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

+-----------------------------+----------------------------------------+
|                             |                                        |
+-----------------------------+----------------------------------------+
| **Special Attention of:**   | **Notice 2004 - 10**                   |
|                             |                                        |
| Director, National          | **Issued: July 12, 2004**              |
| Servicing Center            |                                        |
|                             | **Expires: July 31, 2005**             |
| Deputy Director, National   |                                        |
| Servicing Center Directors, | **\_\_\_\_\_                           |
| Homeownership Centers       | \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ |
|                             | \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_** |
| Deputy Directors,           |                                        |
| Homeownership Centers       | **Cross References:**                  |
|                             |                                        |
| Regional Directors          |                                        |
|                             |                                        |
| Deputy Regional Directors   |                                        |
+-----------------------------+----------------------------------------+

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

# 

# Subject: Secretary-Held Mortgages -- The Interest Rate Reduction Program

> The purpose of this Housing Notice is to reiterate the Department's
> policy concerning reduction of interest rates on Secretary-held
> mortgages. The Department is continuing its policy to reduce interest
> rates on certain Secretary-held single-family mortgages (SHMs) in
> order to prevent foreclosure. By lowering interest rates, HUD will
> lower the monthly payment due on these mortgages. Lower monthly
> payments will allow more borrowers to achieve debt-free homeownership
> and keep their homes. Also, the Department will not incur the costs
> and losses resulting from foreclosure acquisition and resale.

The Department has procured the services of a contractor to service the
Secretary-held mortgages now held by the Department. The National
Servicing Center (NSC) is the principal contact point for issues
relating to Secretary-held mortgages as well as insured servicing
matters.

Before the SHM servicing was contracted out, field offices with
single-family functions had the authority to review their Secretary-held
portfolio and make decisions when appropriate on using the interest rate
reduction program to avoid foreclosure. Now, the contractor, with
oversight by NSC, will conduct an analysis of the mortgage in question
to determine whether that mortgage qualifies for an interest rate
reduction and, if so, calculate the appropriate amount of the interest
rate reduction. The contractor will then provide this information to the
NSC, who will either accept or reject the recommendation. The following
criteria must be met in order for a homeowner to be considered for an
interest rate reduction on their Secretary-held mortgage:

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

HSIP Distribution: W-3-1, W-2(H), W-3(A) (H) (OGC) (ZAS), W-4(H), R-1,
R-2, R-3, R-3-1, R-3-2, R-3-3, R-6, R-6-1, R-6-2, R-7, R-7-1, R-8

1.  The mortgage must be in danger of foreclosure. The contractor will
    analyze all mortgages (except bulk mortgages) prior to sending the
    Notice of Intent to Foreclose.

2.  The lower market-level interest rate would enable the mortgagor to
    make the full monthly payments within the terms of the mortgage.

The analysis to determine if the lower market-level interest rate would
enable the mortgagor to make the full monthly payments and amortize all
mortgage debt (including any accumulated delinquency) within the terms
of the mortgage, extended up to 10 years, if necessary consists of the
following steps:

-   The contractor shall obtain the modification interest rate by
    referencing the Federal Reserve Statistical Release H.15 (519),
    which the Federal Reserve publishes daily. The contractor shall use
    a rate that allows the mortgagor the ability to repay the debt based
    upon the mortgagor's financials.

    -   Using software designed by HUD for interest rate reduction
        calculation, or similar software provided by the contractor, the
        contractor will calculate a new principal balance that includes
        all interest bearing items, such as tax advances or other
        advances and any non-interest bearing items, such as delinquent
        interest and delinquent escrow, including any delinquency. The
        software shall add these items to the unpaid principal balance
        of the mortgage when making the calculations.

    -   The contractor shall review the mortgagor\'s current financial
        information

> form, verification of employment form, and credit report to determine
> the mortgagor\'s current income and expenses. If any of these
> documents are over three months old, the contractor shall obtain new
> data. The contractor shall calculate the maximum monthly payment that
> the mortgagor is able to pay.

