HUD Mortgagee Letters

FHA Reserve Report

December 16, 2013












December 13, 2013


Report to Congress

On December 13th, HUD released its Fiscal Year (FY) 2013 Annual Report to Congress on the Financial Status of the Mutual Mortgage Insurance Fund, which reports the results of an independent actuarial evaluation of the of the Fund.


According to the independent actuary, the Fund’s value has improved by $15 billion since last year, and is currently valued at negative $1.3 billion. This change represents a 92 percent improvement in the capital reserve ratio rising from negative 1.44 percent to negative 0.11 percent. The independent actuary now estimates that the Fund will reach the required two percent reserve ratio in 2015, two years faster than predicted in last year’s report. 


This Administration has worked hard to implement the policies and practices that have led to this turn-around. Since 2008, FHA has taken a number of steps to restore capital, including adjusting premiums, tightening credit policies, and expanding its use of alternative disposition strategies for defaulted assets. As a result, recovery rates have substantially improved and the credit quality of our most recent books of business remains at historically high levels – keeping FHA on the right track for the future.


While these policy changes were necessary and prudent, we are aware of the impact they have on our lending partners. In the years since the crisis began, the housing industry has been asked to adjust to an unprecedented amount of change. No doubt it has been challenging to keep up with all of the new policies and initiatives introduced by FHA and other regulatory agencies.


The initiatives that led to the Fund’s improvement are part of a wider effort to transform the way FHA operates. We are committed to becoming more efficient and making it easier for our partners to do business with us. Toward those ends, we have been focused on improving the consistency and transparency of our quality assurance practices and communication with lenders. We realize that a strong, consistent and transparent QA framework creates the best environment to ensure compliance with FHA’s origination and servicing guidelines and provides lenders the confidence needed to reduce overlays and enable broader access to credit.


That is why FHA is focused on improving the utility of all of its guidance. As a first step, FHA has worked to consolidate more than 900 Mortgagee Letters into an updated Single Family Handbook – a definitive guide on originating and servicing a single family FHA-insured loan. And our transformation efforts do not end there. We have begun issuing the quarterly Lender Insight publication, are developing an automated lender approval and re-certification process, and are working to streamline the way we develop and announce new policies.  When these initiatives are complete, it should be easier for everyone to stay informed and appropriately utilize existing and new FHA guidance.


We are doing everything possible within our existing capabilities to improve our policies, operations and business practices, but with additional tools we could make even more progress. So, we continue to ask Congress to pass legislation that will enhance our overall ability to manage risk. Specifically, FHA needs the ability to require indemnification from all classes of FHA-approved lenders, the authority to terminate lender approval on a more refined geographic basis, and the flexibility to engage specialty servicers. Legislation to revise the calculation of the compare ratio and reduce barriers to more effective risk management would also be beneficial to the Fund.


Fiscal Year 2013 Highlights

FHA had an important impact on the market in 2013.   This past year, FHA:


·       Insured nearly 1.1 million single-family forward mortgage loans during the year, with a total dollar value of approximately $240 billion and $13.6 billion in reverse mortgages (HECM). This brings the active single family portfolio to nearly $1.2 trillion.

·       Insured more than 675,000 new purchase loans, 79 percent of which were for first-time homebuyers.

·       Provided refinancing for more than 610,000 homeowners who were enabled to take advantage of historically low interest rates.


These numbers illustrate the continued importance of FHA to the housing finance market. Moving forward, FHA will continue to focus on using aggressive strategies to reduce losses, increase recoveries, and maintain access to credit for qualified borrowers. We believe that managing risk to the Fund is a critical element of ensuring that FHA is here to help future generations buy that first home, refinance into a more sustainable mortgage, or age in place as they get older.


Thank you for your continued support of FHA and our mission. HUD’s Annual Report to Congress on the Financial Status of the MMI Fund and the accompanying actuarial reviews are available at

FHA Manual Underwriting News

                                                              December 11, 2013





TO:    All FHA-Approved Mortgagees


What’s New


Manual Underwriting Policy Final Notice Published Today in Federal Register


Today, FHA’s Office of Single Family Housing published a Final Notice in the Federal Register with details on upcoming revisions to FHA policies for manually underwriting FHA mortgages.  A copy of this Final Notice, Docket No. FR-5995-N-01, Federal Housing Administration (FHA) Risk Management Initiatives: New Manual Underwriting Requirements, is posted in the Federal Register at This information is published for mortgagees’ thorough review.


