**TO: ALL APPROVED MORTGAGEES**

######### ATTENTION: Single Family Servicing Managers

**SUBJECT: Future Delinquency Reporting Requirements**

The purpose of this Mortgagee Letter is to announce future reporting
requirements for delinquent Federal Housing Administration (FHA) insured
single-family mortgages.

On March 31, 2006, the Department published the final rule that advised
the industry of changes to HUD's delinquency-reporting requirement. The
revised regulation requires mortgagees to report all accounts that are
30 days delinquent as of the last day of the month. This is a change to
the previous reporting requirement that required mortgagees to wait
until the mortgages become 90 days delinquent.

These changes provide system enhancements to the Department's Single
Family Default Monitoring System (SFDMS) to enable it to collect and
track the key significant events that occur between the beginning of a
default episode and its resolution---whether reinstatement, claim, or
prepayment, with or without loss mitigation. FHA recognizes that the
industry will need sufficient time to make accommodating changes in
order to provide the updated delinquency information. Therefore,
mortgagees will begin reporting the revised data beginning with the
October 2006 reporting cycle. That data is due to HUD no later than
November 7, 2006, which is the fifth business day of November 2006.

**[Please Review the Following Key Items of Note:]{.underline}**

1.  **[When Must Delinquency Reporting Begin?]{.underline}**

> Under HUD's previous requirements, mortgagees would report delinquent
> accounts at the point when the loan becomes three full payments due
> and unpaid (90 days delinquent), and then would continue reporting the
> status of the loans until there was a resolution to the delinquency.
> Under the revised reporting requirements, mortgagees shall report
> delinquent accounts when one full installment is due and unpaid (30
> days delinquent), and will continue reporting the loan's status until
> there is a resolution to the delinquency. For the purpose of servicing
> delinquent loans, HUD defines that all months have 30 days. Any loan
> that remains unpaid on the last day of the month is considered to be
> 30 days (or one month) delinquent and must be reported to HUD.
>
> As a reminder, there are three classes of loans that must be reported
> each month: those with new delinquencies, open delinquencies and
> delinquencies resolved during the cycle month.
>
> The timing for submission of the delinquency data to HUD will remain
> the same. Mortgagees must continue to report all delinquent loans to
> HUD no later than the fifth business day of the following month. For
> example, in reporting delinquent data for the month of August 2006,
> the status of the loans would be reflected as of August 31, 2006, with
> all delinquent loan reporting required to be completed between
> September 1, 2006, and September 8, 2006.
>
> Although the deadline for submission of delinquency data is by the
> fifth working day of the following month, mortgagees are not barred
> from submission of delinquency data throughout the month. However,
> mortgagees must be cautioned that early or late submissions may result
> in the data being incorrectly identified by HUD as representing the
> status for a wrong reporting cycle.
>
> **2. [New definition and reporting requirement for Status Code 42
> (Delinquent)]{.underline}**
>
> **Mortgagees must begin [every]{.underline} new delinquency episode by
> reporting Status Code 42.** For example, if a loan payment due on
> August 1 is not received by August 31, 2006, the mortgagee should
> report a Status Code 42 for the month of August 2006. The oldest
> unpaid installment (OUI) date would be August 1, 2006, and the status
> date would be August 31, 2006.
>
> If the delinquency continues and no payment is received in September
> 2006, the mortgagee should again report Status Code 42 in the
> September reporting, with an OUI date of August 1, 2006, and the
> status date of August 31, 2006. The status date is not updated for the
> September cycle because the status code for the loan has not changed,
> even though the length of the delinquency has changed.
>
> It will not be possible to wait until the account has become severely
> delinquent and the mortgagee has initiated foreclosure, before
> reporting the initial loan's status to HUD. System edits will not
> allow Status Code 68 (first legal action to initiate foreclosure), or
> any status codes other than Status Code 42, to be the first status
> code reported. Therefore when an account becomes 30 days (one month)
> delinquent, the mortgagee is expected to begin reporting the
> delinquency episode with Status Code 42.
>
> HUD will use the OUI date to track the severity of a delinquency. For
> example, HUD will classify an account that was first reported in the
> August 2006, reporting cycle that has an OUI date of August 1, 2006,
> as 60 days (or two months) delinquent on September 30, 2006.
>
> If a mortgagee enters into a forbearance/repayment plan with the
> mortgagor before the last day of October 2006, but no payments have
> been made by the end of October, the mortgagee must, by the fifth
> working day of November (between November 1, 2006, and November 7,
> 2006), report the account as Status Code 12, with an oldest unpaid
> installment of August 1, 2006. The effective date of the repayment
> plan will be noted as the status code date.
>
> If, instead, the same mortgagor makes one full payment during October,
> remains two-months delinquent, but does not enter into a
> payment/forbearance plan, the mortgagee must report Status Code 42
> with an OUI date of September 1, 2006, for the October cycle (reported
> between November 1 and November 7, 2006), and a status date of August
> 31, 2006.

