www.hudclips.org
U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000
September 09, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 93-27
     TO:  ALL APPROVED MORTGAGEES
     SUBJECT:  Single Family Loan Production - Termination of
                 Subdivision Processing and Implementation of New
                 Builder Certification Procedure
          Effective immediately, the Department will require builders
     and Direct Endorsement (DE) lenders to use the new "Builder
     Certification" procedure described in this Mortgagee Letter or
     the current "Improved Area" procedure in order to obtain mortgage
     insurance on individual properties that are proposed, under
     construction or newly built in any new subdivision that was not
     approved by the local HUD Field Office on or before September 1,
     1993.  HUD will no longer approve new subdivisions under the
     Developer Certification Procedure or the Local Area Certification
     Procedure or perform subdivision analysis as set forth in HUD
     Handbook 4135.1  (REV-2) after September 1, 1993.  The new Builder
     Certification procedure and the Improved Area procedure (which
     has been in place for several years) will be the only methods by
     which the Department will grant mortgage insurance on individual
     properties in new subdivisions that were not approved by HUD on
     or before September 1, 1993.  One of these procedures is required
     even if the Department of Veterans Affairs (VA) issues a
     Certificate of Reasonable Value (CRV) or a Master Certificate of
     Reasonable Value (MCRV) for properties in a new subdivision.
          HUD will no longer review new subdivisions because it has
     determined that in most jurisdictions there is effective local
     regulation of new subdivision development and adequate local
     subdivision standards that address environmental conditions and
     health and safety issues that may affect the property.
     Therefore, the Department has concluded that further review of
     new subdivisions by HUD is duplicative and unnecessary.
     Terminating this duplicative procedure expands homeownership
     opportunities, streamlines processing and will reduce delays and
     costs for homebuyers, builders, lenders and HUD.
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     The Builder Certification procedure will now be used to
obtain mortgage insurance for most new construction in new
subdivisions.  The Builder Certification procedure will be used
when there are adequate local subdivision standards to protect
HUD's underwriting risk and the health and safety of the intended
occupants of the property.  If the local HUD Field Office
determines that local subdivision standards do not exist, or are
inadequate to protect HUD's underwriting risk or the health and
safety of the intended occupants, it may require builders and
lenders to use only the Improved Area procedure (IAP) and the
Appraiser/Review Appraiser Checksheet (Form HUD-54891) associated
with the IAP.  The IAP will provide HUD with a level of review
that will serve as a safety valve to protect HUD's risk or the
health and safety of the occupants when mortgage insurance is
requested in new subdivisions that are located in jurisdictions
that lack sufficient or effective local subdivision standards.
     Periodically, the local HUD Office will publish a list of
those jurisdictions where subdivision standards do not exist or
are considered ineffective or inadequate to protect HUD's
underwriting risk or the health and safety of the occupants.  As
stated above, for new construction located in these
jurisdictions, the builder and lender will be required to use
only the IAP.  The IAP will also be the only process available
for the small number of loans that are not processed under the
Direct Endorsement procedures.
     The Department also wishes to convert all new construction
to this new Builder Certification procedure.  Therefore, even
though the subdivision may have been approved by HUD under its
previous subdivision processing procedures, all new construction
cases with case numbers assigned on or after September 1, 1994
must use the Builder Certification procedure (IAP where the local
Field Office has designated a jurisdiction for such processing
exclusively) contained in this Mortgagee Letter.  By doing this,
the Department will eventually have one uniform set of processing
procedures.
PROCESSING INSTRUCTIONS FOR BUILDER CERTIFICATION PROCEDURE
     Builders and DE lenders must use the new Builder
Certification procedure for a single proposed construction case
to be appraised in a new subdivision or may use it for a group of
proposed properties to be appraised under a Master Appraisal
Report (MAR).  The steps for using the new Builder Certification
procedure are as follows:
     1.   The builder must complete the revised Builder
          Certification Form, HUD-92541, a copy of which is
          attached to this Mortgagee Letter.  You will note that
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                    the HUD-92541 has been expanded to contain a
                    "Site Analysis" block to solicit specific
                    information from the builder about the site
                    on which the house has been or will be
                    constructed.  Instructions for completing the
                    form are on its reverse side.  The
                    instructions on the form for Questions 1a, 1c
                    and if, should provide sufficient guidance to
                    the DE lender's underwriter on what to do if
                    these questions are answered "Yes."  If the
                    answers to Questions 1b, 1d and 1e are "Yes,"
                    then the DE lender's underwriter is
                    responsible for determining whether these
                    hazards will affect the health or safety of
                    the intended occupants to the extent that the
                    underwriting risk is unacceptable for HUD
                    mortgage insurance.
