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Funding Process for VHDA FHA Plus Second Mortgage

TO:         VHDA Originating Lenders

DATE:    January 31, 2013
RE:         Funding Process for VHDA FHA Plus Second Mortgage

     Many of you may be aware of the interpretative ruling issued by HUD on December 7, 2012 which confirmed that Housing Finance Agencies or “instrumentalities of government” may provide downpayment assistance on FHA insured loans for the borrower(s) required minimum investment.  In an effort to ensure our compliance, VHDA sent notification to our lenders on January 4, 2013 requesting that the second mortgage be funded in the name of VHDA at loan closing.
     Subsequent to this notification, HUD provided additional interpretation requiring the Housing Finance Agency to provide funding for the downpayment assistance “directly” at the closing table. The initial communication stated that this requirement was effective immediately which would require VHDA and other Housing Finance Agencies to implement immediate changes to the funding process for these loans.
     HUD has now provided transition relief in the implementation of this change and has extended the required compliance for loans that are closed on or after June 1, 2013.
     During this transition period, HUD will be assessing different funding models to determine specific structures that will be acceptable to comply with the regulation.  VHDA will be working with our lending partners to develop a model that complies with the regulation and provides the greatest efficiency to VHDA and our lenders.
     Until the new procedure is implemented, VHDA lenders may continue to close VHDA FHA Plus mortgages under the current process.  In the interim, if any lender receives a deficiency finding or request for indemnification from FHA related to the funding source of the FHA Plus second mortgage, please notify VHDA immediately.  We have received instructions from HUD outlining the appropriate process to address the deficiency.
     As always, we appreciate your support in working with us to allow VHDA to continue to provide this valuable resource to Virginia’s first-time homebuyers. We regret the need to change this process and will continue to update you as the new funding procedures are finalized.

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