As outlined in the Final Notice, the policy revisions provide FHA-approved lenders with objective standards to make responsible risk-based underwriting decisions on manually underwritten mortgages, and establish clear requirements for mortgagees when manually underwriting loans.


A Mortgagee Letter will be issued shortly and will incorporate the policy revisions published in today’s Final Notice, as well as additional operational and implementation information for Mortgagees. FHA’s current policies remain in effect until the effective date that will be announced in the Mortgagee Letter.

FHA and QM

 December 11, 2013



TO: All FHA-Approved Mortgagees


What’s New

HUD Releases 'Qualified Mortgage' Definition

Today the U.S. Department of Housing and Urban Development (HUD) released its final rule which defines a ‘Qualified Mortgage (QM)’ that is insured, guaranteed or administered by HUD. The final rule will be effective on January 10, 2014 and will apply to mortgages with a case number assignment on or after that date. Read HUD's Final Rule at

HUD will host a special Webinar overview briefing session on December 18, 2013 to review with FHA stakeholders the details published in the Qualified Mortgage Final Rule. Additional information and registration instructions will be available soon.


Final Rule Summary

The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition that is aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) as well as the Department’s historic mission to promote affordable mortgage financing options for underserved borrowers. HUD’s rule builds off of the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year.

In order to meet HUD’s QM definition, mortgage loans must:

· Require periodic payments without risky features;

· Have terms not to exceed 30 years;

· Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184, Section 184A loans and others as detailed below); and

· Be insured or guaranteed by FHA or HUD.

Currently, HUD does not insure, guarantee or administer mortgages with risky features such as loans with excessively long terms (greater than 30 years), interest-only payments, or negative-amortization payments where the principal amount increases. Moreover, HUD’s existing underwriting standards require lenders to assess a borrower’s ability to repay their mortgage debt. The new limit on upfront points and fees for all Title II non-manufactured housing FHA-insured single family mortgages is consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac to attain qualified mortgage status under CFPB’s final rule.

The rule establishes two types of Qualified Mortgages that have different protective features for consumers and different legal consequences for lenders. HUD’s Qualified Mortgage classifies a loan as either Rebuttable Presumption Qualified Mortgages or Safe Harbor Qualified Mortgages depending on the relation of the loan’s Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR), the rate for the average borrow receiving a conventional mortgage. The two categories of Qualified Mortgages are:

1. A Rebuttable Presumption Qualified Mortgage will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard. Consumers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses.

2. Safe Harbor Qualified Mortgages will be loans with APRs equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard. Consumers can still legally challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage.

Furthermore, HUD’s rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages. The rule designates loans insured under these programs as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio so as not to interfere with current lending practices until appropriate parameters can be determined.

HUD also adopts CFPB’s list of transactions that are exempt from the ability-to-repay requirements, which includes Reverse Mortgages; Bridge loans with a term of 12 months or less; Construction-to-permanent loans for 12 months or less for the construction phase; Extension of credit by a Housing Finance Agency; Extension of credit by Consumer Development Financial Institutions; Extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008; Down payment Assistance through Secondary Financing Provider made pursuant to HUD’s regulations; Community Housing Development Organization (CHDO) provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program; A 501(c)(3) organization that secured no more than 200 dwellings in the prior calendar year to consumers with income that did not exceed the low- and moderate-income household limit as established pursuant to section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(20)) and the creditor determines, in accordance with written procedures, that the consumer has a reasonable ability to repay the extension of credit.

HUD’s mortgage insurance and loan guarantee programs play a central role in the housing market and act as a stabilizing force during times of economic distress, facilitating mortgage financing during periods of severe constriction in conventional markets. The final rule aims to ensure the continuity of access to mortgage financing to creditworthy, yet underserved borrowers while further strengthening protections for FHA borrowers and taxpayers, alike.

