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**U. S. Department of Housing and Urban Development**

Washington, D.C. 20410-8000

December 2, 1996

OFFICE OF THE ASSISTANT SECRETARY

FOR HOUSING-FEDERAL HOUSING COMMISSIONER

**Mortgagee Letter 96-65**

TO: ALL APPROVED MORTGAGEES

ATTENTION: Single Family Servicing Managers

**SUBJECT:** Procedural Changes for Single Family Servicing and Single
Family

Claims

The purpose of this Mortgagee Letter is to announce several substantive

changes in the policy and procedures related to single family mortgage

servicing and in the submission of claims for insurance benefits. The

changes related to servicing policy are effective with the date of this

letter as are the revised instructions related to the date of claims

submission.

Also included in this Mortgagee Letter is a revision to HUD\'s policy

regarding the interest curtailment that results from a mortgagee\'s
failure

to provide proper notification of the institution of foreclosure (24 CFR

[[203]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=C24D&l=20&s1=203.$%5Bno%5D&SECT1=TXTHLB&SECT5=C24D&u=../cgi/legis.cgi&p=1&r=0&f=S).356
and [[24 CFR
203.402]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=C24D&l=20&s1=203.402$%5Bno%5D&SECT1=TXTHLB&SECT5=C24D&u=../cgi/legis.cgi&p=1&r=0&f=S)).

This

all single family mortgages where the first public legal action to
initiate

foreclosure takes place on or after November 1, 1996.

Although it is not possible to issue immediate changes to existing
policy

and procedures regarding two other servicing issues, HUD has agreed with

the industry that the Department\'s existing policies need to be revised
in

light of current technology and business needs. These issues,
force-placed

hazard insurance and the requirement of a face-to-face conference
between

mortgagees and defaulting mortgagors, will require regulatory revision.

Therefore, these changes are being deferred pending action to be taken

shortly on the applicable regulations.

1\. REVISED NOTIFICATION OF FORECLOSURE REQUIREMENTS

HUD began enforcement of the foreclosure notification requirement (24
CFR

[[203.356]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=C24C&l=20&s1=203.356$%5Bno%5D&SECT1=TXTHLB&SECT5=C24C&u=../cgi/legis.cgi&p=1&r=0&f=S))
effective with the reporting cycle ending October 31, 1992. This

notification was accomplished when the mortgagee properly reported to
HUD\'s

Single Family Default Monitoring System (SFDMS) within two reporting

cycles, that the first public legal action required to institute

foreclosure (\"Status B\") had occurred. Once non-compliance was
established,

the Department had no option but to curtail interest on the claim to a
date

30 days from the date of the foreclosure initiation.

Included in the Federal Register dated July 9, 1996, were amendments to
24

CFR 203.356 and [[24 CFR
203.402]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=CF99&l=20&s1=203.402$%5Bno%5D&SECT1=TXTHLB&SECT5=CF99&u=../cgi/legis.cgi&p=1&r=0&f=S)(k)(1),
which provided the Secretary with

authority to administratively set the date to which interest would be

computed when the mortgagee failed to meet the foreclosure reporting

requirement.

Mortgagees shall be considered to be in compliance with the reporting

requirement of 24 CFR 203.356(a), when the case is properly reported to
the

SFDMS for the reporting cycle (or in the following reporting cycle) in

which the first public legal action required to initiate foreclosure is

taken. In accordance with Mortgagee Letter
[[96-49]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=MLET&s1=96-49%5Bno%5D&SECT1=TXTHLB&SECT5=MLET&u=./hudclips.cgi&p=1&r=1&f=G)
, dated September 9, 1996,

the proper SFDMS status code for reporting the first public legal action

required to initiate foreclosure will change from \"B\" to \"68\".

Effective for all loans where the first public legal

action to initiate foreclosure takes place on or after

November 1, 1996, and where there is a finding of

non-compliance regarding the foreclosure reporting

requirement 24 CFR 203.356(a), the following provisions

apply:

a\. The calculation of interest will take into account the

date the first public action to initiate foreclosure was

taken and the reporting cycle in which the this action was

properly reported.

b\. The mortgagee will be considered in non-compliance with

this requirement until such time (the reporting cycle) as

the mortgagee properly reports the foreclosure initiation.

c\. For each reporting cycle that the notification of

foreclosure is delayed, the mortgagee\'s claim will be

reduced by an amount equivalent to thirty days of

interest. Where non-compliance with this requirement is

established, the minimum interest reduction will be equal

to 30 days of interest.

d\. Mortgagees shall continue to be responsible for

\"self-curtailment\", where the reporting requirement was

not met.

e\. Self-curtailment shall be accomplished by

identification of the interest curtailment date on Form

[[HUD-27011]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/27011.pdf),
Item 31. Please refer to the appendix for

further explanation and examples.

2\. REQUIREMENTS FOR SUBMISSION OF FORM HUD-27011:

PART A - CONVEYANCES AND ASSIGNMENTS

Since HUD began accepting Claims for Insurance Benefits via Electronic
Data

Interchange (EDI), new issues have surfaced which require adjustments in

policies and procedures. Specifically, HUD\'s determination of mortgagee

compliance in the timely submission of Form
[[HUD-27011]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/27011.pdf)
will change,

effective with the date of this Mortgagee Letter.

