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 2 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. 3 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. 4 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. 5 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.