**TO: ALL HUD-APPROVED MORTGAGEES**

**SUBJECT: Treble Damages for Failure to Engage in**

> **Loss Mitigation**

The purpose of this Mortgagee Letter is to provide information regarding
the Civil Money Penalty that will result in Treble Damages for a
mortgagee's failure to engage in loss mitigation.

Treble Damages may be assessed when a mortgagee fails to engage in loss
mitigation. On April 26, 2005, the Department published a final rule,
"Treble Damages for Failure to Engage in Loss Mitigation", advising the
industry of this Civil Money Penalty. A copy of the final rule is
available at <http://www.gpoaccess.gov/fr/index.html>.

**[Available Resources to Assist Mortgagees]{.underline}**

HUD's National Servicing Center (NSC) is available to assist mortgagees
in complying with FHA servicing requirements, including loss mitigation
evaluation. The NSC offers Loss Mitigation training to lenders via
scheduled classes throughout the year and participates in joint training
with regional and national industry groups such as the Mortgage Bankers
Association (MBA).

The NSC provides a toll-free telephone line (1-888-297-8685) to provide
assistance regarding FHA's Servicing requirements, including HUD's Loss
Mitigation Program. This assistance is available to mortgagors and
mortgage industry professionals. Information from HUD's National
Servicing Center (NSC) is available via the following website:
<http://www.hud.gov/offices/hsg/sfh/nschome.cfm>.

**[Avoiding Treble Damage Penalty Assessments]{.underline}**

There are three key actions that mortgagees must take to help avoid
assessment of treble damages for failure to engage in loss mitigation.
First, mortgagees must ensure that the loss mitigation evaluations are
completed for all delinquent mortgages before four full monthly
installments are due and unpaid. Second, mortgagees must ensure that the
appropriate action is taken based on these evaluations. Third,
mortgagees must maintain documentation of all initial and subsequent
loss mitigation evaluations and actions taken.

**[Failure to Engage in Loss Mitigation]{.underline}**

Failure to engage in loss mitigation is defined as:

1.  A mortgagee's failure to evaluate a loan for loss mitigation before
    four full monthly mortgage installments are due and unpaid to
    determine which, if any, loss mitigation techniques are appropriate
    (see 24 CFR § 203.605); and/or

2.  A subsequent failure to take appropriate loss mitigation action(s).

Mortgagees must be able to provide documentation of their loss
mitigation evaluations and actions. Mortgagees will be considered to be
in compliance with 24 CFR § 203.501 where plausible loss mitigation
options were offered to eligible borrowers. The Department will not
consider a mortgagee to have "failed to engage in loss mitigation" where
the mortgagee can demonstrate that a borrower was uncooperative or
ineligible.

**[Treble Damages' Assessments]{.underline}**

HUD assesses civil money penalties against approved mortgagees through
the Mortgagee Review Board (the Board) under 24 C.F.R. Parts 25 and 30.
HUD will not assess treble damages for failure to engage in loss
mitigation on any loan where the date of default occurred before

May 26, 2005, the rule's effective date. If it is determined that civil
money penalties for failure to engage in loss mitigation, or other
violations of 24 CFR § 30.35 are warranted, the mortgagee will receive a
notice from the Board. Mortgagees will have 30 days from receipt of any
notice to provide the Board with a written response. If a mortgagee does
not respond, the Board will determine the appropriate action to be
taken, based upon all available information. Mortgagees may appeal Board
determinations to HUD's Office of Administrative Law Judges.

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) and assigned OMB
control numbers 2502-0060, 2502-0523 and 2502-0429. 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 currently valid OMB Control Number.

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

> Sincerely,
>
> Brian D. Montgomery
>
> Assistant Secretary for Housing --
>
> Federal Housing Commissioner