www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 April 29, 1991 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 91-22 TO: ALL APPROVED MORTGAGEES ATTENTION: Originating and Servicing Mortgagees SUBJECT: Refinancing Section 235 Mortgages The purpose of this letter is to set forth comprehensive procedures for refinancing Section 235 mortgages with new mortgages insured under Section 203(b) or Section 235(r) of the National Housing Act. Currently, the Department of Housing and Urban Development (HUD) is subsidizing old Section 235 mortgages with interest rates as high as 17 1/2 percent. Prior to this letter there has been no incentive for mortgagors with high interest rates to refinance their old Section 235 mortgage as their share of the monthly mortgage payment is equivalent to or less than a monthly mortgage payment that would be associated with a lower interest rate. Furthermore, some mortgagors have not been able to refinance their high interest rate Section 235(i) mortgage because the amount due HUD under the recapture mortgage (a second mortgage which allows HUD to recapture Section 235 assistance payments made on behalf of the mortgagors) could not be paid or HUD's policy prohibiting the subordination of the recapture mortgage prevented the refinance of the old Section 235(i) mortgage to a Section 203(b) Streamline mortgage. These comprehensive procedures are designed to give financial incentives to Section 235 mortgagors and HUD-approved mortgagees. HUD's prime purpose is to lower the high interest rates associated with old Section 235 mortgages and to save the Federal subsidy (Section 235 assistance payments). Approximately 38,000 Section 235 insured mortgages with interest rates of 10 percent or higher may be eligible to be refinanced. _____________________________________________________________________ Old 235 mortgages, where the old Assistance Payments Contract (APC) has been properly suspended or terminated (or should have been suspended or terminated - See top of Page 6 for details) by the servicing mortgagee, are not eligible to be refinanced under the 235(r) Program; but, may be refinanced under Section 203(b) per the Refinance Procedures on Page 33 or the Streamline Refinance Procedures on Pages 34 and 35. Mortgagors, who are eligible for the 235(r) Program, may elect to refinance under Section 203(b). The old APC is terminated on the day before the date of disbursement of the mortgage proceeds of the new Section 203(b) or 235(r) mortgage. If the old 235 mortgage is refinanced with a Section 203(b) mortgage, then there is no entitlement to an APC. Only when an old 235 mortgage is refinanced with a Section 235(r) mortgage, where the mortgagors meet the requirements of this letter, will continuation of the assistance payments under a new APC take place. A recapture mortgage, which is associated with an old 235(i) mortgage that is refinanced by a 235(r) or a 203(b) (Streamline) mortgage, can be subordinated to a new 235(r) or 203(b) mortgage under the requirements and procedures in this letter. (See Paragraph N on Pages 23 through 26 for additional details) For the purpose of this letter, the following definitions will apply: "Old 235 mortgages"* refers to any 235 mortgage which is insured under Sections 235(b), 235(i), or 235(j)(4) of the National Housing Act which includes "old 235(i) mortgages" and "old 235 revised recapture 10 mortgages"; "Old 235(i) mortgages" refers to any 235(i) mortgage that has a recapture mortgage which includes "old 235 revised recapture 10 mortgages"; "Old 235 revised recapture 10 mortgages" refers to only those old 235(i) mortgages that have a recapture mortgage and an old APC with an original contract term of 10 years (all other old 235 mortgages have an APC with a term equal to the original mortgage term); and "235(r) mortgages"* refers to the mortgages which refinance old 235 mortgages, old 235(i) mortgages or old 235 revised recapture 10 mortgages. 2 _____________________________________________________________________ *A 235(r) mortgage that is subsequently refinanced to a 235(r) mortgage is included in this definition. (See Attachment 1, 235 Mortgages (ADP/Suffix Codes), for additional information). The 235(r) Program A. General - The Department of Housing and Urban Development Reform Act of 1989 (Reform Act) authorizes HUD to insure new mortgages (235(r) mortgages) under Section 235(r) of the National Housing Act that refinance old 235 mortgages. Effective with the date of this letter, HUD is implementing the 235(r) Program. B. HUD Handbook 4330.1, REV-2, Administration of Insured Home Mortgages, Chapters 10 and 11 - The requirements and procedures in HUD Handbook 4330.1, REV-2, Chapters 10 and 11, apply to the 235(r) mortgages and must be followed in processing and underwriting at application and servicing these mortgages. Mortgagees can obtain the handbook by contacting the local HUD Field Office. Additional requirements and procedures are set forth in this letter. The recertification requirements and procedures in Chapter 10 Of HUD Handbook 4330.1, REV-2, must be used as the "initial" certification requirements and procedures for the 235(r) mortgage. After the 235(r) mortgage has been executed by the mortgagors and the new servicing mortgagee begins servicing the mortgage, the recertification requirements and procedures must be performed by the mortgagors and the new servicing mortgagee on an annual basis, when requested by the mortgagors or when the mortgagors report any future increases in the family's income which, in total, increases the family's monthly gross income by $50.00 or more. C. Section 235(r) Mortgage Application Processing - Section 235(r) mortgage applications can be processed by any HUD-approved (originating) mortgagee and are eligible to be processed and underwritten by Direct Endorsement (DE) mortgagees and underwriters. Furthermore, DE underwriters are not subject to a "test case" requirement and Direct Endorsement approval by any HUD Field Office qualifies the mortgagee and underwriter to process and underwrite these applications. 3 _____________________________________________________________________ Loan correspondents, who are sponsored by a DE mortgagee, must send the mortgage applications to their sponsor for processing and underwriting. Originating mortgagees, who are not a DE mortgagee, must send the mortgage applications to the local HUD Field Office (where the property is located) for regular processing and underwriting. Section 235(r) mortgages that are processed and underwritten by DE mortgagees and underwriters are subject to a fifty percent (50%) "Post Endorsement Technical Review" requirement when the case binder is sent to the local HUD Field Office for insurance. If the review reveals that the underwriter miscalculated the amount of the assistance payments and the miscalculation results in an overpayment of assistance payments then the local HUD Field Office will notify the originating mortgagee in writing and will include instructions on how to handle the overpayments. Furthermore, the local HUD Field Office will notify the Office of Finance and Administration at HUD Headquarters about the overpayment. D. Prerequisites and Conditions of the 235(r) Program - The following prerequisites must be met before the mortgagors may obtain a 235(r) mortgage to refinance their old 235 mortgage: 1. the mortgagors must be currently eligible for assistance under the old APC; 2. the servicing mortgagee must be receiving monthly assistance payments from HUD on the mortgagors' behalf under the old APC; 3. the mortgagors must occupy the property which is subject to the old 235 mortgage and must continue occupancy after the 235(r) mortgage is closed; and 4. the mortgagors must complete and execute a form HUD-92900, Application of HUD/VA Insured Mortgage (OMB 2502-0059, 4/91), and a form HUD-93100, Application for Homeownership Assistance under Section 235 of the National Housing Act (OMB 2502-0190, 10/91), detailing the family's composition, income, employment and occupancy, and sign a certification averring its accuracy. Mortgagors, who are members of a cooperative association operating a housing project and who are eligible for and receiving assistance payments under an old APC, are not eligible to participate in the 235(r) Program. 4 _____________________________________________________________________ If these prerequisites are met the originating mortgagee must complete the following conditions before HUD can guarantee insurance of a 235(r) mortgage: 1. process (and underwrite if a DE processed case) the 235(r) applications for mortgage insurance and assistance payments in accordance with the requirements and procedures in this letter; 2. determine from the form HUD-93100 and other documents that the mortgagors continue to be eligible for assistance and the amount of the assistance payments under the new APC; 3. determine that the mortgagors have sufficient income to make their share of the full monthly mortgage payment with 20 percent of adjusted monthly income (or, 28 percent, if an old 235 revised recapture 10 mortgage is refinanced); 4. determine that the refinance transaction will result in a reduction of the monthly principal and interest payments from those required on the old 235 mortgage note; The reduction is based on the difference between the Principal and Interest (P + I) payments of the old 235 mortgage at the note interest rate and the 235(r) mortgage at the 235(r) interest rate. 5. perform a mortgage credit analysis (as described in HUD Handbook 4155.1, REV-3. Mortgage Credit Analysis for Mortgage Insurance on One-to-Four Family Properties) when the mortgagors' share of the full monthly payment increases more than $50.00 per month under the 235(r) mortgage; 6. assure HUD that all overpayments of assistance payments have been refunded to HUD by the servicing mortgagee (if the overpayment of assistance payments have not been refunded the 235(r) or 203(b) mortgage application cannot be approved); and 7. consummate (close) the refinance transaction, if it is found acceptable. 5 _____________________________________________________________________ If the originating mortgagee discovers during the 235(r) mortgage application process (i.e., review of form HUD-93100 and its supporting documentation) that the mortgagors were erroneously determined to be eligible for assistance under the old APC by the servicing mortgagee then the originating mortgagee must reject the mortgage application since these mortgagors are not eligible for a 235(r) mortgage. The rejection must be in writing. If the mortgagors question the rejection they should be referred to the servicing mortgagee for an explanation and a possible recertification of their eligibility under the old APC. E. The 235(r) Mortgage Amount - The 235(r) mortgage amount cannot exceed the lower of: 1. the "outstanding principal balance" that is based on the original amortization schedule of the old Section 235 mortgage without taking into account prepayments and delinquency, or 2. the "actual unpaid principal balance" if it is less than the outstanding principal balance of the old Section 235 mortgage. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the reporting requirements of these balances by the servicing mortgagee. Originating mortgagees must use the balances set forth on the Section 235 Payoff Statement to determine the 235(r) mortgage amount that is used in the P + I payment and MIP computations required by this letter. The Section 235(r) mortgage amount must be rounded down to the nearest $50.00 increment before applying the P + I factors for the interest rates associated with the 235(r) mortgage application (i.e., initial, 235(r) and floor; See Paragraph I on Pages 9 through 12) and the "periodic" Mortgage Insurance Premium (MIP) factor for the initial MIP. This mortgage amount must be incorporated into the 235(r) mortgage instruments. Actual or eligible upfront costs as explained on Pages 13 and 14 cannot be incorporated into the 235(r) mortgage amount. 6 _____________________________________________________________________ F. The 235(r) Mortgage Term - The maximum term of the 235(r) mortgage cannot exceed the remaining term of the old 235 mortgage as of the date of closing the 235(r) mortgage, rounded down to the next whole year. For example, if the remaining term of the old 235 mortgage as of the date of closing is 23 years, 11 months and 3 days, the maximum term of the 235(r) mortgage is 23 whole years. A 235(r) mortgage may have a term in whole years that is less than the maximum term. The term of the 235(r) mortgage is used in conjunction with the interest rates associated with the 235(r) mortgage to determine the respective P + I factors and MIP factor. These factors are used in the processing and underwriting of the 235(r) mortgage and determining the amount of the P + I payments, MIP and assistance payments. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the remaining term of the old Section 235 mortgage. G. The 235(r) "Periodic" Mortgage Insurance Premiums - The 235(r) mortgage is subject to "periodic" MIP. The premiums are included in the mortgagors' monthly mortgage payments and escrows must be established for the payment of these premiums. The amount of the premium is computed on an annual basis at seven-tenths of one percent (.7%). The MIP factor is based on the 235(r) interest rate and term of the 235(r) mortgage. The "periodic" MIP requirements are set forth in HUD Handbook 4330.1, REV-2. The factors in Attachment 4, Section 235(r) Mortgages - Initial and Annual Mortgage Insurance Premiums Factor Table, are computed to reflect the MIP at .7 percent for a variety of 235(r) interest rates and 235(r) mortgage terms. These factors must be used to compute the initial MIP and the annual MIP for subsequent premium years. MIP factors found in HUD Handbook 4330.1, REV-2, cannot be used with a 235(r) mortgage because they are computed for different amortization periods that may not apply to a 235(r) mortgage. H. Principal and Interest (P + I) Payments associated with the Section 235(r) Mortgage during and after the Recovery Period and Related Issues - As with any other P + I payment computations the 235(r) mortgage must take into consideration the mortgage's respective mortgage amount, term and interest rates. The P + I payments are determined at application and are set forth in the 235(r) mortgage instruments. 7 _____________________________________________________________________ The following subparagraphs set forth the computational requirements when determining the P + I payments of the 235(r) mortgage that must be used in processing and underwriting the mortgage, determining the assistance payments (i.e., computations on form HUD-93100) and other computations, such as, determining the "payment savings" on Page 16, etc. The interest rates used in these computations are set forth in Paragraph I on Pages 9 through 12. 1. "Initial" P + I Payments that are due under the Section 235(r) Mortgage during the Recovery Period - The P + I payments that are due under the 235 mortgage during the recovery period (a computed period of time where the originating mortgagee recoups the eligible upfront costs of refinancing the old 235 mortgage) are determined as follows: a. if the 235(r) mortgage amount* is based on the outstanding principal balance then the P + I payments are the same as those on the old 235 mortgage, or b. if the 235(r) mortgage amount is based on the actual unpaid principal balance then the P + I payments must be computed using the P + I factor respective to the "initial" interest rate and term of the 235(r) mortgage. However, these payments cannot exceed the P + I payments of the old 235 mortgage. (See, Paragraph E, The 235(r) Mortgage Amount, on Page 6 for details.) These P + I payments are incorporated into the 235(r) mortgage instruments and are used to compute the assistance payments (Formula One and Formula Two computations) during the recovery period. The P + I payments are also used to compute the "payment savings" on Page 16. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the P + I payments, note interest rate, outstanding principal balance and actual unpaid principal balance of the old 235 mortgage. *When the P + I payments that are due under the old 235 mortgage are used as the "initial" P + I payments the 235(r) mortgage amount must be rounded down to the nearest $50.00 increment. 8 _____________________________________________________________________ 2. P + I Payments at the 235(r) Interest Rate that are due under the Section 235(r) Mortgage after the Recovery Period - The P + I payments at the 235(r) interest rate that are due under the 235(r) mortgage after the recovery period are computed by multiplying the 235(r) mortgage amount by the P + I payment factor respective to the 235(r) interest rate and the term of the 235(r) mortgage. These P + I payments are incorporated into the 235(r) mortgage instruments and used to compute the assistance payments (Formula One and Formula Two computations) after the recovery period. These P + I payments are also used to compute the "payment savings" on Page 16. These P + I payments take effect on the first day of the month after the last month of the recovery period and remain in effect until the mortgage terminates. Servicing mortgagees are responsible for monitoring the date on which these P + I payments take effect. 3. P + I Payments at the Interest Rate Floor that are used to determine the Assistance Payments during and after the Recovery Period - The P + I payments at the interest rate floor that are used in the Formula Two computation during and after the recovery period are computed by multiplying the 235(r) mortgage amount by the P + I payment factor respective to the interest rate floor and the term of the 235(r) mortgage. I. Interest Rates and Related Issues - Three different interest rates (initial, 235(r) and floor) affect the processing and underwriting of any 235(r) mortgage application. These interest rates are used in the computational requirements set forth in Paragraph H on Pages 7 through 9 that determine the P + I payments respective to the 235(r) mortgage and assistance payments (Formula One and Formula Two computations) at application, and during and after the "recovery period". Furthermore, 235(r) mortgages cannot be originated when the 235(r) interest rate exceeds a "maximum cap rate". (See Recovery of Eligible Upfront Costs on Page 15 for details on the "recovery period".) Monthly P + I factors for the "initial" and 235(r) interest rates are found in forms FHA-2025(A, B, C and D), Supplement, Amortization, Insurance Premium and Outstanding Principal Balance Tables, and can be used to compute the periodic payments of P + I associated with the 235(r) mortgage. 9 _____________________________________________________________________ The FHA No. 2025 comes in various supplements covering ranges of interest rates. These supplements can be obtained from the local HUD Field Office. Furthermore, Subparagraph I - 3 on Pages 11 and 12 prescribes the P + I factors that must be used with the interest rate floor. 1. Initial Interest Rate - The "initial" interest rate is defined as: "The initial interest rate is the old 235 note interest rate. It is used to compute the P + I payments at application and during the recovery when the 235(r) mortgage amount is the actual unpaid principal balance of the old 235 mortgage. This interest rate is included in the 235(r) mortgage instruments to allow the originating mortgagee to earn additional income to recoup the eligible upfront costs associated with the 235(r) mortgage." The "initial" interest rate must be at least 1% higher than the 235(r) interest rate on the date of the application. This requirement must be met even though the "initial" payments due under the 235(r) mortgage are the same as the P + I payments due under the old Section 235 mortgage. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the old 235 note interest rate. The prepaid interest associated with the 235(r) mortgage is computed at the initial interest rate. Up to the first 10 days of prepaid interest may be included in the actual and eligible upfront costs and any excess prepaid interest must be paid in cash by the mortgagors at closing. Therefore, mortgagors should be encouraged to close within the last 10 days of the month. (See Subparagraphs K - 1 and K - 2 on Pages 13 and 14.) 2. 