www.hudclips.org 

U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

 
August 14, 1997
 
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
 
Mortgagee Letter 97-38
 
TO:  ALL APPROVED MORTGAGEES
 
SUBJECT:  Home Equity Conversion mortgage (HECM) case Processing:
          System Issues, Coming Enhancements, and Solving
          Roadblocks
 
     In the past few months, FHA has been trying to resolve
issues brought to us by lenders who are having difficultly
processing HECM cases.  HUD Headquarters and Field Office staff,
staff from HUD's Office of Financial Services (OFS), and
contractors involved with the Computerized Homes Underwriting
Management System (CHUMS) and Insurance Accounting Collection
Systems (IACS) have been concentrating on what could be done
quickly to resolve what appear to be roadblocks in processing
cases quickly and efficiently.  We intend for this Mortgagee
Letter to clarify the HUD, lender, and system interactions, so
that action can be taken to move pending HECM cases through to
endorsement as efficiently as possible.
 
     The Department will continue to put forth a concerted effort
to resolve any issues that may prevent cases from being endorsed.
However, we expect lenders to cooperate to the fullest extent to
assure that the backlog of HECM cases is resolved and the cases
are either endorsed or cancelled within the next six months. if
issues on aged cases (closed for more than 6 months) cannot be
resolved by November 30, 1997, a lender's ability to obtain
delayed endorsement may be threatened.  We urge lenders and HUD
Field Office staff to work together to resolve case-specific
issues that are preventing endorsement while we are making system
enhancements that will improve automated case processing.
 
CRITICAL ORIGINATION SYSTEMS: CHUMS, CLAS, IACS, AND FHA CONNECTION
 
     CHUMS is the automation of the FHA Single Family Home
Mortgage Insurance application process from case number
assignment through to endorsement.  At the present time, for HECM
cases, there are two ways to enter data and process cases in this
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system:  1) Data entry by HUD staff, 2) Limited data entry by
lenders through CLAS (CHUMS Lender Access System).  A breakdown
in this data entry function at certain critical points will prevent
further processing of HECM cases because of the CHUMS interface with
IACS.
 
     IACS (formerly known as the CDSI system or HECM system) was
developed to handle the collection of financial data which is
unique to the HECM program because of its nature as a "reverse
mortgage." CHUMS is the system which calculates the initial
upfront mortgage insurance premium (UFMIP) and passes the
information to IACS.  IACS collects the initial UFMIP and
maintains the account balance on HECM loans as payments are made
to the homeowner.  IACS is a system which is independent from
CHUMS, but the two systems need to work together at precise
points in a HECM transaction to work efficiently.  These critical
points will be discussed in this mortgagee letter.
 
     FHA Connection, which is a lender's real-time access to FHA
systems for the purpose of originating loans has just been
established.  While HECM cases cannot now be processed using the
FHA Connection, the systems enhancements which will make this
possible are underway and will be announced as they become
available.  We are working toward making the enhancements which
will improve HECM processing a priority.
 
ORIGINATING A HECM CASE
 
     All lenders are aware that requesting a case number is the
first step in originating a HECM case in CHUMS.  What may not
have been clear is how CHUMS tells the IACS system to open a HECM
case.  For a HUD-processed HECM case, when a case number is
assigned by CHUMS, CHUMS will send a message to IACS which tells
IACS that a new case should be added to IACS "Suspense" status
(status code 01).  For a DE HECM case, this is not true.
Although CHUMS will assign a case number to a DE HECM case, IACS
will not currently accept the case into "Suspense" status until
the appraisal has been entered into CHUMS.  We are in the process
of making a system change to have DE cases treated the same by
IACS as HUD processed cases for the initial "Suspense" status.
 
     We have found that many of the problems experienced by
lenders relating to moving HECM cases through the processing
cycle and/or paying the UFMIP relate to the interface of CHUMS
and IACS revolving around the appraisal.
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     In order for a HECM case to move from "Suspense" status to
"Endorsement Pending" in IACS (status 2), the appraisal must be
entered into CHUMS by the HUD Field Office.  This critical step
affects both HUD-processed and DE HECM cases.  In ML-95-54 , which
announced the HECM DE process, appraisers were advised to submit
the appraisal to the mortgagee instead of directly to the local
HUD Office.  Lenders, in turn, were to transmit the appraisal to
the HUD Office along with form HUD 54111-A (Request for Insurance
Endorsement).  The sooner the appraisal is submitted to the HUD
Office for entry into CHUMS, the sooner a HECM case (DE or HUD
processed) will be established in IACS as "Endorsement Pending."
For a HECM case, it is critical that the appraisal and the HUD
54111-A information be entered into CHUMS as soon as feasible
after the appraisal is completed.  In ML-95-54 , lenders were
advised to submit the HUD 54111-A twice; at the time the
appraisal is submitted to HUD and when the case is submitted for
endorsement.  Neither HUD nor the lender can delay these critical
data entry elements until a case is closed or ready for
endorsement.  It is the appraisal and the borrower information on
the HUD 54111-A, which causes CHUMS to calculate the Maximum
Claim Amount and pass this information on to IACS.  Without
entering this information in CHUMS, no further processing in IACS
is possible for any HECM case: This means, a lender will be
unable to enter any data on the case in IACS or pay the UFMIP and
will receive an error message that says "HECM project status not
found." While lenders may not yet submit appraisal data to CHUMS
electronically, the borrower data on the HUD 54111-A can be
submitted via CLAS by the lender.
 