3.  **[Importance of the Oldest/Unpaid Installment (OUI)]{.underline}**

> As stated in item (2) above, HUD will use OUI dates to calculate and
> track the severity of delinquencies---i.e., whether they are 30, 60,
> 90 days or more. Therefore, it is very important that mortgagees
> report the correct OUI date. The SFDMS will generate a fatal error if
> the OUI date is earlier than the first payment due date on the
> mortgage.
>
> **4. [Updated Delinquency/Default Status (DDS) Codes ]{.underline}**
>
> HUD's goal is to capture key significant events that occur between the
> beginning and end of a default episode. To do so, HUD is adding status
> codes that are already available to mortgagees via ANSI X.12,
> Transaction Set 264, version 4040, and are already in use by other
> entities within the mortgage industry. HUD is discontinuing the use of
> some other status codes in an effort to reduce ambiguity in reporting.
> **Appendix 1** provides an updated list of the status codes that
> mortgagees will be expected to use.
>
> Because the redesigned SFDMS will track delinquencies, including
> 30-day delinquencies, there will be no need to report partial
> reinstatements as unique status events. HUD is eliminating Status Code
> 19, and the SFDMS will not accept it as a valid status code.
>
> **5. [Updated Delinquency/Default Reason (DDR) Codes]{.underline}**
>
> **Appendix 2** provides an updated list of the delinquency and default
> reason (DDR) codes that HUD will expect mortgagees to provide. There
> are only a few additional reason codes that were not previously used
> in reporting delinquent loan information to HUD. However, all the DDR
> codes that HUD will accept are already defined and available in the
> ANSI X.12 format for Transaction Set 264 (TS264), version 4040, which
> the Department currently uses. The DDR codes that are being added are
> already currently in use by other entities within the industry and
> should not pose a problem.
>
> The Department recognizes that in most cases where a new default is
> less than 90 days delinquent the mortgagee may not have yet been able
> to contact the mortgagor to determine a cause for the delinquency.
> Mortgagees will not be considered in non-compliance where a specific
> reason for delinquency/default is unknown with respect to any mortgage
> that is less than 90 days delinquent, if the mortgagee reports DDR
> Code 31, Unable to Contact Borrower. However, as soon as the reason
> for the delinquency/default is known, the Department requires that
> updated information be included in the reporting. Under normal
> circumstances, DDR Code 31 should not be used for cases that are 90 or
> more days delinquent.
>
> **6. [New Definition and Reporting Requirements for Status Codes 09
> and 12]{.underline}**
>
> Please note that HUD is changing the reporting requirements for Status
> Codes 09 and 12. Presently, servicers are expected to report all
> payment plans as either Status Code 09 or Status Code 12 based upon
> the payment level established in the payment agreement. Beginning with
> the effective date of the new reporting requirements, mortgagees will
> use Status Code 09 to identify accounts where Special Forbearance
> agreements have been executed (whether Type I or Type II). Status Code
> 12 will be used to identify all other repayment agreements with the
> mortgagor(s).
>
> **7. [New Rules to Identify Reinstatements]{.underline}**
>
> When a delinquent loan is reinstated, HUD needs to know if the use of
> loss mitigation assisted in the reinstatement, if it was due to a sale
> of the property using a loan assumption, or if the mortgagor was able
> to reinstate the loan on his or her own. Three status codes will be
> used to identify the type of reinstatement:

-   Status Code 20 will be used if the mortgagor reinstated on his or
    her own (including a refinance);

-   Status Code 21 will be used to identify if the loan reinstated as a
    result of a sale of the property using a loan assumption; and

-   Status Code 98 will be used to identify if the reinstatement was at
    all aided by the use of a formal loss mitigation intervention.

> For this purpose, loss mitigation includes use of repayment plans, or
> any of the tools for which HUD pays a loss mitigation retention
> incentive as long as they have been duly reported to HUD in the course
> of prudent servicing.
>
> In evaluating the data submitted, HUD will deduce that one type of
> loss mitigation was unsuccessful if the mortgagee reports the
> initiation of another type of loss mitigation or the initiation of
> foreclosure. However, an exception will be made where a Type II
> Special forbearance was utilized and the mortgagee had planned to
> follow the short-term special forbearance with either a loan
> modification or a partial claim. As noted above, a mortgagee should
> use Status Code 09 only with a signed Special Forbearance agreement,
> either a Type I or Type II. Status Code 12 should be used only for
> forbearance and repayment plans that do not involve loss mitigation
> claims.
>
> HUD will no longer use Status Code 39, pre-claim enrolled, or Status
> Code 41, supplemental pre-claim. Instead, to close out the default
> episode, Status Code 98 will be used to report all cures that involve
> loss mitigation: special forbearance, modification, partial claim, and
> previously reported repayment plans; and Status Code 20 will be used
> to report all cures that do not involve any loss mitigation
> intervention.

