4330.1 REV-5

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CHAPTER 3. AMENDMENTS AFTER THE MORTGAGE HAS BEEN INSURED

3-1 GENERAL. The mortgagee and mortgagor may agree to change the
mortgage

instruments or otherwise change the nature of the obligation or the

security after the mortgage has been insured. (See Chapter 8 with

regard to forbearance agreements.)

NOTE: Mortgagees are reminded that when making decisions as to

whether a change should be made to an existing mortgage,

they are expected to abide by the Fair Housing Act, the

Equal Credit Opportunity Act, Executive Order 11063, and HUD

regulations issued pursuant to these authorities, prohibit

discrimination in all phases of mortgage lending, including

discrimination in revisions to existing mortgages and in the

treatment of mortgages on which payments may or may not be

current. Prohibited basis of discrimination include: race,

color, religion, sex, handicap, familial status, national

origin, age and public assistance as a source of income.

A. Changes Not Requiring HUD Approval.

1\. A modification (recasting) when the recasting is limited to

the remaining term of the mortgage or to a term extending

not more than 10 years beyond the original maturity date and

the requirements of 24 CFR 203.614(b)(1) are met:

a\. the mortgagor does not own other property subject to a

mortgage insured by the Secretary; and

b\. the default was caused by circumstances beyond the

control of the mortgagor.

2\. A reduction of interest rate (see Paragraph 3-6).

3\. A partial release of security resulting from condemnation

when the requirements of 24 CFR 203.389(n) are met. (See

Paragraph 3-3.)

4\. A change of location after insurance in emergency

circumstances. (See Paragraph 3-4.)

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3-19/94

4330.1 REV-5

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B.Changes Requiring HUD Approval.

1.Extension of term of a recast mortgage for more than 10

years beyond the original maturity date.

2.A modification (recasting) when the requirements of 24 CFR

203.614(b)(1) are not met (see A1a and b above).

3.A partial release of security not resulting from

condemnation, or when the requirements of 24 CFR 203.389(n)

are not met.

4.A change of location after insurance in other than emergency

circumstances. (24 CFR 203.343)

5.The mortgage payment is increased over \$100 per month, the

mortgage term is decreased, and the mortgage is 3 years old

or less.

3-2RECASTING (MODIFYING) A MORTGAGE (24 CFR 203.342 and 203.616). When

\(1\) a mortgage is in default, (2) certain criteria are met and (3) a

mortgagor and mortgagee are in mutual agreement, the amortization

provisions of the mortgage may be modified by recasting the total

unpaid amount due under the mortgage (also, see Paragraph 8-6). This

unpaid amount then becomes the new original principal balance due over

the remaining term of the mortgage loan or a longer term.

If a mortgage has been pooled, the mortgagee is advised to first check

the requirements of the agency which has securitized the mortgage.

A.Purpose. The reason for recasting (modifying) the mortgage is to

cure a delinquency when a mortgagor does not have the financial

ability to reinstate his mortgage by paying a sum in addition to

the regular monthly mortgage payment sufficient to bring the

mortgage current over a reasonable period of time as in a

forbearance agreement or an assignment of the mortgage to HUD.

Rather than permit this delinquency to continue indefinitely or

to initiate foreclosure, the mortgagee (with the agreement of the

mortgagor) has the option of recasting (modifying) the mortgage.

Recasting may be refused at the sole discretion of the mortgagee.

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9/943-2

4330.1 REV-5

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B.Criteria - When HUD Approval Is Not Required. A mortgagee may

permit a recasting of a mortgage without HUD approval when all of

the following circumstances exist:

1.the default was caused by circumstances beyond the control

of the mortgagor;

2.the mortgagor does not own other property subject to a

mortgage insured by the Secretary; and

3.the recasting is limited to the remaining term of the

mortgage or a term extending not more than ten (10) years

beyond the original maturity date.

NOTE:Documentation that these conditions were met must be

retained for HUD review. A claim may be curtailed if

such documentation cannot be provided upon request.

C.Criteria - When HUD Approval Is Required. Prior HUD approval is

required in order to recast a delinquent mortgage when:

1.the term is extended more than 10 years beyond the maturity

date of the original mortgage, or

2.the mortgagor has more than one property subject to a

mortgage insured by the Secretary.

NOTE:The modification agreement may be effective when

executed or upon the termination of a forbearance

period.