     We urge any lender who has a HECM case with processing
problems to request a case status on the loan from CHUMS via FHA
Connection or CLAS to determine if the appraisal,has been entered
into CHUMS.  If the appraisal has not been logged into CHUMS, the
lender should immediately submit a copy of the appraisal to the
local HUD Office for entry into CHUMS.  Because this data entry
is critical to the processing of HECM cases, we ask that lenders
flag these appraisals for priority processing by the local
Offices.  We are asking HUD Field Offices to prioritize the
appraisal logging function for HECM cases so that we can begin to
clear the pipeline of these cases.  If a lender submits the HUD
54111-A data via CLAS, the form need not be submitted to the HUD
Office.
 
     To simplify future HECM processing, one of the critical
enhancements we have asked be prioritized for FHA Connection is
to make the appraisal logging function available to lenders.
This enhancement is currently planned to occur in mid-summer.
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DELINQUENT SUBMISSION FOR ENDORSEMENT
 
     The Department is concerned that there are lenders who are
not submitting cases for endorsement within 60 days after
closing.  When cases are not submitted in a timely manner,
situations may arise that cause particular problems for HECMS,
such as the death of a homeowner and the possibility of lengthy
probate proceedings, or the move by a homeowner out of his/her
house.  Such situations may result in the lender not being able
to file a claim if the loan has not been endorsed.  In addition,
lenders which go out of business or sell their unendorsed
portfolios to a new company make it difficult to locate the
needed information to complete endorsement.  When HECM loans are
paid off and have not been endorsed, release of the HUD second
mortgage may become a significant problem.  Prompt submission for
endorsement will help to eliminate these problems and avoid
unnecessary stress on the homeowner's family members and others.
 
     If a case cannot be submitted within 60 days to the HUD
Field Office, the lender must submit an explanation for the
delinquent submission.  In the future, if it appears that there
is a pattern of delinquency, the lender will be referred to the
Office of Lender Activities and Program Compliance to determine
its ability to continue doing business with HUD.
 
RESUBMISSION OF CASES REJECTED FOR ENDORSEMENT
 
     Rejected cases should be corrected and resubmitted to HUD
for endorsement as soon as possible in order to avoid compounding
problems.
 
CASE CANCELLATION
 
     When it has been determined that a rejected case will never
be resubmitted for reconsideration, or a case will not be closed
or endorsed for any reason, the lender should submit a "Case
Cancellation" via CLAS or notify the local HUD field office so
that the case can be cancelled in CHUMS.  Cases are tracked on
monthly reports produced by CHUMS and IACS.  In order to
troubleshoot and monitor problems, HUD and lenders need to know
the active and inactive cases.  Field Offices should not cancel
aged cases without attempting to discuss the case with the
lender; however, if the lender fails to respond to requests for
status information within 14 days, Field Offices may proceed with
cancellation.
 
     Case cancellation will become available to lenders via FHA
Connection in mid-summer.
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MIP REFUNDS
 
     Please refer to HUD Handbook 4235.1 REV-1  Chapter 13.  To
confirm whether or not a MIP refund has been processed on an
individual case, lenders may access the MI 14 screen on the IACS
system and the Field Offices can access CHUMS.
 
MAXIMUM MORTGAGE LIMITS
 
     In CHUMS, mortgage limits are linked to counties by zip
codes.  Some counties cross zip code lines which can cause
variation in the maximum mortgage limit for individual
properties.  If an error message occurs on an individual case
because of zip code/county mismatch, contact your local HUD Field
Office.
 
     It is important for lenders to work closely with the local
HUD Field Office or the appropriate Homeownership Center to
resolve issues with HECM cases in a timely manner.
 
DOCUMENTATION REQUIREMENTS - CLARIFICATION
 
     In Mortgagee Letter 97-15 , Attachment 5 listed documents to
be submitted by DE lenders in the case binder for HECMS.  In
response to comments received, we are attaching, as Attachment 1,
a revised list, which provides clarification about some
documents, eliminates some duplication, and numbers the items.
Of particular note is the information related to acceptability of
certified copies of the first and second Security Instruments in
lieu of originals for endorsement.
 
     Also in Mortgagee Letter 97-15 , Attachment 4 provided
information about changes to the HECM legal documents.  A
correction should be made in Item 7, "Appendix 7 - HECM Loan
Agreement, "to delete the first three words, "sum of the," in the
amended language.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner
 
Attachment
                                             ATTACHMENT 1
 
PDF FILE OF ATTACHMENT 1 - THE REVISED FHA CASE BINDER FOR
HOME EQUITY CONVERSION MORTGAGES (For Direct Endorsement Cases
ONLY) HERE.