8.  **[New Rules related to FC Reporting]{.underline}**

> HUD has also simplified the status codes that are used to capture the
> start and completion of foreclosure. To improve foreclosure reporting,
> HUD will no longer use Status Code 43, foreclosure started, or Status
> Code 45, foreclosure completed. Instead, mortgagees shall report as
> follows:

-   Status Code 68 to signify that the first public legal action to
    initiate foreclosure has been commenced;

-   Status Code 46 when foreclosure is completed and the property is
    conveyed to HUD; or

-   Status Code 48 when foreclosure is completed without conveyance of
    the property.

> To track critical events during foreclosure, mortgagees shall report:

-   Status Code 1A when the foreclosure sale is held;

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-   Status Code 1G when eviction takes place; and

-   Status Code 77 when the foreclosure deed is recorded.

> Included with all status codes reported will be the applicable status
> dates.
>
> **9. [Multiple Status Code Reporting in the Same Month will be
> Accepted]{.underline}**
>
> Mortgagees may find the ability to report multiple status codes for
> the same month most advantageous for those situations where the first
> legal action to initiate foreclosure occurs, but then a bankruptcy
> action is filed before the last day of the month. In those cases,
> mortgagees must provide the Status Code 68 identifying the date that
> the first legal action was taken and will also be able to advise HUD
> that a bankruptcy occurred before the last day of the month. Separate
> status codes are available to identify the type of bankruptcy action
> filed and the status date will identify the date of the bankruptcy
> filing (see Appendix 1).
>
> **10. [Error Correction]{.underline}**
>
> All Transaction Sets 824 (TS824) that are currently provided via EDI
> will continue. It will be the mortgagee's responsibility to retrieve
> the error reports and submit any necessary corrections by the fifth
> business day. The later a mortgagee waits to submit the initial file,
> the less time will be available to complete all corrections by the
> fifth business day. No additional time is provided to enter
> corrections, as the fifth business day of the month is the deadline
> for all SFDMS reporting.
>
> The Department is discontinuing the issuance of both the "Confirmation
> Letters" and SFDMS Error Reports. Both mailings are scheduled to be
> discontinued no later than the September 2006 reporting cycle. Any
> mortgagee subject to a HUD post claim review may provide any one of
> the following items to document the reporting of Status Code 68 (First
> legal action to initiate foreclosure):

-   A copy of the summary of all SFDMS status codes reported which is
    available via either the FHA Connection or through Neighborhood
    Watch web applications; or

-   A print-out of the FHA Connection screen showing the check mark at
    the top of the page confirming that the transaction was successfully
    submitted (including the date of submission legibly shown; or

-   A copy of the TS 824 confirming that the Status Code 68 transaction
    was submitted to HUD timely without a fatal error.