D.To Obtain HUD Approval. The following shall be forwarded to the

HUD Field Office having jurisdiction over the mortgaged property:

1.the proposed recasting (modification) agreement or amended

note (the original and one copy);

2.the calculation of the recast principal amount, if

applicable, and the new monthly payment; and

3.a letter explaining:

a.the reasons for the delinquency;

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3-39/94

4330.1 REV-5

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b.the need for extending the maturity of the note more

than 10 years; and/or

c.the need for recasting the mortgage of a mortgagor

owning another property with a mortgage insured by the

Secretary.

NOTE:The Field Office manager\'s approval will be indicated on the

copy of the agreement or amended note. If approval is not

warranted, the agreement or amended note will be returned

with a letter of explanation. (Appendix 3 shows a sample

letter to HUD, Appendix 4 shows a sample Recasting Agreement

and Appendix 5 shows how to calculate the recast principal

amount and new monthly payment.)

E.How Recasting Can Be Accomplished. Recasting may be accomplished

by:

1.amendment of the original note with all parties initialing

all changes made to the original note; or

2.execution of a recast (modification) agreement by all

parties concerned.

F.Amount Of Recast Mortgage.

1.Included is the total unpaid amount due and payable under

the mortgage (i.e., principal, interest, escrow items, late

fees, etc.) which becomes the new original principal amount

of the mortgage (24 CFR 203.616 and 203.342).

NOTE:Under no circumstances may the recanting agreement

increase the interest rate. Also, note that any

unpaid escrow items added to the principal must be

credited to the mortgagor\'s escrow account.

2.Excluded are:

a.any legal or administrative costs attributable to the

recasting, since these costs are not due and payable

under the mortgage, though they may be collected

separately from the mortgagor; and

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9/943-4

4330.1 REV-5

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b.any revision of periodic (monthly) MIP payments.

NOTE:A recasting (modification) of the mortgage

has no effect on the one-time MIP or on

periodic MIP payments. Monthly MIP payments

must continue to be calculated based on the

original amortization provisions of the

mortgage (24 CFR 203.261).

G.Recordation Of Lien. The mortgagee is responsible for the legal

steps required to accomplish the recasting and for ensuring that

the mortgage remains a valid first lien against the property.

H.Notification To HUD (24 CFR 203.616(b)). When HUD approval is

not required, the mortgagee shall notify the local HUD Office

with jurisdiction over the property of a modification within 30

days of the execution of the modification agreement.

I.Documentation Required. Documentation must be retained for HUD

review and/or to be provided upon request by HUD (and/or its

agent) showing:

1.the criteria for recasting (modifying) a mortgage with or

without HUD approval, as appropriate, were met;

2.the calculation of the recast principal amount and the new

monthly payment amount; and

3.proof that any unpaid escrow added to the new principal

amount was credited to the mortgagor\'s escrow account.

J.Submission Of Claim To HUD. If and when a claim for insurance

benefits \[HUD-27011 (Appendix 6)\] is filed:

1.a copy of the recast (modification) agreement executed by

both parties (or the modified credit instrument with all

changes initialed by all parties) must accompany the claim;

2.the instructions issued by HUD for properly filling out the

claim form (HUD-27011) for a recast mortgage must be

followed; and

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3-59/94

4330.1 REV-5

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3.if requested, documentation must be submitted to show that

the required criteria for recasting were met.

3-3PARTIAL RELEASE OF SECURITY. All requests for HUD approval must be

submitted in writing, in duplicate form, to the local HUD Field Office

having jurisdiction over the mortgaged property. The mortgagee shall

be notified in writing of the local HUD Office\'s decision.

NOTE:The mortgagee remains responsible for assuring that HUD\'s

insured mortgage remains a valid first lien on the mortgaged

property after the release has been accomplished.

A.When HUD\'s Approval Is Not Required (24 CFR 203.389(n)). HUD

approval is not required for the voluntary or involuntary

conveyance of a part of the property as the result of

condemnation or in lieu of condemnation (also, see Paragraph

3-1A) if the following conditions are met:

1.the part being conveyed does not exceed ten percent of the

area of the mortgaged property;

2.there has been no damage to existing structures or other

improvements, and there in no unrepaired damage to sewage,

water, or paving;

3.any compensation that may have been received has been

applied to reduce the unpaid principal balance of the

mortgage;

4.the voluntary or involuntary conveyance occurred after the

mortgage was insured;

5.if a claim for mortgage insurance benefits is filed, it is

accompanied by the mortgagee\'s certification that the

requirements of this paragraph have been met.

