Thursday, June 18, 2009

"Green Mortgage"

FHA Expands “Green Mortgage” Feature (ML 2009-18)

Link to Mortgagee Letter »


Notable Date:

Effective immediately

Industry Participants Affected:

Builders, Realtors, FHA Approved Lenders

Synopsis:

FHA has increased the amount of effective energy improvements that may be added to the base FHA maximum mortgage amount limit under the Energy Efficient Mortgage (EEM) program. The maximum amount for the portion of the EEM for energy improvements is the lesser of 5% of:

  • The value of the property, or
  • 115% of the median area price of a single family dwelling, or
  • 150% of the conforming Freddie Mac limit

The EEM program allows a borrower to finance 100% of the cost-effective energy package as long as the present value of the energy saved over the useful life of the improvements is demonstrated. For example:

Sam and Sally Homebuyer are purchasing a 20 year old home and the value is $300,000. They want to take full advantage of the EEM feature, which is $15,000 (5% of $300,000).

They have decided to replace the old windows with energy efficient windows and replace most of the dated appliances with Energy Star appliances. The current utility bills for the home average $350 per month.

Mr. and Mrs. Homebuyer have consulted a certified Home Energy Rater and the Rater has provided a report which indicates with the improvements the average monthly utility cost based on today’s value is $250 per month, a savings of $100 per month. The average life of the energy improvements is 15 years or 180 months.

The energy savings over the life of the improvements will be $18,000 ($100 X 180). Since the energy savings ($18,000), based on today’s energy costs, are more than the cost of the improvements ($15,000), the Homebuyers’ qualify for the EEM feature.

The new maximum base loan amount with the EEM feature is the original base loan amount plus the cost of the cost-effective energy improvements. In this example, the new base loan amount is $304, 500 (300,000 X .965 + 15,000).

The EEM may be used for all property types, purchase and refinance transactions, including streamline refinances. New construction and existing construction are also eligible for EEM. In addition, EEM may be used in conjunction with the 203 (k) and Streamline K programs.

A qualified home energy rater must perform an analysis of the cost-effectiveness of the energy improvement using Home Energy Rating System (HERS) guidelines. The energy rater must provide the borrower and the lender with a written home energy rating report. The report will include an estimate of the current energy cost vs. the proposed energy costs with the improvements. Many home improvement stores have qualified home energy raters on staff. There are also a few home energy service networks with accredited home energy rater members, which can be found through an internet search.

Additional guidelines for underwriting an EEM and assuring completion of the energy savings improvements include:

  • Initially underwrite the loan as if the EEM feature did not exist. For new construction, subtract the cost of the energy package from the sale price since the builder has included the improvements in the sale price.
  • Use the information in the HERS report to determine if the improvements are cost-effective and qualify for the EEM feature.
  • If cost effective, add the energy package cost to the maximum base loan amount, and calculate the loan amount with UFMIP. Note: The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements.
  • The qualification ratios may be stretched to 33/45 with the EEM.
  • The FHA Loan Underwriting and Transmittal Summary (92900-LT) must indicate the EEM feature; show the cost of the energy improvements, and the final loan amount calculations.
  • The appraisal does not need to reflect the value of the energy package.
  • For new construction the energy improvements must be made prior to closing.
  • For existing construction the improvements should be made within 90 days of closing. If the improvements are made post-closing, the lender must establish an escrow account, execute form HUD 92300, Mortgagee Assurance of Completion, and obtain a final inspection when the improvements are complete.

This recent change is a great opportunity for FHA approved lenders to market “green mortgages.” Let your Realtors and builders know how the EEM feature can help them sell more homes to energy conscious homebuyers, and get to know qualified home energy raters in your market. Home energy raters are an excellent referral source for current homeowners that want to include the cost of energy-effective improvements with the refinance of their current mortgage.

See ML 2005-21 for additional guidance.


FHA New Condo Approval Process


FHA Announces a New Condo Approval Process
(ML 2009-19)

Link to Mortgagee Letter »


Notable Dates:

  • Case numbers assigned on or after October 1, 2009
  • Single family detached condominiums—effective immediately

Industry Participants Affected:

Builders, Realtors, FHA DE Lenders and FHA Correspondents

Synopsis:

Single-family, detached residences legally classified as condominiums no longer require condo approval. These are known as “site condos,” and this change is effective immediately.

Effective October 1, 2009 there will be two (2) options for review and approval of condominium units in non-FHA pre-approved condo projects. Both of these options can be used for proposed/under construction units, existing construction or conversions. The current spot condo approval process will be eliminated.

Option 1: HUD Review and Approval Process (HRAP) – if this option is used, Environmental Review is not required within certain parameters.

Option 2: DE Lender Review and Approval Process (DELRAP) – this option is only available to lenders who have unconditional DE approval, and staff with knowledge or expertise in reviewing and approving condominium projects. Environmental Reviews are not required with this option, but the lender must mitigate or avoid many conditions before completing review process. Mortgagee Letter 2009-19 should be read, in its entirety, for these details. A DE lender’s first five DELRAP approvals must be submitted to FHA for review for quality assurance purposes.

Projects must be in full compliance with applicable state law requirements of the jurisdiction in which the condo project is located and with all other applicable laws and regulations. The DE lender is required to retain all project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions in connection with their review and approval of any unit. The DE lender must be able to provide this documentation upon request by HUD staff.

Project approval is NOT required for FHA to FHA Streamline refinance transactions, or FHA/HUD REO Division sales.

Project eligibility criteria include:

  • Projects, consisting of 2 units or more, covered by hazard and liability insurance
  • No more than 25% of total floor area in project is designated as commercial use
  • No more than 10% of units owned by one investor
  • No more than 15% of total units can be in arrears of condo association fees
  • At least 50 percent of units must be sold; 50% of units must be owner-occupied (if under construction 50% pre-solds) and legal phasing is permitted
  • If the project is 3 or less units, only 1 unit can be FHA insured; If more than 3, the project is limited to total of 30% FHA insurance concentration
  • Conversion projects no longer require the one year waiting period
  • Manufactured homes projects are eligible but the DELRAP option for lender delegated approval is not available

This new condo approval process does have benefits to the industry. Unconditional Direct Endorsement Lenders will now be able to process their own condo unit approvals and the delay for the HOC centers to review/approve will be eliminated. This can dramatically increase lenders’ turn times for non pre-approved condos.


NAR's Strategy on Health Care Reform

On this weeks PodCast, NAR President Charles McMillan stated three strategies to help lawmakers pass Health Care reform.

First, NAR will continue to talk directly to law makers who are drafting new legislation to ensure that heath care reform will adress the needs of the self-employed and the small employer.

Second, NAR will urge lawmakers to re-introduce and sign several bills that provide solutions specifically for the self-employed and the small employer, such as the Small Business Health Options Plan Act and the CHOICE Act.

Third, NAR will continue to oppose any effort to trim the Mortgage Interest Deduction as a way to pay for health care.

Congressional leaders are hoping to get a final bill to the President to sign no later that October 15.

With this short time line it is more important than ever to show our support through RPAC donations and through Call to Actions to tell our lawmakers how important Health Care Reform is to REALTORS and all self-employed.