> A listing of the existing error codes may be found in HUD Handbook
> 4330.1, Rev-5, in Appendix 20C. A new fatal error will be added to the
> existing error codes. This new "R4" error code will reflect errors
> where the OUI is not logical for the case in question. As a fatal
> error, this means that the information submitted on that case will not
> be accepted by HUD, and the mortgagee must submit a corrected
> transaction to ensure that all delinquent reports are properly
> reported.
>
> **11. [Improved FHA Connection Functionality]{.underline}**
>
> Presently, when reporting a default to SFDMS for the first time (or
> after 12 months of inactivity), the FHA Connection user has to type in
> all required information. An additional SFDMS enhancement will include
> an enhanced interface between the SFDMS and HUD\'s Insurance-In-Force
> system (A43) via FHA Connection. This new interface will assist the
> mortgagee by automatically populating the following fields on new case
> entry: Mortgagor name, Social Security Number (SSN), Co-mortgagor
> name, Co-mortgagor SSN, street address, city, state, zip code and
> first payment to principal and interest. Mortgagees will be able to
> make any necessary corrections on screen before submitting this
> information to the SFDMS. While these corrections would not be made in
> HUD's A43 system, it will alert the mortgagee that corrections may
> need to be made in A43 using either EDI or FHAC to submit a mortgage
> record change (MRC).
>
> **12. [Loan Servicing Transfers]{.underline}**
>
> In Item 2, it was noted that all new delinquency episodes must begin
> with Status Code 42. That requirement is logical when a mortgagee is
> reporting all delinquencies beginning with the month that the account
> becomes thirty days delinquent. However, where servicing has been
> transferred, the new mortgagee will receive mortgages whose
> delinquency status will range throughout the delinquency spectrum
> including accounts that are in loss mitigation, foreclosure and
> bankruptcy.
>
> Therefore, before reporting the appropriate status code on a loan that
> has just been transferred, mortgagees will need to report Status Code
> 22 (Loan Transfer) notifying SFDMS that there was a transfer in
> servicing. Since HUD will be able to accept multiple status codes each
> month, the acquiring mortgagee should not wait an additional reporting
> cycle before advising HUD of the appropriate status code for each of
> the delinquent accounts it has acquired. Rather, the acquiring
> servicer, should first report Status Code 22 to reflect the transfer
> of servicing, followed by the status code that accurately reflects the
> mortgage status as of the last day of reporting cycle in which the
> servicing was acquired.
>
> HUD cautions mortgagees that reporting Status Code 22 is not a
> substitute to reporting Mortgage Record Changes (MRCs). Mortgagees
> will still be required to report MRCs via either Electronic Data
> Interchange (EDI) or via the FHAC whenever there is a change in the
> holder or the servicer of the mortgage. Also if the mortgagee fails to
> report Status Code 22 on a loan where it has acquired the servicing,
> it will receive an error if any status other than Status Code 42 is
> reported for any transferred account.
>
> **13.** **[Occupancy Status and Date]{.underline}**
>
> The Department must be advised when the property becomes vacant.
> Currently, both the FHA Connection and EDI reporting ask for the
> occupancy status, but do not provide a field for providing the date.
> Both EDI and the FHA Connection will be updated to allow for the entry
> of a date when a property becomes vacant. The mortgagee would still
> identify the occupancy status using occupancy code 3, known to be
> vacant, but will also now provide a date that the mortgagee determined
> that a property became vacant. This requirement is separate from the
> requirement to advise HUD of the date of the eviction.
>
> **14. [Correction of a Previously Reported Status Code]{.underline}**
>
> If an error has been discovered, Status Code 25 (cancel) should be
> reported. This status code will advise HUD that the last status code
> reported was in error and should be preserved as a historical record
> without having an effect on the default sequence. The correct status
> code should then be reported to ensure that HUD has the correct status
> of the loan.
>
> **15. [Removal of Existing Status Codes]{.underline}**
>
> Because mortgagees will report on all delinquent loans even if they
> become 30 or 60 days delinquent, there will be no need for reporting a
> partial reinstatement. Therefore, HUD will no longer use Status Code
> 19. In addition, in an effort to simplify delinquent loan reporting,
> four other status codes, will no longer be used by HUD. These status
> codes include Status Code 39, pre-claim enrolled; Status Code 41,
> supplemental pre-claim; Status Code 43, foreclosure started; and,
> Status Code 45, foreclosure completed. These status codes are also
> noted in Appendix 1.
>
> **16. [Bankruptcy Reporting]{.underline}**
>
> At the request of the industry, HUD is adopting several additional
> status codes that have been in use by the industry. The full listing
> of all status codes is in Appendix 1. Included in this listing are
> status codes related to bankruptcy. Each type of bankruptcy filing is
> represented by a different status code. Please use the correct status
> code for each type of bankruptcy. Also, please use the appropriate
> status codes to advise HUD when the bankruptcy plan is confirmed
> (where appropriate) and when bankruptcy is no longer a bar to
> foreclosure (when appropriate). Following is a list of status codes
> associated with bankruptcy:

-   Status Code 65 Mortgagor filed petition of bankruptcy under Chapter
    7;

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-   Status Code 66 Mortgagor filed petition of bankruptcy under Chapter
    11;

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-   Status Code 67 Mortgagor filed petition of bankruptcy under Chapter
    13;

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-   Status Code 59 Mortgagor filed petition of bankruptcy under Chapter
    12;

-   Status Code 69 Bankruptcy Plan Confirmed; and

-   Status Code 76 Bankruptcy Court Clearance Obtained.

1.  **[Ineligible for Loss Mitigation]{.underline}**

> Prior to initiating foreclosure, every account must be evaluated to
> determine if loss mitigation is appropriate (see 24 CFR 203.605 &
> 203.501), and if so, what type of loss mitigation is appropriate.
> Where the evaluation finds that the mortgagor is not eligible for loss
> mitigation -- either because a completed loss mitigation evaluation
> found the mortgagor(s) ineligible, or the mortgagee cannot evaluate
> mortgagor's financial situation because, in spite of the mortgagee's
> good-faith efforts, the mortgagor(s) failed to provide adequate (or
> any) financial information - the mortgagee must so identify by
> reporting Status Code "AO."
>
> The Department will be using the data reported to SFDMS to monitor
> mortgagee's engagement in loss mitigation.

Questions regarding this Mortgagee Letter may be directed to HUD's
National Servicing Center at (888) 297-8685.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Brian D. Montgomery

Assistant Secretary for Housing-

Federal Housing Commissioner

Attachments:

Appendix 1 - Delinquency/Default Status Codes

Appendix 2 -- Delinquency/Default Reason Codes