          The builder may use the Builder Certification for more
          than one property (as part of a Master Appraisal
          Report) by attaching to the HUD-92541 a list of the
          properties and corresponding FHA case numbers for those
          properties and entering "See attached list" into the
          FHA case number block on the form.
     2.   After the builder completes the HUD-92541, the DE
          lender must send it to the appraiser along with the
          request for appraisal assignment.  The HUD-92541 cannot
          be completed by the builder more than 30 days prior to
          the date of the lender's request for the appraisal
          (date of the Form HUD-92800).
     3.   The appraiser will review the HUD-92541 completed by
          the builder and note on the appraisal report any
          inconsistencies or discrepancies between the
          information supplied on the form and the conditions
          observed by the appraiser on the site(s).  The
          appraiser will use the form as one source of
          information and data about the site in the appraisal
          process to assist in determining the value of the
          property and the influence on value, if any, of the
          conditions noted by the builder on the HUD-92541.
     4.   As is done now, the appraiser will complete the
          appraisal report and return it along with a copy of the
          HUD-92541 to the DE lender.  The DE lender's
          underwriter will review the appraisal report and the
          HUD-92541.  Any inconsistencies or discrepancies
          between the site conditions observed and noted on the
          appraisal report by the appraiser and the information
          supplied by the builder on the HUD-92541 must be
          resolved by the DE lender's underwriter.  The DE
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          lender's underwriter must make the judgments, based
          upon the information presented by both the builder and
          and appraiser, of whether the property meets HUD
          requirements, is marketable and is an acceptable
          underwriting risk for HUD mortgage insurance.
     5.   A copy of the HUD-92541 and the documentation
          supporting the answers to the questions on this form
          must be included in the closed case file along with the
          appraisal report when the lender submits the case for
          insurance endorsement.  The HUD-92541 will be reviewed
          by HUD as part of it post-endorsement quality control
          reviews.
     6.   Builders and lenders are reminded that the builder must
          still comply with the Department's Affirmative Fair
          Housing Marketing Plan requirements.
     If the request for mortgage insurance involves a VA/CRV or
VA/MCRV, the builder must still complete the HUD-92541 and the
information must be reviewed by the DE lender's underwriter.  The
DE lender's underwriter remains responsible for resolving
discrepancies and inconsistencies, if any, that are noted by the
VA appraiser between the information in the appraisal report and
the information on the HUD-92541.  As with HUD appraisals, the DE
lender's underwriter is responsible for making the judgments,
based upon the information presented by the both the VA appraiser
and the builder, of whether the property is an acceptable
underwriting risk for HUD mortgage insurance.  If the request for
mortgage insurance involves a VA/CRV or VA/MCRV in a subdivision
located in a jurisdiction where only the IAP may be used (as
determined by the local HUD Field Office), then the form HUD-54891
Appraiser/Review Appraiser Checksheet must be completed by
the appraiser and DE underwriter.
     The above described Builder Certification procedure and IAP
are applicable to Planned Unit Developments (PUDs).  PUDs must
still be approved in accordance with outstanding approval
instructions relating to legal documentation and homeowner
association budgets.  The Builder Certification procedure does
not apply to the approval of condominium projects.  Condominium
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project approval processing remains unchanged and is not affected
by this Mortgagee Letter.
     If you have any questions concerning this Mortgagee Letter,
please contact your local HUD Field Office.
Sincerely yours,
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
Attachments
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          Builder's Certification
          of Plans, Specifications, & Site
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                                                     form HUD-92541 (9/93)
                                                      ref. Handbook 4145.1
                              Page 1 of 2
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          Builder's Certification
          of Plans, Specifications, & Site
          (Continued)
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__________________________________________________________________________
                                                     form HUD-92541 (9/93)
                                                      ref. Handbook 4145.1
                              Page 2 of 2