Over the past year, SP Group was engaged for assisting HUD/FHA with hundreds of loan closings for refinancing FHA loans under HUD’s Section 223(f) and 223(a)(7) programs. Based on our extensive experience, below are five tips that can make the closing process efficient and effective for all parties involved in the process.
Tip 1 – Use an Internal Closing Checklist
HUD revised it’s Firm Commitment format with the 2016 update to the MAP Guide. The revised format provides additional clarity on HUD’s requirements for closing a HUD-insured loan. When putting together a closing package, the borrower can ensure that all required conditions are adequately addressed by using an internal checklist for each transaction. The completed checklist can also be submitted as part of the closing package to facilitate HUD’s review of the closing documents. Often times, special conditions can be overlooked. For example, an escalation to the annual deposit to the Reserve for Replacement (R4R) account may only be specified in the Reserve for Replacement Schedule Exhibit, and might be missed, if it’s not captured in the internal checklist.
Tip 2 – Perform Consistency Checks Early in the Process
Borrowers can avoid additional amendment requests and unnecessary delays by performing consistency checks as early in the closing process as possible. Our experience has shown that the most frequent items that require corrections are the name or address of the lender and/or borrower. By ensuring that these simple things are accurate, borrowers can avoid unnecessary amendments which can be burdensome and time consuming for all parties involved.
Tip 3 – Provide Adequate Support for New Requests When They Are Made
Borrowers must ensure that all amendment and/or waiver requests are adequately supported with documentation, which can expedite the approval process. For instance, any changes to previously identified repair tables should be supported with a Corrective Action Plan, which can be reviewed by a HUD Construction Analyst. Similarly, any changes to financial figures may require a recalculation of the loan amortization, and any changes to the MIP categorization must be supported with adequate and relevant certifications.
Tip 4 – Know the Specific State Requirements
When transactions are being handled by out-of-state offices or have some principal entities that are in different states, it can be easy to lose track of legal requirements that are unique to the state in which the collateral is located. In some cases, closing dates have been delayed at the last moment because state-specific requirements were overlooked. For instance, while in most states, assignment of a newly-made loan to a servicer may be accomplished after the closing, but in Nevada, the assignment must happen at the closing. HUD provides many state-specific riders and addenda to loan documents at this web address.
Tip 5 - Follow Through on Post-Closing Items
We strongly recommend that lenders and borrowers think about the post-closing requirements during the closing process. By ensuring that HUD Multifamily Housing and/or HUD Asset Management receive the necessary post-closing materials in a timely manner, borrowers can ensure a smooth transition from closing to servicing. For example, Uniform Condition 9 of the Firm Commitment requires that soft copies of the fully executed closing documents be provided to HUD’s Legal Counsel and the HUD’s closing coordinator within five days of closing. Proactively identifying the names and contact information for the recipients for this final closing docket can ensure that the docket is provided in a timely manner.