving

Four or Less Units Convertible to Section 235(i).

When there is no more contract authority available,

the director should issue instructions to his staff to

reject, prior to preliminary examination, all

applications for conditional commitments involving

four or less units which are to be convertible to

section 235(i). By rejecting applications prior to

the preliminary examination, FHA case numbers will not

be assigned to the applications, fee billings will not

result, and consequently subsequent fee credits will

not be required.

\(1\) When returning the application to the mortgagee,

the lender should be advised that the

application may be resubmitted, but that section

235(i) contract authority has been temporarily

exhausted and consequently the commitments, if

issued, will not be convertible to section 235(i)

unless additional contract authority is

subsequently made available.

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\(13\) (2) In the event an application is inadvertently

placed in process after the allocation has been

exhausted, the application must be formally rejected

and a fee credit allowed for the application fees. See

Reference (1).

c\. Applications for Firm Commitments Under Section 235 for New

or Proposed Construction or Substantial Rehabilitation.

When the section 235(i) contract authority has been

exhausted, applications for firm commitments under

section 235(i) are to be rejected prior to preliminary

examination. If an application is inadvertently accepted

for processing, a fee credit is to be allowed under the

provisions of Chapter 34 of Reference (1).

d\. Requests for Conversion of Outstanding Conditional

Commitments (Not Convertible) to Section 235(i). When the

section 235(i) contract authority has been exhausted,

requests for conversion of outstanding conditional

commitments to firm commitments under section 235(i) may

not be accepted for processing. The submission shall be

returned to the mortgagee with a letter stating that

section 235 contract authority has been temporarily

exhausted and the commitment may not be converted to

section 235(i).

e\. Additional Contract Authority. After additional contract

authority has been made available, mortgagees should be

advised that previously submitted and new applications for

commitments involving assistance payments may be

resubmitted and will be processed on a \"first-received

first-processed\" basis.

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\* 14. SECTION 235 REVISED

a\. General. HUD Regulations (24 CFR 235), dated January 6,

1976, authorized the revitalization of the Section 235

program with certain revisions. The revised program will

be limited to new and substantially rehabilitated

single-family homes and condominium units. Instructions in

this paragraph cover the fiscal requirements of the Revised

Section 235 program and are patterned after the fiscal

requirements in other paragraphs of this Handbook for the

original Section 235 program. Under the Revised Section

235 program, separate allocations of contract authority are

made to Area/Insuring Offices for use as follows: 75% for

units located in \"Metro Areas\" and 25% for units located in

\"Non-Metro Areas.\" For the purpose of this program, \"Metro

Areas\" shall be as defined by OMB Circular 46. Area and

Insuring Office Directors are responsible for assuring that

reservations and firm obligations of contract authority do

not exceed the amounts of the separate allocations of

contract authority received for units located in \"Metro and

Non-Metro Areas.\" In some instances, the Revised Section

235 fiscal requirements are the same as the original

Section 235 fiscal requirements. In other instances, an

existing requirement may not apply in its entirety or it

may not apply at all. The following subparagraphs cover

the same general topics that are covered in other

paragraphs of this Handbook. When existing procedures

apply to the Revised Section 235 program, that fact is

mentioned. When the Revised Section 235 procedure varies

from that in another paragraph, the variation is

explained.

In order to distinguish between the old and the new Section

235, all references made to the new Section 235 program

shall be made as \"Revised Section 235.\"

There shall be absolutely no commingling of the old and the

new records prepared in connection with these two programs.

Keep all files, records, and reports separate. Also, keep

in mind the necessity of indicating \"Metro\" assistance or

\"Non-Metro\" assistance on all reporting forms as shown in

Appendices 24 through 30.

b\. Assignment of FHA Case Number. Paragraph 1 has been

changed to show the ADP Section of the Act Suffix Codes

\"265 and 365\" that will be used to identify mortgages

insured under the provisions of the Revised Section 235

program. These codes shall be used as prescribed in

paragraph 1. ALL PREVIOUS SECTION OF THE ACT SUFFIX CODES

APPLICABLE TO THE SECTION 235 PROGRAM ARE OBSOLETE AND

SHALL NOT BE USED TO CARRY OUT THE MORTGAGE INSURANCE

ACTIVITIES UNDER THE REVISED SECTION 235 PROGRAM.