Federal Housing Administration (FHA) Announces New 2014 Loan Limits

                                         December 6, 2013




New FHA Connection log-in/log-out requirements effective November 30, 2013 require passwords to be 8 characters in length and include at least one uppercase letter, one number, and one special character (e.g., @, $, &).  User accounts will be locked after three failed login attempts, but will automatically unlock after 30 minutes.  Additionally, FHA Connection will automatically time out after 20 minutes of inactivity, requiring the user to log in again.  Also new is the sign off button in the menu bar giving users the option to manually sign off FHA Connection.



Federal Housing Administration (FHA) Announces New 2014 Loan Limits

FHA’s Office of Single Family Housing published Mortgagee Letter 2013-43 today, which announces that on January 1, 2014, FHA will implement new Single Family loan limits for Title II Forward Mortgages as detailed in the Housing and Economic Recovery Act of 2008 (HERA).  As a result, the calculation of FHA’s maximum loan limits in high cost metropolitan areas of the country will be reduced and the  current high “ceiling” of $729,750 will be reduced to $625,500.  

The revisions will be effective for all FHA case numbers assigned on or after January 1, 2014 through December 31, 2014. We strongly urge Mortgagees to review today’s Mortgagee Letter to understand the full scope of these changes, and to begin planning for implementation. Mortgagees may review Mortgagee Letter 2013-43 at under “What’s New.”

To enable Mortgagees to easily identify areas with loan limit reductions and increases resulting from the new limit calculations, FHA has published separate lists of counties with loan limit increases and loan limit decreases.  Mortgagees may also view these lists at under “What’s New.” Complete details regarding this posting can be found in the attached “2014 FHA Loan Limits” document.  Please click the document link to access this

FHA-Approved Single Family Housing (SFH) Mortgagees

November 25, 2013

TO:    FHA-Approved Single Family Housing (SFH) Mortgagees



What’s New

Feedback Period Extended through December 15, 2013 for Application through Endorsement section of the Single Family Handbook


The feedback period for the draft Application through Endorsement section of the Single Family Handbook has been extended through December 15th. The draft section and the feedback response worksheet are posted on the new Single Family Housing Policy “Drafting Table” web page at:




CHANGE OF SCHEDULE NOTICE:   The SF Handbook Roll-Out webinars  will only be conducted on Wednesday, November 13, 2013  -  the  webinars  previously scheduled for Thursday, November 14 have been removed from the schedule.  If you have already registered for one of the Thursday webinars, please re-register for one of the Wednesday webinars.  If you are unable to attend any of the SF Handbook Roll-Out webinars, they will be available for later viewing on our Webinar Archive site located at:   Archived FHA Webinars                               

                        Learn More About the SF Handbook Effort and Newly Posted Draft Application Through Endorsement Section - Web Session

Join FHA’s Office of Single Family Housing for a one-hour web-based information session on our new Single Family Housing Policy Handbook (SF Handbook), and our draft Application through Endorsement section for Title II forward mortgages.  This draft section is posted for review and feedback at

Session Overview

In these sessions, you will:

  • Learn more about the SF Handbook, our goals, and how this new, consolidated, single, authoritative source will make it easier for mortgagees to do business with FHA Single Family Housing.
  • Find out how to navigate the draft Application through Endorsement section, the Table of Contents and other features so you and your staff can quickly and easily find specific program requirements.
  • Gain insight into reviewing and providing feedback on the draft Application through Endorsement section, with suggestions for reviewing and submitting feedback using our feedback worksheet.

As part of these sessions, you’ll have the opportunity to ask specific questions about the structure, organization, and how to use the draft section. 


You must register to attend these information sessions.  Space is limited; registrations will be accepted on a first come, first serve basis for each of the four sessions below.  We encourage organizations that plan to have multiple attendees to register one individual only, and participate in the session via group conference call.


