HUD/FHA Changes HUD REO Underwriting Guidelines Effective September 14, 2015

Written By: Glenn Michaels, Op-Ed Writer

On September 14, 2015 the Single Family Handbook (SFH) 4000.1 becomes effective.
A change that most will not pick up is the underwriting of HUD REO’s. For those that are not familiar, a HUD REO is a property that was foreclosed by HUD approved mortgage servicer and the property is now owned by HUD. The term REO means Real Estate Owned. These properties are usually sold at auction.

The changes are incorporated in the new handbook so the change takes place September 14, 2015.  The changes eliminate four (4) existing mortgagee letters.  They are Mortgagee Letter 1995 – 56, Mortgagee Letter 2000 – 27, Mortgagee Letter 2011 – 19 and Mortgagee Letter 2013 – 44.

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The changes are below :

Policy                                        Existing Requirements                     Revised Requirements

REO Appraisal                        Used to establish REO list               Used to establish list price only.
                                                Price and
                                                Used to calculate maximum
                                                mortgage amount.

Ordering a new                        Permitted only when:                       Required for all FHA insured
Appraisal                                  REO appraisal not available or         sales transactions.
                                                 REO appraisal expired or
                                                 REO appraisal has material

Responsibility for                     REO Asset Manager and                  Underwriting mortgagee only.
Determination of                     underwriting mortgagee.
Property with
Minimum Property

Loan to value ratio                     1 unit  - 75%                                   75% for all 1 – 4 unit  and
For investment                           2 – 4 units – 85%                             investment properties

Maximum mortgage                Based on the lesser of                       Based on adjusted value.
Amount                                   appraised value or
                                                Sales price or
                                                Original REO list price.

But, a new report from FBR & Co., suggests that the application rollercoaster is mere signal noise, and the reality is that fourth quarter mortgage originations are expected to rise over last year.

About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.