235(r) Interest Rate - The 235(r) interest rate is defined as: "The 235(r) market rate is determined by using the current coupon rate (i.e. the maximum VA 30-year fixed rate less 1/2 percent) on Government National Mortgage Association Mortgage-Backed Securities (GNMA's MBS) scheduled for 60 day delivery shown on the Telerate System's Mortgage Service, page 7105, or successor, at the market's closing on the date of application, plus an additional one half of one percent (1/2%). In the event 10 _____________________________________________________________________ that the price discount on the current coupon exceeds 2 points, the market rate will be the next higher GNMA coupon rate (not exceeding par), as shown on page 7105 of the Telerate Service, plus an additional one half of one percent (1/2%)". The 235(r) interest rate cannot be negotiated between the originating mortgagee and the mortgagors. It is the market interest rate at which the 235(r) mortgage amortizes and is closed and pooled (or traded). This interest rate is subject to the fluctuations of the GNMA securities (secondary) market and the primary market. Reasonable and customary discount points are based on the 235(r) interest rate. The 235(r) interest rate is included in the 235(r) mortgage instruments and is used to determine the P + I payments and the assistance payments (Formula One and Formula Two computations) after the recovery period. The 235(r) interest rate takes effect on the first day of the month after the last month of the recovery period and remains in effect until the mortgage terminates. Servicing mortgagees are responsible for monitoring the date on which the 235(r) interest rate takes effect. 3. The Interest Rate Floor - The interest rate floor that is associated with the old APC is the interest rate floor for the new APC. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the interest rate floor of the old APC. The P + I factors for the interest rate floors that are found in HUD Handbook 4330.1, REV-2, cannot be used for processing, underwriting and servicing the 235(r) mortgages because these factors are based on an original 30 year term. The term of the 235(r) mortgage is based on the remaining term of the old 235 mortgage and will vary in each refinance transaction. The interest rate floor is used in the Formula Two computation where the assistance payment is the difference between the amount of the monthly payment for principal, interest and mortgage insurance premium which the mortgagors are obligated to pay under the 235(r) mortgage and the monthly payment for principal and interest which the mortgagors would be obligated to pay if the 235(r) mortgage were to bear interest at the interest rate floor. 11 _____________________________________________________________________ The P + I factors in Attachment 3, Section 235(r) Interest Rate Floor(s) - Factor Table, are computed to reflect the interest rate floors for a variety of interest rate floors and 235(r) mortgage terms. These factors must be used to compute Formula Two when the 235(r) mortgage is processed and underwritten and when subsequent assistance payments are recomputed by the new servicing mortgagee. 4. Maximum Cap Rate for 235(r) Mortgage Applications - To prevent 235(r) refinance transactions at temporarily high market rates the 235(r) interest rate determined at application is subject to a "maximum cap rate". A "maximum cap rate" is computed at par value (100) and is the maximum rate that the 235(r) interest rate (computed at par value (100)) can float when interest rates are increasing in the marketplace. HUD will establish the maximum cap rate. The "initial" maximum cap rate is 11.0 percent. HUD will monitor the yields of mortgages in the primary and secondary markets and will periodically issue a Federal Register Notice and a mortgagee letter which set forth a new maximum cap rate when conditions dictate a change. 5. Government National Mortgage Association (GNMA) Securities - The 235(r) mortgages may be pooled in GNMA's carrying the 235(r) interest rates, not the "initial" interest rates. J. Formula One and Formula Two Computations that are used to determine the Amount of the 235(r) Assistance Payments - Instructions on how to complete these computations are attached to the form HUD-93100. These instructions need to be amended by the following computational requirements: 1. Formula One Computations during the Recovery Period - Formula One is the difference between the mortgagors' full share (20 or 28 percent of adjusted monthly income) and the required monthly payment under the 235(r) mortgage for the "initial" P + I payments, taxes, insurance and MIP. 2. Formula One Computations after the Recovery Period - Formula One is the difference between the mortgagors' full share (20 or 28 percent of adjusted monthly income) and the required monthly payment under the 235(r) mortgage for the P + I payments at the 235(r) interest rate, taxes, insurance and MIP. 12 _____________________________________________________________________ 3. Formula Two Computations during the Recovery Period - Formula Two is the difference between the required monthly payment under the 235(r) mortgage for the "initial" P + I payments plus MIP and the monthly P + I payments at the interest rate floor. 4. Formula Two Computations after the Recovery Period - Formula Two is the difference between the required monthly payment under the 235(r) mortgage for the P + I payments at the 235(r) interest rate plus MIP and the monthly P + I payments at the interest rate floor. The 235(r) assistance payments that are paid on behalf of the mortgagors by HUD are the lower of the Formula One or Formula Two computations. (See HUD Handbook 4330.1, REV-2, for examples of these computations.) K. Upfront Costs of the 235(r) Mortgage and Related Issues : 1. Actual Upfront Costs - Originating mortgagees must pay all the actual upfront costs associated with the 235(r) mortgage. These costs include, but are not limited to: a. the one percent (1%) loan origination fee; b. the mortgagors' prepaid interest (up to the first 10 days); c. actual closing costs and discount points (discount points are "locked-in" on the date of the application); d. current interest and delinquent interest (up to 2 months); e. any amount due the servicing mortgagee (not including interest) above the 235(r) mortgage amount as set forth in Paragraph E, The 235(r) Mortgage Amount, on Page 6; and the f. financial incentives paid to the mortgagors (See Subparagraph K -3, on Page 14 for details). 2. Eligible Upfront Costs - HUD allows originating mortgagees to recoup certain upfront costs associated with the 235(r) mortgage. These costs are called "eligible" upfront costs and they include all the "actual" upfront costs except "actual" closing costs and discount points that must be substitute by the lower of: 13 _____________________________________________________________________ a. "actual" closing costs and discount points that are associated with the 235(r) refinance transaction, or b. the customary and reasonable closing costs and discount points for a Section 203(b) mortgage at the market interest rate that is equal to the 235(r) interest rate. 3. Mortgagors' Financial Incentives - Originating mortgagees must pay the mortgagors a cash payment of $450.00 as a financial incentive to refinance to a 235(r) mortgage. Also, originating mortgagees must pay the mortgagors a "bonus" cash payment of $200.00 as an additional financial incentive when the "recovery period" does not exceed 24 months (See Subparagraph K - 7 on Pages 16 through 18 for details on determining the recovery period). The financial incentives are payable to the mortgagors at closing and can be used to offset the mortgagors' prepaid expenses for the 235(r) mortgage. Originating mortgagees must inform the mortgagors that they may need assistance from a tax advisor regarding the tax consequences of the mortgagee paying financial incentives to the mortgagors and the mortgagee paying for, or on behalf of, the mortgagors any upfront costs. The mortgagors will certify on the form HUD-93100 that the originating mortgagee has so informed them. Mortgagees should not give tax advice unless they are Professionally qualified to do so. 4. The Mortgagors' Prepaid Expenses - The mortgagors must pay their prepaid expenses (escrow deposits and prepaid interest that exceeds the amount included in the actual upfront costs paid by the originating mortgagee). Originating mortgagees can offer an interest free advance equal to the present escrow balance on the old 235 mortgage to assist the mortgagors with these prepaid expenses that they will be required to pay in cash at closing. Also, the mortgagors' financial incentives (at the mortgagors' option) can be applied toward their prepaid expenses. The cash amount that is required at closing from the mortgagors for their prepaid expenses will depend on the date of disbursement of the 235(r) mortgage proceeds and the date of the first scheduled monthly amortization payment, and on the method used by the originating 14 _____________________________________________________________________ mortgagee to determine the first assistance payment (initial partial assistance payment) under the new APC. (See next paragraph) 5. First Section 235(r) Assistance Payments - The first (initial partial) assistance payment may offset some of the mortgagors' prepaid expenses. It is computed for the period of time beginning with the date of disbursement and ending with the last day of the month that precedes the first scheduled monthly amortization payment. The prepaid interest that is paid by the originating mortgagee at closing cannot be used to compute the first assistance payment. Originating mortgagees must select one of two methods (i.e., Interest Collected at Closing or Adjusted Mortgage Payment) to determine the first assistance payment for the new APC. These methods are set forth in HUD Handbook 4330.1, REV-2, and Appendix 2 sets forth a computational example. The method selected must be the one that is most advantageous to the mortgagors. 6. Recovery of Eligible Upfront Costs - originating mortgagees can recoup the eligible upfront costs during a (computed) period of time called the "recovery period". The recovery period is computed by the method (Recovery Method) set forth in Subparagraph K - 7 on Pages 16 through 18 and cannot exceed 60 months (5 years). A 235(r) refinance transaction with a recovery period exceeding 60 months is not eligible for mortgage insurance. The originating mortgagee not the investor (e.g., GNMA Investor) will be the ultimate source of the upfront costs associated with the 235(r) mortgage. The Recovery Method (i.e., Recovery Period Formula on Page 18) adds 300 basis points to the 235(r) interest rate for computation of the recovery period in whole months. These basis points cover the originating mortgagee's cost of funds and risk for very early mortgagor-induced prepayment. HUD requires mortgagors to pay all the upfront cost of a subsequent Section 235(r) to Section 235(r) refinance transaction that occurs within 60 months after the date of the first payment to principal and interest of the original 235(r) mortgage (See Paragraph R on Pages 27 and 28). Section 235 mortgages have typically prepaid at much slower rates than Section 203(b) mortgages. 15 _____________________________________________________________________ Subparagraph K - 7 on Pages 16 through 18 explains how to determine the recovery period. Appendix 1 sets forth an example of determining the recovery period and the use of Attachment 2, Table of Recovery Periods. 7. Computing the Recovery Period - To determine the number of months in the recovery period for any 235(r) mortgage application three items are needed: the Ratio (Eligible Upfront Costs/Payment Savings Ratio), the 235(r) interest rate and Attachment 2, Table of Recovery Periods. (See Appendix 1, Using Steps 1 through 6 To Determine The Recovery Period in Whole Months, for an example on how to determine the recovery period.) a. Determining the Recovery Period - A six (6) step process must be completed as follows: STEP 1: Determine the Upfront Costs - The upfront costs (in dollars) are used as the numerator* in the Ratio computation (STEP 3). * Use the "Good Faith Estimate" (GFE) to determine the estimated eligible upfront costs when processing and underwriting the 235(r) mortgage application. (See Subparagraph K - 8 on Page 18) * Use the attachment to form HUD-1, Settlement Statement, to determine the eligible upfront costs when preparing the 235(r) mortgage instruments for closing. (See Subparagraph K - 9 on Page 19) The originating mortgagee or its agent must recompute the recovery period on or before the date of closing so that the eligible upfront costs that are set forth on the attachment to form HUD-1 are incorporated in the computations that determine the recovery period that must be set forth in the 235(r) mortgage instruments. STEP 2: Compute the Payment Savings - The payment savings (in dollars) are used as the denominator in the Ratio computation (STEP 3). The payment savings are computed as follows: the "initial" P + I payments that are due under the 235(r) mortgage minus the P + I payments at the 235(r) interest rate that are due under the 235(r) mortgage equals the payment savings. 16 _____________________________________________________________________ STEP 3: Compute the Ratio : Upfront Costs (STEP 1) ________________________ = Ratio (Rounded up Payment Savings (STEP 2) up to the nearest quarter) STEP 4: Find the 235(r) interest rate on the Mortgage Application - The 235(r) interest rate is set forth in Block 8-B, Interest Rate, on form HUD-92900. STEP 5: Find the number of whole months in the Recovery Period - To find the number of whole months Attachment 2 must be used to find the intersection of the "Ratio" at the 235(r) interest rate. Use of Attachment 2, Table of Recovery Periods - Attachment 2 has two columns: Column 1 sets forth a variety of ratios and the remaining columns (Column 2) set forth the recovery periods in months at different 235(r) Interest Rates. The originating mortgagee must locate the "Ratio" value in the first column and then read across that row to obtain the recovery period in whole months from the column corresponding to the 235(r) interest rate. STEP 6: Determining the beginning and ending of the Recovery Period - The beginning of the recovery period is the date on which the first scheduled monthly amortization payment is due under the 235(r) mortgage. The end of the recovery period is determined as follows (for example): The date of the first scheduled monthly amortization payment is March 1, 1991 and the recovery period is 11 months. The last month of the recovery period (i.e., ending date of January 31, 1992) is counted on a calendar as follows : 1991 J F M A Ma J Ju Au S O N D 1 2 3 4 5 6 7 8 9 10 17 _____________________________________________________________________ 1992 J F M A Ma J Ju Au S O N D 11 xx...Beginning February 1, 1992 the 235(r) interest rate takes effect where the scheduled monthly amortization payment due on March 1st includes interest at this interest rate. b. Use of the Recovery Period Formula - Attachment 2 was computed using the following "Recovery Period Formula". The resulting table is based on solving the standard payment formula for "n" and substituting the originating mortgagee's eligible upfront costs for present value (PV), the payment savings for payment (PMT), and adding 300 basis points to the 235(r) interest rate to cover the originating mortgagee's cost of funds and risk for very early "mortgagor-induced" prepayment. Originating mortgagees may elect to use the following formula to determine the number of whole months necessary to recoup the eligible upfront costs: - ln(1 - iPV/PMT) n = _________________ ln 1 + i) where n = Number of months necessary to recoup the eligible upfront costs i = (235(r) interest rate + 300 basis points) / 12 PV = eligible upfront costs (See STEP 1) PMT = payment savings (See STEP 2) Originating mortgagees must verify their computations to the recovery period on Attachment 2. 8. Good Faith Estimate - The originating mortgagee at the time of the 235(r) mortgage application must issue to the mortgagors a "Good Faith Estimate" (GFE) of the estimated upfront costs as set forth in Subparagraph K - 1 on Page 13. A copy of the GFE must be included in the case binder when it is sent to the local HUD Field Office for mortgage insurance. 18 _____________________________________________________________________ 9. Form HUD-1, Settlement Statement - The originating mortgagee or its agent must complete and have the mortgagors execute at closing a form HUD-1 that enumerates the actual upfront costs associated with the 235(r) refinance transaction. Furthermore, attached to the form HUD-1 must be a separate sheet of paper that enumerates each eligible upfront cost. A copy of the form HUD-1 and attachment must be included in the case binder when it is sent to the local HUD Field Office for mortgage insurance. L. The Characteristics of the New Assistance Payments Contract (Now APC) and 235(r) Assistance Payments Billings : 1. The New 235(r) APC - The issuance of the Mortgage Insurance Certificate (form HUD-59100, MIC) will constitute the execution of the new 235(r) APC (new APC). The new APC will not be a separate written contract between HUD and the originating mortgagee, but rather 24 CFR Part 235, Subpart C, as modified by the Notice published in the Federal Register (N-91-3219 FR-2739), will constitute the new APC. 2. The New 235(r) APC's Contract Term - The contract term of the new APC commences on the date of disbursement of the 235(r) mortgage proceeds and expires at the end of the 235(r) mortgage term, or such earlier time as the new APC is terminated pursuant to 24 CFR 235.375. An exception, as described in Subparagraph L-3, below, is made for the new APC (new APC 10) which is associated with the 235(r) mortgage that refinances an old 235 revised recapture 10 mortgage. 3. The New APC 10 - The new APC 10 will not be a written contract and will be represented as set forth in Subparagraph L-1, above. The new contract term of the new APC 10 will commence on the date of disbursement of the 235(r) mortgage proceeds and will expire on the "expiration date" of the new contract term as set forth in the next paragraph, or such earlier time as the new APC 10 is terminated pursuant to 24 CFR 235.375. 19 _____________________________________________________________________ The "expiration date" of the new APC 10 can be determined by adding 10 years to the date of the first scheduled monthly amortization payment under the old 235 revised recapture 10 mortgage. The Section 235 Payoff Statement requirements on Pages 35 through 38 set forth the date of the first scheduled monthly amortization payment under the old 235 revised recapture 10 mortgage. Attachment 5, Acknowledgment of Mortgagor(s), must be executed by the mortgagors on the date of closing of the 235(r) mortgage (Use with 235 revised recapture 10 refinancings only). A copy of the original APC which is associated with the old 235 revised recapture 10 mortgage is required to be attached to the Section 235 Payoff Statement. 4. Date of the 235(r) Mortgage Proceeds Disbursement - The originating mortgagee must complete the instructions to and must execute Attachment 6, Mortgagee's Certificate of the Date of Disbursement of the Section 235(r) Mortgage Proceeds. The date of disbursement is the date on which the contract term of the new APC or APC 10 commences. Prior to the date of disbursement HUD is not obligated to pay any assistance payments which are associated with the new APC or APC 10. 5. Section 235(r) Assistance Payments Billings - Within 5 days after receiving the 235(r) MIC the originating mortgagee, or its agent, must send to the address below the following completed and executed documents: a. form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act (original); b. a copy of form HUD-27050-A, Mortgage Insurance Termination-Application for Premium/Distributive Payments, for the old 235 mortgage (obtained from the servicing mortgagee); c. the form HUD-93114, Notice of Termination, for the old APC or APC 10 (obtained from the servicing mortgagee); d. the original Attachment 6, Mortgagee's Certificate of the Date of Disbursement of the Section 235(r) Mortgage Proceeds; 20 _____________________________________________________________________ e. a copy of the Section 235 Payoff Statement; f. a copy of the 235(r) MIC (Part 2); and g. the original Attachment 5, Acknowledgment of Mortgagor(s), if a new APC 10 is involved. These documents must be sent to: Department of Housing and Urban Development, Office of Finance and Administration, Room 3206, Washington, D.C., 20410. The originating mortgagee must obtain from the servicing mortgagee a copy of form HUD-27050-A for the old 235 mortgage and the form HUD-93114 for the old APC. The original form HUD-27050-A must be sent to HUD by the servicing mortgagee (the address is inscribed on the form). The Office of Finance and Administration will not establish a new APC or APC 10 account without first terminating the old APC account. The Office of Finance and Administration will set up a new APC or APC 10 account by the 235(r) FHA case number which will enable the Office of Finance and Administration to process the new servicing mortgagee's requests for assistance payments and to disburse funds to the new servicing mortgagee once the bill has been validated. The servicing mortgagee will not be paid on the new APC or APC 10 until the account is set up by the office of Finance and Administration. Once the account is established, the servicing mortgagee can request the initial 235(r) assistance payments on the next billing date which is at least 30 days after the documents in Subparagraphs L - 5(a) through 5(f) have been received by the Office of Finance and Administration. The initial amount of the 235(r) assistance payments must represent the first assistance payment (as set forth in Subparagraph K - 5, Page 15) and any subsequent monthly assistance payments that are due and payable to the new servicing mortgagee prior to the new APC or APC 10 account being set up. Mortgagees should send these documents to the Office of Finance and Administration by "Return Receipt Requested" or by courier. Requests for assistance payments must be submitted on form HUD-93102, Mortgagee's Certification and Application for Assistance or Interest Reduction Payments, in accordance with HUD Handbook 4330.1, REV-2. 