U.  **S. Department of Housing and Urban Development**

**Washington, D. C. 20410-8000**

> **March 6, 2001**
>
> **MORTGAGEE LETTER 2001-07**

**TO: ALL APPROVED MORTGAGEES**

**SUBJECT:** Special Program, Underwriting and Servicing Policies to
Assist Victims of

> Presidentially-Declared Major Disaster Areas-Single Family Loan
> Production and Servicing

The purpose of this Mortgagee Letter is to remind mortgagees of the
available Single Family programs within the Department for victims of
Presidentially-Declared major disasters.

Effective with the issuance of Mortgagee Letter 98-20, the Department
ceased issuing separate Mortgagee Letters for each disaster declaration.
Rather, when the President declares a

disaster, the mortgagee must check with the Federal Emergency Management
Agency (FEMA) to obtain the specific affected counties and corresponding
declaration dates. This information can be found on the Internet at
http://www.fema.gov/disasters or by calling the local FEMA office.

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

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

[Mortgage Insurance for Disaster Victims]{.underline}

HUD has a special mortgage insurance program under Section 203(h) of the
National Housing Act to assist disaster victims. Under this program,
individuals or families whose residences were destroyed or damaged to
such an extent that reconstruction or replacement is necessary are
eligible for 100 percent financing. The requirements for the program are
as follows:

-   The borrower\'s previous residence must have been in the disaster
    area and must have been destroyed or damaged to such an extent that
    reconstruction or replacement is necessary. The borrower must
    provide conclusive evidence of the above. Documentation showing a
    permanent residence in the affected area before the disaster
    includes a valid driver\'s license, a voter registration card,
    utility bills, etc. Documentation regarding destruction of the
    residence may include an insurance report, an inspection report by
    an independent fee inspector or government agency, or conclusive
    photographic evidence showing the destruction or damage. The
    borrower may have been the owner of the property or a renter of the
    property affected.

-   The borrower is eligible for 100 percent financing. No downpayment
    is required. (However, prepaid expenses must be paid by the borrower
    in cash or paid through premium pricing (as described in Mortgagee
    Letter 94-7). The mortgage insurance premium is the same as for
    Section 203(b) mortgages. The upfront premium may be financed into
    the mortgage amount and the borrower will also be charged the annual
    premium.

-   Maximum mortgage amounts are the same as for Section 203(b). A list
    of the mortgage limits can be found on the following website:
    https://entp.hud.gov/idapp/html/hicostlook.cfm

-   The program is limited to one-unit detached homes or units in an
    approved condominium project. \"Spot units\" in condominiums are
    also eligible, subject to the instructions outlined in Mortgagee
    Letter 96-41. Two, three, and four unit properties may not be
    purchased under the Section 203(h) program.

-   The borrower\'s application for mortgage insurance must be submitted
    to the lender within one year of the President\'s declaration of the
    disaster.

-   These mortgages are eligible for processing under the Direct
    Endorsement program.

-   Adjustable rate mortgages (ARMS) may be used with the Section 203(h)
    program.

[Section 203(k) Rehabilitation Mortgages]{.underline}

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

[Construction/Permanent Mortgages]{.underline}

Lenders are encouraged to use the construction/permanent mortgage
program in the areas affected. Mortgagee Letter 92-25 contains complete
processing guidelines.

[Underwriting]{.underline}

The Department recognizes that victims of a disaster may have to incur
debts to replace personal property. Victims of the disaster will be
allowed to have a total fixed payment to gross income ratio of 43
percent without compensating factors. The 43 percent ratio can also be
exceeded with appropriate compensating factors. This provision will
apply to all FHA-insured mortgages regardless of the insurance program.

