FHA Revises Handbook 4000.1

In the latest Handbook 4000.1 Transmittal, FHA announced multiple updates that include, but are not limited to, the following highlights:

Section I: 

• Use of Contractors – Permissible Use: Updated guidance to include the use of Third Party Verification vendors for occupancy verification.

Section II:  

• Removed requirement to review the URL for documents obtained from a website;
• Updated occupancy requirements and guidance to include the use of third-party verification vendors for occupancy verification for streamline refinances;
• Clarified appropriate type of case number for appraisal practices and updated prohibited practices for consistency with fair housing requirements;
• Updated to clarify FHA’s requirements for Appraisers and Mortgagees regarding compliance with fair housing laws, per ML 2021-27;
• Revised language to provide more precise guidance on the loaning of funds to a gift donor by the Mortgagee;
• Clarified permissible owner occupancy requirements for cash-out refinance; transactions and clarified compliance requirements for excess cash back policies;
• Provided simplified instructions for Termite Treatment Exception Areas;
• Clarified language on Consultant requirements to conduct an on-site property inspection; and
• Updated to include and clarify guidance specific to Nondiscrimination Policy and compliance with FHA guidelines and Appraiser Conduct, per ML 2021-27.

Section III: 

• Clarified the Mortgagee must exclude certain co-Borrowers from the loss mitigation review requirements to comply with state, local, and federal servicing laws;
• Loss mitigation 90-day review requirements;
• Added “FHA-HAMP” variations to distinguish the FHA-HAMP Option from all other loss mitigation options;
• Updated the definition of a Partial Claim and updated language to clarify the amounts that may be included in an FHA-HAMP Standalone Partial Claim;
• Clarified the execution requirements when a Trial Payment Plan (TPP) is required;
• Updated the non-incentivized reporting requirements to include the COVID-19 Advance Loan Modification and COVID-19 Recovery Modification;
• Added “COVID-19 Recovery” to distinguish the COVID-19 Recovery Option from all other loss mitigation options. Added a 40-year loan modification and provided an exemption for Mortgages backed by mortgage revenue bonds, per ML 2022-07;
• Updated language to clarify the extension of deadlines for the first legal action and Reasonable Diligence Time Frame for a COVID-19 Forbearance, per ML 2022-02;
• Updated to clarify reimbursable bankruptcy attorney fees are based on the Fannie Mae Exhibit in effect as of the date bankruptcy is filed by the Borrower; and
• Single Family Default Reporting Requirements added for CWCOT per ML 2022-08.

Section IV:

• Added a definitions section and details about reasonable payments for property Preservation and Protection costs, per ML 2022-06. Clarified timing of reimbursement of P&P expenses;
• Updated the claim requirements for CWCOT, per ML 2022-08;
• Updated the reasonable and customary costs that may be claimed to include a Broker’s Price Opinion (BPO) or Automated Valuation Model (AVM);
• Clarified the fees and costs that may be included when filing a claim for a National Emergency Partial Claim; and
• Expanded the exclusive listing period from 15 Days to 30 Days, per ML 2022-01.

Section V:

• Added “FHA-HAMP” to distinguish the FHA-HAMP Option calculations from all other loss mitigation options. Aligned the language for calculating the maximum available Partial Claim for consistency with related sections, and updated language to clarify the amounts that may be included in an FHA-HAMP Standalone Partial Claim.
• Adding language to require Mortgagees not approved for eCaseBinder submission through FHA Connection to use the FHA Catalyst: Case Binder Module to submit both Single Family forward and reverse (HECM) case binders requested through the Loan Review System for post-endorsement technical review; and
• Clarifying existing policy to demonstrate required documents are dated to demonstrate compliance with retention and reporting timeframes.

Mortgagee Letters incorporated into Handbook 4000.1 are effective as previously announced in the corresponding Mortgagee Letters.  Changes identified in Section II.A of Handbook 4000.1 may be implemented immediately, but must be implemented for Mortgages with case numbers assigned on or after September 26, 20212. All other changes may be implemented immediately, but must be implemented no later than September 26, 2022.