To ensure that we maximize the value and time of all attendees, we ask that you prepare in advance by reviewing the draft Application through Endorsement section and other supporting information posted on FHA’s new “Drafting Table” web page at:

To Our FHA Stakeholders:

To Our FHA Stakeholders:

FHA has worked diligently during the 16-day government shutdown to support the housing market, consumers, and stakeholders.  We are very pleased to be fully operational and wanted you to know that we will be working hard to bring business back to normal.

During the shutdown, FHA continued to facilitate loan endorsements and certain REO and servicing/loss mitigation activities with some limitations.  The majority of FHA-insured mortgage loan products continued to be originated and could progress through the pipeline.  And many REO and servicing loss mitigation activities were able to continue with minimal interruptions. 

However, since we had a very limited number of staff working during the shutdown, we have a considerable backlog of work.  Some of the backlog includes processing HECM endorsements, other cases that must be manually endorsed, condominium project approvals, incoming questions from lenders or borrowers, etc.   We are prioritizing the backlog and will be working to address more critical items within 30 days and then to clear our backlog within 60 days.   Please allow us time to respond to inquiries already submitted through the FHA Resource Center and the National Servicing Center as duplicate requests will only slow the process.

We appreciate your efforts to work in partnership with us during this demanding time.  Together, we can quickly and effectively get back to the business of supporting the housing market.   We appreciate your patience.


Charles Coulter 

Expiration of HUD approvals for non- profits during the government shutdown

Expiration of HUD approvals for non- profits during the government shutdown

FHA is aware of concerns regarding the expiration of HUD approvals for non-profits during the period of the government shutdown.  Due to the government shutdown, FHA currently cannot review and approve non-profit applications or update the existing list of HUD-approved non-profits.  Lenders may continue to rely on the existing list of approvals as valid for the duration of the government shutdown and FHA will not consider any approval to be expired during this time.  All new and renewal applications will be reviewed and processed as quickly as possible after the government reopens and the list of HUD-approved non-profits will be updated at that time.   

FHA INFO #13-63 Government Shutdown Q & A's

As a result of the government shutdown, FHA Single Family has received several questions regarding our operating plans which we have clarified in the following Q&As.  These Q&As have been added to the Frequently Asked Questions database accessible through the FHA Resource Center.


We greatly regret the inconvenience that this shutdown has caused, but hope the following is helpful during this time.


Q:  Can I get an FHA case number?

A:  Yes. Lenders will be able to obtain an FHA case number from the FHA Connection.


Q:  Will FHA endorse single family loans during a shutdown?

A:  FHA will be able to endorse single family loans, with the exception of Home Equity Conversion Mortgages (HECM) and Title I loans, during the shutdown. A limited number of FHA staff will be available to endorse new loans. Due to limited staff, the time to endorse the cases may be extended.


Q:  Will FHA still be able to endorse my loan if I am not able to obtain tax returns verified by the IRS during the shutdown?

A:  FHA is aware that some lenders obtain tax transcripts directly from the IRS for use in underwriting their FHA-insured loans.  These lenders may be unable to actually obtain any returns directly from the IRS for the duration of the Government shutdown. 


Lenders may continue originating loans using FHA’s existing underwriting requirements, which have not changed as a result of the shutdown.  Lenders are required to obtain tax returns from certain borrowers in order to originate FHA-insured loans and lenders must also continue to obtain the borrower’s signed authorization (i.e., Forms IRS 4506, IRS 8821, or whatever form or electronic retrieval service is appropriate) for any loan for which the borrower's tax returns are required. 


Q:  Why didn’t the borrower’s name and Social Security Number pass validation with the Social Security Administration?

A:  When the lender requests the FHA case number, the borrower’s name, date of birth and Social Security Number (SSN) and property address are entered into FHA Connection (FHAC).  If the overnight matching process with Social Security Administrations (SSA) fails, a Case Warning for SSN Validation will be placed on the case number.  The failure could occur because the data doesn’t match or because the system went offline due to the government shutdown.  SSA has limited tolerance for minor mistakes in names, birth dates and social security numbers, so lenders are reminded of the importance for accuracy in these three data elements when requesting a case number. 


Q:  Can the Social Security Number validation be run again?