The contractor will prepare a memorandum to the NSC recommending a
modification of the mortgage interest rate within 10 days of
determination. This request shall include an estimated amortization
schedule of the loan under a modification agreement. If the request is
acceptable, the NSC will send a conditional approval of the modification
to the contractor, by e-mail, which will be valid for 30 calendar days.
A copy of the e-mailed approval will be made a part of the case file.
The approval will contain:

-   The estimated new principal balance;

-   The estimated non-interest-bearing delinquency;

-   The estimated new interest rate;

-   The estimated new monthly payment; and

-   The estimated new term.

Before the mortgagors sign the modification documents, the contractor
shall fill in the exact amounts as of the date of mortgagors' signature,
as calculated by the computer software developed for the Interest Rate
Reduction Program. If any tax advances or other advances have been made
since the conditional approval, the contractor shall add this
interest-bearing debt to the unpaid principal balance of the mortgage
when making the calculation.

Number range level2Upon receipt of the conditional approval, the
contractor shall obtain a title report on the property. The cost of the
title report will be paid by the contractor and is a reimbursable item.
If there are one or more subordinate liens on the property, the
contractor shall notify the subordinate lien holder(s) of HUD's intent
to modify its mortgage, and request that the subordinate lien holder(s)
agree to remain subordinate to HUD's primary lien position. Depending on
the state, it may be necessary for the contractor to obtain and record a
subordination agreement signed by the subordinate lien holder(s). If a
subordination agreement is not required, then the contractor shall take
whatever steps are necessary to ensure that HUD maintains its first lien
position.

If the subordinate lien holder(s) will not agree to sign the
subordination agreement or other documents (depending on the state
requirements), the contractor shall not modify the HUD mortgage.

If the title report shows no secondary lien on the property, or if the
subordinate lien holder(s) agrees not to challenge the Department\'s
primary lien position, then the contractor shall prepare the legal
documents necessary to modify the mortgage, using the sample Mortgage
Modification Agreement attached to this Notice (Exhibit 1). The
contractor shall review the modification documents to ensure compliance
with state law.

All available owners of record (except those who are deceased,
incompetent, or un-locatable) must sign the modification within 15
business days after the modification documents are prepared. If all
available mortgagors sign the modification, then the contractor will
modify the mortgage.

The contractor shall sign the modification documents on behalf of the
Department.

(A Power of Attorney is on file authorizing the contractor to act on the
Department's behalf).

The contractor shall immediately record the signed original mortgage
modification documents, and notify the NSC, via e-mail, within five
business days of execution. The contractor shall implement the
modifications in an accounting system to be specified and approved by
HUD, and enter a code in this system which will identify the modified
account for future monitoring. The recording fee paid by the contractor
to record the modification documents is a reimbursable item.

If the mortgage previously carried a service charge, the contractor
shall waive that charge at the point of entering the modification in
HUD's Accounting System, for the duration of the mortgage, effective on
the date of interest rate reduction.

The contractor shall modify eligible mortgages only once. If the
mortgage is an adjustable-rate mortgage or a graduated-payment mortgage,
the contractor shall inform the mortgagor, in writing, that the interest
rate reduction will convert the mortgage to a fixed-rate mortgage.

The contractor may resubmit modification recommendations that the NSC
has previously rejected, if the grounds for rejection have changed.

If you have questions concerning this Housing Notice, please contact the
NSC (toll-free) at (888) 297-8685. All inquiries from mortgagors
concerning FHA-insured loans are to be referred first to the lender
servicing the loan and then to the NSC.

> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> John C. Weicher
>
> Assistant Secretary for Housing-
>
> Federal Housing Commissioner

Attachment

Exhibit 1

SAMPLE MODIFICATION AGREEMENT

This agreement is made this \_\_\_\_\_\_\_ day of
\_\_\_\_\_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_\_, between the United States
of America, acting by and through the Secretary of the Department of
Housing and Urban Development (HUD), herein referred to as the
Mortgagee, and borrower(s), herein referred to as the Mortgagor(s), for
property located at city, county, state, Zip Code.

THE PARTIES RECITE AND DECLARE THAT:

A.  The Mortgagee is the holder of a certain Note conditioned for the
    payment of amount of ORIGINAL Promissory Note -- written out Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_) made by the
    Mortgagor(s) on the date ORIGINAL note executed, and due on maturity
    date of ORIGINAL note.