21 _____________________________________________________________________ At present HUD is not going to change form HUD-93102 to establish a block (See form HUD-93102) to allow new servicing mortgagees to separately itemize the 235(r) assistance payments for billing purposes. Instead, the new servicing mortgagee must indicate the 235(r) assistance payments under the old type of payments applied for (e.g., 235 Revised or 235 Recaptured). For example, if the old 235 mortgage has a suffix code of 265, the new servicing mortgagee would indicate the 235(r) assistance payments under the type of payments applied for as "Assistance Payments under Section 235 Revised" and would include the 235(r) assistance payments (and adjustments) in Block 2, "235 Revised". In addition, if the 235(r) mortgage refinanced an old 235 revised recapture 10 mortgage, the new servicing mortgagee must include the amount of the APC 10 assistance payments under "235 Revised/Recapture/10" and must specify on form HUD-300 under Column 3, Explanation of Adjustments, that the case is a 235(r) mortgage. M. The 235(r) Mortgage (or Deed of Trust) Provisions and Allonge Amending Note for Section 235(r) - The model forms for the Security Instrument and Note to be used in the single family mortgage insurance programs were published in Mortgagee Letter 89-23, dated October 11, 1989. We have prepared a specimen form for use in amending the form Note so that it provides for an initial interest rate and to reflect monthly payments for principal and interest at the initial interest rate and the 235(r) interest rate. The originating mortgagee will have to adapt this specimen form so that it meets all applicable State and local requirements. (See Appendix 3, Allonge Amending Note for Section 235(r).) With respect to the Security Instrument, since the originating mortgagee must follow the model form contained in the Mortgagee Letter (above), there need not be an amendment to it since the model form does not contain the interest rate or the payment terms of the Note. The originating mortgagee will have to make whatever amendments to the Security Instrument which are required by State and local laws. The 235(r) mortgage must be a first lien on the property which is held in fee simple, or on a leasehold under a lease where the term is for not less than 99 years (which is renewable) or has not less than 10 years to run beyond the maturity date of the 235(r) mortgage. 22 _____________________________________________________________________ N. Recapture Mortgages : 1. Execution of a Modification and Subordination Agreement to the Recapture Mortgage (or Deed of Trust) and Execution of a New Recapture Note - Old 235(i) mortgages and old 235 revised recapture 10 mortgages where a firm commitment was issued after May 27, 1981, have a recapture mortgage (or deed of trust) and note which is a junior mortgage that allows for the recapture by HUD of Section 235 assistance payments made on behalf of the mortgagors. HUD will allow the modification and subordination of the recapture mortgage to the 235(r) mortgage where the originating mortgagee has followed the instructions set forth in Attachment 7, Instructions to complete the modification and subordination agreements for HUD's recapture mortgage. These instructions require that the mortgagors, the originating mortgagee and HUD, or its designee, execute Attachment 7 - A, Mortgage Modification and Subordination Agreement, or Attachment 7 - B, Deed of Trust Modification and Subordination Agreement. In addition, the mortgagors must execute a new recapture note on the date of closing of the 235(r) mortgage. (Appendix 56, Note, HUD Handbook 4330.1, REV-2; See handbook instructions for details.) The DE underwriter, who underwrites and certifies the 235(r) case which includes the subordination of the recapture mortgage, or a corporate officer of the DE mortgagee, who has the authority to legally obligate the mortgagee, is delegated by HUD the limited authority, as its authorized official (designee), to execute on HUD's behalf the modification and subordination a agreement. The local HUD Field Office's authorized official (e.g., Manager) will execute the modification and subordination agreement for those cases where a form HUD-92900.4, Firm Commitment, was issued. These authorized officials must execute the respective agreement on or before the date of closing of the 235(r) mortgage. The originating mortgagee, or its agent, must 23 _____________________________________________________________________ have the respective agreement properly recorded concomitant with the recordation of the new 235(r) mortgage. The recorder's office must be instructed by the originating mortgagee, or its agent, to send the original agreement to the local HUD Field Office (ATTN: Documents Officer). The recapture mortgage will retain the same provisions (terms and conditions) with the exceptions contained in the respective modification and subordination agreement. Since the conditions requiring the payment of the recapture mortgage will not have occurred, the modified and subordinated mortgage will not be due and payable. The recapture mortgage is, now, treated as any other existing mortgage which may be subordinated without regard to the total indebtedness against the property and can be subordinated only to the 235(r) mortgage. Other existing mortgages can be subordinated to the 235(r) mortgage and the modified and subordinated recapture mortgage. The amount of the recapture will continue to be calculated under the procedures set forth in Chapter 11 of HUD Handbook 4330.1, REV-2, and will represent the lesser of the total amount of assistance paid by HUD (less handling charges) or half of the net appreciation of the property, which is based on a contract of sale, or an appraisal, when the property is sold, less the original purchase price of the property and reasonable costs of sale and qualified improvements. The mortgagors must be informed of the effects of the modification and subordination of the recapture mortgage and must execute Appendix 44, Notice to Buyer, in HUD Handbook 4330.1, REV-2. The appendix's title must be changed to read "Notice to Mortgagors". A copy of Appendix 44 must be furnished to the mortgagors. Within 5 days after the closing date of the 235(r) mortgage, the originating mortgagee, or its agent, must send a copy of the modification and subordination agreement, the new recapture note and the original of the newly executed Appendix 44 to the local HUD Field Office 24 _____________________________________________________________________ (ATTN: Documents Officer). These documents are sent to the local HUD Field Office separate from the case binder. The costs of the document's preparation and recordation plus postage or other fees must be borne by the mortgagee. 2. A Recapture Mortgage (or Deed of Trust) can be Subordinated to a Junior Mortgage (or Deed of Trust) Held or Insured by a Government Unit - Some old 235(i) mortgages were originally processed, underwritten and executed where a government unit (Federal, State or local government agency or instrumentality) financially assisted the mortgagor in becoming a homeowner. These government units obtained or insured a second mortgage and HUD's recapture mortgage was secured as a third mortgage. In refinance transactions where a government unit has agreed to subordinate the second mortgage to a 235(r) mortgage and retain its second lien status, HUD will allow the modification and subordination of the recapture mortgage to the 235(r) (first) mortgage and the government unit's subordinated second mortgage. The same subordination requirements and procedures as set forth in Subparagraph N-1, above, apply. HUD will not authorize the subordination of the recapture mortgage to any other junior mortgage. Attachments 7 - A through 7 - D cannot be used to subordinate a government unit's second mortgage. The government unit will have to use their own. 3. Originating Mortgagee's Certification of HUD's Lien Priority after Recordation of the Modification and Subordination Agreement - The originating mortgagee will certify to HUD, after the concomitant recordation of the 235(r) mortgage and the modification and subordination agreement, that HUD holds a second lien priority, or a third lien priority if the recapture mortgage is subordinated to a mortgage held or insured by a government unit. 25 _____________________________________________________________________ For Direct Endorsement processed cases the mortgagee must complete the Direct Endorsement certifications set forth in Attachment 8, 235(r) Direct Endorsement Certifications Section 235 To Section 203(b) or 235(r); and, for HUD processed cases, the mortgagee must execute Attachment 7-E, Mortgagee's FHA Case Certification To A HUD Processed Case. 4. Assumption of a Modified and Subordinated Recapture Mortgage and Note - The recapture mortgage, which is modified and subordinated to the 235(r) mortgage, can be assumed by a future purchaser if he meets the requirements for the assumption of the 235(r) mortgage which are set forth in the mortgage and the requirements for assumption of the recapture mortgage as set forth in HUD Handbook 4330.1, REV-2. The future purchaser will be required to execute a new recapture note when the assumption is consummated. O. Section 235 Mortgages Directory - The Reform Act authorizes HUD, upon the request by any HUD-approved mortgagee, to disclose specific information on mortgages insured under Section 235 that meet the criteria for refinance. Mortgagees can obtain a Section 235 Mortgages Directory that contains the mortgagors' name (last known), property address, FHA case number, ADP code, endorsement date, original mortgage balance and interest rate for each mortgage that may be eligible for refinancing under the 235(r) Program. The directory is organized by state, zip codes within the state and the mortgagors' name. Old 235 mortgages with interest rates of ten percent or more are contained in the directory. Mortgagees must send a written request for the directory. The written request must include the information set forth in Attachment 9, 235 Mortgages Directory - Written Request, and it must be sent to the address designated on the attachment. Attached to the written request must be a money order or certified check which is payable to the U.S. Department of Housing and Urban Development for the amount required to purchase the quantity desired ($50.00 each hard copy, $150.00 each set of floppy disks or $250.00 each magnetic tape). 26 _____________________________________________________________________ P. Check Lists to Assist the Originating Mortgagee, or its Agent - The application processing and documents disposition requirements set forth in this letter are arduous. To assist the originating mortgagee, or its agent, the following check lists have been developed for 235 refinancing transactions and may be used with the 235(r) Program (i.e., Attachments 10 - A thru 10 - D) and the 203(b) Refinance and Streamline Refinance procedures (i.e., Attachments 10 - B and 10 - D): 1. Attachment 10 - A, 235(r) Application Processing - Questions and Answers/Check List, may be used during the pre- and post-application processing which takes place prior to the application being sent to the DE underwriter or the local HUD Field Office for underwriting. 2. Attachment 10 - B, 235(r) or 203(b) Documents Disposition/Check List For The 235(r) Case Binder And The Origination And Servicing Files, may be used (after the 235(r) or 203(b) mortgage has been closed) to: complete the origination file, prepare for shipment those documents that are included in the case binder and are sent to the local HUD Field Office for insurance, and establish the new servicing file. 3. Attachment 10 - C, 235(r) Documents Disposition For The New APC Account/Check List, may be used to prepare for shipment those documents that must be sent to HUD, Subsidy Accounting Branch, to establish the new APC account for the billing of 235(r) assistance payments by the new servicing mortgagee. 4. Attachment 10 - D, Recapture Mortgage (Deed of Trust) Modification and Subordination Agreement Disposition/Check List, may be used to prepare for shipment those documents that must be sent to the local HUD Field Office (ATTN: Documents Officer). Q. Section 235 Payoff Statements - Any 235 mortgage refinanced under Section 235(r) or Section 203(b) must comply with the servicing requirements on Pages 35 through 41. R. Subsequent Section 235(r) to Section 235(r) Refinancings - To assure the originating mortgagee and investor that HUD's policy to allow the eligible upfront costs to be recouped in subsequent 235(r) refinancings does not cause early 27 _____________________________________________________________________ prepayments of a 235(r) mortgage HUD is setting forth the requirement that mortgagors must pay all the upfront costs with any subsequent Section 235(r) to Section 235(r) refinancing that occurs within 60 months of the date of the first payment to principal and interest on the 235(r) mortgage. 235(r) Application Processing A. The 235(r) Mortgage Application - The following forms and documents represent the 235(r) mortgage application which must be processed and completed by the originating mortgagee prior to the issuance of a 235(r) FHA case number and ADP code. After HUD has issued the 235(r) FHA case number and ADP code, the 235(r) mortgage application is submitted to the DE underwriter (if a DE processed case) or HUD staff underwriter (if a HUD processed case) for review and underwriting. 1. Form HUD-92900, Application for HUD/FHA Insured Mortgage (OMB 2502-0059, 4/91) - Form HUD-92900 must be completed and certified by the originating mortgagee and executed by the mortgagor. The originating mortgagee must complete the instructions attached to the form HUD-92900 and must enter the old 235 FHA case number and ADP code in the lower left-hand corner of Item 4A, Name and Address of Lender. The application is not subject to an appraisal, a face-to-face interview, or a photo identification. An old 235 mortgage which is no more than two payments delinquent (as of the date of closing of the 235(r) mortgage) may be refinanced under the 235(r) Program. A credit report does not need to be obtained, unless, a mortgage credit analysis is required. Attached to the form HUD-92900 must be a separate sheet of paper which enumerates the monthly payments of the 235(r) mortgage that include the "initial" P + I payments and the P + I payments at the 235(r) interest rate. The mortgagors must sign and date the attachment. 2. Form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act (OMB 2502-0190, 10/91) : 28 _____________________________________________________________________ a. The Originating mortgagee must process and complete a form HUD-93100 - A form HUD-93100 must be processed and completed by the originating mortgagee and executed by the mortgagor. The originating mortgagee must follow the instructions set forth in Paragraph J on Pages 12 and 13. In addition, the originating mortgagee must enter the old 235 FHA case number and ADP code in Item D, Mortgagee's Name, Address, City, State and Zip Code, in the lower left-hand corner, and must insert the following in Block K Review and Eligibility, which becomes part of form HUD-93100: "I (we) have been informed by the originating mortgagee that I (we) may wish to seek tax advice from a professional, who is qualified to give such advice, as to the tax consequences associated with the mortgagee paying a financial incentive to me (us) and also paying the refinancing costs for and on my (our) behalf. Furthermore, I (we) understand that seeking tax advice is a voluntary action and does not constitute a requirement in the consideration of my (our) mortgage application. I (we) also understand that if I (we) refinance the 235(r) mortgage to another 235(r) mortgage within 60 months of the date of the first payment to principal and interest on the 235(r) mortgage that I (we) am (are) obligated to pay all the costs to refinance. _______________________________________ Mortgagor's Signature Date" b. The Originating mortgagee is to Verify the Mortgagors' Certification - The originating mortgagee must verify the mortgagors certification in accordance with the requirements and procedures found in Chapter 10 of HUD Handbook 4330.1, REV-2. c. Review and Execution of form HUD-93100 - The DE underwriter (if a DE processed case) or HUD staff underwriter (if a HUD processed case) must review and execute form HUD-93100 and its supporting documentation (e.g., verification(s) of employment) when the 235(r) mortgage is underwritten. 29 _____________________________________________________________________ The DE or HUD staff underwriter is the authorized official, who determines the mortgagors, eligibility for assistance and the amount of the assistance payments for the new APC. These authorized officials will execute Item K, Review and Eligibility, on form HUD-93100 when the application is approved per the requirements of this letter. 3. 235(r) Mortgage Application Verifications and Related Issues : a. Requests for Verification - At the time of the 235(r) mortgage application the originating mortgagee is required to evidence the mortgagors' social security number(s) in accordance with the procedures in HUD Handbook 4155.1, REV-3, Chapter 1, and must obtain the mortgagors' authorization to verify their employment and account information on their old 235 mortgage. Verification(s) of Employment - The originating mortgagee must obtain the verification of the mortgagors' employment per the requirements set forth in HUD Handbook 4330.1, REV-2, Chapter 10, where the mortgagors' income is used in the Formula One computation. Verification of the 235 Mortgage Account - The originating mortgagee must verify the 235 mortgage account and must obtain documentation that supports the processing and underwriting of the Section 235(r) or Section 203(b) mortgage that refinance the old 235 mortgage under the requirements of this letter. The mortgagors' should send the servicing mortgagee a written request setting forth the need for the information that is found in the Section 235 Payoff Statement requirements on Pages 35 through 38. This written request must also serve as a written notice to the servicing mortgagee that the mortgagors intend to prepay the old 235 mortgage. (See HUD Handbook 4330.1, Chapter 5, for details on "Prepayments"). 30 _____________________________________________________________________ b. Written Verification by the Servicing Mortgagee - Upon receipt of the mortgagors' written request for verification of the old 235 mortgage account, the servicing mortgagee is required to respond by issuing a written verification as set forth in the Section 235 Payoff Statement requirements on Pages 35 through 40, and is required to send the mortgagors a notice that is similar to Appendix 8 of HUD Handbook 4330.1, REV-2. HUD's prepayment requirements are found in Chapter 5 of HUD Handbook 4330.1, REV-2. The written verification from the servicing mortgagee should be addressed to the originating mortgagee.. Any negative response by the servicing mortgagee will cause the application processing to cease and must be corrected before the application processing can continue. An exception is made for the negative response which states that the mortgagors are not eligible for and receiving assistance payments wherein the application must be rejected. 4. Verification Deficiencies - The servicing mortgagee may encounter problems in issuing the written verification with attachments. In most cases, the problem is correctable and the servicing mortgagee must be given the opportunity to correct the deficiency, The deficiency should be corrected within a time frame that does not exceed 30 calendar days. (See Paragraph B, Verification Deficiencies, on Pages 38 through 40.) 235(r) FHA Case Numbers As with other programs, to start case processing, the originating mortgagee must contact the local HUD Field Office for a case number. Besides the routine case information the originating mortgagee must also provide the old 235 FHA case number and ADP code. Once the old 235 FHA case number has been verified the local HUD Field Office will issue the new 235(r) FHA case number and ADP code. Originating mortgagees must enter the new 235(r) ADP code in Item 2B, Section of the Act, of form HUD-92900. (See Attachment 1, 235 Mortgages, for additional details on the 235(r) ADP (Suffix) codes.) 