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HUD Proposes Changes to FHA Multifamily and Health Care Facility Regulations and Loan Documents

The forms have not been significantly updated since the 1960s, and after conducting a comprehensive review, HUD is proposing changes designed to reflect modern-day terms and to include conditions that offer protection to all parties to a transaction that are consistent with current real estate and mortgage lending laws and procedures.

The proposed changes incorporate comments from the industry that were received by HUD in 2000 after initial drafts of the changes were posted on the department’s Web site.

Some of the changes are based on Freddie Mac’s loan documents, such as those for the Security Instrument and the Multifamily/Multistate Note. The Regulatory Document would be changed extensively, including a complete reorganization of the document by topic.

For a copy of the proposed rule that appeared in the Federal Register, click here. For the entire notice, which describes the changes to the loan closing documents and contains the revised forms, click here.

The proposed rule contains several regulatory changes:

• Tenancies in common not comprised of individual persons — such as partnerships and limited liability companies — would be eliminated as eligible mortgagor entities.
• Under a new two-tiered default scheme, Class A defaults would be for financial defaults and Class B defaults would include other bases for default, such as fraud and material misrepresentation or omissions by borrowers and officers, in the application of the HUD-insured loan or financial assistance. In Class A defaults, the lender would have an immediate right to an insurance fund claim. Under Class B defaults, the lender would be required to obtain prior written permission from HUD to make an insurance claim.
• The regulation would be brought into conformance with requirements in the mortgagee’s certificate for the mortgagee to request a three-month extension of the 45-day deadline for a mortgage funded with proceeds from state or local bonds, Ginnie Mae mortgage-backed securities or other bond obligations.

Comments are due to HUD by Oct. 1.

For more information, e-mail Claudia Kedda or call her at 800-368-5242 x8352.

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