Paragraphs 1a, 1b, and 1c are not applicable to the

Revised Section 235(i) program. \*

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\* c. Fee and Other ADP Codes. Paragraph 2, except for the

instructions pertaining to applications initiated by the

Department of Agriculture, is applicable to the revised

Section 235 program. The reference to section of the Act

code \"235\" in this paragraph shall be construed to mean

section of the Act code \"265.\" Applications for mortgage

insurance continue to originate under another insuring

section of Title II, making it necessary to report the

section of the Act code applicable to that insuring section

on FHA Form 700-1 for purposes of fee billing. When it is

determined that the transaction is eligible for issuance of

a firm commitment under the revised Section 235 program,

the change in the insuring sections shall be reported on

FHA Form 700-2. The section of the Act code reported on

Form 700-2 shall be \"265 or 365,\" whichever code is

applicable.

d\. Appropriations and Reporting - General. Paragraph 3 is

applicable to the Revised Section 235 program.

e\. Allocation of Contract Authority. Paragraph 4 as it

pertains to regular programs applies to the Revised 235

program.

f\. Preliminary Reservation of Contract Authority. Contract

authority for the Revised 235 program shall be reserved in

the same manner as prescribed for the regular Section 235

program in paragraph 5, except for the special handling

necessary to maintain controls for separate reporting of

reservations used to fund units located in \"Metro and

Non-Metro Areas.\" (See Appendices 24 through 30.) It is

extremely important that forms used to request the

reservation of contract authority be clearly identified in

the heading as the \"Metro\" or \"Non-Metro\" notations as

stated above. Also, the amount to be reserved for each

Revised Section 235 mortgage is in Appendix 23.

In the event a reservation of contract authority has not

been converted to an obligation six months after issuance,

it shall be considered void and recaptured for reuse.

However, a reservation may be extended for an additional

six months period upon request from the builder, provided

construction or rehabilitation has begun. The field office

shall establish new and separate files to maintain

reservations issued under Revised Section 235 in addition

to starting a new sequential numbering pattern for

assignment to each new reservation.

g\. Amount of Annual Assistance Payment to Reserve or

Obligate. Paragraph 6 applies to the Revised Section 235

program except that the amount to reserve or obligate

shall be taken from the table in Appendix 23 instead of

from Form 3119. \*

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\* h. Record of Preliminary Reservations for Proposed

Construction Cases. Paragraph 7 applies to the Revised

Section 235 program, except that references to Appendices

5, 8, and 17 shall be read as references to Appendices 25,

27, and 23, respectively.

i\. Record of Contract Authority Obligated for Assistance

Payments Under Section 235(b). Paragraph 8 applies to

Revised Section 235 except:

\(1\) Amount to Obligate. Obtain the amount to obligate from

Appendix 23 instead of from Appendix 17.

\(2\) Classes of Transactions. A separate Form 3124 shall be

maintained for Revised Section 235.

\(3\) Assistance Payments for Cooperative Members and

Mortgage Assumptions. Paragraph 8g does not apply to

Revised Section 235. HOMEOWNER ASSISTANCE UNDER THE

REVISED SECTION 235 PROGRAM IS NOT AVAILABLE TO MEMBERS

OF A COOPERATIVE OR TO ASSUMPTORS OF MORTGAGES INSURED

UNDER THE REVISED SECTION 235 PROGRAM.

\(4\) Special Exceptions to Limitation on Existing

Construction. Revised Section 235 contract authority

is not available to subsidize existing construction.

\(5\) Accumulating Data on Forms 3124. Of the four classes

of amounts obligated, only column 3(a) applies to

Revised Section 235.

j\. Monthly Report of Contract Authority Obligated. A separate

Form 3127 shall be used for Revised Section 235. The words

\"Revised Section 235\" shall be written in the heading of

this report and all entries made on the Section 235(i)

line. Part B of this form shall be used to report contract

authority obligated in \"Non-Metro\" area.

k\. FHA Form 3138, Status of Reservations and Obligations. A

separate Form 3138 shall be prepared for Revised Section

235 each month. Care must be taken not to commingle

reservations and obligations for Revised Section 235 with

those of other 235 programs. See Appendices 29 and 30 for

a completed Form 3138 for Revised Section 235. Other

provisions in paragraph 10 apply to Revised Section 235. \*

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\* 1. Earmarking Section 235(i) Contract Authority. The provisions

in paragraph 11 were cancelled by HPMC Notice 73-45, dated

October 18, 1973, and shall, also not be applied to Revised

Section 235.

m\. Review and Approval of Forms 3100. The provisions in paragraph

12 also apply to Revised Section 235.

n\. Processing Instructions for Section 235(i) Transactions when

Contract Authority has been Exhausted. The provisions of

paragraph 13 also apply to Revised Section 235. \*

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