HUD HOC Reference Guide

A. General Eligibility: A mortgage on a homestead lease granted by the Department of Hawaiian Home Lands (DHHL) covering a one- to four-family residence located on Hawaiian home lands is eligible for insurance pursuant to Sec. 247 of the National Housing Act (search GPO Access (http://www.gpoaccess.gov/) for 12 U.S.C 1715z-12) if the mortgagor is a native Hawaiian who will occupy it as a principal residence. Mortgage insurance on cooperative shares under Sec. 203.43c on homes in federally impacted areas under Sec. 203.43e is not authorized under this section. See 24CFR Sec. 203.43i for more information.

B. Native Hawaiian Eligibility: The mortgagor must be an adult meeting the blood quantum requirement established by the Sec. 247 statute and 24CFR 203.43i(c)(3). A mortgagor who is an original lessee of a homestead lease (also called a residential lot lease) must have 50% Hawaiian blood. A mortgagor who is a successor lessee or an assignee of an original lessee must have 25% Hawaiian blood. Determination of native Hawaiian eligibility is made by DHHL. Lenders may obtain the "Request for Certification of Eligibility" from DHHL's website (http://hawaii.gov/dhhl). For more information, see HUD Mortgagee Letter 2004-43.

C. Principal Residence Requirement: The native Hawaiian mortgagor must occupy as his/her principal residence a one-unit home located on the Hawaiian Home Lands leasehold estate being insured.

D. Eligible Leases: Lender must obtain and keep a copy of the Residential Lot Lease issued by DHHL which identifies the proposed mortgagor as the lessee; this will be EITHER an original lease issued to the proposed mortgagor OR an original lease, along with documentation showing succession or assignment of the lease to the mortgagor and DHHL's consent to each and every transfer of the lease. Any amendments to the original lease must be included as part of the documentation. The Lease must be in the form approved by both HUD and DHHL and must include DHHL's Mortgage Insurance Rider (refer to HUD Mortgagee Letter 2004-43) as part of the Lease. See 24CFR 203.43i(h). All lease documents must bear evidence of having been recorded at the DHHL. All current lessees, including those with a life estate, must sign the mortgage (see paragraph L below).

E. Recordation: Upon loan closing, the mortgage must be recorded in DHHL's own recording system. The documents should NOT be recorded at the State of Hawaii Bureau of Conveyances or filed with the Office of Assistant Registrar of the Land Court. Recordation at either of these offices does not effectuate a lien on the Hawaiian Home Lands lease.

F. DHHL Consent to Mortgage: A Consent to Mortgage executed by the Chairman of the Hawaiian Homes Commission (http://www.capitol.hawaii.gov/hrscurrent/vol01_ch0001-0042f/06-Hhca/HHCA_.htm) and recorded in the DHHL must be obtained for the loan file. Lenders can obtain this form by writing to: Department of Hawaiian Home Lands, Attn: Loan Services Branch, P.O. Box 1879, Honolulu, HI 96805.

G. Appraisals: Licensed appraisers are required to conform to Uniform Standards of Professional Appraisal Practices (USPAP - http://commerce.appraisalfoundation.org/html/2006%20USPAP/toc.htm) which identifies Market Value as "the most reasonable price which a property should bring in a competitive and open market". Since sales of DHHL are neither freely transferable nor subject to an open market, neither the Market Approach nor Sales Comparison Approach are required when appraised for FHA insurance purposes. Thus, appraisals on DHHL properties (existing and proposed construction) require only the use of the Cost Approach. (This change was brought about because appraisers felt that performing the Sales Approach on DHHL violated USPAP.)

In the Reconciliation Section of the URAR:
• When only the Cost Approach is used, a statement, similar to the following, should be added: "The final value stated in this appraisal is not "market value" as defined in the addenda of the report. The definition of market value is included on each FNMA form. This appraisal has been completed for FHA mortgage insurance purposes, per HUD instructions for DHHL properties".
• The appraisal must include a date (which is the date the appraiser performed the site inspection), the final value and the appraiser's signature.
• The Cost Approach for DHHL properties shall be developed from a published cost service and shall conform to the following:
  
  • The appraiser will provide photocopies of all pages used to derive the cost figures.
  • The appraiser will apply all current multipliers applicable to locale and time as updated and published by the cost service.
  • No marketing expense shall be added to the cost analysis of a DHHL property appraisal because these properties are not freely marketable.
  • Entrepreneurial venture shall not be addressed as a separate adjustment factor if reasonable Profit and Overhead are already included in all costs.
  • Depreciation due to normal aging may be derived from the tables in the cost service book. Depreciation from incurable external or functional obsolescence should be based on verifiable market extractions, either by paired-sales analysis and/or capitalized rent loss.
  • Computer generated cost analysis is acceptable as long as the printout conforms (more or less) to the format of the cost service form and contains sufficient information to verify that all significant property features have been properly addressed in the cost analysis. Accordingly, the appraiser will not be required to supplement a computer-generated cost analysis with photocopies from the cost service book.

H. Mortgage Insurance Premium: Section 247 loans are subject only to the Up Front Mortgage Insurance Premium (UFMIP); they are not subject to the annual risk-based premium. The following UFMIP factor table is to be used:

I. Automated Data Processing (ADP) Codes: Mortgages on DHHL properties are identified by the following Section of the Act ADP suffix codes:

J. Title Evidence: Because there is no first lien requirement for Sec. 247 loans, no title policy or certificate of title need be obtained.

K. Real Property Taxes: By statute, real property taxes are not assessed for the first seven years of the lease.

L. Life Estate: If the lease is encumbered by the interest of a life tenant (life estate), the life tenant must be a signatory to the mortgage but is NOT required to be a signatory to the note.

M. Refinance: Loan-to-value ratios for refinance loans under this program shall not exceed 75%. A loan to value ratio not to exceed 85% may be considered if the loan proceeds exceeding the amount required for payoff of the existing mortgage are for home renovations/improvements, as shown by accompanying proper documentation. Cash-out refinancing for debt consolidation shall not be allowed.