31 _____________________________________________________________________ 235(r) Underwriting Criteria DE underwriters or HUD staff underwriters must comply with the following 235(r) underwriting requirements: A. The 235 Mortgage Application - The 235(r) mortgage application (form HUD-92900, form HUD-93100 and the verifications) must be processed and completed in accordance with the requirements and procedures set forth in this letter. Underwriters must review these documents for conformity to these requirements and procedures. No appraisal is required for the 235(r) mortgage application. B. Form HUD-92900-WS - Underwriters must complete items 1 through 14 and Item 15 (a) through (g) of form HUD-92900-WS, or complete the entire work sheet if a mortgage credit analysis is required, and must approve or reject the mortgage application. C. DE Processed Cases - If the case is processed by a DE mortgagee, the DE underwriter must: advise the mortgagors in writing of the application's acceptance or rejection, execute form HUD-93100 as the authorized official if the mortgagors meet the requirements set forth in this letter, and execute the 235(r) certification (See Attachment 8, 235(r) Direct Endorsement Certifications). If the 235(r) mortgage application includes the subordination of the recapture mortgage, the DE underwriter must approve the subordination of the recapture mortgage as a condition of the 235(r) mortgage approval. On or before the date of closing of the 235(r) mortgage, the authorized DE mortgagee official or the DE underwriter must execute a Mortgage Modification and Subordination Agreement (Attachment 7 - A) or Deed Of Trust Modification and Subordination Agreement (Attachment 7 - B). D. HUD Processed Cases - If the case is processed by the local HUD Field Office, the HUD staff underwriter must: issue a Firm Commitment, form HUD-92900.4 (acceptance or rejection), and execute form HUD-93100 as the authorized official if the mortgagors meet the requirements set forth in this letter. If a recapture mortgage modification and subordination agreement applies, the agreement (Attachment 7 - A or Attachment 7 - B) must be executed by the local HUD authorized official on or before the date of closing of the 235(r) mortgage. 32 _____________________________________________________________________ REFINANCING AN OLD 235 MORTGAGE TO A NEW 203(b) MORTGAGE A. Clarification of the 203(b) Refinance Procedures : Any 235 mortgage can be refinanced under the procedures set forth in HUD Handbook 4155.1, REV-3, Chapter 4, Section 2, Refinance. These procedures allow mortgagors to obtain a new 203(b) mortgage to refinance their old 235 mortgage and other indebtednesses (e.g., junior mortgages, such as, the HUD-held "recapture" mortgage). The new 203(b) mortgage amount must be supported by an appraisal (value) and can include: the existing principal indebtednesses, costs of refinancing (closing costs and reasonable discount points), and the costs of required repairs and improvements. These procedures require a new appraisal, a face-to-face interview, a photo identification and a mortgage credit analysis. The maximum mortgage amount is limited by the loan-to-value ratios and by the applicable statutory limit. (See Paragraphs 2-2 and 2-4, HUD Handbook 4155.1, REV-3, Chapter 2) Section 235(i) mortgages can, also, be refinanced under these procedures where an appraisal must be obtained to establish the current value of the land and its improvements and the amount to be recaptured under the provisions of the recapture mortgage. For clarification, the amount of recapture and any overpayments of assistance payments (which have been properly advanced to the old 235 mortgage account as part of the remaining principal due under the mortgage note) are part of the existing principal indebtedness which can be refinanced under these procedures and can be included in the new 203(b) mortgage amount if the value supports the new 203(b) mortgage amount. The recapture mortgage cannot be subordinated to the new 203(b) mortgage under these procedures. Furthermore, the APC associated with the old 235 mortgage is terminated by the servicing mortgagee, and cannot be continued or reinstated for the new 203(b) mortgage. Any 235 mortgage refinanced under these procedures must comply with: HUD Handbook 4330.11 REV-2, Chapter 11, Recapture of Assistance Payments (if there is a recapture mortgage), and the servicing requirements on Pages 34 through 40. 33 _____________________________________________________________________ B. Amendment to the Streamline Refinance Procedures : The refinance procedures set forth in HUD Handbook 4155.1, REV-3, Chapter 4, Section 3, Streamline Refinance, apply to the refinance of a Section 235 mortgage to a Section 203(b) mortgage. The handbook specifically prohibits the subordination of the recapture mortgage to the new 203(b) mortgage when the refinance is without an appraisal. Effective with this letter, the Streamline Refinance Procedures with and without an appraisal are amended to allow for the subordination of the recapture mortgage to the new 203(b) mortgage. Any 235 mortgage can now be refinanced under these procedures where the mortgagor can obtain a new 203(b) mortgage to refinance their old 235 mortgage and have the recapture mortgage subordinated. The mortgagors are not subject to a face to face interview or a photo identification. A credit report does not have to be obtained unless a mortgage credit analysis is required. This analysis must be performed when the full monthly payment of the new 203(b) mortgage is more than $50.00 above the mortgagors' current share of the monthly payment under the old 235 mortgage. If no appraisal is performed, the unpaid principal balance and One Time MIP (OTMIP) can be incorporated into the new 203(b) mortgage amount; or, if an appraisal is performed and sufficient value is reflected, the unpaid principal balance and the OTMIP plus the costs of refinancing (closing costs and reasonable discount points) can be incorporated into the new 203(b) mortgage amount. Overpayments, of assistance payments that are properly advanced to the mortgage account as part of the unpaid principal balance, can be included in the new 203(b) mortgage amount and do not need to be supported by an appraisal (value). Other existing principal indebtednesses, the costs of required repairs and improvements, cash out by the mortgagor and the amount of recapture cannot be included in the new 203(b) mortgage amount even though the value supports them. Only the Refinance Procedures on Page 33 will allow these items to be included in a new 203(b) mortgage amount. 34 _____________________________________________________________________ When a recapture mortgage is to be subordinated to a new 203(b) mortgage which is processed under the Streamline Procedures, the subordination requirements and procedures set forth on Pages 23 thru 26 (Subparagraphs N-1 thru N-3) of this letter must be followed with these exceptions: the mortgagors do not execute a new recapture note, the recapture mortgage (or deed of trust) is not modified, and Attachment 7 - C or Attachment 7 - D is substituted for Attachment 7 - A or Attachment-7 - B, respectively. The APC associated with the old 235 mortgage is terminated by the servicing mortgagee, and cannot be continued or reinstated for the new 203(b) mortgage. Any 235 mortgage refinanced under these procedures must comply with the servicing requirements on Pages 35 through 41. C. Future Assumptions of a Subordinated Recapture Mortgage (Or Deed of Trust) and Note - The recapture mortgage, which is subordinated to the 203(b) Streamline mortgage, cannot be assumed by a future purchaser and the recapture procedures set forth in Chapter 11 of HUD Handbook 4330.1, REV-2, must be followed by the new servicing mortgagee when the property is sold or refinanced by the mortgagors. SERVICING MORTGAGEES OF THE OLD 235 MORTGAGES The servicing mortgagee is an integral part of any refinance transaction that involves any FHA-insured mortgage. HUD and originating mortgagees must rely on the servicing mortgagee to provide information that accurately reflects the mortgage account and that documents the servicing file. The servicing mortgagee must provide information which is germane to the mortgage account when requested in writing by the mortgagors and must comply with the requirements set forth in this letter. These requirements become effective when requested in writing by the mortgagors to release a preliminary or final payoff statement for any old 235 mortgage refinanced under the requirements and procedures in this letter. A. Section 235 Payoff Statements - The following requirements may be in addition to those standards used by the servicing mortgagee when a payoff statement is issued. The servicing mortgagee must maintain a copy of the payoff statement in the servicing file for later HUD use. (See Servicing File Retention on Page 40.) 35 _____________________________________________________________________ 1. 235 Mortgage Account - Financial Data - The servicing mortgagee must itemize on these payoff statements the following: a. actual unpaid principal balance that includes adjustments for prepayments and advances, such as, overpayments of assistance payments*, real estate taxes, hazard insurance, etc.; b. current interest and the delinquent interest; c. fees and late charges; and the d. grand total of these amounts that is necessary to prepay (in full) the old 235 mortgage. Special Instructions: If the servicing mortgagee has sent a form HUD-93102 (billing) to HUD for the assistance payment respective to the mortgage account, but has not received and credited the mortgage account, or if the servicing mortgagee anticipates that it will submit a new form HUD-93102 (billing) during the period of time that the payoff statement is valid, the servicing mortgagee must adjust the grand total cited in the above paragraph by the amount of those assistance payments. 2. 235 Mortgage Account - Secondary Data - The servicing mortgagee must itemize on these payoff statements the following: a. FHA case number and ADP code; b. outstanding principal balance as based on the original amortization schedule of the old 235 mortgage; c. note interest rate; d. escrow balances; e. any partial payment accepted by the servicing mortgagee that is held in a trust account pending disposition; f. the original term of the mortgage; g. the remaining term of the mortgage; *When overpayments of assistance payments are advanced to the Section 235 mortgage account, it is assumed 36 _____________________________________________________________________ throughout this letter that the servicing mortgagee has paid to HUD these overpayments. h. the number of delinquent payments and/or partial prepayments; i. the amount of overpayments which has been properly advanced to the mortgage account and is included in the actual unpaid principal balance; j. the total amount of assistance payments which have been paid by HUD (beginning with the first assistance payment); and the k. date of the first monthly amortization payment under the mortgage (or deed of trust) and note. 3. Required Attachments - The following attachments are required to be provided by the servicing mortgagee: a. copy of the original form HUD-93100 which was executed by HUD when the old 235 mortgage was underwritten; b. copy of the old APC if an old Section 235 revised recapture 10 mortgage is being refinanced; c. copy of the original sales contract (if available) which was executed when the old 235 mortgage was underwritten; d. copy of Appendix 8, Mortgagee Notice to Mortgagor, HUD Handbook 4330.1, REV-2, which is furnished to the mortgagors; and e. any substitute documents as described in the Paragraph B, Verification Deficiencies, on Pages 38 through 40. 4. Certifications - The servicing mortgagee must certify (affirmatively or negatively) the following: a. within the preceding 12 months the mortgagors have (or, have not) completed and executed form HUD-93101, Mortgagor's Recertification of Family Composition and Income; b. has (or, has not) completed and executed form HUD-93101-A, Recertification of Income and Family Composition Section 235(b) - Statistical Report; 37 _____________________________________________________________________ c. that the mortgagors are (or, are not) currently eligible for assistance and are (or, are not) receiving assistance payments under the old APC; d. that HUD is (or, is not) due an amount for the overpayment of assistance payments and that HUD has (or, has not) been refunded any overpayments, if applicable; and Any amount of overpayments of assistance payments must be immediately refunded to HUD by the servicing mortgagee. Otherwise, the Section 235(r) or Section 203(b) mortgage application cannot be approved by the DE underwriter or HUD staff underwriter. e. that the Section 235 Payoff Statement and attachments are an accurate representation of the old 235 mortgage account. B. Verification Deficiencies - Servicing mortgagees may encounter problems in issuing the written verifications with attachments. In most cases, the problem is correctable and the servicing mortgagee must be given the opportunity to correct the deficiency. The deficiency should be corrected within a time frame that does not exceed 30 calendar days. 1. The Mortgagors' Recertification/Servicing Mortgagee's Certification - The servicing mortgagee, who has not obtained the mortgagors, completed and executed form HUD-93101 within the preceding 12 months (or longer) and/or who has not completed and executed form HUD-93101-A within the preceding 12 months (or longer), must be given an opportunity to correct this servicing deficiency. The servicing mortgagee is required to review and make retroactive corrections for the recertification(s) that were not obtained and completed in the three year period preceding the last anniversary date. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. 2. The old original form HUD-93100 is not Available - The form HUD-93100 which was issued by HUD for the last mortgage assumption can substitute for the old original form HUD-93100, as long as, the old original form is not available to the servicing mortgagee. 38 _____________________________________________________________________ The servicing mortgagee, who is not able to issue the written response because it does not have the old original form HUD-93100 or the original form HUD-93100 from the last mortgage assumption, must state in the written verification that it does not have the form, but it has determined the mortgagors, income contributions percentage and/or interest rate floor (as a percentage) from the mortgage,account's records. The servicing mortgagee must certify in the written response that to the best of their knowledge these percentages are the same as those that were authorized by HUD when the old original form HUD-93100 was executed. 3. The Original Sales Contract is not Available - The servicing mortgagee, who does not have a copy of the original sales contract, can substitute a copy of the original form HUD-1, Settlement Statement, that was executed at the closing of the old 235 mortgage. If copies of the original sales contract or original form HUD-1 are not available, the servicing mortgagee must state in the written verification that it does not have a copy. A substitute copy of the original sales contract may be obtained from the mortgagors if they are the original mortgagors of the old 235 mortgage. If a copy cannot be found, a copy of the original appraisal or form HUD-92900 can be substituted. 4. The old 235 Mortgage was not Properly Assumed - A servicing mortgagee that discovers that the mortgagors did not properly qualify for assumption of the old 235 mortgage per the requirements set forth in HUD Handbook 4330.1, REV-2, must be given an opportunity to correct this servicing deficiency. The servicing mortgagee must correct this servicing deficiency for the period of time that the mortgagors were not properly qualified. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. 5. The old APC was not Properly Reinstated, Suspended or Terminated - A servicing mortgagee that discovers that the old APC was not properly reinstated, suspended or terminated, must be given an opportunity to correct this servicing deficiency. 39 _____________________________________________________________________ The servicing mortgagee must correct this servicing deficiency to the date that the deficiency first occurred and must take the proper action per HUD Handbook 4330.1, REV-2. If any overpayments result, the servicing mortgagee is required to immediately repay HUD any amount due under 24 CFR 235.361 and to include the total amount of the overpayments in the Section 235 Payoff Statement. If the old APC should have been suspended or terminated the mortgage application must be rejected because the mortgagors are not eligible for a 235(r) mortgage. C. Responsibility and Accountability after the Prepayment or Payment in Full of the old 235 Mortgage - The servicing mortgagee of the old 235 mortgage will be held accountable and responsible under the old contract of mortgage insurance (MIC) and the old APC for its servicing and administration of the old 235 mortgage which is paid in full because of a prepayment or by payment of the last scheduled payment required under the mortgage and note. Specifically, servicing mortgagees must have complied with the provisions found in 24 CFR 235, Subparts B and G, and HUD Handbook 4330.11 REV-2. In those cases, where the old 235 mortgage has been paid in full, the servicing mortgagee will retain the responsibility to refund to HUD (with interest at 7 percent per annum) any overpayments of assistance payments and handling charges which are associated with the old 235 mortgage and where the overpayments of assistance payments were the result of mortgagee's fraud, misrepresentation or failure to meet contractual obligations. Any refunds paid to HUD which result from a payment in full of the old 235 mortgage will be credited by HUD to the total amount due from the servicing mortgagee. D. Servicing File Retention - The servicing mortgagee must maintain the old 235 mortgage records for at least three years after the payment in full and must furnish the mortgage records (when requested) during a review or audit conducted by HUD, or its agents. This requirement corresponds to 24 CFR 235.365. E. Terminations of the Old 235 MIC and APC - The servicing mortgagee must submit to HUD, within 15 days after the old 235 mortgage is paid in full, form HUD-27050-A, Mortgage Insurance Termination - Application for Premium/Distributive 40 _____________________________________________________________________ Payments, and must submit to the originating mortgagee, within 15 days after the old 235 mortgage is paid in full, a copy of form HUD-27050-A, above, and form HUD-93114, Notice of Termination, for the old APC. The servicing mortgagee cannot continue to apply to HUD for assistance payments when the old 235 mortgage is paid in full. The last assistance payment is the first day of the month of the payment in full. Any assistance payments or handling charges for periods after that date are overpayments and must be refunded to HUD. Should you have any questions concerning the mortgage application processing and underwriting requirements and procedures please contact the Housing Development Division (Single Family Mortgage Credit Branch), or concerning the servicing requirements and procedures please contact the Housing Management Division (Single Family Loan Management Branch), of the local HUD Field Office. Very sincerely yours, Arthur J. Hill Acting Assistant Secretary for Housing-Federal Housing Commissioner Attachments 41 _____________________________________________________________________ DOCUMENTS REQUIRED BY THIS MORTGAGEE LETTER FORMS: 1. form HUD-1, Settlement Statement, approved under OMB 2502-0265, 10/93. 2. form HUD-300, Monthly Summary of Assistance Payments, approved under OMB 2502-0081, 10/91. 3. form HUD-27050-A, Termination of Mortgage Insurance, approved under OMB 2502-0414, 7/93. 4. form HUD-59100, Mortgage Insurance Certificate (MIC), approved under OMB 2502-0059, 4/91. 5. form HUD-92900, Application for HUD/VA Insured Mortgages, approved under OMB 2502-0059, 4/91. 6. form HUD-92900-WS, Mortgage Credit Analysis Work Sheet, approved under OMB 2502-0059, 4/91. 7. form HUD-92004-G, Request for Verification of Employment, approved under OMB 2502-0059, 4/91. 8. form HUD-93100, Application for Homeownership Assistance Under Section 235 of the National Housing Act, approved under OMB 2502-0190, 10/91. 9. form HUD-93101-A, Mortgagee's Certification of the Mortgagor's Verification of Family Composition and Income, approved under OMB 2502-0082, 8/91. 10. form HUD-93102, Mortgagee's Certification and Application for Assistance and Interest Reduction Payments, approved under OMB 2502-0081, 10/91. 11. form HUD-93114, Notice of Suspension of 235 Assistance Payments, approved under OMB 2502-0094, 12/92. 