January 25, 2007 **MORTGAGEE LETTER 2007-03**

## TO: ALL APPROVED MORTGAGEES

**ATTENTION: Single Family Servicing Managers**

**SUBJECT: Revision of Preservation and Protection Requirements and**

> **Cost Reimbursements**

The Department of Housing and Urban Development (HUD) requires
Mortgagees to preserve and protect properties that serve as collateral
for mortgages insured by the Federal Housing Administration (FHA). This
Mortgagee Letter announces updates to the Department's preservation and
protection (P&P) requirements and increases the maximum allowable costs
that will be reimbursed on a claim for insurance benefits. These
requirements entitled, "General Requirements for Preservation and
Protection of Properties Securing FHA Insured Mortgages" is attached
hereto and becomes effective 30 days from the date of this Mortgagee
Letter.

# This guidance supersedes the policy requirements of ML 2002-10, *2002 Preservation and Protection Cost Schedule and Policy Updates/2002 Post Endorsement Guidelines, Fees and Charges*, except for the post endorsement fee schedule which remains in effect. It supersedes in their entirety, ML 2003-05, ML 2004-07, and ML 2005-22. Finally, it supersedes that section of ML 2002-19, *Clarification Regarding Title Approval issues, Property Condition at Conveyance, Administrative Offsets and a New Process for Lender Appeal of Conveyance Issues* that describes the Property Condition and Re-conveyance Appeals' process, Mortgagee Neglect and Requests to Exceed Cost Limits for Preservation and Protection.

Several significant policy updates are incorporated into this guidance,
they include:

-   An overall increase in cost reimbursements for many P&P services;

-   A description of five different types of inspections. The trigger
    events that necessitate an inspection have expanded to include
    property conditions that may signal a non-monetary default. Also,
    the maximum number of inspections that may be performed each year
    has increased and the cost reimbursement for inspections has
    increased;

-   A requirement for Mortgagees to document in the "Mortgagee Comments"
    section of Form HUD-27011, the key code for changed door locks as
    opposed to mailing keys to the appropriate Management and Marketing
    Contractors;

-   An increase in the maximum allowable securing fee to allow for the
    re-securing of a property without prior approval;

-   Clarification of the distinction between temporary and permanent
    roof repairs, and clear guidance when each is appropriate;

-   Clarification of conditions under which HUD will accept conveyance
    of a property with mold;

-   A new requirement for the use of digital photographs and a new
    flat-fee reimbursement of \$30.00 for all photographs, regardless of
    the number provided;

-   An update allowing a Mortgagee to claim reimbursement for one
    initial grass cut in each growing season;

-   An update allowing a Mortgagee to submit one bid per growing season
    for recurring lawn maintenance on an oversized lot rather than
    submitting new over-allowable requests each time the yard is mowed;

-   Specific language that excludes normal household cleaning products
    from the definition of hazardous waste;

-   Removal of the requirement for installation of the Reduced Pressure
    Zone (RPZ) device, except in areas where it is a state or local
    requirement;

-   A significant reduction in the number of local variations to general
    policy; and

-   Updates to the Mortgagee appeal procedures that provide additional
    time for Mortgagees to appeal a re-conveyance decision and
    additional time for HUD staff (at both appeal levels) to respond.

Finally, this Mortgagee Letter does not include a schedule of Post
Endorsement Guidelines, Fees and Charges. The Department is currently
researching these fees and intends to issue an update and changes to the
schedule in the near future. Until that time, the post endorsement
provisions of ML 2002-10, *2002 Preservation and Protection Cost
Schedule and Policy Updates/2002 Post Endorsement Guidelines, Fees and
Charges*, still apply.

### Notice of Noncompliance

HUD's Management and Marketing (M&M) Contracts require the M&M
Contractors to report to HUD instances of mortgagee non-compliance with
HUD's conveyance requirements. Examples of noncompliance may include a
Mortgagee's failure to send a Notice of Pending Acquisition in a timely
manner or a Mortgagee's conveyance of an un-boarded property located in
a designated boarding area. The M&M Contractors provide this information
to HUD's Government Technical Representatives (GTRs) on a monthly basis.
HUD aggregates all reports of noncompliance and uses the data to
identify weaknesses in servicing policies and to track mortgagee
compliance with preservation and protection and conveyance requirements.
This information may be used in conjunction with a review of a
Mortgagee's overall servicing performance.

Concurrent with this notification to HUD, the M&M Contractors must send
a written notice of noncompliance to the Mortgagee stating the nature
and date of the noncompliance and provide the FHA case number. No
response is required to such a notice. It is provided so that Mortgagees
are aware of performance issues and can take action to correct similar
problems in the future. If a Mortgagee believes that it has received a
notice that is unwarranted, it may send a letter to the M&M Contractor
refuting the claim(s). The Mortgagee's letter will be included in the
case file and forwarded to the appropriate GTR. M&M Contractors are
required to respond to all mail inquiries received relative to HUD
matters within two business days in accordance with section 5.4.1.1 of
the M&M Contract. Should a Mortgagee believe that an M&M Contractor is
making frequent or consistent errors with respect to notification of
noncompliance; the Mortgagee is encouraged to contact the GTR
responsible for that M&M contract area. A list of GTRs and their
contract areas can be found at:
[www.hud.gov/offices/hsg/sfh/reo/mm/mm_info.cfm.]{.underline}

The information collection requirements contained in this document have
been approved

by the Office of Management and Budget (OMB) under the Paperwork
Reduction Act of 1995

(44 U.S.C. 3501-3520). These collection requirements have been assigned
OMB Control Numbers 2502-0429, 2502-0306, and 2502-0436. In accordance
with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a
person is not required to respond to, a collection of information unless
the collection displays a valid OMB Control Number.

If you have any questions concerning this Mortgagee Letter, please
contact James R. McGee

at (202) 708-0614 extension 2287.

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

Brian D. Montgomery

Assistant Secretary for Housing-

Federal Housing Commissioner

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