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Included in this section are:

i. Contents of the Mortgage Application Package

ii. Disclosures and Legal Compliance

iii. Application Document Processing


i. Contents of the Mortgage Application Package

The Mortgagee must maintain all information and documentation that is relevant to its approval decision in the mortgage file. All information and documentation that is required in this SF Handbook, and any incidental information or documentation related to those requirements, is relevant to the Mortgagee’s approval decision.

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Mortgagees must not divulge sources of credit information, except as required by a contract or by law. All personnel with access to credit information must ensure that the use and disclosure of information from a credit report complies with:

  • Title VIII of the Civil Rights Act of 1968 (Fair Housing Act);
  • the Fair Credit Reporting Act, Public Law 91-508;
  • the Right to Privacy Act, Public Law 93-579;
  • the Financial Privacy Act, Public Law 95-630; and
  • the Equal Credit Opportunity Act, Public Law 94-239 and 12 CFR Part 202.

(3)  Signature Requirements for all Application Forms

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For military personnel, a POA may only be used for one of the applications (initial or final), but not both:

  • when the service member is on overseas duty or on an unaccompanied tour;
  • when the Mortgagee is unable to obtain the absent Borrower’s signature on the application by mail or via fax; and
  • where the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

For incapacitated Borrowers, a POA may only be used where:

  • a Borrower is incapacitated and unable to sign the mortgage application;
  • the incapacitated individual will occupy the Property to be insured, or the Property is being underwritten as an eligible Investment Property; and
  • the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

For guidance on use of POA on closing documents refer to Use of Power of Attorney at Closing.

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The Mortgagee must be able to prove that the signer certified that the document is true, accurate, and correct at the time signed. Electronic signatures are only valid under the E-SIGN Act if they are “executed or adopted by a person with the intent to sign the record.” Establishing intent includes:

  • identifying the purpose for the Borrower signing the electronic record;
  • being reasonably certain that the Borrower knows which electronic record is being signed; and
  • providing notice to the Borrower that their electronic signature is about to be applied to, or associated with, the electronic record.

Intent to use an electronic signature may be established by, but is not limited to:

  • an online dialog box or alert advising the Borrower that continuing the process will result in an electronic signature;
  • an online dialog box or alert indicating that an electronic signature has just been created and giving the Borrower an opportunity to confirm or cancel the signature; or
  • a click-through agreement advising the Borrower that continuing the process will result in an electronic signature.

(vi)  Single Use of Signature

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Before a Mortgagee submits the case for endorsement, the Mortgagee must confirm the identity of the signer by authenticating data provided by the signer with information maintained by an independent source. Independent sources include, but are not limited to:

  • national commercial credit bureaus;
  • commercially available data sources or services;
  • state motor vehicle agencies; or
  • government databases.

The Mortgagee must verify a signer’s name and date of birth, and either their Social Security Number (SSN) or driver’s license number.

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The Mortgagee must use one of the following methods, or combinations of methods, to establish attribution:

  • selection by or assignment to the individual of a Personal Identification Number (PIN), password, or other shared secret, that the individual uses as part of the signature process;
  • delivery of a credential to the individual by a trusted third party, used either to sign electronically or to prevent undetected alteration after the electronic signature using another method;
  • knowledge base authentication using “out of band/wallet” information;
  • measurement of some unique biometric attribute of the individual and creation of a computer file that represents the measurement, together with procedures to protect against disclosure of the associated computer file to unauthorized parties; or
  • public key cryptography.

(ix)  Credential Loss Management

Mortgagees must have a system in place to ensure the security of all issued credentials. One or a combination of the following loss management controls is acceptable:

  • maintaining the uniqueness of each combined identification code and password, such that no two individuals have the same combination of identification code and password;
  • ensuring that identification code and password issuances are periodically checked, recalled, or revised;
  • following loss management procedures to electronically de-authorize lost, stolen, missing, or otherwise compromised identification code or password information, and to issue temporary or permanent replacements using suitable, rigorous controls;
  • using transaction safeguards to prevent unauthorized use of passwords or identification codes; or
  • detecting and reporting any attempts at unauthorized use of the password or identification code to the system security unit.