12. form HUD-93114, Notice of Termination of 235 Assistance Payments, approved under OMB 2502-0094, 12/92. APPENDICES FROM HUD HANDBOOK 4330.1, REV-2, Administration of Insured Home Mortgages: 1. Appendix 44, Notice to (Buyers) Mortgagors 2. Appendix 56, Note 3. Appendix 8, Mortgagee Notice to Mortgagor ATTACHMENTS: See Attachments Notice: The Office of Management and Budget (OMB) has approved this Mortgagee Letter in accordance with the Paperwork Reduction Act. This Mortgagee Letter, attachments and appendices are approved for use through January 31, 1994, under OMB No. 2502-0456. _____________________________________________________________________ ATTACHMENT 1 235 MORTGAGES PROGRAM ADP 235(r) 235(r) VERSION (SUFFIX) ADP ADP CODES (SUFFIX) (SUFFIX) ORIGINAL CODES CODES HUD DE REVISED 235(i) 255 155 755 PROGRAM 355 155 755 555 155 755 265 165 765 365 165 765 565 165 765 285 185 785 385 185 785 585 185 785 REVISED 235(i) 256 156 756 PROGRAM WITH 356 156 756 RECAPTURE 556 156 756 266 166 766 366 166 766 566 166 766 235 REVISED/ 246 146 746 RECAPTURE/10 346 146 746 546 146 746 FOOTNOTE: ORIGINAL ADP (SUFFIX) CODES = OLD 235 MORTGAGES; HUD = NEW ADP (SUFFIX) CODES FOR HUD PROCESSED 235(r) CASES; DE = NEW ADP (SUFFIX) CODES FOR DIRECT ENDORSEMENT PROCESSED 235(r) CASES; THE 235 MORTGAGES DIRECTORY CONTAINS THE ORIGINAL SECTION 235 FHA CASE NUMBERS AND ADP CODES. THE USER CAN UTILIZE THE DIRECTORY TO COMPARE THE ORIGINAL ADP (SUFFIX) CODES WITH ATTACHMENT 1 AND CAN DETERMINE THE NEW 235(r) ADP CODE. _____________________________________________________________________ ATTACHMENT 2 TABLE OF RECOVERY PERIODS Column 2 Recovery Periods in Whole Months Column 1 at Different 235(r) Interest Rates Ratio 9.0 % 9.5 % 10.0 % 10.5 % 11.0% 10.00 11 11 11 11 11 10.25 11 11 11 11 11 10.50 11 11 11 11 11 10.75 11 11 11 12 12 11.00 12 12 12 12 12 11.25 12 12 12 12 12 11.50 12 12 12 12 12 11.75 13 13 13 13 13 12.00 13 13 13 13 13 12.25 13 13 13 13 13 12.50 13 13 14 14 14 12.75 14 14 14 14 14 13.00 14 14 14 14 14 13.25 14 14 14 14 14 13.50 15 15 15 15 15 13.75 15 15 15 15 15 14.00 15 15 15 15 15 14.25 15 16 16 16 16 14.50 16 16 16 16 16 14.75 16 16 16 16 16 15.00 16 16 16 17 17 15.25 17 17 17 17 17 15.50 17 17 17 17 17 15.75 17 17 17 17 18 16.00 18 18 18 18 18 16.25 18 18 18 18 18 16.50 18 18 18 18 18 16.75 18 19 19 19 19 17.00 19 19 19 19 19 17.25 19 19 19 19 19 17.50 19 19 20 20 20 17.75 20 20 20 20 20 18.00 20 20 20 20 20 18.25 20 20 20 21 21 18.50 21 21 21 21 21 18.75 21 21 21 21 21 19.00 21 21 21 21 22 19.25 21 22 22 22 22 19.50 22 22 22 22 22 19.75 22 22 22 22 23 _____________________________________________________________________ 2 ATTACHMENT 2 Column 2 Recovery Periods in Whole Months Column 1 at Different 235(r) Interest Rates Ratio 9.0 % 9.5 % 10.0 % 10.5 % 11.0 % 20.00 22 23 23 23 23 20.25 23 23 23 23 23 20.50 23 23 23 23 24 20.75 23 24 24 24 24 21.00 24 24 24 24 24 21.25 24 24 24 24 25 21.50 24 24 25 25 25 21.75 25 25 25 25 25 22.00 25 25 25 25 26 22.25 25 25 26 26 26 22.50 26 26 26 26 26 22.75 26 26 26 26 27 23.00 26 26 27 27 27 23.25 27 27 27 27 27 23.50 27 27 27 27 28 23.75 27 27 28 28 28 24.00 28 28 28 28 28 24.25 28 28 28 28 29 24.50 28 28 29 29 29 24.75 29 29 29 29 29 25.00 29 29 29 30 30 25.25 29 29 30 30 30 25.50 30 30 30 30 30 25.75 30 30 30 31 31 26.00 30 30 31 31 31 26.25 31 31 31 31 32 26.50 31 31 31 32 32 26.75 31 32 32 32 32 27.00 32 32 32 32 33 27.25 32 32 32 33 33 27.50 32 33 33 33 33 27.75 33 33 33 33 34 28.00 33 33 34 34 34 28.25 33 34 34 34 34 28.50 34 34 34 35 35 28.75 34 34 35 35 35 29.00 34 35 35 35 36 29.25 35 35 35 36 36 29.50 35 35 36 36 36 29.75 35 36 36 36 37 30.00 36 36 36 37 37 30.25 36 37 37 37 38 30.50 37 37 37 38 38 _____________________________________________________________________ 3 ATTACHMENT 2 Column 2 Recovery Periods in Whole Months Column 1 at Different 235(r) Interest Rates Ratio 9.0 % 9.5 % 10.0 % 10.5 % 11.0 % 30.75 37 37 38 38 38 31.00 37 38 38 38 39 31.25 38 38 38 39 39 31.50 38 38 39 39 39 31.75 38 39 39 40 40 32.00 39 39 40 40 40 32.25 39 40 40 40 41 32.50 40 40 40 41 41 32.75 40 40 41 41 42 33.00 40 41 41 41 42 33.25 41 41 41 42 42 33.50 41 41 42 42 43 33.75 41 42 42 43 43 34.00 42 42 43 43 44 34.25 42 43 43 43 44 34.50 43 43 43 44 44 34.75 43 43 44 44 45 35.00 43 44 44 45 45 35.25 44 44 45 45 46 35.50 44 45 45 46 46 35.75 44 45 45 46 47 36.00 45 45 46 46 47 36.25 45 46 46 47 47 36.50 46 46 47 47 48 36.75 46 47 47 48 48 37.00 46 47 48 48 49 37.25 47 47 48 49 49 37.50 47 48 48 49 50 37.75 48 48 49 49 50 38.00 48 49 49 50 51 38.25 48 49 50 50 51 38.50 49 49 50 51 51 38.75 49 50 51 51 52 39.00 50 50 51 52 52 39.25 50 51 51 52 53 39.50 51 51 52 53 53 39.75 51 52 52 53 54 40.00 51 52 53 53 54 40.25 52 52 53 54 55 40.50 52 53 54 54 55 40.75 53 53 54 55 56 41.00 53 54 55 55 56 41.25 53 54 55 56 57 _____________________________________________________________________ 4 ATTACHMENT 2 Column 2 Recovery Periods in Whole Months Column 1 at Different 235(r) Interest Rates Ratio 9.0 % 9.5 % 10.0 % 10.5 % 11.0 % 41.50 54 55 55 56 57 41.75 54 55 56 57 58 42.00 55 56 56 57 58 42.25 55 56 57 58 59 42.50 56 56 57 58 59 42.75 56 57 58 59 60 43.00 56 57 58 59 60 43.25 57 58 59 60 60 43.50 57 58 59 60 43.75 58 59 60 44.00 58 59 60 44.25 59 60 44.50 59 60 44.75 60 45.00 60 _____________________________________________________________________ ATTACHMENT 3 PAGE 1 OF 2 O R I T SECTION 235(r) INTEREST RATE FLOOR(S)- FACTOR TABLE G E P & I FACTORS PER THOUSAND DOLLARS OF THE 235(r) MORTGAGE AMOUNT I R N M A INTEREST NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE L RATE FLOOR 10 11 12 13 14 15 16 17 18 1.00 8.77 8.01 7.38 6.84 6.39 5.99 5.64 5.34 5.07 4.00 10.13 9.38 8.76 8.24 7.79 7.40 7.06 6.77 6.51 4.75 10.49 9.75 9.13 8.61 8.17 7.78 7.45 7.16 6.90 5.00 10.61 9.87 9.25 8.74 8.29 7.91 7.58 7.29 7.04 5.50 10.86 10.12 9.51 8.99 8.55 8.18 7.85 7.56 7.31 6.00 11.11 10.37 9.76 9.25 8.82 8.44 8.12 7.84 7.59 6.75 11.49 10.76 10.16 9.65 9.22 8.86 8.54 8.26 8.01 7.25 11.75 11.02 10.42 9.92 9.50 9.13 8.82 8.55 8.31 8.00 12.14 11.42 10.83 10.34 9.92 9.56 9.25 8.99 8.75 _____________________________________________________________________ ATTACHMENT 3 PAGE 1 OF 2 O R I T SECTION 235(r) INTEREST RATE FLOOR(S)- FACTOR TABLE G E P & I FACTORS PER THOUSAND DOLLARS OF THE 235(r) MORTGAGE AMOUNT I R N M A INTEREST NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE L RATE FLOOR 18 19 20 21 22 23 24 25 30 1.00 5.07 4.82 4.60 4.41 4.23 4.06 3.91 3.77 3.22 4.00 6.51 6.27 6.06 5.88 5.71 5.55 5.41 5.28 4.78 4.75 6.90 6.67 6.47 6.28 6.12 5.97 5.83 5.71 5.22 5.00 7.04 6.81 6.60 6.42 6.26 6.11 5.97 5.85 5.37 5.50 7.31 7.08 6.88 6.70 6.54 6.40 6.27 6.15 5.68 6.00 7.59 7.37 7.17 6.99 6.84 6.69 6.56 6.45 6.00 6.75 8.01 7.80 7.61 7.44 7.29 7.15 7.03 6.91 6.49 7.25 8.31 8.10 7.91 7.74 7.59 7.46 7.34 7.23 6.83 8.00 8.75 8.55 8.37 8.21 8.07 7.94 7.83 7.72 7.34 FOOTNOTE: THIS FACTOR TABLE IS USED TO DETERMINE THE PRINCIPAL AND INTEREST PAYMENTS AT THE INTEREST RATE FLOOR FOR THE FORMULA TWO COMPUTATION RESPECTIVE TO THE NEW ASSISTANCE PAYMENTS CONTRACT (APC) WHICH IS ASSOCIATED WITH THE 235(r) MORTGAGE. THE INTEREST RATE FLOOR AND ITS RESPECTIVE FACTOR PER THOUSAND DOLLARS MUST BE USED AT ORIGINATION AND FOR SUBSEQUENT SERVICING OF THE NEW 235(r) MORTGAGE. AT ORIGINATION, THE 235(r) MORTGAGE AMOUNT MUST BE ROUNDED DOWN TO THE NEAREST $50.00 BEFORE THE FACTOR IS APPLIED. THIS FACTOR TABLE SHOWS THE MONTHLY INSTALLMENT FOR PRINCIPAL AND INTEREST (P & I), PER THOUSAND DOLLARS, FOR THE SECTION 235(r) INTEREST RATE FLOOR AT THE NEW MORTGAGE TERM. IN ORDER TO DETERMINE THE MONTHLY P & I PAYMENTS, DIVIDE THE MORTGAGE AMOUNT BY $1,000 AND MULTIPLY THE RESULT BY THE APPLICABLE PAYMENT FACTOR. WHEN THE RESULTING FIGURE ENDS IN 5 OR MORE MILLS, THE AMOUNT SHOULD BE INCREASED TO THE NEXT WHOLE CENT. FOR EXAMPLE, ASSUME AN INTEREST RATE FLOOR OF 4.00%, 30-YEAR MORTGAGE WITH A MORTGAGE AMOUNT OF $11,300. THE MONTHLY P & I PAYMENT FACTOR SHOWN IS $4.78 PER THOUSAND, AND THE REQUIRED MONTHLY P & I PAYMENT AT THE INTEREST RATE FLOOR IS $54.01 CALCULATED AS FOLLOWS: $11,300.00 DIVIDED BY $1,000.00 EQUALS 11.3 THOUSANDTHS 11.3 TIMES 4.78 PER THOUSAND DOLLARS EQUALS $54.014 $54.014 ADJUSTED TO THE NEAREST WHOLE CENT EQUALS $54.01 NOTE: MILL = A MONETARY UNIT EQUAL TO 1/1000TH OF A U.S. DOLLAR OR 1/10TH OF A CENT _____________________________________________________________________ ATTACHMENT 3 PAGE 2 OF 2 SCHEDULE OF FORMULA TWO INTEREST RATE FLOORS ORIGINAL DATE(S) ORIGINAL INTEREST OF NOTE RATE CLOSING RATE(S) FLOOR(S) 8/9/68 - 1/4/76 ALL 1.00% 1/5/76 - 3/6/78 ALL 5.00% 3/7/78 - 3/8/81 ALL 4.00% ON OR AFTER 13.50% OR BELOW 4.00% 3/9/81 13.75 - 14.00% 4.75% 14.25 - 14.50% 5.50% 15.00% 6.00% 15.50% 6.75% 16.00% 7.25% 16.50% 8.00% 17.50% 8.00% FOOTNOTE: THE INTEREST RATE FLOOR FOR FORMULA TWO COMPUTATIONS FOR THE NEW ASSISTANCE PAYMENTS CONTRACT (APC) WHICH IS ASSOCIATED WITH THE NEW 235(r) MORTGAGE IS THE SAME INTEREST RATE FLOOR AS THE OLD APC WHICH IS ASSOCIATED WITH THE OLD 235 MORTGAGE. THE PREMIUM INTEREST RATE SET FORTH IN THIS LETTER (AS CHANGED FROM TIME TO TIME BY HUD) IS THE NOTE RATE FOR THE 235(r) MORTGAGE NOTE. _____________________________________________________________________ ATTACHMENT 4 PAGE 1 OF 3 SECTION 235(r) MORTGAGES - INITIAL AND ANNUAL MORTGAGE INSURANCE PREMIUM FACTOR TABLE .7% MIP FACTORS PER THOUSAND DOLLARS OF THE MORTGAGE AMOUNT 235(r) NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE INTEREST RATE 10 11 12 13 14 15 16 17 9.00 6.796 6.824 6.846 6.866 6.882 6.895 6.907 6.917 9.25 6.798 6.827 6.849 6.868 6.884 6.898 6.909 6.919 9.50 6.801 6.829 6.852 6.871 6.886 6.900 6.912 6.922 9.75 6.804 6.832 6.854 6.873 6.889 6.902 6.914 6.923 10.00 6.807 6.834 6.856 6.875 6.891 6.904 6.916 6.925 10.25 6.809 6.836 6.859 6.878 6.893 6.907 6.918 6.927 10.50 6.812 6.839 6.861 6.880 6.895 6.908 6.920 6.929 10.75 6.814 6.842 6.864 6.882 6.898 6.911 6.921 6.931 11.00 6.817 6.844 6.866 6.884 6.899 6.913 6.923 6.933 11.25 6.819 6.846 6.868 6.887 6.902 6.914 6.925 6.935 11.50 6.822 6.849 6.871 6.889 6.904 6.916 6.927 6.936 11.75 6.824 6.851 6.873 6.891 6.906 6.918 6.929 6.938 12.00 6.827 6.853 6.875 6.893 6.908 6.920 6.931 6.939 12.25 6.829 6.856 6.877 6.895 6.909 6.922 6.932 6.941 12.50 6.832 6.858 6.879 6.897 6.911 6.924 6.934 6.943 12.75 6.834 6.860 6.881 6.899 6.913 6.926 6.936 6.944 13.00 6.836 6.862 6.884 6.901 6.915 6.927 6.937 6.946 13.25 6.839 6.865 6.885 6.903 6.917 6.929 6.939 6.947 13.50 6.841 6.867 6.888 6.905 6.919 6.930 6.940 6.949 13.75 6.843 6.869 6.890 6.906 6.920 6.932 6.942 6.950 14.00 6.845 6.871 6.891 6.908 6.922 6.934 6.943 6.951 14.25 6.848 6.873 6.894 6.910 6.924 6.935 6.945 6.953 14.50 6.850 6.875 6.895 6.912 6.926 6.937 6.946 6.954 14.75 6.852 6.877 6.897 6.914 6.927 6.938 6.948 6.955 15.00 6.854 6.879 6.899 6.915 6.929 6.940 6.949 6.957 _____________________________________________________________________ ATTACHMENT 4 PAGE 1 OF 3 SECTION 235(r) MORTGAGES - INITIAL AND ANNUAL MORTGAGE INSURANCE PREMIUM FACTOR TABLE .7% MIP FACTORS PER THOUSAND DOLLARS OF THE MORTGAGE AMOUNT 235(r) NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE INTEREST RATE 18 19 20 21 22 23 24 25 9.00 6.926 6.934 6.941 6.947 6.952 6.957 6.961 6.964 9.25 6.928 6.936 6.943 6.949 6.954 6.958 6.962 6.966 9.50 6.930 6.938 6.944 6.950 6.955 6.960 6.964 6.967 9.75 6.932 6.940 6.946 6.952 6.957 6.961 6.965 6.969 10.00 6.934 6.941 6.947 6.953 6.958 6.963 6.966 6.970 10.25 6.936 6.943 6.949 6.955 6.960 6.964 6.968 6.971 10.50 6.937 6.944 6.951 6.956 6.961 6.966 6.969 6.972 10.75 6.939 6.946 6.952 6.958 6.963 6.967 6.970 6.973 11.00 6.941 6.948 6.954 6.959 6.964 6.968 6.971 6.974 11.25 6.943 6.949 6.955 6.960 6.965 6.969 6.973 6.976 11.50 6.944 6.951 6.957 6.962 6.966 6.970 6.973 6.977 11.75 6.946 6.952 6.958 6.963 6.967 6.971 6.975 6.978 12.00 6.947 6.954 6.959 6.965 6.969 6.973 6.976 6.979 12.25 6.949 6.955 6.961 6.966 6.970 6.974 6.977 6.980 12.50 6.950 6.957 6.962 6.967 6.971 6.975 6.978 6.980 12.75 6.952 6.958 6.963 6.968 6.972 6.975 6.979 6.981 13.00 6.953 6.959 6.965 6.969 6.973 6.977 6.979 6.982 13.25 6.955 6.961 6.966 6.970 6.974 6.977 6.980 6.983 13.50 6.956 6.962 6.967 6.971 6.975 6.978 6.981 6.984 13.75 6.957 6.963 6.968 6.972 6.976 6.979 6.982 6.984 14.00 6.958 6.964 6.969 6.973 6.977 6.980 6.983 6.985 14.25 6.959 6.965 6.970 6.974 6.978 6.981 6.983 6.986 14.50 6.961 6.966 6.971 6.975 6.978 6.982 6.984 6.986 14.75 6.962 6.968 6.972 6.976 6.979 6.982 6.985 6.987 15.00 6.963 6.968 6.973 6.977 6.980 6.983 6.986 6.988 FOOTNOTE: AT ORIGINATION, THE 235(r) MORTGAGE AMOUNT MUST BE ROUNDED DOWN TO THE NEAREST $50.00 BEFORE THE MIP FACTOR IS APPLIED. THE MIP FACTOR IS BASED ON A PER ANNUM BASIS. THE MIP FACTOR, WHICH IS ESTABLISHED AT THE 235(r) MORTGAGE APPLICATION, IS USED TO DETERMINE THE MIP FOR SUBSEQUENT PREMIUM YEARS. _____________________________________________________________________ ATTACHMENT 4 PAGE 2 OF 3 SECTION 235(r) MORTGAGES - INITIAL AND ANNUAL MORTGAGE INSURANCE PREMIUM FACTOR TABLE .7% MIP FACTORS PER THOUSAND DOLLARS OF THE MORTGAGE AMOUNT 235(r) NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE INTEREST RATE 10 11 12 13 14 15 16 17 15.25 6.856 6.881 6.901 6.917 6.930 6.941 6.950 6.958 15.50 6.858 6.883 6.903 6.919 6.932 6.943 6.952 6.959 15.75 6.860 6.885 6.904 6.921 6.933 6.944 6.953 6.960 16.00 6.862 6.887 6.906 6.922 6.935 6.945 6.954 6.961 16.25 6.864 6.888 6.908 6.924 6.936 6.946 6.955 6.962 16.50 6.866 6.890 6.910 6.925 6.938 6.948 6.956 6.963 16.75 6.868 6.882 6.911 6.926 6.939 6.949 6.958 6.964 17.00 6.870 6.894 6.913 6.928 6.941 6.950 6.959 6.966 17.25 6.872 6.896 6.915 6.929 6.942 6.952 6.960 6.966 17.50 6.874 6.897 6.916 6.931 6.943 6.953 6.961 6.967 17.75 6.876 6.899 6.918 6.932 6.944 6.954 6.962 6.968 18.00 6.878 6.901 6.919 6.934 6.946 6.955 6.963 6.969 ATTACHMENT 4 PAGE 2 OF 3 SECTION 235(r) MORTGAGES - INITIAL AND ANNUAL MORTGAGE INSURANCE PREMIUM FACTOR TABLE .7% MIP FACTORS PER THOUSAND DOLLARS OF THE MORTGAGE AMOUNT 235(r) NEW MORTGAGE TERM IN YEARS FOR A 235(r) MORTGAGE INTEREST RATE 18 19 20 21 22 23 24 25 15.25 6.964 6.969 6.974 6.978 6.981 6.983 6.986 6.988 15.50 6.965 6.971 6.975 6.979 6.982 6.984 6.987 6.989 15.75 6.966 6.971 6.976 6.979 6.982 6.985 6.987 6.989 16.00 6.967 6.972 6.976 6.980 6.983 6.986 6.988 6.990 16.25 6.968 6.973 6.977 6.981 6.984 6.986 6.988 6.990 16.50 6.969 6.974 6.978 6.981 6.984 6.987 6.989 6.990 16.75 6.970 6.975 6.979 6.982 6.985 6.987 6.989 6.991 17.00 6.971 6.976 6.980 6.983 6.985 6.988 6.990 6.991 17.25 6.972 6.976 6.980 6.983 6.986 6.988 6.990 6.992 17.50 6.973 6.977 6.981 6.984 6.987 6.989 6.990 6.992 17.75 6.974 6.978 6.981 6.985 6.987 6.989 6.991 6.992 18.00 6.974 6.979 6.982 6.985 6.987 6.989 6.991 6.993 FOOTNOTE: AT ORIGINATION, THE 235(r) MORTGAGE AMOUNT MUST BE ROUNDED DOWN TO THE NEAREST $50.00 BEFORE THE MIP FACTOR IS APPLIED. THE MIP FACTOR IS BASED ON A PER ANNUM BASIS. THE MIP FACTOR, WHICH IS ESTABLISHED AT THE 235(r) MORTGAGE APPLICATION, IS USED TO DETERMINE THE MIP FOR SUBSEQUENT PREMIUM YEARS. _____________________________________________________________________ ATTACHMENT 4 - CONTINUED PAGE 3 OF 3 FOOTNOTE: THESE FACTORS ARE TO BE USED TO CALCULATE THE APPROXIMATE INITIAL AND ANNUAL MORTGAGE INSURANCE PREMIUM (MIP) FOR THE 235(r) INSURED MORTGAGE. THE USE OF THESE FACTORS WILL READILY PERMIT AN ORIGINATING MORTGAGEE TO COMPUTE IN ADVANCE THE APPROXIMATE INITIAL AMOUNT OF THE FIRST YEAR'S PREMIUM AND WILL READILY PERMIT A SERVICING MORTGAGEE TO COMPUTE IN ADVANCE THE ANNUAL AMOUNT FOR SUBSEQUENT PREMIUM YEAR(S) AND THUS PERMIT THE COLLECTION OF SUFFICIENT MIP TO PAY THE PREMIUM PER HUD'S REQUIREMENTS. TO COMPUTE THE PREMIUM WHICH WILL BE DUE, DIVIDE THE MORTGAGE AMOUNT (OR, THE UNPAID PRINCIPAL BALANCE WHICH DOES NOT INCLUDE PARTIAL PREPAYMENTS OR DELINQUENT PAYMENTS) BY $1,000.00 AND MULTIPLY BY THE APPLICABLE FACTOR. THIS WILL PRODUCE THE APPROXIMATE PREMIUM WHICH WHEN DIVIDED BY 12, WILL RESULT IN THE REQUIRED MONTHLY DEPOSITS FOR MIP FOR THE FIRST PREMIUM YEAR (OR, SUBSEQUENT PREMIUM YEARS). FOR EXAMPLE, ASSUME A 9.0%, 25-YEAR MORTGAGE WITH A MORTGAGE AMOUNT OF $12,700.00 (OR, THE UNPAID PRINCIPAL BALANCE). THE "PER THOUSAND" FACTOR FOR THE FIRST YEAR'S PREMIUM YEAR (AND, SUBSEQUENT PREMIUM YEARS) IS 6.964. IN ORDER TO DETERMINE THE MONTHLY ESCROW WHICH SHOULD BE COLLECTED, THE FOLLOWING COMPUTATIONS ARE MADE: $12,700 DIVIDED BY $1,000.00 EQUALS 12.7 THOUSANDTHS 12.7 THOUSANDTHS TIMES 6.964 PER THOUSAND DOLLARS EQUALS $88.4428 THE APPROXIMATE BILLING EQUALS $88.44 $88.44 DIVIDED BY 12 MONTHS EQUALS $7.37 WHICH IS THE MONTHLY DEPOSIT TO ESCROW FOOTNOTE: AT ORIGINATION, THE 235(r) MORTGAGE AMOUNT MUST BE ROUNDED DOWN TO THE NEAREST $50.00 BEFORE THE MIP FACTOR IS APPLIED. AN EXAMPLE OF A SUBSEQUENT PREMIUM YEAR(S) IS NOT ILLUSTRATED; HOWEVER, THE COMPUTATION IS THE SAME WHERE THE UNPAID PRINCIPAL BALANCE (UPB) IS SUBSTITUTED FOR THE MORTGAGE AMOUNT AND THE UPB IS NOT ROUNDED DOWN TO THE NEAREST $50.00. _____________________________________________________________________ ATTACHMENT 5 PAGE 1 OF 2 ACKNOWLEDGMENT OF MORTGAGOR(S) GENERAL INSTRUCTIONS THE LANGUAGE ON ATTACHMENT 5, PAGE 2, SHOULD BE TYPED ON THE MORTGAGEE'S STATIONARY, COMPLETED BY THE MORTGAGEE AND EXECUTED BY THE MORTGAGORS. THE MORTGAGEE SHOULD WITNESS THE MORTGAGORS' EXECUTION. INSTRUCTIONS TO COMPLETE ATTACHMENT 4, PAGE 2 1. FHA CASE NUMBERS - ENTER THE OLD SECTION 235 REVISED RECAPTURE 10 FHA CASE NUMBER AND ENTER THE SECTION 235(r) FHA CASE NUMBER. 2. ITEM #1, EXPIRATION DATE OF THE NEW ASSISTANCE PAYMENTS CONTRACT - REFER TO THE SECTION 235 PAYOFF STATEMENT FOR THE DATE OF THE FIRST SCHEDULED MONTHLY AMORTIZATION PAYMENT WHICH WAS DUE ON THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE. ADD 10 YEARS TO THIS DATE. THE RESULT IS THE EXPIRATION DATE OF THE ORIGINAL 10 YEAR TERM THAT, NOW, BECOMES THE EXPIRATION DATE FOR THE NEW ASSISTANCE PAYMENTS CONTRACT. ENTER THE RESULT IN ITEM #1. 3. ITEM #2, INTEREST RATE FLOOR AS A PERCENTAGE - REFER TO THE SECTION 235 PAYOFF STATEMENT AND/OR ATTACHMENTS. THE INTEREST RATE FLOOR AS A PERCENTAGE CAN BE FOUND ON THE COPY OF THE OLD ORIGINAL FORM HUD-93100, WHICH WAS EXECUTED BY HUD AND IS ASSOCIATED WITH THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE (OLD MORTGAGE), OR (IF APPLICABLE) THE ORIGINAL FORM HUD-93100 WHICH WAS EXECUTED BY HUD AT THE LAST ASSUMPTION OF THE OLD MORTGAGE, OR (IF APPLICABLE) THE SERVICING MORTGAGEE'S CERTIFICATION WHICH SETS FORTH THE MORTGAGORS' INCOME CONTRIBUTIONS PERCENTAGE AND INTEREST RATE FLOOR. ENTER THE INTEREST RATE FLOOR, WHICH IS FOUND ON ITEM G-6 OF FORM HUD-93100 OR (IF APPLICABLE) THE INTEREST RATE FLOOR CERTIFIED BY THE SERVICING MORTGAGEE, IN ITEM #2. _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 5 PAGE 2 OF 2 ACKNOWLEDGMENT OF MORTGAGOR(S) NOTE: THE LANGUAGE ON THIS PAGE SHOULD BE TYPED ON THE MORTGAGEE'S STATIONARY. OLD 235 FHA CASE NUMBER: ____________________ NEW 235(r) FHA CASE NUMBER: _________________ BY SIGNING BELOW, I (WE) ACKNOWLEDGE MY (OUR) UNDERSTANDING THAT: THE ASSISTANCE PAYMENTS CONTRACT FOR THE SECTION 235(r) MORTGAGE IS FOR THE UNEXPIRED TERM OF THE OLD SPECIAL ASSISTANCE PAYMENTS CONTRACT WHICH HAD AN ORIGINAL TERM OF TEN YEARS. THE NEW ASSISTANCE PAYMENTS CONTRACT EXPIRES ON (_ITEM #1_) UNLESS TERMINATED PRIOR TO THAT TIME BECAUSE I (WE) BECOME INELIGIBLE FOR CONTINUED ASSISTANCE (PURSUANT TO TITLE 24 OF THE CODE OF FEDERAL REGULATIONS, SECTION 235.375). ONCE THE ASSISTANCE PAYMENTS CONTRACT EXPIRES, ASSISTANCE PAYMENTS TERMINATE UNLESS THE SECRETARY OF HUD CONTRACTS TO CONTINUE THE ASSISTANCE PAYMENTS. THE NEW ASSISTANCE PAYMENTS CONTRACT CONSISTS OF 24 CFR PART 235, SUBPART C, AND THE NOTICE PUBLISHED IN THE FEDERAL REGISTER (N-91-3219 FR-2739). THE AMOUNT OF ASSISTANCE PAYMENTS MADE EACH MONTH ON MY (OUR) BEHALF SHALL BE BASED ON THE LESSER OF: (1) THE DIFFERENCE BETWEEN: (a) TWENTY-EIGHT PERCENT OF THE MY (OUR) FAMILY'S ADJUSTED MONTHLY INCOME; AND (b) THE MONTHLY PAYMENT REQUIRED UNDER THE MORTGAGE FOR PRINCIPAL, INTEREST, TAXES, HAZARD INSURANCE AND MORTGAGE INSURANCE PREMIUM; OR, (2) THE DIFFERENCE BETWEEN: (a) THE MONTHLY PAYMENT REQUIRED UNDER THE MORTGAGE FOR PRINCIPAL, INTEREST, AND MORTGAGE INSURANCE PREMIUM; AND (b) THE MONTHLY PAYMENT WHICH WOULD BE REQUIRED FOR PRINCIPAL AND INTEREST IF THE MORTGAGE BORE AN INTEREST RATE OF (_ITEM #2_) PERCENT. ________________________________________ MORTGAGOR DATE ________________________________________ MORTGAGOR DATE ________________________________________ MORTGAGEE - WITNESS DATE _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 6 MORTGAGEE'S CERTIFICATION OF THE DATE OF DISBURSEMENT OF THE SECTION 235(r) MORTGAGE PROCEEDS USAGE: THIS MORTGAGEE'S CERTIFICATION IS USED TO ESTABLISH THE DATE OF DISBURSEMENT OF ALL 235(r) MORTGAGE PROCEEDS. THE TERM OF THE NEW ASSISTANCE PAYMENTS CONTRACT (APC) OR NEW ASSISTANCE PAYMENTS CONTRACT 10 (APC 10) COMMENCES ON THE DATE OF DISBURSEMENT OF THE 235(r) MORTGAGE PROCEEDS. GENERAL INSTRUCTIONS: TO BE TYPED ON THE MORTGAGEE'S STATIONARY AND EXECUTED BY AN AUTHORIZED MORTGAGEE OFFICIAL. "Name of Mortgagor: ______________________________________ OLD FHA Case Number: ____________________________ NEW FHA Case Number: ____________________________ We (name of company), Mortgagee at the time of closing of this mortgage and on the date of disbursement of the Section 235(r) mortgage proceeds, certify that all Section 235(r) mortgage proceeds were disbursed on ______(date)____ and that all mortgage proceeds were disbursed to the mortgagors', or to their creditors for their account and with their consent. Furthermore, we understand that the date of disbursement is the date on which the new contract term of the new Assistance Payments Contract or new Assistance Payments Contract 10 commences. ____________________________________________________ Authorized Mortgagee Official - Signature/Date _____________________________________________________________________ ATTACHMENT 7 INSTRUCTIONS TO COMPLETE THE MODIFICATION AND/OR SUBORDINATION AGREEMENTS FOR HUD'S RECAPTURE MORTGAGE OR DEED OF TRUST WHICH IS SUBORDINATED TO A SECTION 235(r) OR SECTION 203(b) (STREAMLINE) MORTGAGE OR DEED OF TRUST INSTRUCTIONS - OVERVIEW MODIFICATION AND/OR SUBORDINATION OF HUD'S RECAPTURE MORTGAGE OR DEED OF TRUST: 1. USE OF THE MODIFICATION AND/OR SUBORDINATION AGREEMENTS (AGREEMENT) - THE MORTGAGEE MUST USE THE APPROPRIATE SAMPLE AGREEMENT (ATTACHMENT) FOR A RECAPTURE MORTGAGE OR DEED OF TRUST THAT IS SUBORDINATED TO A SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST. 2. ATTACHMENTS TO BE USED : ATTACHMENT 7-A, MORTGAGE MODIFICATION AND 8UBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) MORTGAGE. ATTACHMENT 7-B, DEED OF TRUST MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) DEED OF TRUST. ATTACHMENT 7-C, MORTGAGE SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE). ATTACHMENT 7-D, DEED OF TRUST SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE). 