HUD regulations provide that mortgagees must notify HUD of a conveyance
on

the date the deed to HUD is filed for record. HUD policy has been to

consider this requirement as having been met by the mortgagee where the

claim was submitted on the date the deed to HUD was recorded or the date

the deed to HUD was mailed directly to the recording authority. Because
HUD

allowed mortgagees to submit all claims via the U.S. Postal Service, all

claims properly received by HUD within ten days from the date the deed
to

HUD was filed for recorded (or mailed to the recording authority), were

considered timely.

Initially, no distinction was made between paper claims and claims

submitted via EDI in establishing submission requirements or in the

determination of compliance with those requirements. HUD\'s previous
strict

interpretation of claim submission requirements resulted in technical

non-compliance by many mortgagees submitting EDI claims. In deferring

transmission until after midnight (when submission costs are often much

lower) many mortgagees caused their interest to be curtailed when the

actual date of submission was reflected in Item 6 of Form
[[HUD-27011]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/27011.pdf).

HUD recognizes the inequity of this situation and is changing several

policies and procedures to improve the claim process. Mortgagees shall

continue to enter in Item 10 of Form HUD-27011 the date the deed to HUD
was

filed for record (or mailed to the recording authority) and shall
continue

to provide in Item 6 of Form HUD-27011, the date the claim form was

prepared and submitted. A claim will suspend (and the claim payment will
be

delayed) if either or both of these date fields are left blank.

HUD\'s claim system will no longer automatically curtail the claim where
the

date in Item 6 is later than the date in Item 10. This change will
affect

both conveyance claims (claim type 01) and assignments (claim type 02).

However, HUD will continue to monitor the timeliness of all claim

submissions. HUD shall continue to expect receipt of all claims within
ten

days from the date the deed is filed for record (Item 10), and the

automatic curtailment to the date in item 10, for failing to meet this
time

requirement shall continue without change.

The Secretary shall consider the mortgagee in compliance with the claim

submission requirement of [[24 CFR
203.360]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/cf203360.pdf)
if the date of claim submission is

no later than two business days following the date the deed was filed
for

record. Under no circumstances shall submission be delayed beyond two

business days. The Department will continue to monitor both the date of

submission and the date of receipt in determining compliance.

3\. SIMPLE ASSUMPTIONS

HUD requires that lenders submit a mortgage record change (Form
[[HUD-92080]{.underline}](http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=MLET&s1=96-14%5Bno%5D&SECT1=TXTHLB&SECT5=MLET&u=./hudclips.cgi&p=1&r=1&f=G)
)

within 15 days of any change of mortgagor, mortgagee, or servicer. This
is

a reasonable requirement and is met in most instances by mortgage

servicers. However, there are cases where lenders may not become aware
of a

change in ownership for many weeks or months in cases where there are no

restrictions on assumability.

Therefore, HUD will consider mortgagees in compliance with this
requirement

if the notification (Form HUD-92080) is submitted within 15 days of the

date the lender receives actual or constructive knowledge of the
transfer

of ownership.

4\. RECERTIFICATION OF 235 MORTGAGES

In addition to the routine notification provided to Section 235
mortgagors

as a part of the annual recertification process, mortgagees have been

required to provide another additional notification reminding mortgagors
of

the recertification requirements. This additional notification was
required

annually within 30 days of the end of the calendar year. Although HUD

indicated that this notification could be accomplished at the same time
the

mortgagor was provided the annual tax and interest statement, most

mortgagees interpreted this to require a separate document and separate

mailing.

Because the recertification process is so important to the proper
payment

of subsidy, some form of reminder will be retained. However, there is no

need for this duplication of effort and cost by the servicing mortgagee.

This information does not need to be provided on a separate document or
by

a separate mailing.

Effective with the date of this letter, the additional notice reminding

mortgagors of the recertification requirements, now required within 30
days

after year end, may be incorporated into the annual statement of account

that mortgagees routinely send to mortgagors.

5\. RISK-BASED PREMIUM RECONCILIATION

Mortgagees have requested assistance for their reconciliation of
periodic

and risk based mortgage insurance premiums. In this regard, HUD is

developing a new system, Single Family Premium Collection Subsystem -

Periodic (SFPCS-P), to reconcile periodic premiums at the case level.

Information will be used to generate monthly bills with case level

information to all lenders. HUD is also in the process of developing a

mechanism to allow lenders to access their portfolio via download.

Additionally, HUD has developed an EDI mechanism for processing

terminations and record changes, which has eliminated the need for
tapes.

The system under development, SFPCS-Periodic, will eliminate virtually
all

of the problems associated with premium collection, and is scheduled to
be

released in the fall of 1997.

Please direct any questions you may have to the attention of Joe
McCloskey,

Director, Single Family Servicing Division, at (202) 708-1672.

Sincerely yours,

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Nicolas P. Retsinas

Assistant Secretary for Housing-

Federal Housing Commissioner