II.A.6.a. Mortgagee Closing Requirements (09/14/15)

Owned by Kacey Olson
Nov 20, 2018
7 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Chain of Title
ii. Title
iii. Legal Restrictions on Conveyance (Free Assumability)
iv. Closing in Compliance with Mortgage Approval
v. Closing in the Mortgagee’s Name
vi. Required Forms
vii. Certifications
viii. Projected Escrow
ix. Temporary Interest Rate Buydown Escrow Requirements
x. Closing Costs and Fees
xi. Disbursement Date
xii. Per Diem Interest and Interest Credits
xiii. Signatures


i. Chain of Title

The Mortgagee must obtain evidence of prior ownership when a Property was sold within 12 months of the case number assignment date. The Mortgagee must review the evidence of prior ownership to determine any undisclosed Identity-of-Interest transactions.

ii. Title

The Mortgagee must ensure that all objections to title have been cleared and any discrepancies have been resolved to ensure that the FHA-insured Mortgage is in first lien position.

(A) Good and Marketable TitleThe Mortgagee must determine if there are any exceptions to good and marketable title not covered by the General Waiver (see Section General Eligibility and 24 CFR § 203.389).The Mortgagee must review any exceptions discovered during the title search and decide whether such title exceptions affect the Property’s value and/or marketability.If the Mortgagee determines that any exception affects the Property’s value and/or marketability, the Mortgagee must request a waiver.

(B) Requests for Title Exceptions Not Covered by the General WaiverThe Mortgagee must submit a request for a waiver when the Title Exception is not covered by the General Waiver, to the attention of the Processing and Underwriting Division Director at the Jurisdictional HOC prior to endorsement. The request must include the case number, the specific guideline and the reason the Mortgagee is asking for the waiver. If the Jurisdictional HOC grants the requested waiver, the HOC will notify the Mortgagee in writing. The Mortgagee must place the notice of approval in the mortgage file.If the waiver request is denied and good and marketable title is not obtained, the Mortgage is not eligible for FHA insurance.

(C) Manufactured HousingGood and marketable title showing the Manufactured Home and land are classified as real estate at the time of closing is required.If there were two existing titles at the time the housing unit was purchased, the Mortgagee must ensure that all state or local requirements for proper purging of the title (chattel or equivalent debt instrument) have been met, and the subject Property is classified as real estate prior to endorsement. The Manufactured Home need not be taxed as Real Property.

iii. Legal Restrictions on Conveyance (Free Assumability)

The Mortgagee must determine if there are any legal restrictions on conveyance in accordance with 24 CFR § 203.41.

iv. Closing in Compliance with Mortgage Approval

The Mortgagee must instruct the settlement agent to close the Mortgage in the same manner in which it was underwritten and approved.

The Mortgagee must ensure that the conditions listed on form HUD-92900-A and/or form HUD-92800.5B are satisfied.

v. Closing in the Mortgagee’s Name

A Mortgage may close in the name of the Mortgagee or the sponsoring Mortgagee, the principal or the authorized agent. TPOs that are not FHA-approved Mortgagees may not close in their own names or perform any functions in FHA Connection (FHAC).

vi. Required Forms

The Mortgagee must use the forms and/or language prescribed by FHA in the legal documents used for closing the Mortgage.

vii. Certifications

(A) Borrower CertificationThe Borrower must sign the certification on form HUD-92900-A and the Settlement Certification in accordance with the instructions provided on the form.

(B) Seller CertificationThe seller must sign the certification on the Settlement Certification.

(C) Settlement Agent CertificationThe Settlement agent must sign the certification on the Settlement Certification.

(D) Lender CertificationThe Mortgagee must sign the certifications on the form HUD-92900-A in accordance with the instructions provided on the form.

viii. Projected Escrow

The Mortgagee must establish the escrow account in accordance with the regulatory requirements in 24 CFR § 203.550 and RESPA.

(A) Monthly Escrow ObligationsThe Mortgagee must collect a monthly amount from the Borrower that will enable it to pay all escrow obligations in accordance with 24 CFR § 203.23. The escrow account must be sufficient to meet the following obligations when they become due:

  • hazard insurance premiums;
  • real estate taxes;
  • Mortgage Insurance Premiums (MIP);
  • special assessments, including any assessments related to a PACE obligation;
  • flood insurance premiums if applicable;
  • Ground Rents if applicable; and
  • servicing, maintenance, repair and replacement of water purification equipment; and
  • any item that would create liens on the Property positioned ahead of the FHA-insured Mortgage, other than condominium or Homeowners’ Association (HOA) fees.

(B) Repair Completion Escrow RequirementThe Mortgagee may establish a repair escrow for incomplete construction, or for alterations and repairs that cannot be completed prior to loan closing, provided the housing is habitable and safe for occupancy at the time of loan closing.Repair escrow funds must be sufficient to cover the cost of the repairs or improvements. The cost for Borrower labor may not be included in the repair escrow account.The Mortgagee must execute form HUD-92300, Mortgagee’s Assurance of Completion, to indicate that the repair escrow has been established.The Mortgagee must certify on form HUD-92051, Compliance Inspection Report, that the incomplete construction, alterations and repairs have been satisfactory completed.Effective for case numbers assigned on or after October 31, 2016, after the repair escrow account is closed, the Mortgagee must complete the Escrow Closeout Certification screen in FHAC within 30 Days after the escrow account is closed.

ix. Temporary Interest Rate Buydown Escrow Requirements

The Mortgagee must establish an escrow for temporary interest rate buydowns.

