Loan Programs
HUD REO Properties
Page 1 of 2
LOAN PROGRAMS
HUD REAL ESTATE OWNED (REO) PROPERTIES
(The information presented is compiled and excerpted from Handbooks and Mortgagee Letters, along
with subsequent clarifications such as the HOC Reference Guide.)
Are HUD Direct Sale (REO) Properties underwritten differently?
CASE NUMBER ASSIGNMENT
● Ordered same as other case numbers except for
o Processing Type is “Real Estate Owned
Prevents the assignment to an appraiser
Prevents logging of the REO appraiser
Tells the system that certain rules may not apply – failure to use can result in
system errors that will prevent endorsement (i.e., maximum mortgage amount
exceeded, LTV exceeded, etc.)
o Indicate property is a previous REO (sold by HUD) by clicking “yes” at that question
o Enter the previous REO case number
Usually only prefix with 6 digits – use an “X” as the 7th digit (i.e., 011-
123456X)
If you have the entire case number, it can be used
o Ensure correct property address is used
o Resolve any issues encountered; do NOT manipulate system as all errors will have to be
resolved for the loan to be insurable
● Can update case number assignment if needed
● If borrower or address data needs to be corrected, use the Borrower and Address Change menu
option
● NOTE: The borrower information will be revalidated each time the Borrower and Address
Change screen is updated. The re-validation will take 24 hours, and can be checked via the
Holds Tracking menu option.
● Condos: Remember to include the condo ID# or indicate spot lot, as applicable. If spot lot is
checked, the file must be documented as having a spot lot approval.
UNDERWRITING
● Property is underwritten same as other mortgages.
● Credit is underwritten same as other mortgages, including the mortgage calculation [except for
REO Escrow Repair loans, or REO sales including incentives/concessions]
● Sales that include Escrow Repair funds into the loan amount
Information Guide Atlanta HOC Lender Training Last Revision: 7/25/05
Loan Programs
HUD REO Properties
Page 2 of 2
o Complete the Mortgage Credit Analysis Worksheet (MCAW) same as for any other
mortgage with the following exceptions:
The base mortgage amount (#11d) is computed to ensure the borrower is
investing at least 3% per statutory requirement
That amount is noted in the Remarks section (with #11d to the left)
The amount of the escrow repair is noted below the base mortgage amount (with
“escrow repair” noted to the left)
The two amounts are totaled (note “3a” to the left of the sum)
The sum is then noted in #3a as the new base mortgage amount
The UFMIP is calculated (reflected in #3b) and the whole dollar portion added
to the base mortgage amount (#3a) for the Total Mortgage Amount (reflected in
#3c)
o The Repair Escrow Amount is taken from the sales contract (SC) and may not be
modified without a revised sales contract executed by all parties (the 10% mark-up is
already included in the amount on the SC.
o The funds must be used for the repairs specified in the property listing
o The borrower may NOT pay the repair escrow in cash (but may invest the additional
amount, resulting in a reduced base mortgage amount – #11d of the MCAW – used to
calculate the total mortgage amount).
o Form HUD-92300 must be used to document the Repair Escrow and completion of the
repairs
o Lender must ensure all repairs are satisfactorily completed before disbursing the escrow
funds
Repair inspection must be performed by a qualified individual (but doesn’t
necessarily require an FHA Fee Inspector).
DE Underwriter determines the level of qualification necessary for the
inspection.
● Sales that include an incentive (i.e., $100 down payment, $2500 bonus to borrower at closing,
HUD – as the seller – agrees to allow the borrower to finance closing costs into the loan, etc.)
o The mortgage amount is “backed into” in these situations.
o The 3% investment requirement does not apply.
● LTV (loan-to-value) in FHA’s computer systems – the FHA Connection/CHUMS – cannot
exceed 110% of the lesser of the appraised value or sales price.
● Resolve any issues prior to loan approval and closing. Errors are much more difficult to
resolve at insurance endorsement than at case number assignment or loan approval/closing.
● Refer to Housing Notice 06-12 for closing costs that HUD (as the seller) may agree to pay.
The borrower can pay closing costs per the current FHA policy announced in Mortgagee Letter
2006-04.
RESOURCES
● Handbook 4155.1 REV 5
● Housing Notice 2006-12
● Mortgagee Letter 2006-04
● Mortgagee Letter 2000-27
Information Guide Atlanta HOC Lender Training Last Revision: 7/25/05