3. MORTGAGORS' EXECUTION OF THE AGREEMENT - THE MORTGAGORS WILL EXECUTE THE AGREEMENT CONCOMITANT WITH THE SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST AND, IF APPLICABLE (235(r) PROGRAM ONLY), THE NEW RECAPTURE NOTE. THE MORTGAGORS WILL BE THE FIRST PARTY (MORTGAGE) OR THE GRANTOR (DEED OF TRUST). _____________________________________________________________________ ATTACHMENT 7, PAGE 2 4. HUD'S EXECUTION OF THE AGREEMENT : a. DIRECT ENDORSEMENT PROCESSED CASES - THE DIRECT ENDORSEMENT UNDERWRITER, OR THE AUTHORIZED MORTGAGEE OFFICIAL, IS AUTHORIZED TO COMPLETE THE AGREEMENT ON BEHALF OF HUD FOR DIRECT ENDORSEMENT PROCESSED CASES. (SEE THE MORTGAGEE LETTER FOR ADDITIONAL DETAILS). THE UNDERWRITER, OR THE AUTHORIZED MORTGAGEE OFFICIAL, WILL COMPLETE THE AGREEMENT PER THE GENERAL AND SPECIFIC INSTRUCTIONS WHICH PRECEDE THE RESPECTIVE ATTACHMENTS AND WILL EXECUTE ON HUD'S BEHALF THE RESPECTIVE AGREEMENT AS THE SECOND PARTY (MORTGAGE) OR BENEFICIARY (DEED OF TRUST). b. HUD PROCESSED CASES - THE AUTHORIZED OFFICIAL AT THE LOCAL HUD FIELD OFFICE WILL EXECUTE THE AGREEMENT AS THE SECOND PARTY (MORTGAGE) OR BENEFICIARY (DEED OF TRUST) ON OR BY THE CLOSING DATE OF THE SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST. 5. MORTGAGEE'S EXECUTION OF THE AGREEMENT - THE MORTGAGEE WILL EXECUTE THE AGREEMENT AS THE THIRD PARTY (MORTGAGE) OR LENDER (DEED OF TRUST) WHERE, AS THE HOLDER OF THE SECTION 235(r) OR SECTION 203(b) MORTGAGE OR DEED OF TRUST, THE MORTGAGEE AFFIRMS THE AGREEMENT WHICH ALLOWS THE MORTGAGE OR DEED OF TRUST TO HAVE THE FIRST LIEN PRIORITY. 6. TRUSTEE'S EXECUTIONS OF THE AGREEMENT - IF THE STATE LAW REQUIRES, THE TRUSTEES OF THE RECAPTURE DEED OF TRUST MUST BE MADE PARTIES TO THE RESPECTIVE AGREEMENT, AND THE TRUSTEES MUST, ALSO, EXECUTE THE AGREEMENT WITH ALL OTHER PARTIES. 7. MORTGAGEE'S CERTIFICATION OF HUD'S LIEN PRIORITY - THE MORTGAGEE WILL CERTIFY THAT HUD'S LIEN PRIORITY IS A SECOND LIEN PRIORITY, OR A THIRD LIEN PRIORITY IF A UNIT OF GOVERNMENT SUBORDINATED A SECOND LIEN PRIORITY WHICH IT HAS HELD SINCE THE ORIGINAL CLOSING OF THE OLD 235 MORTGAGE. _____________________________________________________________________ ATTACHMENT 7, PAGE 3 a. DIRECT ENDORSEMENT PROCESSED CASES - THE MORTGAGEE WILL CERTIFY THE ABOVE BY ENUMERATING #60, SUBORDINATION OF A SECTION 235(i) RECAPTURE MORTGAGE (OR DEED OF TRUST), PER THE INSTRUCTIONS SET FORTH IN ATTACHMENT 8 OF THE MORTGAGEE LETTER AND AS INCORPORATED INTO HUD HANDBOOK 4000.4, REV-1 APPENDIX 4, PAGE 12. b. HUD PROCESSED CASES - THE MORTGAGEE WILL CERTIFY THE ABOVE BY COMPLETING ATTACHMENT 7-E, MORTGAGEE'S CERTIFICATION TO A HUD PROCESSED CASE. THE ORIGINAL CERTIFICATION MUST BE INCLUDED IN THE CASE BINDER WHEN THE CASE IS SENT TO THE LOCAL HUD FIELD OFFICE FOR ENDORSEMENT. A COPY MUST BE SENT TO THE DOCUMENTS OFFICER OF THE LOCAL FIELD OFFICE WITH A COPY OF THE AGREEMENT. A COPY MUST BE RETAINED IN THE ORIGINATION AND SERVICING FILES. 8. RECORDATION - THE ORIGINATING MORTGAGEE WILL BE REQUIRED TO HAVE THE AGREEMENT PROPERLY RECORDED AND MUST INSTRUCT THE RECORDER'S OFFICE TO MAIL THE RECORDED AGREEMENT TO THE LOCAL HUD FIELD OFFICE. (SEE THE MORTGAGEE LETTER FOR ADDITIONAL DETAILS). 9. DOCUMENTS DISTRIBUTION - SEE THE MORTGAGEE LETTER FOR ADDITIONAL INSTRUCTIONS. 10. CONFORMITY TO STATE LAW - THE ATTACHMENTS 7 - A THRU 7 - D SHOULD BE CONFORMED TO STATE AND LOCAL LAW, IF NECESSARY, BY LOCAL COUNSEL. NEW RECAPTURE NOTE REQUIREMENTS: 1. USE OF A NEW RECAPTURE NOTE : a. NEW RECAPTURE NOTE - THE NEW RECAPTURE NOTE IS FOUND IN HUD HANDBOOK 4330.1, REV-2, APPENDIX 56, NOTE, AND MUST BE USED IN CONJUNCTION WITH THE GENERAL AND SPECIFIC INSTRUCTIONS SET FORTH FOR THE RESPECTIVE ATTACHMENTS. b. MORTGAGORS' EXECUTION - WHEN AN OLD RECAPTURE MORTGAGE OR DEED OF TRUST IS SUBORDINATED TO A SECTION 235(r) MORTGAGE OR DEED OF TRUST, THE MORTGAGORS MUST EXECUTE A NEW RECAPTURE NOTE CONCOMITANT WITH THE EXECUTIONS OF THE SECTION 235(r) MORTGAGE OR DEED OF TRUST AND AGREEMENT. _____________________________________________________________________ ATTACHMENT 7, PAGE 4 c. INSCRIPTION OF THE FHA CASE NUMBERS - ON THE BOTTOM LEFT-HAND CORNER OF THE NEW RECAPTURE NOTE THE MORTGAGEE MUST TYPE THE OLD AND NEW FHA CASE NUMBERS RESPECTIVE TO THE 235(r) REFINANCE TRANSACTION. THE FHA CASE NUMBERS MUST BE PREFIXED BY THE WORDS, "OLD" AND "NEW". _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) MORTGAGE WITH A RECAPTURE MORTGAGE UNDER SECTION 235(r) ATTACHMENT 7 - A, MORTGAGE MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) MORTGAGE. GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 MORTGAGE IS REFINANCED BY A SECTION 235(r) MORTGAGE, THE RECAPTURE MORTGAGE (OR DEED OF TRUST) WILL BE MODIFIED AND SUBORDINATED TO THE SECTION 235(r) MORTGAGE. THE MORTGAGORS WILL EXECUTE THIS MODIFICATION AND SUBORDINATION AGREEMENT AND A NEW RECAPTURE NOTE WHICH REPRESENTS THE AGGREGATE AMOUNT OF ASSISTANCE PAYMENTS PAID BY HUD ON BEHALF OF THE ORIGINAL AND ASSUMING MORTGAGORS UNDER THE OLD 235 MORTGAGE AND THE ASSISTANCE PAYMENTS PAID ON BEHALF OF THE MORTGAGORS UNDER THE SECTION 235(r) MORTGAGE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 235(r) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE 235(r) MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE SECTION 235(r) MORTGAGE 8 EXECUTION DATE OF THE ORIGINAL RECAPTURE MORTGAGE 9 AND 10 LIBER AND FOLIO 11 AND 12 COUNTY AND STATE IN WHICH THE RECAPTURE MORTGAGE IS RECORDED 13 MAXIMUM AMOUNT OF THE RECAPTURE MORTGAGE 14 EXECUTION DATE OF THE SECTION 235(r) MORTGAGE 15 SECTION 235(r) FHA CASE NUMBER 16 EXECUTION DATE OF THE OLD 235 MORTGAGE 17 OLD 235 FHA CASE NUMBER 18 235(r) MORTGAGE AMOUNT 19 LEGAL DESCRIPTION 20 THRU 23 SAME AS 9 THRU 12, ABOVE 24 EXECUTION DATE OF THE OLD RECAPTURE NOTE 25 NAME OF THE 235(r) MORTGAGORS 26 EXECUTION DATE OF THE NEW RECAPTURE NOTE THAT IS REQUIRED TO BE EXECUTED _____________________________________________________________________ 2 27 OLD 235 FHA CASE NUMBER 28 SECTION 235(r) FHA CASE NUMBER 29 OLD 235 FHA CASE NUMBER 30 TOTAL ASSISTANCE PAYMENTS PAID BY HUD (SEE SECTION 235 PAYOFF STATEMENT) 31 EXECUTION DATE OF THE NEW 235(r) MORTGAGE 32 SECTION 235(r) FHA CASE NUMBER 33 OLD 235 FHA CASE NUMBER 34 SECTION 235(r) FHA CASE NUMBER 35 THRU 37 WITNESS 38 THRU 40 FIRST PARTY (MORTGAGORS), SECOND PARTY (HUD OR AS AUTHORIZED) AND THIRD PARTY (MORTGAGEE) _____________________________________________________________________ 1 OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - A SAMPLE - TO BE USED WITH A 235(r) MORTGAGE Modification and Subordination Agreement (Mortgage) 235 FHA Case No.: #1 235(r) FHA Case No.: #2 This Agreement made the #3 day of #4 ,19 #5 #6 (Owner), party of the first part (hereinafter called First Party) and Secretary of the Department of Housing and Urban Development, party of the second part (hereinafter called Second Party) and #7 , party of the third part (hereinafter called Third Party). WHEREAS, First Party executed a mortgage dated #8 and recorded in Liber #9 Folio #10 of the Land Records of #11 County, State of made payable to the Second Part in the principal sum of $ #13 ; and WHEREAS, First Party and Second Party agree to an amendment to said Mortgage to include as evidence of indebtedness an additional Note which has been executed for the repayment to the Second Party of assistance payments paid by the Second Party on a mortgage to be insured pursuant to section 235(r) of the National Housing Act (hereinafter called Act) on behalf of any party to the mortgage dated #14 which is identified as FHA #15 . Such repayment is in addition to the repayment required for the Mortgage dated #16 and identified as FHA Case No. #17 , which Mortgage is being refinanced with proceeds of the section 235(r) mortgage; and WHEREAS, Third Party has agreed to make a loan of $ #18 secured by a mortgage covering #19 description ; to be insured under section 235(r) of the Act; provided the Second Party will agree that the lien of said mortgage shall be prior and superior to any right, title, interest claim or lien that the Second Party may have in or to said premises; _____________________________________________________________________ 2 SAMPLE NOW, Therefore, in consideration of the premises and the promises of the parties contained herein, each to the other, the benefits to be derived, the parties hereby covenant and agree as follows: 1. Said First Party and Second Party hereby amend the Mortgage made payable to the Second Party and recorded in Liber #20 Folio #21 of the Land Records of #22 County, State of #23 so that the language following the principal sum in the first WHEREAS clause shall read as follows: "...but not to exceed an amount computed under the terms of a Note executed by said party on #24 , and Note executed by #25 on #26 , with interest, if any, according to the terms of the Notes." 2. Said First Party and Second Party further amend said Mortgage so paragraph numbered 1 of the Addendum shall read as follows: "A. The debt secured by this instrument shall include not only the Notes recited above but also any assistance paid by the Secretary in accordance with section 235 of the National Housing Act on behalf of any party to the mortgage (including any party who takes title to the property subject to the said Mortgage or assumes said Mortgage) identified as FHA Case No. #27 and to the mortgage identified as FHA Case No. #28 (both of which shall be referred to hereinafter as Insured Mortgage). The amount of assistance paid as of the date of the execution of this Agreement in connection with the mortgage identified as FHA Case No. #29 is $ #30 , which is being refinanced by the mortgage dated #31 and identified as FHA Case No. #32 . This instrument and the Notes recited above shall remain as the security and evidence of indebtedness, respectively, of the amount of assistance paid under FHA Case No. #33 and shall also be the security and evidence of indebtedness for any additional payments made under the mortgage identified as FHA Case No. #34 ." 3. The Second Party covenants and agrees with said Third Party that said mortgage, to be insured under section 235(r), securing a loan to First Party shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Second Party may have in or upon said premises. _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) DEED OF TRUST WITH A RECAPTURE DEED OF TRUST UNDER SECTION 235(r) ATTACHMENT 7 - B, DEED OF TRUST MODIFICATION AND SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 235(r) DEED OF TRUST. GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 DEED OF TRUST IS REFINANCED BY A SECTION 235(r) DEED OF TRUST, THE RECAPTURE DEED OF TRUST WILL BE MODIFIED AND SUBORDINATED TO THE SECTION 235(r) DEED OF TRUST. THE MORTGAGORS WILL EXECUTE THIS MODIFICATION AND SUBORDINATION AGREEMENT AND A NEW RECAPTURE NOTE WHICH REPRESENTS THE AGGREGATE AMOUNT OF ASSISTANCE PAYMENTS PAID BY HUD ON BEHALF OF THE ORIGINAL AND ASSUMING MORTGAGORS UNDER THE OLD 235 DEED OF TRUST AND THE ASSISTANCE PAYMENTS PAID ON BEHALF OF THE MORTGAGORS UNDER THE SECTION 235(r) DEED OF TRUST. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 235(r) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE OWNER OF THE PROPERTY 7 NAME OF THE SECURED PARTY OF THE SECTION 235(r) DEED OF TRUST 8 AND 9 EXECUTION DATE AND RECORDATION DATE OF THE ORIGINAL RECAPTURE DEED OF TRUST 10 AND 11 LIBER AND FOLIO 12 AND 13 COUNTY AND STATE IN WHICH THE RECAPTURE DEED OF TRUST IS RECORDED 14 MAXIMUM AMOUNT OF THE RECAPTURE DEED OF TRUST 15 EXECUTION DATE OF THE OLD 235 DEED OF TRUST 16 OLD 235 FHA CASE NUMBER 17 235(r) DEED OF TRUST AMOUNT 18 AND 19 EXECUTION DATE OF THE SECTION 235(r) DEED OF TRUST 20 SECTION 235(r) FHA CASE NUMBER 21 LEGAL DESCRIPTION 22 EXECUTION DATE OF THE OLD RECAPTURE DEED OF TRUST 23 NAME OF THE GRANTORS _____________________________________________________________________ 2 24 EXECUTION DATE OF THE NEW RECAPTURE DEED OF TRUST NOTE 25 OLD 235 FHA CASE NUMBER 26 SECTION 235(r) FHA CASE NUMBER 27 OLD 235 FHA CASE NUMBER 28 TOTAL ASSISTANCE PAYMENTS PAID BY HUD (SEE SECTION 235 PAYOFF STATEMENT) 29 EXECUTION DATE OF THE OLD 235 DEED OF TRUST 30 OLD 235 FHA CASE NUMBER 31 OLD 235 FHA CASE NUMBER 32 SECTION 235(r) FHA CASE NUMBER 33 EXECUTION DATE OF THE NEW 235(r) DEED OF TRUST 34 SECTION 235(r) FHA CASE NUMBER 35 THRU 37 WITNESS 38 THRU 40 GRANTORS (MORTGAGORS), BENEFICIARY (HUD OR AS AUTHORIZED) AND LENDER (MORTGAGEE) _____________________________________________________________________ 1 OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - B SAMPLE - TO BE USED WITH A 235(r) DEED OF TRUST Modification and Subordination Agreement (Deed of Trust) OLD 235 FHA Case No.: #1 NEW 235(r) FHA Case No.: #2 This Agreement made this #3 day of #4 , 19 #5 by and among, #6 , owner of the real property described in this Agreement, hereinafter referred to as "Grantor", Secretary of Housing and Urban Development, present owner of the Note secured by the deed of trust first described in this Agreement, hereinafter referred to as "Beneficiary", and #7 , beneficiary named in the the deed of trust secondarily described in the Agreement, herein-after referred to as "Lender". WHEREAS, Grantor is a party to a Deed of Trust dated #8 and recorded #9 in Liber #10 folio #11 of the Land Records of #12 County, State of #13 to secure a Note made payable to the Beneficiary in the principal sum of $ #14 , (hereinafter called the recapture Deed of Trust) and, WHEREAS, the said Grantor and Beneficiary agree to an amendment to the recapture Deed of Trust to include as evidence of indebtedness an additional Note which has been executed for the repayment to the Beneficiary of assistance payments paid by the Beneficiary in connection with a Deed of Trust to be insured by the Beneficiary pursuant to section 235(r) of the National Housing Act on behalf of any party to said Deed of Trust. Such repayment is in addition to the repayment required for the Deed of Trust dated #15 and identified as FHA Case No. #16 which Deed of Trust is being refinanced. WHEREAS, Grantor has executed, or is about to execute, a Deed of Trust to be recorded concurrently with this Agreement to secure a Note for the sum of $ #17 dated #18 , 19 #19 , FHA Case No. #20 in favor of the Lender, which Deed of Trust is to be insured under section 235(r) of the National Housing Act and conveying in trust real property described as follows: #21 description _____________________________________________________________________ 2 SAMPLE and, WHEREAS, it is the intention and understanding of all parties to this Agreement that the lien or charge of the Deed of Trust last above mentioned, and of any renewals, replacements, modifications or extensions of that Deed of Trust, shall be and remain at all times prior and superior to the recapture Deed of Trust first above mentioned. Now, therefore, in consideration of the premises, the promises of the parties contained herein, each to other, the benefits to be derived, the parties hereby covenant and agree as follows: 1. The said Grantor and Beneficiary agree that the recapture Deed of Trust shall be amended as follows: a. The language following the principal sum in the first WHEREAS clause shall be changed to read: "... but not to exceed an amount under the terms of a Note executed by said party on #22 , and Note executed by #23 on #24 with interest, if any, according to the terms of the Notes, and ..." b. Paragraph numbered 1 of the Addendum shall be amended to read as follows: (1) The debt secured by this instrument shall include not only the Notes recited above but also any assistance paid by the Secretary in accordance with Section 235 of the National Housing Act on behalf of any party to the Deed of Trust (including any party who takes title to the property subject to the said Deed of Trust or assumes said Deed of Trust) identified as FHA Case No. #25 and to the Deed of Trust identified as FHA Case No. #26 , both of which shall be referred to hereinafter as the (insured Deed _____________________________________________________________________ 3 of Trust). The amount of assistance paid as of the date of the execution of this Agreement in connection with the Deed of Trust identified as FHA Case No. #27 is $ #28 , which Deed of Trust is being refinanced by Deed of Trust dated #29 and identified as FHA Case No. #30 . This instrument and the Notes recited above shall remain as the security and evidence of indebtedness, respectively, of the amount of assistance paid in connection with the FHA Case No. #31 and shall also be the security and evidence of indebtedness for any additional payments made in connection with the Deed of Trust identified as FHA Case No. #32 . 2. The Beneficiary hereby covenants and agrees with said Lender that said Deed of Trust dated #33 and identified as FHA Case No. #34 to secure a loan made by Lender to Grantor shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Beneficiary may have in or upon said premises. SAMPLE In Witness Whereof, the said Grantor, Beneficiary, and Lender have duly executed this Agreement the day and year first above written. ____________#35_______________ _________#38_________________ Witness Grantor ____________#36_______________ _________#39_________________ Witness Beneficiary ____________#37_______________ _________#40_________________ Witness Lender (Acknowledgments required by State law) _____________________________________________________________________ REFINANCING OF AN OLD SECTION 235(i) MORTGAGE WITH A RECAPTURE MORTGAGE UNDER SECTION 203(b) ATTACHMENT 7 - C, MORTGAGE SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) MORTGAGE. (STREAMLINE REFINANCE) GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 MORTGAGE IS REFINANCED BY A SECTION 203(b) MORTGAGE, THE RECAPTURE MORTGAGE WILL BE SUBORDINATED TO THE SECTION 203(b) MORTGAGE. THE RECAPTURE MORTGAGE WILL NOT BE MODIFIED AND THE GRANTORS WILL NOT EXECUTE A NEW RECAPTURE NOTE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 203(b) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE SECTION 203(b) MORTGAGE 8 EXECUTION DATE OF THE ORIGINAL RECAPTURE MORTGAGE 9 AND 10 LIBER AND FOLIO 11 AND 12 COUNTY AND STATE IN WHICH THE RECAPTURE MORTGAGE IS RECORDED 13 MAXIMUM AMOUNT OF THE RECAPTURE MORTGAGE 14 SECTION 203(b) MORTGAGE AMOUNT 15 LEGAL DESCRIPTION 16 THRU 18 WITNESS 19 THRU 21 FIRST PARTY (MORTGAGORS), SECOND PARTY (HUD OR AS AUTHORIZED) AND THIRD PARTY (MORTGAGEE) _____________________________________________________________________ 1 OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - C SAMPLE - TO BE USED WITH A 203(b) MORTGAGE (STREAMLINE REFINANCE) Subordination Agreement (Mortgage) OLD 235 FHA Case No.: #1 NEW 203(b) FHA Case No.: #2 This Agreement made the #3 day of #4 ,19 #5 among #6 (Owner), party of the first part (hereinafter called First Party) and Secretary of the Department of Housing and Urban Development, party of the second part (hereinafter called Second Party) and #7 , party of the third part (hereinafter called Third Party). WHEREAS, First Party executed a mortgage dated #8 and recorded in Liber #9 Folio #10 of the Land Records of #11 County, State of #12 made payable to the Second Part in the principal sum of $ #13 ; and WHEREAS, Third Party has agreed to make a loan of $ #14 to be secured by a mortgage covering #15 description ; to be insured under section 203(b) of the National Housing Act; provided the Second Party will agree that the lien of said mortgage shall be prior and superior to any right, title, interest, claim or lien which the Second Party may have in or to said premises; NOW, Therefore, in consideration of the premises and the promises of the parties contained herein, each to the other, the benefits to be derived, the parties hereby covenant and agree as follows: The Second Party covenants and agrees with said Third Party that said mortgage, to be insured under section 203(b), securing a loan to First Party shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Second Party may have in or upon said premises. _____________________________________________________________________ 2 In Witness Whereof, the said First Party, Second Party and Third Party have duly executed this Agreement the day and year first above written. _________#16__________________ ______________#19________ Witness First Party __________#17_________________ ______________#20________ Witness Second Party __________#18_________________ ______________#21________ Witness Third Party (Acknowledgments required by State law) _____________________________________________________________________ REFINANCING OF AN OLD 235(i) DEED OF TRUST WITH A RECAPTURE DEED OF TRUST UNDER SECTION 203(b) ATTACHMENT 7 - D, DEED OF TRUST SUBORDINATION AGREEMENT TO BE USED WITH A SECTION 203(b) DEED OF TRUST. (STREAMLINE REFINANCE) GENERAL INSTRUCTIONS : 1. WHEN AN OLD 235 DEED OF TRUST IS REFINANCED BY A SECTION 203(b) DEED OF TRUST, THE RECAPTURE DEED OF TRUST WILL BE SUBORDINATED TO THE SECTION 203(b) DEED OF TRUST. THE RECAPTURE DEED OF TRUST WILL NOT BE MODIFIED AND THE GRANTOR WILL NOT EXECUTE A NEW RECAPTURE NOTE. SPECIFIC INSTRUCTIONS : BLANKS INSTRUCTIONS - FILL IN 1 OLD 235 FHA CASE NUMBER 2 SECTION 203(b) FHA CASE NUMBER 3 THRU 5 CURRENT DAY, MONTH AND YEAR - EXECUTION DATE OF THE AGREEMENT. 