B.  Such note is secured by a Mortgage/Deed of Trust, recorded on date
    in Boob/Roll/Instrument \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
    Page/Image/Number \_\_\_\_\_\_ of \_\_\_\_\_\_\_\_\_\_\_\_, in the
    office of the
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
    which Mortgage/Deed of Trust is now a lien on the premises
    identified above, legally described as follows:

Legal description of property

C.  On such Note and Mortgage/Deed of Trust, there is now owing the sum
    of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars (\$
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_) principal, with interest thereon at
    the rate of original interest rate percent (\_\_\_\_\_\_\_\_\_\_\_%)
    per annum, from date of ORIGINAL note executed.

D.  The Mortgagor(s) is/are now the owner(s) and holder(s) of such
    premises, on which such Mortgage/Deed of Trust is a valid lien in
    the amount of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_) principal, with interest thereon
    at the rate of original interest rates percent
    (\_\_\_\_\_\_\_\_\_\_%) per annum, and there are no defenses or
    offsets to the Mortgage/Deed of Trust, or to the debt it secures.

E.  On such Note and Mortgage/Deed of Trust, there are now owing the
    following interest-bearing delinquencies:

    1.  Tax advances: \_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
        (\$\_\_\_\_\_\_\_\_\_\_\_\_);

    2.  Other advances: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
        (\$\_\_\_\_\_\_\_\_\_\_\_\_);

> The total interest-bearing delinquency is
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars (\$\_\_\_\_\_\_\_\_\_\_\_\_\_).

F.  On such Note and Mortgage/Deed of Trust, there are now owing the

> following non-interest-bearing delinquencies:

1.  Interest on tax advances:\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_);

2.  Interest on other advances: \_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_);

3.  Escrow: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_);

4.  Service charge: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_);

5.  Returned check fee: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_);

6.  Interest: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_).

The total non-interest-bearing delinquency is
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
(\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_). The
Mortgagee will credit the Mortgagor's monthly payment to this
non-interest-bearing delinquency until it has been paid off, before
applying the Mortgagor's monthly payments to principal and interest.

FOR THE REASONS SET FORTH ABOVE AND IN CONSIDERATION OF THE MUTUAL
COVENANTS AND PROMISES OF THE PARTIES HERETO, MORTGAGOR(S) AND MORTGAGEE
COVENANT AND AGREE AS FOLLOWS:

1.  The foregoing recitals are hereby incorporated herein and made a
    part hereof by this reference.

2.  MODIFICATION OF PRINCIPAL BALANCE: The Mortgagee does hereby modify
    the principal balance due on the Note and Mortgage/Deed of Trust to
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_). This new principal balance
    includes the following amounts designated as interest-bearing
    delinquencies in paragraph E above:

    a.  Tax advances: \_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
        (\$\_\_\_\_\_\_\_\_\_\_\_\_\_);

    b.  Other advances: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_Dollars (\$
        \_\_\_\_\_\_\_\_\_\_\_\_\_).

3.  PAYMENT OF NON-INTEREST-BEARING DELINQUENCY: On the Note and
    Mortgage/Deed of Trust, there is now owing the non-interest-bearing
    delinquency of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_). The Mortgagee will credit
    the Mortgagor's monthly payment to this non-interest-bearing
    delinquency until it has been paid off, before applying the
    Mortgagor's monthly payments to principal and interest.

4.  MODIFICATION OF INTEREST RATE AND CONTINUING ACCRUAL OF INTEREST:
    The Mortgagee does hereby modify the interest rate on the Note and
    Mortgage/Deed of Trust to \_\_\_\_\_\_\_\_\_\_\_ percent
    (\_\_\_\_\_\_\_\_%) per annum, from the first day of the month
    following the date of execution of this Modification.

> Interest on the modified principal balance will continue to accrue at
> the modified interest rate during the time that the Mortgagor pays off
> the non-interest-bearing delinquency listed in the preceding
> paragraph. The Mortgagor's must pay off this accrued interest before
> the Mortgagee will apply the Mortgagor's monthly payments to
> principal.
>
> If the mortgage was originally an adjustable-rate mortgage (ARM) or a
> graduated-payment mortgage (GPM), the mortgage is now converted to a
> fixed-rate mortgage.

