www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 September 09, 1993 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 93-27 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Termination of Subdivision Processing and Implementation of New Builder Certification Procedure Effective immediately, the Department will require builders and Direct Endorsement (DE) lenders to use the new "Builder Certification" procedure described in this Mortgagee Letter or the current "Improved Area" procedure in order to obtain mortgage insurance on individual properties that are proposed, under construction or newly built in any new subdivision that was not approved by the local HUD Field Office on or before September 1, 1993. HUD will no longer approve new subdivisions under the Developer Certification Procedure or the Local Area Certification Procedure or perform subdivision analysis as set forth in HUD Handbook 4135.1 (REV-2) after September 1, 1993. The new Builder Certification procedure and the Improved Area procedure (which has been in place for several years) will be the only methods by which the Department will grant mortgage insurance on individual properties in new subdivisions that were not approved by HUD on or before September 1, 1993. One of these procedures is required even if the Department of Veterans Affairs (VA) issues a Certificate of Reasonable Value (CRV) or a Master Certificate of Reasonable Value (MCRV) for properties in a new subdivision. HUD will no longer review new subdivisions because it has determined that in most jurisdictions there is effective local regulation of new subdivision development and adequate local subdivision standards that address environmental conditions and health and safety issues that may affect the property. Therefore, the Department has concluded that further review of new subdivisions by HUD is duplicative and unnecessary. Terminating this duplicative procedure expands homeownership opportunities, streamlines processing and will reduce delays and costs for homebuyers, builders, lenders and HUD. _____________________________________________________________________ 2 The Builder Certification procedure will now be used to obtain mortgage insurance for most new construction in new subdivisions. The Builder Certification procedure will be used when there are adequate local subdivision standards to protect HUD's underwriting risk and the health and safety of the intended occupants of the property. If the local HUD Field Office determines that local subdivision standards do not exist, or are inadequate to protect HUD's underwriting risk or the health and safety of the intended occupants, it may require builders and lenders to use only the Improved Area procedure (IAP) and the Appraiser/Review Appraiser Checksheet (Form HUD-54891) associated with the IAP. The IAP will provide HUD with a level of review that will serve as a safety valve to protect HUD's risk or the health and safety of the occupants when mortgage insurance is requested in new subdivisions that are located in jurisdictions that lack sufficient or effective local subdivision standards. Periodically, the local HUD Office will publish a list of those jurisdictions where subdivision standards do not exist or are considered ineffective or inadequate to protect HUD's underwriting risk or the health and safety of the occupants. As stated above, for new construction located in these jurisdictions, the builder and lender will be required to use only the IAP. The IAP will also be the only process available for the small number of loans that are not processed under the Direct Endorsement procedures. The Department also wishes to convert all new construction to this new Builder Certification procedure. Therefore, even though the subdivision may have been approved by HUD under its previous subdivision processing procedures, all new construction cases with case numbers assigned on or after September 1, 1994 must use the Builder Certification procedure (IAP where the local Field Office has designated a jurisdiction for such processing exclusively) contained in this Mortgagee Letter. By doing this, the Department will eventually have one uniform set of processing procedures. PROCESSING INSTRUCTIONS FOR BUILDER CERTIFICATION PROCEDURE Builders and DE lenders must use the new Builder Certification procedure for a single proposed construction case to be appraised in a new subdivision or may use it for a group of proposed properties to be appraised under a Master Appraisal Report (MAR). The steps for using the new Builder Certification procedure are as follows: 1. The builder must complete the revised Builder Certification Form, HUD-92541, a copy of which is attached to this Mortgagee Letter. You will note that _____________________________________________________________________ 3 the HUD-92541 has been expanded to contain a "Site Analysis" block to solicit specific information from the builder about the site on which the house has been or will be constructed. Instructions for completing the form are on its reverse side. The instructions on the form for Questions 1a, 1c and if, should provide sufficient guidance to the DE lender's underwriter on what to do if these questions are answered "Yes." If the answers to Questions 1b, 1d and 1e are "Yes," then the DE lender's underwriter is responsible for determining whether these hazards will affect the health or safety of the intended occupants to the extent that the underwriting risk is unacceptable for HUD mortgage insurance. The builder may use the Builder Certification for more than one property (as part of a Master Appraisal Report) by attaching to the HUD-92541 a list of the properties and corresponding FHA case numbers for those properties and entering "See attached list" into the FHA case number block on the form. 2. After the builder completes the HUD-92541, the DE lender must send it to the appraiser along with the request for appraisal assignment. The HUD-92541 cannot be completed by the builder more than 30 days prior to the date of the lender's request for the appraisal (date of the Form HUD-92800). 3. The appraiser will review the HUD-92541 completed by the builder and note on the appraisal report any inconsistencies or discrepancies between the information supplied on the form and the conditions observed by the appraiser on the site(s). The appraiser will use the form as one source of information and data about the site in the appraisal process to assist in determining the value of the property and the influence on value, if any, of the conditions noted by the builder on the HUD-92541. 4. As is done now, the appraiser will complete the appraisal report and return it along with a copy of the HUD-92541 to the DE lender. The DE lender's underwriter will review the appraisal report and the HUD-92541. Any inconsistencies or discrepancies between the site conditions observed and noted on the appraisal report by the appraiser and the information supplied by the builder on the HUD-92541 must be resolved by the DE lender's underwriter. The DE _____________________________________________________________________ 4 lender's underwriter must make the judgments, based upon the information presented by both the builder and and appraiser, of whether the property meets HUD requirements, is marketable and is an acceptable underwriting risk for HUD mortgage insurance. 5. A copy of the HUD-92541 and the documentation supporting the answers to the questions on this form must be included in the closed case file along with the appraisal report when the lender submits the case for insurance endorsement. The HUD-92541 will be reviewed by HUD as part of it post-endorsement quality control reviews. 6. Builders and lenders are reminded that the builder must still comply with the Department's Affirmative Fair Housing Marketing Plan requirements. If the request for mortgage insurance involves a VA/CRV or VA/MCRV, the builder must still complete the HUD-92541 and the information must be reviewed by the DE lender's underwriter. The DE lender's underwriter remains responsible for resolving discrepancies and inconsistencies, if any, that are noted by the VA appraiser between the information in the appraisal report and the information on the HUD-92541. As with HUD appraisals, the DE lender's underwriter is responsible for making the judgments, based upon the information presented by the both the VA appraiser and the builder, of whether the property is an acceptable underwriting risk for HUD mortgage insurance. If the request for mortgage insurance involves a VA/CRV or VA/MCRV in a subdivision located in a jurisdiction where only the IAP may be used (as determined by the local HUD Field Office), then the form HUD-54891 Appraiser/Review Appraiser Checksheet must be completed by the appraiser and DE underwriter. The above described Builder Certification procedure and IAP are applicable to Planned Unit Developments (PUDs). PUDs must still be approved in accordance with outstanding approval instructions relating to legal documentation and homeowner association budgets. The Builder Certification procedure does not apply to the approval of condominium projects. Condominium _____________________________________________________________________ 5 project approval processing remains unchanged and is not affected by this Mortgagee Letter. If you have any questions concerning this Mortgagee Letter, please contact your local HUD Field Office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachments _____________________________________________________________________ __________________________________________________________________________ Builder's Certification of Plans, Specifications, & Site ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ form HUD-92541 (9/93) ref. Handbook 4145.1 Page 1 of 2 _____________________________________________________________________ __________________________________________________________________________ Builder's Certification of Plans, Specifications, & Site (Continued) ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ form HUD-92541 (9/93) ref. Handbook 4145.1 Page 2 of 2