The FHA and HUD have issued revised and updated guidance for borrowers and lenders regarding its flood zone determination policy.
On December 11, 2012, the FHA official site was updated to include Mortgagee Letter 2012-28, which is intended to overrule a previous Mortgagee Letter issued in 2010 on the subject. At one time, those applying for FHA loans were not affected by a mandatory flood zone determination policy. In the past lenders were “strongly encouraged” to get a flood zone determination for home purchased with an FHA insured mortgage.
That policy was revised, and is now updated and re-stated in FHA Mortgagee Letter 2012-28.
According to the new mortgagee letter, “FHA requires all mortgagees obtain a flood zone determination on all properties. The documentation provided to evidence the flood zone determination and retained in the case binder must clearly indicate that the flood zone determination service is for the life of the loan.” Additionally, the FHA also restates its position on homes located within a Coastal Barrier Resource System–these properties cannot be purchased with an FHA loan.
Specifically, the new Mortgagee Letter says, “Properties within a designated Coastal Barrier Resource System (CBRS) unit are not eligible for an FHA-insured mortgage. HUD will incorporate this restated and updated guidance into the relevant FHA Single Family On-Line Handbook. The new guidance noted above is effective for all case numbers assigned sixty days after date of Mortgagee Letter.”
The Coastal Barrier Resource System issue is not something that necessarily originated with FHA policy. According to a previous FHA mortgagee letter, “FHA is now consistent with the Coastal Barrier Resources Act (CBRA) by prohibiting FHA Mortgage Insurance for properties located within designated coastal barriers.” As you can see by this quote, federal law prompted the revision of the original FHA loan rules with regard to properties located in these areas.
For more information about this latest updated policy, contact the FHA directly at 1-800 CALL FHA.
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