5.  MODIFICATION OF MONTHLY PAYMENT: The Mortgagee does hereby modify
    the monthly payment due on the Note and Mortgage/Deed of Trust to
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Dollars
    (\$\_\_\_\_\_\_\_\_\_\_\_\_). The Mortgagor may pay any amount in
    addition to the monthly payment at any time without penalty. The
    Mortgagee will credit the Mortgagor's monthly payment, and any
    additional payment, to any outstanding non-interest-bearing
    delinquency until such delinquency has been paid off, before
    applying the Mortgagor's monthly payments, and any additional
    payments, to principal and interest.

6.  MODIFICATION OF MATURITY DATE: The Mortgagee does hereby modify the
    time of payment of the principal indebtedness secured by the Note
    and Mortgage/Deed of Trust to the first day of (new maturity date).

7.  PRINCIPAL AND INTEREST PAYMENTS: Mortgagor(s), in consideration of
    the above modification, and other valuable consideration, the
    receipt of which is hereby acknowledged, shall pay the principal sum
    and other terms of the Note and Mortgage/Deed of Trust, except as
    expressly modified herein.

8.  TERM AND PROVISIONS: When the terms and provisions in the Note and
    Mortgage/Deed of Trust in any way conflict with the terms and
    provision herein, the terms and provisions herein shall prevail. The
    original Note and Mortgage/Deed of Trust is hereby ratified and
    confirmed. The failure or omission of either party to exercise, in
    one or more instances, any option given herein, or in the original
    Note and Mortgage/Deed of Trust, shall not be construed as a waiver
    or relinquishment of right to such option in the case of any other
    default, but the right to such further option shall remain in full
    force and effect.

9.  BINDING EFFECT OF AGREEMENT: The Agreement shall be binding on the
    heirs, executors, administrations, successors and assigns of the
    respective parties.

IN WITNESS WHEREOF, the parties execute this Agreement this
\_\_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_\_\_, at (city), (county), (state).

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

Mortgagor

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

Mortgagor

FOR THE UNITED STATES OF AMERICA, ACTING BY AND THROUGH THE SECRETARY OF
HOUSING AND URBAN DEVELOPMENT,

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Director of Housing Management

HUD
Office:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

STATE OF \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_)

COUNTY OF \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_)

On this \_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_\_\_\_\_, before me, the undersigned, a Notary Public in and
for the above State and County, personally appeared Mortgagor(s) whose
signature(s) is/are affixed above, personally known to me to be the
identical person(s) who executed the above and foregoing instrument as
Mortgagor(s), and Director of Housing Management, authorized signatory
of the Department of Housing and Urban Development, and they have
acknowledged the said instrument and the execution thereof to be their
voluntary act and deed for the purpose therein expressed.

IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my seal as
of the day and date above written.

SEAL:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Notary Public

Approved as to form and content:

DATE:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

By:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

SAMPLE LETTER TO SECONDARY LIENHOLDER

(Send two copies)

Dear Subordinate Lienholder:

A search of the records reveals that you hold a subordinate lien on the
property of

(insert name of mortgagor) located at (insert address). The Department
of Housing and Urban Development (HUD) holds the first lien on this
property. HUD is considering modifying its mortgage to lower the
interest rate and extend the term of the mortgage. This modification
will make it possible for the mortgagor to pay his or her monthly first
mortgage payment, as well as other expenses.

The Department will modify its first lien only if you agree not to
challenge HUD's first lien position on the grounds that the modification
may affect your interest in the property. In fact, because the
modification will lower the mortgagor's monthly first mortgage payment,
the mortgagor will be able to pay other monthly expenses, including the
amount owing on the secondary lien.

If you agree not to challenge the Department's first lien position on
the grounds that the modification may affect your interest in the
property, please sign and date the enclosed copy of this letter, and
return it to HUD in the enclosed postage-paid envelope as soon as
possible.

If you have questions, please contact
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ at the following
(address & telephone number). Thank you for your prompt attention to
this matter.

Sincerely,

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

Enclosures