A:  Lenders do have the opportunity to make the necessary corrections and a second attempt to validate with SSA will occur.  Any changes made to the borrower's name, birth date and SSN at any time prior to insurance endorsement will trigger a validation request with SSA.  If the revised data passes validation, the Case Warning for SSN Validation will be removed. 


If the failure was caused by the government shutdown, the Case Warning for SSN Validation will not be able to be removed until the government reopens.  FHA will ensure that the validation process takes place and lenders will be advised of the results in FHAC as soon as possible upon the reopening of the government.


Q:  Can I continue to process the loan without the Social Security Number validation?

A:  Lenders may continue processing loans without receiving validation of the borrower’s name and SSN, but FHA will not endorse loans without this validation.  For the Lender Insurance program, lenders will not be able to insure the loans for which this validation has not been received.  


Q:  What happens if I cannot validate the borrower’s SSN?

A: The lender may submit a request for insurance endorsement if confident that the Case Warning was received in error as a result of a system shutdown.  The lender must provide conclusive documentation to verify the SSN such as a valid SSN card issued by the SSA, or an original document issued by a federal or state government agency, which contains the name of the individual and the SSN of the individual, along with other identifying information of the individual in the case binder to support the validity of the borrower’s name and SSN to the applicable Homeownership Center (HOC). 


Lenders may not endorse any loans with Case Warnings for SSN Validation and FHA will require the lender to submit the case binder for endorsement along with conclusive documentation to verify the SSN such as a valid SSN card issued by the SSA, or an original document issued by a federal or state government agency, which contains the name of the individual and the SSN of the individual, along with other identifying information of the individual in the case binder to support the validity of the borrower’s name and SSN to the applicable Homeownership Center (HOC). 


If upon review, FHA believes the documentation provided complies with HUD’s regulations and the loan meets all other FHA requirements, the HOC will endorse the mortgage for insurance.

FHA Mortgagee Letter 2013-33

FHA Mortgagee Letter 2013-33

Published:  September 25, 2013

Subject: Home Equity Conversion Mortgage (HECM) Program’s Mandatory Obligations, Life-Expectancy Set-Aside calculation, and Purchase Transactions

On September 3, 2013, the Federal Housing Administration (FHA) published Mortgagee Letters (ML) 2013-27 and 2013-28, Changes to the HECM Program Requirements and HECM Financial Assessment and Property Charge Guide respectively, which provides HECM policy guidance on new initiatives that will strengthen the Mutual Mortgage Insurance Fund and preserve the financial soundness of the HECM program.

This new ML 2013-33 clarifies policy and makes technical corrections to ML 2013-27.  The affected policies include:

  • Mandatory Obligation definition;
  • Mandatory Obligations for traditional and refinance transactions;
  • Mandatory Obligations for purchase transactions;
  • Disbursements included in the First 12-Month Disbursement Limit and Initial MIP Calculations;
  • Principal Limit future year increase calculation;
  • Life Expectancy (LE) Set-Aside calculation;
  • Purchase transaction pipeline loans; and
  • Repayments from Insurance and Condemnation Proceeds.

To see all FHA Mortgagee Letters visit:

FHA INFO #13-49: Three New Mortgagee Letters, 2013-24, 2013-25, and 2013-26, and Housing Notice 2013-22

FHA Mortgage Letter 13-24

Published: August 15, 2013

Subject: Handling of Collections and Disputed Accounts

In this ML, FHA clarifies policy regarding collections, judgments and disputed accounts to provide lenders with clear guidance on how to underwrite and document borrower’s credit history when determining eligibility.

Relative to this guidance, ML 13-25 was issued today for the TOTAL Scorecard User Guide, announcing updates to Chapter 1, Loan Submission Requirements, and Chapter 2, Underwriting Requirements.

To see all FHA Mortgagee Letters visit:


FHA Mortgagee Letter 13-25

Published: August 15, 2013

Subject: Collections and Disputed Accounts – TOTAL Mortgage Scorecard User Guide

Relative to guidance issued in ML 13-24 above, this ML outlines updates to the TOTAL Scorecard User Guide Chapter 1, Loan Submission Requirements, and Chapter 2, Underwriting Requirements.

