19.6.3.3 Additional Requirements for 241(a) Supplemental FHA Loans

A. GNMA Requirements. If the first loan was securitized through GNMA, Lender’s Counsel must provide written assurance from the First Lender that it has complied with all GNMA requirements for the addition of the supplemental loan.

B. Davis-Bacon Requirements. Under NHA Section 241(b)(5), supplemental loans are subject to DavisBacon labor standards if: (a) the existing loan is FHA-insured and subject to Davis-Bacon labor standards (e.g., the first lien mortgage is currently insured as a 221(d)(4)), or (b) the existing loan is a HUD-held mortgage originally insured under a program that was subject to Davis-Bacon labor standards. Conversely, supplemental loans are not subject to Davis-Bacon labor standards if the existing loan is currently FHA-insured under a section of the act that is not subject to Davis-Bacon wage rates under Section 212 of the NHA (e.g., loans currently insured as 223(f)s or (a)(7)s).

C. Cross-Default Clause in Supplemental Loan Documents. The Firm Commitment will require a cross-default clause in the supplemental loan Note and Security Instrument providing that a default under

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Chapter 19 Closing Guide 19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs

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the first lien mortgage is a default under the supplemental mortgage. See NHA 241(b)(6) and 24 CFR 241.555(a). Conversely, the supplemental loan is not cross-defaulted to the first lien mortgage.