NOTE:If any of the conditions in this paragraph are not not,

HUD approval is required prior to any portion of the

security being released.

B.When HUD Approval Is Required (24 CFR 203.343(a)). Letters

requesting HUD approval are to be submitted in duplicate form to

the HUD Field Office having

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9/943-6

4330.1 REV-5

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jurisdiction over the mortgaged property. The request letter

must be accompanied by the following:

1.a statement as to the present status of the mortgage;

2.the amount of the unpaid principal balance;

3.the due date of the last unpaid installment and, if the

mortgage is delinquent, the number of delinquent payments;

4.a list of unpaid special assessments (if any) and the

amounts owed for each;

5.a complete legal description of the portion of the secured

property to be released;

6.the mortgagor\'s reasons for asking the mortgagee to make the

release;

7.a description of the contemplated use for the land to be

released;

8.the monetary consideration, if any, to be received by the

mortgagor;

9.the amount of contemplated prepayment, if any;

10.any contemplated restrictions to be imposed on the land to

be released;

11.a survey or sketch of the property showing the dimensions of

the portion to be released, the location of existing and

proposed improvements, and the relation of the property to

surrounding properties;

12.plans and specifications, including cost estimates, of any

alterations proposed for the remaining property after the

release; and

13.the FHA/HUD case number of the mortgaged property.

C.Notification To HUD.

1.Within 30 days of the record of the release of security, the

mortgagee will submit a written notification to the HUD

Field Office having

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3-79/94

4330.1 REV-5

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jurisdiction over the property advising the release has been

completed. When appropriate, this notification will also

advise the amount in which the outstanding principal balance

has been reduced.

2.If a claim is filed for insurance benefits, it must be

accompanied by the HUD Field Office approval and the

mortgagee must also state the amount in which the

outstanding principal balance has been reduced.

3-4CHANGING THE LOCATION OF EXISTING IMPROVEMENTS (STRUCTURES). After

the mortgage is insured, it may become apparent that the value of the

secured property can be protected or enhanced by moving the

improvements from the lot on which the appraisal and approval for

mortgage insurance was based.

A.Situations Favorable For Relocation. Examples of situations

favorable for the relocation of existing improvements

(structures) may include, but are not limited to, the following

situations:

1.where a property is being condemned or sold for use in

connection with public purposes (such as highways, water

reservoirs, etc.,) only the use of the land may be needed

for the public purpose which would allow the existing

improvements on this land to be moved economically to

another lot;

2.after the mortgage is insured, it may be discovered that a

title defect, zoning, setback restriction, etc., may

adversely affect the value of a property and the

improvements would be more valuable if relocated;

3.because of a problem not apparent before the mortgage was

insured (such as a soil condition, drainage, etc.,) the

existing improvements could be more valuable if they were

moved to another lot or location; and/or

4.following an earthquake or other disaster, it may be

determined that a structure which has sustained little if

any damage should be relocated. If the lot is located on or

near a geological fault or is otherwise adversely affected

by the disaster, continued occupancy of the property may be

hazardous.

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9/943-8

4330.1 REV-5

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B.Relocation Changes Not Requiring HUD Approval. The only time HUD

approval is not required for relocating existing improvements

(structures) is in an emergency situation where immediate action

must be taken by the mortgagee if the safety of the occupants

and/or the undamaged condition of the existing improvements are

to be preserved. (See Paragraph 3-1A).

1.Financing and Risk Involved in Relocation Changes.

a.Financing. Obtaining the financing for the relocation

is the responsibility of the mortgagor and/or the

mortgagee.

b.Risk. All risk of damage to the house or failure to

complete the move to an acceptable location is borne by

the mortgagee. When a temporary move becomes

necessary, the mortgagee should ask the Manager of the

appropriate HUD Field office, in writing, prior to the

move, for written assurance that the mortgage insurance

will not be affected adversely during the move.