6 NAME OF THE MORTGAGORS 7 NAME OF THE MORTGAGEE OF THE 203(b) DEED OF TRUST 8 AND 9 EXECUTION DATE AND RECORDATION DATE OF THE ORIGINAL RECAPTURE DEED OF TRUST 10 AND 11 LIBER AND FOLIO 12 AND 13 COUNTY AND STATE IN WHICH THE RECAPTURE DEED OF TRUST IS RECORDED 14 MAXIMUM AMOUNT OF THE RECAPTURE DEED OF TRUST 15 SECTION 203(b) DEED OF TRUST AMOUNT 16 AND 17 EXECUTION DATE OF THE SECTION 203(b) DEED OF TRUST 18 SECTION 203(b) FHA CASE NUMBER 19 LEGAL DESCRIPTION 20 EXECUTION DATE OF THE SECTION 203(b) DEED OF TRUST 21 SECTION 203(b) FHA CASE NUMBER 22 THRU 24 WITNESS 25 THRU 27 GRANTORS (MORTGAGORS), BENEFICIARY (HUD OR AS AUTHORIZED) AND LENDER (MORTGAGEE) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 7 - D SAMPLE - TO BE USED WITH A 203(b) DEED OF TRUST (STREAMLINE REFINANCE) Subordination Agreement (Deed of Trust) OLD 235 FHA Case No.: #1 NEW 203(b) FHA Case No.: #2 This Agreement made this #3 day of #4 , 19 #5 by and among, #6 , owner of the real property described in this Agreement, hereinafter referred to as "Grantor", Secretary of Housing and Urban Development, present owner of the Note secured by the deed of trust first described in this Agreement, hereinafter referred to as "Beneficiary", and #7 , beneficiary named in the deed of trust secondarily described in the Agreement, herein-after referred to as "Lender". WHEREAS, Grantor is a party to a Deed of Trust dated #8 and recorded #9 in Liber #10 folio #11 of the Land Records of #12 County, State of #13 to secure a Note made payable to the Beneficiary in the principal sum of $ #14 , (hereinafter called the recapture Deed of Trust) and, WHEREAS, Grantor has executed, or is about to execute, a Deed of Trust to be recorded concurrently with this Agreement to secure a Note for the sum of $ #15 dated #16 , 19 #17 , FHA Case No. #18 in favor of the Lender, which Deed of Trust is to be insured under section 203(b) of the National Housing Act and conveying in trust real property described as follows: #19 description _____________________________________________________________________ 2 SAMPLE and, WHEREAS, it is the intention and understanding of all parties to this Agreement that the lien or charge of the Deed of Trust last above mentioned, and of any renewals, replacements, modifications or extensions of that Deed of Trust, shall be and remain at all times, prior and superior to any rights, title, interest, claim, or lien which the Beneficiary may have in or upon said premises as set forth in the recapture Deed of Trust first above mentioned. Now, Therefore, the said Beneficiary covenants and agrees with said Lender that said Deed of Trust dated #20 and identified as FHA Case No #21 to secure a loan made by Lender to Grantor shall be and remains at all times a lien or charge upon said property, superior to any rights, title, interest, claim or lien which Beneficiary may have in or upon said premises. In Witness Whereof, the said Grantor, Beneficiary, and Lender have duly executed this Agreement the day and year first above written. ____________#22_______________ __________#25________________ Witness Grantor ____________#23_______________ __________#26________________ Witness Beneficiary ____________#24_______________ __________#27________________ Witness Lender (Acknowledgments required by State law) _____________________________________________________________________ ATTACHMENT 7 - E MORTGAGEE'S FHA CASE CERTIFICATION TO A HUD PROCESSED CASE USAGE: THIS MORTGAGEE'S CERTIFICATION IS USED WITH A HUD PROCESSED CASE WHEN AN OLD HUD-HELD RECAPTURE MORTGAGE OR DEED OF TRUST IS MODIFIED AND/OR SUBORDINATED TO A NEW 235(r) OR 203(b) MORTGAGE OR DEED OF TRUST. GENERAL INSTRUCTIONS: TO BE TYPED ON THE MORTGAGEE'S STATIONARY AND EXECUTED BY AN AUTHORIZED MORTGAGEE OFFICIAL. "We (name of company), Mortgagee at the time of closing of this mortgage loan, certify that we have reviewed the outstanding commitments, legal instruments, closing statements and other documents of mortgage loan closing. Our review indicates that the mortgage loan has been closed in accordance with the statutory and regulatory requirements of the National Housing Act and HUD and that the terms of the outstanding commitments have been satisfied to the best of our knowledge and belief. Furthermore, the requirements for the modification and/or subordination of a HUD-held recapture mortgage or deed of trust to the new Section 235(r) or Section 203(b) mortgage or deed of trust have been satisfied to the best of our knowledge and belief. We (name of company), certify that after the modification and/or subordination of the HUD-held recapture mortgage or deed of trust that HUD has a second lien, or in the case of a mortgage or deed of trust made by a unit of government which has been subordinated to the Section 235(r) or Section 203(b) mortgage or deed of trust, HUD has a third lien. ____________________________________________________ Authorized Mortgagee Official - Signature/Date" _____________________________________________________________________ OMB No. 2502-0456 Exp. Date (01/31/94) ATTACHMENT 8 PAGE 1 OF 4 235(r) DIRECT ENDORSEMENT CERTIFICATIONS SECTION 235 TO SECTION 203(b) OR SECTION 235(r) A. INSERT THE FOLLOWING IN HUD HANDBOOK 4000.4, REV-1, APPENDIX 3, CERTIFICATIONS GUIDE, PAGE 2: CATEGORY A B C D E PURCHASE REFINANCE PURCHASE REFINANCE PURCHASE PROGRAM NO SECOND NO SECOND WITH 2ND WITH 2ND BORROWED DOWN PAYMENT 235(r) B-57 D-36 B. INSERT THE FOLLOWING IN HUD HANDBOOK 4000.4, REV-11, APPENDIX 3, CERTIFICATIONS GUIDE, PAGE 2, BELOW GUIDE: FOOTNOTE: SECTION 235(i) MORTGAGES WHICH ARE REFINANCED UNDER SECTION 203(b), WHERE THE RECAPTURE MORTGAGE (THAT IS HELD BY HUD) IS SUBORDINATED TO THE SECTION 203(b) MORTGAGE, MUST INCLUDE CERTIFICATION NUMBER 60. C. INSERT THE FOLLOWING IN HUD HANDBOOK 4000.4, REV-1, APPENDIX 3, CATEGORY B, PAGE 14: APPLICABLE DESIGNATION MORTGAGE TYPE CERTIFICATIONS SECTION 235(r) - REFINANCE TRANSACTIONS WITHOUT SUBORDINATION OF A RECAPTURE MORTGAGE B-57 Refinance; owner-occupant; 9, 58 and 59 all proceeds reinvested in the property; assistance payments will continue. _____________________________________________________________________ ATTACHMENT 8 PAGE 2 OF 4 D. INSERT THE FOLLOWING IN HUD HANDBOOK 4000.4, REV-1, APPENDIX 3, CATEGORY D, PAGE 21: APPLICABLE DESIGNATION MORTGAGE TYPE CERTIFICATIONS SECTION 235(r) - REFINANCE TRANSACTIONS WITH SUBORDINATION OF A RECAPTURE MORTGAGE D-36 Refinance; owner-occupant; 9, 58, 59 and 60 all proceeds reinvested in the property; subordination of the Section 235(i) recapture mortgage was required; assistance payments will continue. E. INSERT THE FOLLOWING IN HUD HANDBOOK 4000.4, REV-1, APPENDIX 4, PAGE 12: 58. Section 235(r) Refinance. The mortgagors are the owner-occupant. The transaction was processed without an appraisal. The mortgage being refinanced was insured by HUD under Section 235 of the National Housing Act. The applicants meet the requirements of the 235(r) Refinance Program. (Underwriter) That the monthly payments of principal and interest at the 235(r) interest rate on the Section 235(r) mortgage submitted for insurance are less than the monthly payments of principal and interest on the Section 235 being refinanced. (Underwriter) That the applicants are eligible for, and receiving, assistance payments with respect to Assistance Payments Contract associated with the Section 235 mortgage being refinanced and that the last recertification of the mortgagors were within the preceding twelve months prior to the time of mortgage application. (Underwriter) That the applicants are eligible to continue to receive assistance in connection with the 235(r) mortgage. (Underwriter) The computation of the amount of assistance payments which the Secretary will pay on behalf of the mortgagors were computed in accordance with the formula contained in Chapter 10 of HUD Handbook 4330.1, REV-2, and the Notice published in the Federal Register (N-91-3219 FR-2739). (Underwriter) _____________________________________________________________________ ATTACHMENT 8 PAGE 3 OF 4 The mortgagors have agreed to recertify, on a form prescribed by the Secretary, as to occupancy, employment, family composition and income in accordance with 24 CFR 235.350. (Underwriter) If a mortgage credit analysis was required: (1) the mortgagors have a general credit standing which is satisfactory per HUD mortgage credit guidelines, and, (2) the family's income is, and will be, adequate to meet an increase by more than $50.00 in the mortgagors' share of the full monthly payments required by the mortgage. (Underwriter) The interest rate does not exceed the maximum cap rate on the date of the mortgage application as established by HUD for Section 235(r) mortgages. (Mortgagee) The term "mortgage" as used in the Section 235(r) Program meets the same meaning as defined in 24 CFR 235.22 (a) and the mortgage is in the form as provided for in 24 CFR 235.22 (a)(2) and as set forth in Mortgagee Letter 89-23, Single Family Loan Production - Requirements for Single Family Mortgages. The 235(r) Security Instrument and Allonge Amending the Note meet the requirements set forth by HUD and State and local requirements. (Mortgagee) That the 235(r) mortgage shall be on real estate held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease which has at least ten years to run from the maturity of the 235(r) mortgage. (Mortgagee) The mortgage shall contain complete amortization provisions satisfactory to the Secretary and an amortization period not in excess of the remaining term of the old 235 mortgage which is refinanced by the 235(r) mortgage. (Mortgagee) No finance costs were included in the mortgage amount. That the stated 235(r) mortgage amount does not exceed the outstanding principal balance due on the Section 235 mortgage being refinanced as shown on the amortization schedule without taking into account prepayments and delinquencies. (Mortgagee) That the 235(r) mortgage satisfies the requirements of 24 CFR 235.22(a), (b), (c) and (f). (Mortgagee) _____________________________________________________________________ ATTACHMENT 8 PAGE 4 OF 4 That the interest rates on the mortgage meet the requirements contained in Part II, B. (4) of the Federal Register Notice (N-91-3219 FR-2739) and the initial interest rate is at least one percent (1%) higher that the interest rate on the remaining term of the mortgage. (Mortgagee) That the repayment of the financing costs does not exceed a period of 60 months from the date of the first payment to principal and interest on the 235(r) mortgagee. (Mortgagee) That the mortgagor has not received payment, nor have payments been made on his behalf, as described in Part II, B. (4) on the Federal Register Notice (N-91-3219 FR-2739) for a five year period from the date of the first payment to principal and interest on the mortgage being refinanced. (Mortgagee) 59. Section 235(r) Assistance Payments Contract With Assistance Payments. For the first year and until the first anniversary date, the mortgage applicant was determined to be eligible for assistance and is to receive assistance payments under the new Assistance Payments Contract which is associated with the 235(r) mortgage. Form HUD-93100, Application for Homeownership Assistance under Section 235 of the National Housing Act, was processed in accordance with HUD's requirements and was properly executed. (Underwriter) 60. Subordination of a Section 235(i) Recapture Mortgage. That the recapture second mortgage, if applicable, has been subordinated to the mortgage being submitted for insurance and the recapture mortgage is a second lien; provided that in the case where there is a loan made or held or insured by a Federal, State or local government agency which was approved by the Secretary as a second lien and which has been subordinated, the recapture mortgage may be a third lien. (Mortgagee) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 9 SECTION 235 MORTGAGES DIRECTORY WRITTEN REQUEST INSTRUCTIONS TO COMPLETE THIS ATTACHMENT: 1. DETERMINE THE AMOUNT OF THE REMITTANCE. 2. ATTACH A MONEY ORDER OR CERTIFIED CHECK FOR THE AMOUNT OF THE REMITTANCE TO THIS ATTACHMENT. 3. THE MONEY ORDER OR CERTIFIED CHECK IS PAYABLE TO: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT. 4. CLEARLY PRINT OR TYPE ON THE MONEY ORDER OR CERTIFIED CHECK AND THE ENVELOPE ADDRESSED TO HUD: "235 MORTGAGES DIRECTORY". 5. MAIL TO: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT SYSTEMS MANAGEMENT BRANCH P.O. BOX 23296 WASHINGTON, DC 20026-3296 MORTGAGEE'S NAME: ____________________________________ ADDRESS: ____________________________________ ADDRESS: ____________________________________ CITY: ____________________________________ STATE: ____________________________________ ZIP CODE: ____________________________________ CONTACT PERSON: ____________________________________ AREA CODE & TELEPHONE #: ____________________________________ QUANTITY DESIRED: HARD COPIES (@ $50.00 PER COPY) _______________ FLOPPY DISKS (@ $150.00 PER SET) _______________ MAGNETIC TAPES (@ $250.00 PER TAPE) _______________ TOTAL REMITTANCE: $ __________________ _____________________________________________________________________ OMB No. 2505-0456 (Exp. Date 01/31/94) ATTACHMENT 10 - A 235(r) APPLICATION PROCESSING QUESTIONS AND ANSWERS/CHECK LIST PAGE 1 OF 3 MORTGAGEE'S NAME:_________________________________DATE:__________________ MORTGAGORS' NAME: __________________ OLD FHA CASE NUMBER: ______________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: _____________ NEW FHA CASE NUMBER: ___________ (AND ADP CODE) _________________________________________________________________________ USAGE: The questions and answers (Q's & A's) and the check list are designed to assist the originating mortgagee in the processing of the 235(r) mortgage application. The mortgagee letter and Handbook 4330.1, REV-2, are the source documents which must be referred to for specific guidance. The cited page numbers represent references to the mortgagee letter and the handbook citations are specifically indicated. (Y = YES, N = NO, ? = TO BE DETERMINED AT UNDERWRITING) __________________________________________________________________________ PRE-APPLICATION Q's AND A's (CIRCLE ONE): ITEM (O) DESCRIPTION ELIGIBILITY - (See Mortgage Letter, Paragraph D, Prerequisites, on Page 4) 1. Y/N ARE THE APPLICANTS 235 MORTGAGORS? 2. Y/N ARE THE APPLICANTS THE OWNER OCCUPANTS? 3. Y/N ARE THE APPLICANTS, AS MORTGAGORS, ELIGIBLE FOR ASSISTANCE AND RECEIVING ASSISTANCE PAYMENTS UNDER THE OLD ASSISTANCE PAYMENTS CONTRACT (APC) THAT IS ASSOCIATED WITH THE OLD 235 MORTGAGE? 4. Y/N WILL THE REFINANCE CAUSE A REDUCTION IN THE PRINCIPAL AND INTEREST PAYMENTS? 5. Y/N ARE THE APPLICANTS MEMBERS OF A COOPERATIVE? NOTE: QUESTIONS 1 THRU 4 MUST BE "YES" AND QUESTION 5 MUST BE "NO" TO BEGIN PROCESSING A 235(r) MORTGAGE APPLICATION. OPPOSITE RESPONSES WOULD INDICATE THAT THE APPLICANTS ARE NOT ELIGIBLE FOR A SECTION 235(r) MORTGAGE. MORTGAGE CREDIT ANALYSIS - (See Mortgagee Letter, Paragraph D, Conditions, Pages 5 and 6.) 1. Y/N/? WILL THE APPLICANTS' SHARE OF THE FULLY MONTHLY PAYMENT UNDER THE 235(r) MORTGAGE INCREASE BY MORE THAN $50.00? IF YES, A MORTGAGE CREDIT ANALYSIS IS REQUIRED. _____________________________________________________________________ ATTACHMENT 10 - A PAGE 2 OF 3 SUBORDINATION OF THE RECAPTURE MORTGAGE OR DEED OF TRUST HELD BY HUD - (See Mortgagee Letter, Paragraph N, Recapture Mortgage, on Pages 23 through 26.) 1. Y/N/? IS A RECAPTURE MORTGAGE OR DEED OF TRUST ASSOCIATED WITH THE OLD 235 MORTGAGE? 2. Y/N IF YES OR ?, DO THE APPLICANTS (MORTGAGORS) AGREE TO THE MODIFICATION AND TO SUBORDINATION AGREEMENT PROVISIONS OF THE RECAPTURE MORTGAGE OR DEED OF TRUST? CHECKLIST FOR 235(r) APPLICATION PROCESSING (CONSISTING OF ITEMS A, B AND C, BELOW): ( ) ITEM DESCRIPTION A. FORM HUD-92900.1, APPLICATION FOR HUD/VA INSURED MORTGAGE, (SEE PAGE 38): _____ 1. OLD 235 FHA CASE NUMBER AND ADP CODE ENTERED IN THE LOWER LEFT-HAND CORNER OF ITEM 4A, NAME AND ADDRESS OF LENDER. _____ 2. THE FORM WAS REVIEWED AND EXECUTED BY THE APPLICANTS (MORTGAGORS). _____ 3. THE FORM WAS COMPLETED AND CERTIFIED BY THE ORIGINATING MORTGAGEE. NOTE: THE INSTRUCTIONS ON THE FORM MUST BE COMPLETED BY THE ORIGINATING MORTGAGEE. THE APPLICATION IS NOT SUBJECT TO AN APPRAISAL, A FACE TO FACE INTERVIEW, A PHOTO IDENTIFICATION OR CREDIT REPORT, UNLESS, A MORTGAGE CREDIT ANALYSIS IS REQUIRED. B. FORM HUD-93100, APPLICATION FOR HOMEOWNERSHIP ASSISTANCE UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, (SEE PAGE 28 THROUGH 30): _____ 1. ENTER THE OLD 235 FHA CASE NUMBER AND ADP CODE IN THE LOWER LEFT-HAND CORNER OF ITEM D, MORTGAGEE'S NAME, ADDRESS AND ZIP CODE. _____ 2. THE FORM WAS REVIEWED AND EXECUTED BY THE APPLICANTS (MORTGAGORS). _____ 3. THE FORM WAS COMPLETED BY THE ORIGINATING MORTGAGEE. _____ 4. IF A 235 REVISED RECAPTURE 10 MORTGAGE IS BEING REFINANCED, ATTACHMENT 5 (ACKNOWLEDGMENT OF MORTGAGOR(S)) WAS REVIEWED AND EXECUTED BY THE MORTGAGORS, WHO ARE GIVEN A COPY. _____ 5. IF A RECAPTURE MORTGAGE OR DEED OF TRUST IS BEING MODIFIED AND SUBORDINATED, APPENDIX 44 OF HANDBOOK 4330.1, REV-2, NOTICE TO MORTGAGORS, IS EXECUTED BY THE APPLICANTS (MORTGAGORS) AT THE TIME OF MORTGAGE APPLICATION. _____________________________________________________________________ ATTACHMENT 10 - A PAGE 3 OF 3 NOTE: THE INSTRUCTIONS ON THE FORM MUST BE COMPLETED BY THE ORIGINATING MORTGAGEE (SEE ADDITIONAL INSTRUCTIONS IN MORTGAGEE LETTER, PARAGRAPH J ON PAGES 12 AND 13). THE DIRECT ENDORSEMENT UNDERWRITER OR HUD STAFF UNDERWRITER WILL: REVIEW THE FORM, DETERMINE THE APPLICANTS' (MORTGAGORS') CONTINUED ELIGIBILITY FOR ASSISTANCE AND THE AMOUNT OF THE ASSISTANCE PAYMENTS UNDER THE NEW APC, AND EXECUTE ITEM K, REVIEW AND ELIGIBILITY. C. VERIFICATIONS AT APPLICATION (SEE PAGE 29, AND HANDBOOK 4330.1, REV-2). 1. MORTGAGOR'S VERIFICATIONS AND WRITTEN REQUEST: _____ a. VERIFICATIONS OF INCOME, EMPLOYMENT, ETC. (SEE CHAPTER 10 OF HUD HANDBOOK 4330.1, REV-2, FOR DETAILS) _____ b. EVIDENCE OF THE APPLICANTS' (MORTGAGORS') SOCIAL SECURITY NUMBER(S). _____ c. THE WRITTEN REQUEST, WHICH AUTHORIZES THE RELEASE OF INFORMATION (VERIFICATIONS) AND REPRESENTS A NOTICE TO PREPAY OF THE OLD 235 MORTGAGE, WAS SENT TO THE SERVICING MORTGAGEE. _____ 2. SERVICING MORTGAGEE'S VERIFICATIONS: LETTER FROM THE SERVICING MORTGAGEE IS RECEIVED BY THE ORIGINATING MORTGAGEE AND INCLUDES THE REQUIRED STATEMENTS AND CERTIFICATIONS PLUS THE ATTACHMENTS. (SEE MORTGAGEE LETTER, SERVICING REQUIREMENTS ON PAGES 35 THROUGH 41.) POST-APPLICATION Q's AND A's (CIRCLE ONE): ITEM (O) DESCRIPTION GENERAL : 1. Y/N IS THIS APPLICATION BETTER SUITED TO A SECTION 203(b) MORTGAGE UNDER THE REFINANCE OR STREAMLINE REFINANCE PROCEDURES? IF YES, INFORM THE APPLICANTS (MORTGAGORS) OF THE REFINANCING ALTERNATIVES. (SEE HUD HANDBOOK 4155.1, REV-3) 2. Y/N AFTER A PRELIMINARY EVALUATION OF THE APPLICATION, ARE THE APPLICANTS (MORTGAGORS) SUBJECT TO A MORTGAGE CREDIT ANALYSIS? IF YES, OBTAIN THE REQUIRED DOCUMENTS AND ATTACH THEM TO THE APPLICATION. FOOTNOTE: THE ORIGINATING MORTGAGEE SHOULD OBTAIN (AND COMPLETE) THE APPLICATION (ITEMS A, B AND C, AND THE Q's AND A's) PRIOR TO CONTACTING THE LOCAL HUD FIELD OFFICE FOR THE SECTION 235(r) CASE NUMBER AND ADP CODE. _____________________________________________________________________ OMB No. 2505-0456 ATTACHMENT 10 - B (Exp. Date 01/31/94) 235(r) DOCUMENTS DISPOSITION/CHECK LIST FOR THE 235(r) OR 203(b) CASE BINDER AND THE ORIGINATION AND SERVICING FILES PAGE 1 OF 2 MORTGAGEE'S NAME:__________________________DATE:_________________________ MORTGAGORS' NAME: __________________ NEW FHA CASE NUMBER: _____________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: _________________ DATE OF CLOSING: ___________ DOCUMENT COSTS: All costs for the document's preparation, execution, duplication, distribution and postage must be borne by the originating mortgagee. _________________________________________________________________________ THE SECTION 235(r) OR SECTION 203(b) CASE BINDER AND THE NEW ORIGINATION AND SERVICING FILES USAGE: This check list will assist the originating mortgagee, or its agent, in the proper documents disposition for the Section 235(r) Program or Section 203(b) refinancing procedures. These documents may be in addition to those documents that are required by HUD for the case binder sent to the local HUD Field Office for endorsement, and the new origination and servicing files. CB = Case Binder, O = Origination File, S = Servicing File and N/A = Not Applicable. _________________________________________________________________________ ( ) CB O S ITEM DOCUMENTS FORM HUD-92900.1, APPLICATION FOR VA/HUD INSURED MORTGAGE. 