Lender Guidelines
Mortgagee Letter 00-8
On March 3, 2000 FHA issued Mortgagee Letter 00-8 clarifying FHA’s position
regarding Gifts by charitable organizations. Specifically, Mortgagee Letter
00-8 states:
"Requirement for Federal Tax Identification Number: Lenders must obtain
the tax identification number of the nonprofit agency when a) the nonprofit
agency is acting as a mortgagor or b) when the nonprofit agency provides the
downpayment assistance in the form of a gift.
"....If the nonprofit agency is providing downpayment assistance in the form
of a a gift, lenders are to enter into the CHUMS system the Federal Tax Identification
number of the nonprofit agency in the field designated for a charitable organization’s
tax identification number. Failure to do this will result in the loan not
being insured by FHA.
"Approval of Downpayment Assistance Programs in the form of Gifts:
"There has been widespread confusion regarding the Department’s role
in approving downpayment assistance programs in the form of gifts. FHA does
not "approve" downpayment assistance programs in the form of gifts administered
by charitable organizations. Mortgage lenders are responsible for assuring
that the gift to the homebuyer from the charitable organization meets the
instructions described in HUD Handbook 4155.1, REV-4, Change 1 (e.g., no repayment
implied, etc.). Thus, while FHA will continue to issue approval letters to
nonprofit agencies for their participation as mortgagors, providers of secondary
financing, and as purchasers of HUD Homes at a discount, such letters are
not to be construed as approval of the nonprofit agency’s downpayment assistance
gift programs. FHA will not issue approval letters for downpayment assistance
gift programs."
Visit HUD's
web site. for more information regarding Mortagee Letter 00-8.
HUD Handbook Instructions
4155.1 REV-4 CHG-1 Section 3C
RE: Gift Funds
"An outright gift of the cash investment is acceptable if the donor is...a
charitable organization....The lender must document the transfer of the funds
from the donor to the borrower. Acceptable procedures include obtaining a
copy of the donor’s withdrawal slip or cancelled check, along with the borrower’s
deposit slip or bank statement showing the deposit. If the funds are not deposited
to the borrower’s account prior to closing, the lender must obtain verification
the closing agent received funds from the donor for the amount of the gift.
The file must also contain a gift letter specifying the dollar amount, signed
by the donor and the borrower, stating no repayment is required, and showing
the donors name address, telephone number, and relationship to the borrower."
Visit HUD's
web site for more information regarding HUD Handbook Instructions.
Mortgagee Letter 00-28
On August 2, 2000 FHA issued Mortgagee Letter 00-28 addressing "procedures
for verifying the transfer of gift funds from private individual donors to homebuyers,
as well as the required contents of the gift letter itself."
"The gift letter, as always, must specify the dollar amount given, be signed
by the donor and the borrower, state that no repayment is required, and show
the donor’s name, address, telephone number, and the relationship to the borrower.
It now must also contain language asserting that the funds given to the homebuyer
were not made available to the donor from any person or entity with an interest
in the sale of the property, including the seller, real estate agent or broker,
builder, loan officer, or any entity associated with them."
Visit HUD's
web site for more information regarding Mortgagee Letter 00-28
Federal Register Docket Number FR-4469-N-02
Volume 66, Number 9 (Page 2851-2852)
Withdrawal of Proposed Rule
On January 12, 2001, HUD issued a withdrawal of a proposed rule that would
have prohibited gifts from nonprofit organizations being used for the mortgagor’s
investments in a mortgage property if the organization received the funds for
the gift either directly or indirectly from the seller.
Visit HUD's
web site for more information regarding this withdrawal.
Mortgagee Letter 02-02
On January 16, 2002, FHA issued Mortgagee Letter 02-02 "to clarify and amplify
that FHA’s existing underwriting policy does not permit gifts to borrowers from
third parties when such gifts are used to pay off or reduce their outstanding
consumer debt to enable them to qualify for FHA-insured mortgages and the third
parties receive contributions from the sellers for payment of these debts. ML
2002-02 refers to nonprofit organizations because...such organizations are the
only ones that have engaged in this practice."
Visit HUD's
web site for more information regarding Mortgagee Letter 02-02.
Additional Questions
Questions concerning FHA guidelines regarding non-profit organization gift funds can be directed to your nearest HOC below.
A full list of local HUD offices can be obtained here.
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