Just as the government shutdown crisis was unfolding, the FHA was preparing an update to policies that affect borrowers who need to apply for FHA 203(k) mortgages as part of their recovery from Super Storm Sandy.
Unfortunately, that press release likely got overlooked by many because of the government shutdown issue. That update, as described in FHA Mortgagee Letter 2013-36, titled, “Eligible Properties in Presidentially Declared Major Disaster Area Super Storm Sandy for 203(k) insured mortgages” describes some very important updates.
These updates specifically pertain to those seeking FHA 203(k) loans in areas affected by Sandy–they do not apply to other borrowers outside this area.
According to the mortgagee letter, “Handbook 4240.4 Section 1-4 currently states that, homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided the existing foundation system is not affected and will still be used. The complete foundation system must remain in place.”
However, the update states that not all homes affected by Super Storm Sandy will be eligible for foundation repair under the 203(k) loan program.
“Where a property is located in Presidentially Declared Major Disaster Area Super Storm Sandy, work on the existing foundation system may be eligible, (ed. note–emphasis ours) provided that:
- The existing foundation does not currently meet the flood elevation +1 foot requirement;
- Any additional repairs or modifications to the foundation must be required by applicable codes, community development plan, an insurance plan, or other local, state, or federal laws and regulations ;
- The foundation, after elevation, must comply with local building codes, and FEMA requirements;
- The lowest floor must be elevated at or above the Base Flood Elevation based on the most recent FEMA data, plus one foot of freeboard. The most recent FEMA data includes Advisory Base Flood Elevations or Preliminary Flood Insurance Rate Maps, when available However, in no event shall the lowest floor be below the Base Flood Elevation on the current adopted Flood Insurance Rate Map;
- A report from a licensed structural engineer must be obtained stating that the proposed foundation is capable of supporting the proposed construction of the dwelling;
- The FHA case number must be assigned within 18 months (540 days) from the effective date of this Mortgagee Letter to be assigned an FHA case number;
- The loan must be processed as a Standard 203(k);
- The 203(k) Consultant must conduct a preliminary feasibility analysis to determine that the subject property is damaged but can be rebuilt to comply with building codes and FHA Minimum Property Requirements; and
- The loan amount (prior to the addition of any financed UFMIP) does not exceed 100% of the after repaired value.”
These are important considerations to remember–borrowers who are in doubt about how these policy updates apply to them should contact their loan officers immediately and contact the FHA at 1-800 CALL FHA for advice and assistance. The mortgagee letter closes by reminding borrowers:
“For any property not located within Presidentially declared Major Disaster Area Super Storm Sandy or any property that does not meet the above requirements, the restriction on foundation work described in Handbook 4240.4 Section 1-4 remains in force.”