Francene Grewe

Thank you for this well-researched and well-written article on the perils of buying as-is properties. In Portland, where we have excellent state-regulated consumer protections written into our real estate contracts, we are seeing problems with REOs. "Auction sales contracts" on bank-owned as-is properties, override our local sales agreements and offer no buyer protections at all, so buyer beware! Francene Grewe Senior Loan Officer Premier Mortgage Resources Portland, OR (503)546-8480 francene.grewe@pmrmtg.com www.francenegrewe.com

All the FHA loans I'm originating today still require a document to be signed that speaks to the assumability of the FHA loan; so this story was of particular interest to me - if only because there are more questions than there are answers. Hunting down the FHA guidelines, I found this in 4330.1 Rev 5 6-2 ASSUMPTION RESTRICTIONS IMPOSED BY HUD. HUD places certain restrictions on the assumption of insured mortgages originated since December 1, 1986. Depending upon when the mortgage was originated, HUD or the DE mortgagee may have to review the credit of the person seeking to assume the mortgage. A. Mortgages originated before December 1, 1986, generally contain no restrictions on assumptions. B. Mortgages originated on or after December 15, 1989, require a review by the mortgagee to determine if a creditworthiness review of the assumptor is required. Some mortgages also contain restrictions on assumptions when the assumptor will not occupy the home as a principal residence. C. Mortgages not included in Paragraphs A or B contain assumption restrictions that have expired. 6-3 CREDIT REVIEW REQUIREMENTS A. Policy of free assumability with no restrictions. If approval is required by the mortgage, the mortgagee must not approve the sale or other transfer of all or part of the property, or the sale or transfer of a trust owning all or part of the property, whether or not any person acquires personal liability under the mortgage in connection with the sale or other transfer, unless: 1. At least one of the persons acquiring ownership is determined to be creditworthy under applicable standards prescribed by HUD; 2. The selling mortgagor retains an ownership interest in the property; or 3.The transfer is by devise or descent. B.For mortgages originated prior to December 1, 1986, no creditworthiness restrictions apply to these mortgages unless the seller requests a release from liability. C.Mortgagees should note that some mortgages executed between December 1, 1986 and February 5, 1988, contain a requirement for creditworthiness review that is not enforceable. Mortgages from this period are freely assumable despite any restrictions stated in the mortgage. 1.The First 12 Months. The first 12 months after execution (closings) of the mortgage if the original mortgagor was an owner-occupant who purchased the property as a primary or secondary residence; or 2.The First 24 Months. The first 24 months after execution (closing) of the mortgage if the original mortgagor purchased the property as an investment. NOTE:The above time frames have expired. The information has been printed for HUD's monitoring purposes. 3.Creditworthiness Review Required. Assumption creditworthiness processing must be completed within 45 days from the date the mortgagee receives all the necessary documents. D.Mortgages subject to the restrictions of the Department of Housing and Urban Development Reform Act of 1989. The Act applies to mortgages that are subject to: 1.A conditional commitment or master commitment issued by HUD on or after December 15, 1989; 2.An appraisal report or master appraisal report signed by the DE underwriter on or after December 15, 1989; and 3.A certificate of reasonable value or master certificate of reasonable value issued by the Department of Veterans Affairs on or after December 15, 1989. 4.Creditworthiness of the Assumptor. Either HUD or the DE mortgagee must find the assumptor creditworthy. This policy extends for the life of the mortgage and applies to: a.mortgagors who take title to the property subject to the mortgage without assuming personal liability for the debt; b.mortgagors who assume and agree to pay the mortgage. 5.Documentation Required For Creditworthiness Reviews. See Chapter 4-4 of HUD Handbook 4155.1 REV-4, dated June 23, 1992, Mortgage Credit Analysis for Mortgage Insurance on One-to-Four Family Properties, for additional information about this requirement and additional provisions of the Act. 6.Creditworthiness Review Required. Assumption creditworthiness processing must be completed within 45 days from the date the mortgagee receives all the necessary documents. 6-4 OWNER OCCUPANCY REQUIREMENTS AND EXCEPTIONS. A.Investors And Secondary Residences. Mortgagees must not approve the sale or other transfer of a property to a person who cannot be approved as a substitute mortgagor because the property will not be a primary residence or a secondary residence. B.Investor Restrictions. 1.Assumptions involving a Release of Liability. An investor who assumes a high ratio mortgage (1) originated by an owner-occupant, and (2) pursuant to an original transaction where the seller is being released from liability, must pay down the mortgage to 75 percent loan-to-value (LTV) if the original transaction involved: a.a HUD Conditional Commitment; b.a HUD Master Conditional Commitment; c.a VA Certificate of Reasonable Value or Master Certificate of Reasonable Value; or d.an Appraisal or Master Appraisal signed by a direct endorsement underwriter on or after February 5, 1988. 