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

[Submission of Closed Loans]{.underline}

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

[Endorsement of Delinquent Mortgages]{.underline}

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

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

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

[Moratorium on Foreclosures]{.underline}

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

[Servicing Actions]{.underline}

In addition to the moratorium, HUD strongly recommends servicing actions
for homeowners whose properties were directly affected by the disaster.
This includes such actions as special forbearance, mortgage
modification, refinancing, and waiver of late charges. HUD also offers a
partial claim program to help address problems of unresolved arrearages.
Subsequent to the foreclosure moratorium, lenders are encouraged to
consider alternatives to foreclosure such as pre-foreclosure sales and
deeds in lieu of foreclosure if the homeowner is not in a position to
\"cure\" the mortgage delinquency. Refer to Mortgagee Letter 00-5 for
FHA program requirements and incentive payments associated with the
above referenced servicing approaches. Further, for loans on properties
affected by these disasters, the maximum pre-foreclosure sales period is
extended an additional two months, and the minimum appraised as-is value
of the property is reduced to 58 percent, without requiring the lender
to seek a variance approval from HUD's National Servicing and Loss
Mitigation Center in Oklahoma City.

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

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

**[IV. THE FEDERAL EMERGENCY MANAGEMENT ASSOCIATION'S (FEMA) MORTGAGE
ASSISTANCE PAYMENTS]{.underline}**

Mortgagees must inform mortgagors about this program. Appendix 26A of
HUD Handbook 4330.1 REV-5 contains recommended language for this
purpose.

If you have any questions concerning this Mortgagee Letter, please
contact your local Homeownership Centers in Atlanta (1-888-696-4587),
Philadelphia (1-800-440-8647), Denver (1-800-543-9378) or Santa Ana
(1-888-827-5605).

Sincerely,

Shaun Donovan

Deputy Assistant Secretary

for Multifamily Housing

Attachments

U.S. Department of Housing and Urban Development

Washington, DC 20410-8000

+-----------------------------------------------------------------------+
| **SECTION 203(h)**                                                    |
|                                                                       |
| **Single Family Home Mortgage Insurance for Disaster Victims**        |
+-----------------------------------------------------------------------+

**Purpose:**

Provides mortgage insurance for a person to purchase a principal
residence after being displaced by a disaster. The residence to be
purchased need *not* be located in the same area as the disaster.

**Eligibility Requirements:**

-   Borrower must meet standard FHA credit qualifications.

-   Borrower's previous residence must have been destroyed or damaged to
    such an extent that reconstruction or replacement is necessary. The
    borrower may be the owner of the property or a renter of the
    property destroyed.

-   Borrower is eligible for **100% financing**. No downpayment is
    required. However, prepaid expenses must be paid by the borrower in
    cash or paid through premium pricing (as described in Mortgage
    Letter 94-7). The upfront mortgage insurance premium can be financed
    into the mortgage and the borrower will pay an annual premium.

-   Borrower must purchase a one family unit or a unit in an approved
    condominium project (including "spot units"). Two, three and four
    unit properties may not be purchased under this program.

-   Adjustable rate mortgages can be used with this program.

-   Mortgage limits are the same as for the Section 203(b) program;
    refer to the following website for the mortgage limits:
    https://entp.hud.gov/idapp/html/hicostlook.cfm

-   The borrower's application for mortgage insurance must be submitted
    within one year of the President's declaration of the disaster.

U.S. Department of Housing and Urban Development

Washington, DC 20410-8000

+-----------------------------------------------------------------------+
| **SECTION 203(k)**                                                    |
|                                                                       |
| **Rehabilitation Home Mortgage Insurance**                            |
+-----------------------------------------------------------------------+

**Purpose:**

Provides mortgage insurance for a person to purchase or refinance a
principal residence and to accomplish rehabilitation and/or improvement
of an existing one-to-four unit dwelling.

**Eligibility Requirements:**

-   Borrower must meet standard FHA credit qualifications.

-   Mortgage insurance premium is paid monthly. There is no upfront
    mortgage insurance premium.

-   Borrower can purchase a one-to-four unit property that was completed
    for at least one year. The number of units on the site must be
    acceptable according to the provisions of local zoning requirements.
    The requirement for a dwelling to be completed more than one year
    preceding the date of the application for mortgage insurance under
    Section 203(k) is waived [for properties located in the disaster
    area]{.underline}.

-   Homes that have been demolished, or will be razed as part of the
    rehabilitation work, are eligible, provided the existing foundation
    system is not affected and will still be used. The complete
    foundation system must remain in place.

-   Mortgage limits are the same as for the Section 203(b) program;
    refer to the following website for the mortgage limits:
    https://entp.hud.gov/idapp/html/hicostlook.cfm