(d)  Required Documentation and Integrity of Records

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Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:

  • child, parent, or grandparent;
  • a child is defined as a son, stepson, daughter, or stepdaughter;
  • a parent or grandparent includes a step-parent/grandparent or foster parent/grandparent;
  • spouse or domestic partner;
  • legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption;
  • foster child;
  • brother, stepbrother;
  • sister, stepsister;
  • uncle;
  • aunt; or
  • son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the Borrower.

(i)  Amendatory Clause

If the Borrower does not receive form HUD-92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value, before signing the sales contract, the sales contract must be amended before closing to include an amendatory clause that contains the following language:

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An amendatory clause is not required in connection with:

  • HUD REO sales;
  • FHA’s 203(k) mortgage program;
  • sales in which the seller is:
  • Fannie Mae;
  • Freddie Mac;
  • U.S. Department of Veterans Affairs (VA);
  • United States Department of Agriculture (USDA) Rural Housing Services;
  • other federal, state, and local government agencies;
  • a Mortgagee disposing of REO assets; or
  • a seller at a foreclosure sale; or
  • sales in which the Borrower will not be an owner-occupant (for example, sales to nonprofit agencies).

(ii)  Real Estate Certification

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A statement of appraised value is not required in connection with:

  • HUD REO sales;
  • FHA’s 203(k) mortgage program;
  • sales in which the seller is:
  • Fannie Mae;
  • Freddie Mac;
  • the VA;
  • USDA Rural Housing Services;
  • other federal, state, and local government agencies;
  • a Mortgagee disposing of REO assets; or
  • a seller at a foreclosure sale; or
  • sales in which the Borrower will not be an owner-occupant (for example, sales to nonprofit agencies).

ii. Disclosures and Legal Compliance

(A)  HUD Required Disclosures

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If the Property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house, in accordance with the HUD-EPA Lead Disclosure Rule (24 CFR 35, subpart A, and the identical 40 CFR 745, subpart F). For such Properties, the Mortgagee must ensure that:

  • the Borrower has been provided the EPA-approved information pamphlet on identifying and controlling lead-based paint hazards (“Protect Your Family From Lead In Your Home”);
  • the Borrower was given a 10-Day period before becoming obligated to purchase the home to conduct a lead-based paint inspection or risk assessment to determine the presence of lead-based paint or lead-based paint hazards, or waived the opportunity;
  • the sales contract contains an attachment in the language of the contract (e.g., English, Spanish), signed and dated by both the seller and purchaser:
    • containing a lead warning statement as set forth in 24 CFR § 35.92(a)(1).
    • providing the seller’s disclosure of the presence of any known lead-based paint and/or lead-based paint hazards in the target housing being sold, or indication of no knowledge of such presence;
    • listing any records or reports available to the seller pertaining to lead-based paint and/or lead-based paint hazards in property housing being sold, or indication by the seller that no such records or reports exist; and
    • affirming that the Borrower received the pamphlet, disclosure, and records or reports, above; and
    • when any agent is involved in the transaction on behalf of the seller, the sales contract includes a statement that the agent has informed the seller of the seller’s Lead Disclosure Rule obligations, the agent is aware of his/her duty to ensure compliance with the requirements of the Rule, and the agent has signed and dated the contract.

(4)  Form HUD-92564-CN, For Your Protection: Get a Home Inspection

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The Mortgagee is required to comply with all federal, state and local laws, rules, and requirements applicable to the mortgage transaction, including all applicable disclosure requirements and the requirements of the Consumer Financial Protection Bureau (CFPB), including those related to:

  • Truth in Lending Act (TILA); and
  • Real Estate Settlement Procedure Act (RESPA).

(C)  Nondiscrimination Policy

The Mortgagee must fully comply with all applicable provisions of:

  • Title VIII of the Civil Rights Act of 1968 (Fair Housing Act);
  • the Fair Credit Reporting Act, Public Law 91-508; and
  • the Equal Credit Opportunity Act, Public Law 94-239 and 12 CFR Part 202.