To see all FHA Mortgagee Letters visit:

New Case Processing Requirements for Santa Ana Homeownership Center

New Case Processing Requirements for Santa Ana Homeownership Center

On July 19, 2013 the Santa Ana Homeownership Center (HOC) will implement new procedures for certain FHA case processing requests.  The new procedures will mirror the requirements previously implemented in the Denver and Philadelphia HOCs (NOTE: the Atlanta HOC’s procedures will remain unchanged at this time).  The processing request types that fall under these new requirements are:

·         Case Cancellation

·         Case Transfer

·         Case Reinstatement

·         Mortgage Insurance Certificate (MIC) Corrections

As of July 19, requests of this type will no longer be processed through the email address.  Instead, all requests will be sent through the FHA Resource Center (email: These requests will utilize the templates for each process as provided on the following site:



On July 1, 2013 HUD was made aware that the Department of the Treasury is rejecting payment of up-front mortgage insurance transactions where the ampersand (&) character was included in Automated Clearing House (ACH) account holder names. On these cases, users will get the following error message on the Title II Upfront Payment History Screen, “Processing error; contact SF Admin Help Desk”. The Treasury Department will not have a solution in place until Sunday July 14, 2013.

However, HUD has developed a permanent work around to resolve this issue for our clients by removing the “&” character from the Automated Clearing House name field. For those lenders that have loans impacted by this error message, please follow the steps below:

· Re-submit the up-front insurance payment in FHA Connection.

· If an A80R (Upfront) payment is rejected because of a duplicate payment issue, please resubmit it, but add a penny to the amount.

· If late charges need to be added to the payment to make them go through then add the late fee (4%). HUD will adjust the late charges for those that were originally submitted on time and process the refunds once the payments have been reflected in HUD’s system.

Should you have any questions please feel free to email



The U.S. Department of Housing and Urban Development (HUD) is notifying the public today that it will close its offices nationwide on Friday, June 14 as a result of government-wide automatic spending cuts that took effect on March 1, 2013. HUD will resume normal operation on Monday, June 17. We encourage those with business in HUD offices to plan accordingly.

On designated furlough days, employees are forbidden to engage in any agency-related activities and all HUD/FHA Offices will be closed. The HUD/FHA scheduled furlough days are:

· Friday, June 14

· Friday, July 5

· Monday, July 22

· Friday, August 2

· Friday, August 16

· Friday, August 30

Please note that response times to your requests for information and processing may be delayed by up to two additional days during these time periods (this is in addition to the normal 2-3 day standard response time). HUD/FHA apologizes for the inconveniences that may be caused by the implementation of these furlough days and will work with our clients to minimize any negative impacts.

On designated furlough days, certain FHA services will still be available to our clients. Available services are outlined below:

1. The FHA Resource Center. The Resource Center will be open and available to assist clients with FHA-related calls (800-225-5342) and emails ( during its normal business hours of 8:00 AM to 8:00 PM Eastern. Please note that Resource Center staff will be unable to escalate policy clarification or case specific questions to HUD employees on furlough days. Clients will be required to call back on the next business day to seek escalation once HUD Offices have re-opened.

  1. FHA National Servicing Center (NSC) Call Center. The NSC Call Center will be open and available to assist clients with FHA servicing related calls (877-622-8525) and emails during its normal business hours of 8:00 AM to 8:00 PM Eastern. Please note that NSC Call Center staff will be unable to escalate policy clarification or case specific questions to HUD employees on furlough days. Clients will be required to call back on the next business day to seek escalation once HUD Offices have re-opened.

3. HUD Internet Sites. HUD’s main web page (, FHA Connection (, and the HUD Home bidding site ( will be operational and available for normal use. Please note that any system support requests or system outages during furlough days will not be addressed until the next business day.

4. Marketing and Management Contractors. Bidding and maintenance contracts on HUD-owned properties will be available to accept and process bids as well as maintain HUD Homes. Please note that any requests for HUD clarification or support on these contracts will not be available until the next business day.