The escrow agreement must not:

  • permit reversion of undistributed escrow funds to the provider if the Property is sold or the Mortgage is prepaid in full; nor
  • allow unexpended escrow funds to be provided to the Borrower in cash, unless the Borrower funds were used to establish the escrow account.

Payments must be made by the escrow agent to the Mortgagee or servicing agent. If escrow payments are not received for any reason, the Borrower is responsible for making the total payment as described in the mortgage Note.

x. Closing Costs and Fees

The Mortgagee must ensure that all fees charged to the Borrower comply with all applicable federal, state and local laws and disclosure requirements.

The Mortgagee is not permitted to use closing costs to help the Borrower meet the Minimum Required Investment (MRI).

(A) Collecting Customary and Reasonable FeesThe Mortgagee may charge the Borrower reasonable and customary fees that do not exceed the actual cost of the service provided.The Mortgagee must ensure that the aggregate charges do not violate FHA’s Tiered Pricing rules.

(B) Other Fees and ChargesThe Mortgagee or sponsored TPO may charge the Borrower discount points, and lock-in and rate lock fees consistent with FHA and CFPB requirements.

(1) Origination FeesThe Mortgagee may charge an origination fee in accordance with RESPA.

(2) Discount PointsThe Mortgagee may charge the Borrower discount points.

(3) Lock-in and Rate Lock FeesThe Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing.

(C) Qualified MortgageThe Mortgagee must ensure the points and fees charged are in compliance with FHA’s Qualified Mortgage Rule.

(D) Tiered PricingThe Mortgagee must ensure that the aggregate fees and charges do not violate the following Tiered Pricing rule.

(1) Definitions for Tiered PricingArea refers to a metropolitan statistical area as established by the Office of Management and Budget.Mortgage Charge refers to the interest rate, discount points, origination fee, and any other amount charged to the Borrower for an insured Mortgage.Mortgage Charge Rate refers to the total amount of Mortgage Charges for a Mortgage expressed as a percentage of the initial principal of the Mortgage.Tiered Pricing refers to any variance in Mortgage Charge Rates of more than two percentage points from the Mortgagee’s reasonable and customary rate for insured Mortgages for dwellings located within the area.

(2) Required DocumentationThe Mortgagee must document that any variation in the Mortgage Charge Rate is based on actual variations in fees or costs to the Mortgagee to make the Mortgage.

(3) StandardThe Mortgagee may not make a Mortgage with a Mortgage Charge Rate that varies more than two percentage points from the Mortgagee’s reasonable and customary rate for insured Mortgages for dwellings located within the area.To determine whether a Mortgage exceeds the two percentage point variation limit, the Mortgagee must compare Mortgage Charge Rates for Mortgages of the same type, from the same area, and made on the same day or during some other reasonably limited period.See Section 203(u) of the National Housing Act (12 U.S.C. § 1709(u)), 24 CFR § 200.12.

xi. Disbursement Date

Disbursement Date refers to the date the proceeds of the Mortgage are made available to the Borrower.

The Disbursement Date must occur before the expiration of the FHA-issued Firm Commitment or DE approval and credit documents.

xii. Per Diem Interest and Interest Credits

The Mortgagee may collect per diem interest from the Disbursement Date to the date amortization begins.

Alternatively, the Mortgagee may begin amortization up to 7 Days prior to the Disbursement Date and provide a per diem interest credit. Any per diem interest credit may not be used to meet the Borrower’s MRI.

Per diem interest must be computed using a factor of 1/365th of the annual rate.

xiii. Signatures

The Mortgagees must ensure that the Mortgage, Note, and all closing documents are signed by all required parties in accordance with the Borrower Eligibility.

The Mortgagee must ensure that the signatures block on the Mortgage follows the Fannie Mae/Freddie Mac format, with the following exceptions: witness signatures are only required if witnesses are required by state law, and the Borrower’s Social Security Number (SSN) may be omitted.

(A) Use of Power of Attorney at ClosingA Borrower may designate an attorney-in-fact to use a Power of Attorney (POA) to sign documents on their behalf at closing, including page 4 of the final HUD-92900-A, HUD/VA Addendum to Uniform Residential Loan Application and the final Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA).Unless required by applicable state law, or as stated in the Exception below, or they are the Borrower’s Family Member, none of the following persons connected to the transaction may sign the security instrument or Note as the attorney-in-fact under a POA:

  • Mortgagee, or any employee or Affiliate;
  • loan originator, or employer or employee;
  • title insurance company providing the title insurance policy, the title agent closing the Mortgage, or any of their Affiliates; or
  • any real estate agent or any person affiliated with such real estate agent.

Exception

Closing documents may be signed by an attorney-in-fact who is connected to the transaction if the POA expressly authorizes the attorney-in-fact to execute the required documents on behalf of a Borrower, only if the Borrower, to the satisfaction of the attorney-in-fact in a recorded interactive session conducted via the Internet has:

  • confirmed their identity; and
  • reaffirmed, after an opportunity to review the required mortgage documents, their agreement to the terms and conditions of the required mortgage documents evidencing such transaction and to the execution of such required Mortgage by such attorney-in-fact.

The Mortgagee must obtain copies of the signed initial URLA and initial form HUD-92900-A signed by the Borrower or POA in accordance with Signature Requirements for all Application Forms.

(B) Electronic SignaturesSee Policy on Use of Electronic Signatures.