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New FHA System Updates

Michael G. Barone
May 19, 2016
​Wells Fargo has named Pavaso an approved vendor for “hybrid” eClosings

Question: We recently heard FHA implemented a number of updates and revisions to its systems. What are the changes and when will they take effect?

On March 14, 2016, FHA’s Office of Single Family Housing published an update to its Single Family Housing Policy Handbook 4000.1 (“Handbook”). This update included several key changes to the Origination through Post-Closing/Endorsement for Title II Forward Mortgages section. 

We highlight certain salient changes below:

New requirement that for Limited 203(k) mortgages the contractor’s written proposal must indicate what work items require permits and state that the repairs are non-structural. This is effective for FHA case numbers assigned on or after June 30, 2016. [Handbook § II.A.8.a.vii.(H).(2)]

New requirement for repair escrow account closeout for all 203(b) products and programs where escrows are established. After the repair escrow account is closed, the mortgagee must complete the Escrow Closeout Certification screen in FHA Connection within 30 days of the escrow account being closed. This is effective for FHA case numbers assigned on or after October 31, 2016. [Handbook section II.A.6.a.viii.(B)].

FHA updated its guidance for refinance transactions when an existing debt is used to determine the Adjusted As-Is Value. Specifically, FHA clarified that the mortgagee has the option of using the existing debt plus fees associated with the new mortgage or obtaining an as-is appraisal to determine the Adjusted As-Is Value. This is effective for case numbers assigned on or after March 14, 2016. [Handbook section II.A.8.a.viii.(A).(2).(b).(i)]

FHA also made changes and enhancements to the FHA Connection system including a new 203(k) calculator that now provides automated calculation of the maximum allowable mortgage amount for 203(k) and Steamlined 203(k) mortgages. This functionality became available on April 18, 2016. Although available for use now, mortgagees mustuse the calculator prior to endorsement for all 203(k) transactions with case numbers assigned on or after October 31, 2016. The calculator is accessible from FHA Connection’s Case Processing page. Based on information entered, certain fields will pre-populate in the calculator from the Case Number Assignment, Appraisal Logging, and/or FHA TOTAL Mortgage Scorecard screens in FHA Connection. Upon successful processing of the 203(k) Calculator page, the calculator saves the results and uses data from the calculator to pre-populate certain fields in the FHA Connection Insurance Application Screen.

In addition to the 203(k) Calculator, FHA implemented changes to the Escrow Closeout screen in FHA Connection. Changes include additions and modifications of fields, as well as additions and revisions to drop-down menus to accommodate escrow closeout policies announced with the March 14, 2016 Handbook update. Mortgagees maybegin using the Escrow Closeout functionality in FHA Connection as of April 18, 2016, but must use this functionality for all case numbers assigned on and after October 31, 2016.

Finally, it is important to note that FHA’s Electronic Appraisal Delivery (“EAD”) portal becomes mandatory for allappraisal submissions for new originations with case numbers assigned on and after June 27, 2016.  Mortgagees may already use this portal for appraisal report submissions to FHA and FHA encourages all mortgagees that have not yet transitioned their operations to the EAD portal to begin the process now to avoid potential disruptions when the portal becomes mandatory. As of June 27, mortgagees will no longer be able to (i) manually enter appraisal information in the FHA Connection Appraisal Logging Screen for data fields that are designed to be pre-populated by appraisal data submitted through EAD; or (ii) submit appraisal reports for new originations to FHA through any other method.

Michael Barone is director of legal and regulatory compliance for Lenders Compliance Group. He may be reached by phone at (516) 442-3456.


May 19, 2016