2.Required Notification Of A Permanent Relocation. Within 30

days of the completion of the relocation change, the

mortgagee will submit written notification to the HUD Field

Office having jurisdiction over the mortgaged property

advising the relocation has been completed. This

notification will also provide the following:

a.the FHA/HUD case number of the mortgaged property;

b.the address and legal description of the lot the

structure had been moved from and the address and legal

description of the lot to which the structure has been

permanently moved;

c.a statement from the mortgagee that any damage to the

property before, during, and after the move will be

repaired at no cost to HUD (24 CFR 203.343);

d.a statement that the lien of the insured mortgage has

been extended to cover the new lot; that the mortgage

is a good and valid lien on

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3-99/94

4330.1 REV-5

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the new lot; and that the old lot has or has not been

released from the lien;

e.a statement that the original note is in full force and

effect;

f.the outstanding balance of the insured mortgage and its

status; and

NOTE:If the mortgage in delinquent, provide the

number of payments and dollar amount of the

delinquency and an explanation of how the

delinquency is expected to be cured.

g.a statement indicating:

(1)that the new lot is in an area known to be

reasonably free from natural hazards; or

(2)whether the new lot is located in a flood plain

and, if it is in a flood plain, whether:

(a)the community participates in the Federal

flood Insurance Program; and/or

(b)the property will be insured against floods.

3.Required Notification Of A Temporary Relocation. In

addition to the information required in the preceding

paragraph, the mortgagee shall provide HUD within 30 days of

the completion of the temporary relocation the following

information:

a.the address and legal description of the temporary lot;

b.a statement that:

(1)the move to the temporary lot has been

accomplished; and

(2)all damages caused by the temporary move have been

or will be repaired at no cost to HUD.

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9/943-10

4330.1 REV-5

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C.Relocation Changes Requiring HUD Approval. Except in the

emergency situations described below, HUD approval is required.

Approval is requested by letter, in duplicate, including the

following:

1.the FHA/HUD case number;

2.address and legal description of both the present location

and the proposed location of the improvements to be moved;

3.a statement, signed by both mortgagor and mortgagee,

acknowledging that the movement is at their risk, not HUD\'s;

NOTE:The mortgagor and mortgages are encouraged to

insure or otherwise protect their interests during

the move.

4.a statement that:

a.the lien securing the insured mortgage will remain a

good and valid first lien during and after the move;

b.the new lot will be added to the lien before the move;

and

c.that the old lot will be released from the security

after the move.

NOTE:Any documentation changing the nature of the

lien is to be forwarded to HUD after the move

has been completed and the appropriate

substitute documents have been recorded.

5.a statement indicating:

a.that the new lot is in an area known to be reasonably

free from natural hazards; or

b.whether the new lot is located in a flood plain and, if

it is in a flood plain, whether:

(1)the community participates in the Federal flood

Insurance Program; and

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3-119/94

4330.1 REV-5

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(2)the property will be insured against floods.

3-5DECREASE IN MORTGAGE TERM AND INCREASE IN MONTHLY PAYMENT. Often

mortgagees wish to offer alternate options of payment to mortgagors to

enable the mortgage to be paid-in-full at an earlier date. For

example, when a mortgagor prepays a portion of the mortgage and/or

agrees to pay an additional amount each month in order to pay the

mortgage in full at an earlier maturity date, the mortgagee will, in

return, offer a reduced interest rate. To accelerate the maturity of

a loan, the monthly mortgage payment may be increased and the mortgage

term decreased by mutual agreement of mortgagee and mortgagor. Such a

modification may be made if the mortgage is current, the payment

history is fully satisfactory, the mortgagee has determined that the

higher payment is within the mortgagors, ability to pay, and the

following conditions are met.

A.When HUD Approval Is Required. If the monthly mortgage payment

is increased over \$100 per month and/or the mortgage is three

years old or less, HUD approval is required.

B.Reversion Is Permitted. The modification agreement must contain

a clause which will permit reversion to the original mortgage

terms if it is determined that such reversion can salvage the

account and prevent a foreclosure.

C.Mortgagor Certification. The modification agreement must contain

a certification by the mortgagors stating that they are aware of

the positive and negative aspects, and have voluntarily agreed to

the increased payments.

3-6REDUCTION OF INTEREST RATE. Modifications providing only for a

reduction of interest rate (either by amendment or by the creation of

new documents), do not require HUD approval. If the amendment or new

instruments make any other changes, however, approval may be required

as discussed in Paragraph 3-1A.

3-7REFINANCE TRANSACTIONS. (For detailed information refer to HUD

Handbook 4155.1 REV-4, Mortgage Credit Analysis for Mortgage Insurance

On One-to-Four Family Properties).

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9/943-12