Message from the FHA Commissioner

Message from the FHA Commissioner



June 3, 2013


FHA and Higher Priced Mortgage Loans

With the implementation of Mortgagee Letter 2013-04 on June 3, 2013, the monthly mortgage insurance premium on FHA loans with loan-to-value ratios exceeding 90% will apply for the life of the loan, rather than terminating when the loan amortizes to a 78% LTV.  FHA recognizes that this change in policy will increase the annual percentage rate (APR) on FHA mortgages and may result in mortgages that exceed the higher priced mortgage loan standard outlined in Regulation Z.


Regulation Z defines a higher-priced mortgage loan (HPML) as a consumer credit transaction secured by the consumer's principal dwelling with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set, by 1.5 or more percentage points for loans secured by a first lien, or by 3.5 or more percentage points for loans secured by a subordinate lien.  (The escrow account requirements also employ a separate threshold of 2.5 percentage points over APOR for “jumbo” mortgages, but this is not relevant for FHA loans.)


To the extent lenders are concerned about the status of FHA’s rulemaking with respect to the Dodd-Frank ability to repay standard and FHA’s qualified mortgage standards, FHA is working to define an FHA QM standard that meets the Dodd-Frank purposes, takes HPMLs into account,  and addresses the needs of the marketplace for lender and investor certainty.  FHA looks forward to the active engagement of all interested parties in achieving a timely and thoughtful approach to these complex issues.


In the near term, FHA understands that mortgages exceeding the HPML threshold will also have to comply with the existing requirements for such loans under Regulation Z.  This is currently true for FHA loans that exceed the HPML threshold, but we understand that implementation of ML 2013-04 may cause additional loans to exceed this threshold.  We have heard that some lenders have concerns about these existing requirements and, in an effort to address those concerns, have consulted with the Consumer Financial Protection Bureau (CFPB) on the following guidance related to escrow accounts, appraisals, ability to repay and prepayment penalties.


FHA expects lenders to fully comply with all applicable requirements for loan origination, including requirements that are established under Regulation Z for HPMLs. We have outlined below where HPML requirements would differ from FHA requirements:


1.      Escrow Accounts:  Regulation Z requires an escrow account for all first-lien HPMLs. Escrow accounts are also required on all FHA loans.  Although the HPML rules generally permit (but do not require) cancellation of mandatory escrow accounts after five years and upon the consumer’s request, FHA does not permit cancellation of required escrow accounts at any time, thus lenders may not cancel escrow accounts on FHA loans whether they are HPMLs or not.


2.      Appraisals:  The existing Regulation Z does not contain specific appraisal requirements and lenders are expected to continue complying with FHA’s appraisal requirements.  Commencing January 18, 2014, Regulation Z’s appraisal requirements will require a full, interior-inspection appraisal for HPMLs with some exceptions.  One such exception is for QMs.


3.      Ability to Repay:  The CFPB has outlined its ability-to-repay requirements in its final rule that will take effect January 10, 2014.  In the interim period before those requirements become effective, the repayment ability requirement previously established by the Federal Reserve Board at 12 CFR 1026.35(b)(1), which will move to section 1026.35(e)(1) as of June 1, 2013, continues to apply.  FHA has consulted with the CFPB and believes that its requirements, found in the current 4155.1, are sufficient to satisfy the Regulation Z ability-to-repay requirements for those FHA-insured loans that will be HPMLs, with certain exceptions:  Streamline Refinances and ARMs may not satisfy the existing, HPML ability-to-repay requirements, depending on how they are underwritten. For example, Streamline Refinances that are HPMLs, and where income or assets relied on are not verified by obtaining confirming documentation, do not meet the ability-to-repay requirements.  For these exceptions, lenders must go beyond the applicable FHA requirements to comply with the HPML ability-to-repay requirements. 


4.      Prepayment Penalties:  CFPB has determined that monthly interest accrual amortization, which FHA permits, should be considered a prepayment penalty.  However, recognizing that HUD must engage in rulemaking to end this practice, CFPB has stated in its final rule published on January 30, 2013, that monthly interest accrual amortization is not a prepayment penalty for FHA loans consummated before January 21, 2015.

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