2.Private Investor Restrictions - Restrictions of The HUD Reform Act of 1989. (Also See Paragraph 6-3D.) Private investors may only assume HUD-insured mortgages under the following conditions: a.Section 203(K) rehabilitation mortgages where the maximum loan-to-value ratio is 85 percent; b.HUD-owned properties where the maximum loan-to-value mortgage for a one-family dwelling is 75 percent and 85 percent for a two-to-four family dwelling; c.using streamline refinancing without an appraisal; d.a member of the armed forces who is unable to occupy the property due to a duty assignment; e.the ban on private investors does not apply to an Indian tribe as provided in Section 248. C.Secondary Residences. Restrictions Of The Cranston-Gonzalez National Affordable Housing Act Of 1990. The Act prohibits HUD from insuring a mortgage for a secondary residence and prohibits the assumption of an FHA mortgage on property for intended use as a secondary residence except for hardship exceptions approved by HUD or under the conditions listed in Paragraph 6-4B2. This limitation on secondary residences is effective for mortgages insured: 1.pursuant to a conditional commitment issued on or after January 27, 1991; or 2.pursuant to an appraisal report or master appraisal report signed by a Direct Endorsement underwriter on or after January 27, 1991; or 3.pursuant to a Certificate of Reasonable Value or Master Certificate of Reasonable Value issued by the Department of Veterans Affairs on or after January 27, 1991. D.Secondary residence means a dwelling: 1.where the mortgagor maintains or will maintain a part-time place or abode and typically spends (or will spend) less than a majority of the calendar year; 2.which is not a vacation home, and 3.which the Commissioner has determined to be eligible for insurance in order to avoid undue hardship to the mortgagor. A person may have only one secondary residence at a time. E.Undue hardship means that affordable housing which meets the needs of the mortgagor is not available for lease, or within reasonable commuting distance from the mortgagor's home to his or her work place. F.Vacation home means a dwelling that is used primarily for recreational purposes and enjoyment, and that is not a primary or secondary residence. 6-5 ENFORCEMENT OF CREDIT REVIEW AND OWNER-OCCUPANCY REQUIREMENTS. A.Due-On-Sale Clause. Each mortgage must contain a due-on-sale clause permitting acceleration. If a sale or other transfer occurs without mortgagee approval and a prohibition in CFR 203.512(b)(c), the mortgagee must enforce this requirement by requesting approval from the local Field Office to accelerate the mortgage provided that acceleration is permitted by law. B.The mortgagee shall accelerate if approval is granted. This applies only if the application by the mortgagor is dated on or after December 1, 1986. C.Acceleration of the Mortgage. The mortgagee must contact the local Field Office for guidance with respect to acceleration of a mortgage if HUD assumption requirements are not met and the homeowner cannot or will not comply with HUD's requirements at the time the assumption is discovered. 6-6 RELEASE OF LIABILITY. A.The mortgagee must release a selling mortgagor from any personal liability for payment of the mortgage debt, if permitted by CFR 203.258, and in accordance with the following procedures: 1.the mortgagee receives a request for a creditworthiness determination for a prospective purchaser of all or part of the property; 2.the mortgagee performs a creditworthiness determination if the mortgagee is approved for participation in the Direct Endorsement program, or the mortgagee requests a creditworthiness determination by the local Field Office. 3.the prospective purchaser is determined to be creditworthy under the standards applicable when a release of the selling mortgagor is intended; 4.the prospective purchaser assumes personal liability by agreeing to pay the mortgage debt; and 5.the mortgagee provides the selling mortgagor with a release of personal liability form.

Participating in this program has become much more expensive in recent days. The City of Portland (OR) has decided that you must pay to play: Lender Participation Fee All lenders must now pay a fee per funding allocation to participate in the MCC program as outlined below. This fee also entitles the lender to register a certain number of loan officers for the required MCC loan officer certification training. Lender Asset Size Fee per Funding Round Includes training registration for $1 Billion or more $1,000 4 loan officers Less than $1 billion $500 2 loan officers Training Registration Fee Loan Officer Certification training – $150, unless covered by the lender participation fee (to be paid on or before the training date.) MCC Application Fee The MCC application fee paid by the borrower has increased to $675. Additional, In authorizing the refunding of the MCC program, the PAB challenged the City of Portland to improve communities of color homebuyer participation in the program. Our current goal is 35% and we fell far short of that during the first round of funding.