The Mortgagee must make all determinations with respect to the adequacy of the Borrower’s income in a uniform manner without regard to race, color, religion, sex, national origin, familial status, handicap, marital status, actual or perceived sexual orientation, gender identity, source of income of the Borrower, or location of the Property.

iii. Application Document Processing

(A)  Mortgagee Responsibilities

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In order to obtain a case number, the Mortgagee must:

  • provide the subject Borrower’s name, SSN, and date of birth;
  • provide the property address; and
  • certify that the Mortgagee has an active mortgage application for the subject Borrower and Property.

The Mortgagee is not required to input appraiser information at the time the case number is ordered.

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The Mortgagee may request cancellation of a case number by submitting a request to HUD. A case number will be canceled only if:

  • an appraisal has not been completed and the Borrower will not close the Mortgage as an FHA-insured Mortgage;
  • the FHA mortgage insurance will not be sought; or
  • the appraisal has already expired.

The Mortgagee must submit a request for cancellation to the FHA Resource Center at answers@hud.gov using the Case Cancellation Request Template.

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Case numbers are automatically canceled after six months if one of the following actions is not performed as a last action:

  • appraisal information entered;
  • Firm Commitment issued by FHA;
  • insurance application received and subsequent updates; or
  • Notices of Return (NOR) or resubmissions.

Updates to the Borrower’s name and/or property address, an appraisal update, or a transmission of the Upfront Mortgage Insurance Premium (UFMIP) do not constitute Last Action Taken.

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The Mortgagee must ensure that it does not:

  • compensate the Appraiser at a rate that is not commensurate in the market area of the Property being appraised with the assignment type, complexity and scope of work required for the appraisal services performed;
  • withhold or threaten to withhold timely payment or partial payment for an appraisal report;
  • prohibit the Appraiser from recording the fee paid for the performance of the appraisal in the appraisal report;
  • condition the ordering of an appraisal report or the payment of an appraisal fee, salary, or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an Appraiser;
  • provide to the Appraiser, appraisal company, AMC or any Entity or person related to the Appraiser, appraisal company or AMC, stock or other financial or non-financial benefits;
  • order, obtain, use, or pay for a second or subsequent appraisal or Automated Valuation Model (AVM) in connection with a Mortgage financing transaction unless:
    • there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such belief is clearly and appropriately noted in the mortgage file; or
    • such appraisal or AVM was completed pursuant to written, pre-established bona fide pre- or post-Disbursement appraisal review or quality control process or underwriting guidelines and the Mortgagee adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value;
  • withhold or threaten to withhold future business from an Appraiser, or demote or terminate or threaten to demote or terminate an Appraiser in order to influence an Appraiser to arrive at a predetermined or desired value;
  • make expressed or implied promises of future business, promotions or increased compensation for an Appraiser in order to influence an Appraiser to arrive at a predetermined or desired value;
  • allow the removal of an Appraiser from a list of qualified Appraisers or the addition of an Appraiser to an exclusionary list of qualified Appraisers, used by any Entity, without prompt written notice to such Appraiser. The notice must include written evidence of the Appraiser’s illegal conduct, violation of USPAP or state licensing standards, improper or unprofessional behavior or other substantive reason for removal;
  • request that an Appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of the appraisal report, or request that an Appraiser provide estimated values or comparable sales at any time prior to the Appraiser’s completion of an appraisal report;
  • provide to the Appraiser an anticipated, estimated, encouraged or desired value for a subject Property or a proposed, or target amount to be loaned to the Borrower, except that a copy of the sales contract for purchase and any addendum must be provided; or
  • perform any other act or practice that impairs or attempts to impair an Appraiser’s independence, objectivity, or impartiality, or that violates any applicable law, regulation, or requirement.

(e)  Additional Requirements When Ordering an Appraisal

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A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:

  • the first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
  • the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
  • the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.

(c)  Use of Second Appraisal

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The Mortgagee may use an update of appraisal only if:

  • it is performed by the FHA Appraiser who performed the original appraisal, who is currently in good standing on the FHA Appraiser Roster;
  • the Property has not declined in value;
  • the building improvements that contribute value to the Property can be observed from the street or a public way;
  • the exterior inspection of the Property reveals no deficiencies or other significant changes;
  • the update of appraisal was ordered by the Mortgagee and completed by the Appraiser prior to the expiration of the initial 120-Day period; and
  • the original appraisal report was not previously updated.

(11)  Appraisal Delivery – Electronic Appraisal Delivery Portal

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