1 CB = VA/HUD COPY, O = LENDER COPY 4, S = COPY OF LENDER COPY 4 FORM HUD-92900-WS, MORTGAGE CREDIT ANALYSIS WORKSHEET 2 CB = ORIGINAL, O = COPY, S = COPY, HOUSING INFORMATION AND STATISTICAL DIVISION WITH FORM HUD-92900-7 = COPY FORM HUD-93100, APPLICATION FOR HOMEOWNERSHIP ASSISTANCE UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, THAT WAS REVIEWED AND EXECUTED BY 3 THE UNDERWRITER FOR THE SECTION 235(R) MORTGAGE CB = 93100-2, 0 = 93100-1, S = 93100-4 (ORIGINAL TO OFA, SUBSIDY ACCOUNTING BRANCH) ATTACHMENT 5, ACKNOWLEDGMENT OF MORTGAGOR(S), IF AN OLD SECTION 235 REVISED RECAPTURE 10 4 MORTGAGE IS REFINANCED BY THE 235(r) MORTGAGE. CB, O AND S = COPY (ORIGINAL TO OFA, SUBSIDY ACCOUNTING BRANCH) _____________________________________________________________________ ATTACHMENT 10 - B PAGE 2 OF 2 ( ) CB O S ITEM DOCUMENTS IF A RECAPTURE MORTGAGE WHICH IS HELD BY HUD IS SUBORDINATED, APPENDIX 44, NOTICE TO 5 MORTGAGOR, OF HANDBOOK 4330.1 WAS REVIEWED AND EXECUTED BY THE APPLICANT (MORTGAGOR). CB, O AND S = COPY (ORIGINAL TO DOCUMENTS OFFICER, LOCAL FIELD OFFICE) THE LETTER AND REQUIRED ATTACHMENTS RECEIVED 6 FROM THE SERVICING MORTGAGEE, WHO SERVICED THE OLD 235 MORTGAGE. THE ATTACHMENTS INCLUDE: a. A COPY OF THE ORIGINAL FORM HUD-93100 (OR, AUTHORIZED SUBSTITUTE) THAT WAS EXECUTED BY HUD WHEN THE OLD 235 MORTGAGE WAS ORIGINATED. CB, O AND S = COPY b. IF APPLICABLE, A COPY OF THE OLD ORIGINAL ASSISTANCE PAYMENTS CONTRACT ASSOCIATED WITH THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE. CB, O AND S = COPY c. SECTION 235 PAYOFF STATEMENT. CB = ORIGINAL, 0 AND S = COPY d. A COPY OF APPENDIX 8, MORTGAGEE NOTICE TO MORTGAGORS, OF HANDBOOK 4330.1. CB, O AND S = COPY e. IF AVAILABLE, A COPY OF THE ORIGINAL SALES CONTRACT OR HUD-1 WHEN THE PROPERTY WAS FIRST MORTGAGED UNDER SECTION 235. IF A HUD PROCESSED CASE, FORM HUD-92900.4, 7 FIRM COMMITMENT CB = ORIGINAL, O AND S = COPY IF A MORTGAGE CREDIT ANALYSIS WAS REQUIRED, 8 THE REQUIRED AND SUPPORTING DOCUMENTATION WAS USED IN THE UNDERWRITING. CB = ORIGINAL, O AND S = COPY DIRECT ENDORSEMENT CERTIFICATIONS OR 9 ATTACHMENT 7-E, SEE THE MORTGAGEE LETTER. (SEE ATTACHMENT 8) CD = ORIGINAL, O AND S = COPY THE GOOD FAITH ESTIMATE AND FORM HUD-1, N/A N/A 10 SETTLEMENT STATEMENT, SENT WITH THE CASE BINDER TO THE LOCAL HUD FIELD OFFICE FOR INSURANCE. CD = ORIGINAL, O AND S = N/A ATTACHMENT 6, MORTGAGEE'S CERTIFICATION OF THE 11 DATE OF DISBURSEMENT OF THE SECTION 235(r) MORTGAGE PROCEEDS. CB, O AND S = COPY (ORIGINAL TO OFA, SUBSIDY ACCOUNTING BRANCH) _____________________________________________________________________ OMB No. 2502-0456 (Exp. Date 01/31/94) ATTACHMENT 10 - C 235(r) DOCUMENTS DISPOSITION FOR THE NEW APC ACCOUNT CHECK LIST PAGE 1 OF 2 MORTGAGEE'S NAME:_______________________________DATE:____________________ MORTGAGORS' NAME: __________________ NEW FHA CASE NUMBER: _____________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: _________________ DATE OF CLOSING: ___________ _________________________________________________________________________ DOCUMENTS DISPOSITION FOR ESTABLISHING THE NEW ASSISTANCE PAYMENTS CONTRACT ACCOUNT WITH HUD, OFFICE OF FINANCE AND ADMINISTRATION. USAGE: This check list will assist the originating mortgagee, or its agent, with the documents disposition to set up an account with the Subsidy Accounting Division, so that, HUD will be able to process the mortgagee's application (billings on Form HUD- 93102s, Mortgagee's Certification and Application for Assistance or Interest Reduction Payments). These documents are sent separate from the documents sent to the local HUD Field Office for endorsement and the documents associated with a recapture mortgage. The originating mortgagee must send these documents as a group within 5 days after receiving Form HUD-59100, Mortgage Insurance Certificate. HUD will not be responsible for any document sent individually and will not acknowledge the account set up. Furthermore, the new servicing mortgagee cannot bill HUD for any assistance payments associated with the new Assistance Payments Contract (APC) prior to the account set up, but can request a retroactive change (initial submission of Form HUD-93102) in the assistance payments for those periods for which assistance payments are due the servicing mortgagee under the new APC (the assistance payments are eligible to begin on the date of the first monthly amortization payment under the mortgage (or, deed of trust) and note). The following documents must be sent to: U.S. Department of Housing and Urban Development, Office of Finance and Administration, Room 3206, Washington, D.C., 20410. _________________________________________________________________________ _____________________________________________________________________ ATTACHMENT 10 - C PAGE 2 OF 2 ITEM DOCUMENTS AS A GROUP ORIGINAL FORM HUD-93100, APPLICATION FOR HOMEOWNERSHIP 1 ASSISTANCE UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, THAT WAS REVIEWED AND EXECUTED FOR BY THE UNDERWRITER FOR THE NEW 235(r) MORTGAGE. COPY OF FORM HUD-59100, MORTGAGE INSURANCE CERTIFICATE, 2 ASSOCIATED WITH THE NEW 235(r) MORTGAGE. ORIGINAL ATTACHMENT 5, ACKNOWLEDGMENT OF MORTGAGOR(S), IF 3 AN OLD SECTION REVISED RECAPTURE 10 MORTGAGE IS REFINANCED BY THE 235(r) MORTGAGE. ORIGINAL FORM HUD-93114, NOTICE OF TERMINATION, FOR THE OLD 4 235 MORTGAGE WHICH WAS SENT TO THE ORIGINATING MORTGAGEE, OR ITS AGENT BY THE OLD SERVICING MORTGAGEE. COPY OF THE ORIGINAL FORM HUD-27050-A, MORTGAGE INSURANCE TERMINATION, WHICH TERMINATED THE OLD 235 MORTGAGE 5 INSURANCE CONTRACT. NOTE: THE ORIGINAL IS SENT TO THE DESIGNATED ADDRESS ON THE FORM. ORIGINAL FORM HUD-93114, NOTICE OF SUSPENSION, IF THE MORTGAGOR EXECUTED THE 235(r) MORTGAGE INSTRUMENTS AND THE 6 UNDERWRITER REQUIRED THAT THE NEW ASSISTANCE PAYMENTS CONTRACT BE SUSPENDED, BEGINNING ON THE CLOSING DATE OF THE 235(r) MORTGAGE. ORIGINAL ATTACHMENT 6, MORTGAGEE'S CERTIFICATION OF THE 7 DATE OF DISBURSEMENT OF THE SECTION 234(R) MORTGAGE PROCEEDS. ORIGINAL FORM HUD-93102, MORTGAGEE'S CERTIFICATION AND APPLICATION FOR ASSISTANCE OR INTEREST REDUCTION PAYMENTS, 8 FOR THE PERIOD BEGINNING ON THE DATE OF THE FIRST MONTHLY AMORTIZATION PAYMENT UNDER THE MORTGAGE (OR, DEED OF TRUST) AND NOTE AND NEXT ASSISTANCE PAYMENT DUE THE SERVICING MORTGAGEE AFTER THE ACCOUNT SET UP. _____________________________________________________________________ OMB No. 2505-0456 (Exp. Date 01/31/94) ATTACHMENT 10 - D RECAPTURE MORTGAGE (DEED OF TRUST) MODIFICATION AND SUBORDINATION AGREEMENT DISPOSITION/CHECK LIST PAGE 1 OF 2 MORTGAGEE'S NAME:___________________________DATE:__________________________ MORTGAGOR'S NAME: ____________________ NEW FHA CASE NUMBER: _____________ (AND ADP CODE) MORTGAGEE'S LOAN NUMBER: _________________ DATE OF CLOSING: _____________ ___________________________________________________________________________ ___________________________________________________________________________ MODIFICATION AND SUBORDINATION DOCUMENTATION SENT TO THE LOCAL HUD FIELD OFFICE SEPARATE FROM THE CASE BINDER USAGE: This check list will assist the originating mortgagee, or its agent, with the documents disposition for the subordination and modification of HUD's recapture mortgage (or, deed of trust) or note that is associated with the Section 235(r) mortgage. These documents are sent separate from the case binder. The mortgagee is responsible for the proper recordation of the documents. The Recorder's office must be instructed to sent the recorded documents to the local HUD Field Office. ___________________________________________________________________________ ( ) ITEM DOCUMENTS AS A GROUP THE NEW ORIGINAL RECAPTURE NOTE EXECUTED BY THE MORTGAGOR 1 AT THE CLOSING OF THE SECTION 235(R) MORTGAGE. COPY OF ATTACHMENT 7, MODIFICATION AND SUBORDINATION AGREEMENT, OF THE RECAPTURE MORTGAGE (OR, DEED OF TRUST) 2 WHICH WAS EXECUTED BY THE MORTGAGOR AND DIRECT ENDORSEMENT UNDERWRITER OR DESIGNATED OFFICIAL, OR (IF APPLICABLE) HUD OFFICIAL, AT THE CLOSING OF THE SECTION 235(R) MORTGAGE AND SENT TO THE RECORDER'S OFFICE FOR RECORDATION. COPY OF THE ORIGINAL FORM HUD-93100, APPLICATION FOR HOMEOWNERSHIP ASSISTANCE UNDER SECTION 235 OF THE NATIONAL 3 HOUSING ACT, THAT WAS REVIEWED AND EXECUTED FOR BY THE DIRECT ENDORSEMENT OR HUD STAFF UNDERWRITER FOR THE NEW ASSISTANCE PAYMENTS CONTRACT. COPY OF ATTACHMENT 5, ACKNOWLEDGMENT OF MORTGAGOR(S), IF AN 4 OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE IS REFINANCED BY THE 235(r) MORTGAGE. _____________________________________________________________________ ATTACHMENT 10 - D PAGE 2 OF 2 ( ) ITEM DOCUMENTS AS A GROUP COPY OF THE ORIGINAL FORM HUD-93114, NOTICE OF SUSPENSION, IF THE MORTGAGOR EXECUTED THE 235(r) MORTGAGE INSTRUMENTS 5 AND THE UNDERWRITER REQUIRED THAT THE NEW ASSISTANCE PAYMENTS CONTRACT BE SUSPENDED, BEGINNING ON THE CLOSING DATE OF THE 235(r) MORTGAGE. COPY OF THE ORIGINAL FORM HUD-93102, MORTGAGEE'S CERTIFICATION AND APPLICATION FOR ASSISTANCE OR INTEREST REDUCTION PAYMENTS, FOR THE PERIOD BEGINNING ON THE DATE OF 6 THE FIRST MONTHLY AMORTIZATION PAYMENT UNDER THE MORTGAGE (OR, DEED OF TRUST) AND NOTE AND NEXT ASSISTANCE PAYMENT DUE THE SERVICING MORTGAGEE AFTER THE ACCOUNT SET UP. COPY OF APPENDIX 44, NOTICE TO MORTGAGOR, HANDBOOK 4330.1, 7 REV-2, WAS EXECUTED BY THE APPLICANT (MORTGAGOR), IF A RECAPTURE MORTGAGE WHICH IS HELD BY HUD IS MODIFIED AND SUBORDINATED. THE LETTER AND REQUIRED ATTACHMENTS RECEIVED FROM THE 8 SERVICING MORTGAGEE, WHO SERVICED THE OLD 235 MORTGAGE. a. A COPY OF THE ORIGINAL FORM HUD-93100-4 (OR, AUTHORIZED SUBSTITUTE) THAT WAS EXECUTED BY HUD WHEN THE OLD 235 MORTGAGE WAS ORIGINATED. b. IF APPLICABLE, A COPY OF THE ORIGINAL SPECIAL ASSISTANCE PAYMENTS CONTRACT ASSOCIATED WITH THE OLD SECTION 235 REVISED RECAPTURE 10 MORTGAGE. c. COPY OF THE SECTION 235 PAYOFF STATEMENT. d. A COPY OF APPENDIX 8 OF HANDBOOK 4330.1, REV-2. e. IF AVAILABLE, A COPY OF THE ORIGINAL SALES CONTRACT OR HUD-1 WHEN THE PROPERTY WAS FIRST MORTGAGED UNDER SECTION 235. 9 IF A HUD PROCESSED CASE, FORM HUD-92900.4, FIRM COMMITMENT _____________________________________________________________________ APPENDIX 1 USING STEPS 1 THROUGH 6 TO DETERMINE THE RECOVERY PERIOD IN WHOLE MONTHS - For example: A 17.5 percent 235 mortgage for $40,000.00 taken out in 1981 would carry a P + I payment of $586.53 and have a remaining balance after 10 years of $38,973.60. A new 235(r) mortgage refinancing the $38,973.60* at 10 percent would carry a P + I payment of $376.10, yielding a payment savings of $210.43 = $586.53 - $376.10 . If eligible upfront costs total $2,144.00, the Ratio would equal 10.19 =$2,144.00/$210.43 which would be rounded up to the nearest quarter, i.e., 10.25. Since the Ratio is 10.25 and the 235(r) interest rate is 10 percent the originating mortgage would first find the ratio in column 1 and then would go to column 2 at the 10 percent 235(r) interest rate. The intersection of the Column 1 and Column 2 is 11 whole months which is the number of months of the recovery period. The recovery period begins on the date of the first scheduled monthly amortization and ends the day before the beginning of the 12th month. For example, the 235(r) mortgage is closed on January 29, 1991 and the first payment is due on March 1, 1991. The first scheduled monthly amortization is March 1, 1991 and 11 whole months would end on January 31, 1992. 1991 J F M A Ma J Ju Au S O N D 1 2 3 4 5 6 7 8 9 10 1992 J F M A Ma J Ju Au S O N D 11 x...Beginning February 1, 1992 the 235(r) Interest Rate takes effect where the March 1, 1992 scheduled monthly amortization payment that is due includes interest at this interest rate. SUMMARY: The 235(r) mortgage would carry an initial interest rate of 17.5 percent and a P + I payments of $586.53 for the first 11 months and a 235(r) interest rate of 10% and P + I payments of $376.10 for the remaining 229 months. * The 235(r) mortgage amount has not be rounded down to the nearest $50.00 for this example. Reference: Attachment 2, Table of Recovery Periods _____________________________________________________________________ APPENDIX 2 FIRST ASSISTANCE PAYMENT COMPUTATION 1. Illustration of Assistance Payments Calculations: Assume a 30-year, $15,000 mortgage with interest at eight and one-half percent and insured under Section 235(r). The payment to principal and interest under the mortgage is $115.35. The lender requires monthly escrow deposits for MIP, taxes, and hazard insurance premiums of $8.72, $15.25, and $3.09, respectively. The mortgagors have not purchased homeowner's insurance and has insured the property against fire and extended coverage only. Total family income is $6,200 per year which includes annual wages of $4,500, and a Veterans Administration pension of $1,500, and the employer's verification is silent on the question of whether it will or will not continue. There are two minor children in addition to the homeowner and his spouse. The assistance payments are computed as follows: a. Formula One Income: Annual Wages $4,500.00 VA pension 1,500.00 Total Family Income $6,000.00 Less: 5% of $6,000 $300.00 Minus (2 x $300) 600.00 900.00 Adjusted annual income $5,100.00 Adjusted monthly income $ 425.00 Monthly mortgage payment: P&I $ 115.35 MIP 8.72 Taxes 15.25 Hazard Insurance 3.09 142.41 Less: 20% of $425 85.00 Formula One Assistance Payment $ 57.41 b. Formula Two. (1) Complete Calculations. Monthly payment to P&I at 8 1/2% $115.35 7/10 of 1% MIP 8.72 124.07 _____________________________________________________________________ 2 Less: Monthly payments to P&I at 5% 80.55 ($5.37 per $1,000) Formula Two Assistance payment 43.52 In computing the assistance payment under either formula, slight differences may occur because of rounding. The mortgagee may round any figure to the nearest dollar at each stage in computations, or it may use exact amounts throughout. The method must be consistent, however. If rounding is employed to compute the Formula One assistance payment, figures must be rounded at the same point in computing the Formula Two assistance payments. In this case the mortgagee will bill HUD for 43.52 monthly, the lesser of the two assistance payments. 2. First Assistance Payment In the examples below, assume the same eight and one-half percent, $15,000, 30-year mortgage and the same mortgagors used in the examples of assistance payments computations in paragraph 1. Add the assumptions that the proceeds of the mortgage were fully disbursed and the term of the assistance payments contract began on January 6, with the first regular monthly payment under the mortgage due on March 1. The assistance payment due March 1 would be computed in accordance with the instructions in paragraph 1. An assistance payment would also be due February 1, however, computed as described below. a. Interest Collected at Closing. In this situation, interest from January 6 through January 31 is collected at closing, and no additional payment is required from the mortgagors until the first regular monthly payment on March 1. The assistance payment due February 1 is computed as follows: (1) Formula One. Principal $ 0 Interest (25 days) 88.54 Taxes 0 Insurance 0 MIP 0 88.54 Less: 20% of mortgagors' adjusted income for 25 days ($425/mo / 30 x 25 x 20%) $70.85 Formula One Assistance Payment $17.69 _____________________________________________________________________ 3 (2) Formula Two Payment to P&I at 8 1/2% (no principal due) $88.54 MIP 0 $88.54 Less: *P&I at 5% for 25 days (no principal due) 52.00 Formula Two assistance payment $36.54 (*15,000 x .05 / 12 / 30 x 25 = $52,000) In this example, the lesser of the two assistance payment is that computed under Formula One, $17.69. The mortgagee may bill for this amount on February 1, but is not required to do so. The mortgagee is also entitled to a handling charge for February 1, whether or not it chooses to bill for assistance. In this example, the mortgagee has the option of billing for the partial assistance payment so long as it is less than $85.00, which represents the mortgagors' share of the first regular mortgage payment. The mortgagee will normally have this option if it routinely collects interest at closing. b. Adjusted Mortgage Payment. In this situation, interest from January 6 through January 31 is collected as a part of a payment due on February 1, which includes full installments to principal and escrows but a reduced payment to interest. the assistance payment must be billed and is computed as follows: (1) Formula One. Principal $ 9.10 Interest (25 days) 88.54 MIP 8.72 Taxes 15.25 Hazard Insurance 3.09 Payment due February 1 $124.70 Less: 20% of mortgagor's adjusted income for 25 days ($425/mo / 30 x 25 x 20%) $ 70.85 Formula One Assistance Payment $ 53.85 _____________________________________________________________________ 4 (2) Formula Two. Payment to P&I at 8 1/2% $ 97.64 (Principal = $9.10 Interest for 25 days = $88.54 MIP 8.72 Total $106.36 *P&I at 5% for 25 days 70.05 Formula Two Assistance Payment 36.31 Computed as follows: 5.37 x 15 = $80.55 = P&I for one month at 5% $15,000 x .05 / 12 = 62.50 = Interest for one month at 5% $80.55 - $62.50 = $18.05 = Principal for one month at 5% $62.50 / 30 x 25 = $52.00 = Interest for 25 days at 5% $18.05 + $52.00 = $70.05 In this case, the lesser of the two assistance payments is that computed under Formula Two, $36.31. The payment due February 1 will include $36.31 in assistance and a mortgagors' payment of $70.05, for a total of $106.36. Subsequent payments, beginning March 1, will include assistance of $43.52 and mortgagors' payments of $80.55, as established by the computations described in paragraph 1. _____________________________________________________________________ APPENDIX 3 (SPECIMEN) Allonge Amending Note for Section 235(r) THIS ALLONGE is an amendment made this ____________________ day of ____________________, 19__ and is incorporated into and shall be deemed to amend and supplement the Note of even date given by __________________________________ (Borrower) to evidence Borrower's indebtedness to ____________________________ (Lender) which indebtedness is secured by a Mortgage, Deed of Trust or Security Deed (Security Instrument), of even date. The Borrower and Lender hereby agree as follows: 1. Paragraph 2 of said Note shall be amended to include the following at the end of the paragraph: Provided, however, that from the date of disbursement of the loan proceeds by the Lender until the first day of ___________________________, 19__, the interest rate shall be at ___________ percent (___%) per year (initial interest rate). Notwithstanding that the initial interest rate is in effect for the period from the date of disbursement of the loan proceeds until the first day of _______________________, 19__, the application of the monthly payments to _____________________________________________________________________ 2 principal and interest shall be made as if the loan bore interest at __________________ percent ( %) per year (235(r) interest rate). The payment of the additional increment of interest at the rate of ___________ percent (%) per year shall be applied by the Lender to the repayment of $____________ which was paid by the Lender to the Borrower, or on his behalf, as refinancing costs. 2. Paragraph 4(C) shall be amended to read as follows: Beginning on the first day of _____________, 19 and continuing until the first day of ____________, 19__ the monthly payments to principal and interest shall be in the amount of ($ ). Beginning on the first day of ___________________, 19__ the principal and interest payments shall be ($ ) which payments shall continue until the first day of _________________, 20__, if not sooner paid. _____________________________________________________________________ 3 BY SIGNING BELOW, Borrower and Lender agree to the terms and covenants contained in this allonge. ___________________________ Borrower ___________________________ Borrower ___________________________ Lender