www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 October 13, 1992 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 92-37 TO: ALL APPROVED MORTGAGEES ATTENTION: SINGLE FAMILY SERVICING MANAGERS SUBJECT: Single Family Claims for Insurance Benefits: New Initiatives, System Enhancements and Policy Clarifications This mortgagee letter advises mortgagees of the Single Family Default Monitoring System (SFDMS)/Single Family Claims System interface initiative. Additionally, it provides policy clarifications as well as introduces a claim system enhancement that will reduce the paperwork required to comply with Mortgagee Letter 92-2. HUD is implementing this interface between the SFDMS and the Single Family Claims System to accomplish several goals. It is designed to assist mortgagees in their claims preparation and to ensure better mortgagee compliance with the notification of foreclosure requirements of 24 CFR 203.356. The implementation of this interface will be in phases. Phase 1 is the focus of this issuance. The implementation of Phase 2 will be announced in a future mortgagee letter. Mortgagees should make a concerted effort to reduce careless and avoidable errors in their preparation and submission of claims. In many instances, these errors often trace back to the initial account set up in the mortgagee's database. An error such as an incorrect endorsement date may seem minor, but it will require HUD to suspend processing of the claim until the correct date is determined and the account is reconciled. 1. Single Family Default Monitoring System (SFDMS)/Single Family Claims System Interface (Phase 1) A. The Confirmation Letter On or before November 16, 1992, mortgagees will begin to receive "confirmation letters" where they have reported cases as Status B (foreclosure initiation) to the SFDMS. These confirmation letters serve a dual purpose. They provide an extract from HUD's Insurance in Force (IIF) database for reconciliation purposes and provide an audit trail for mortgagees confirming that the initiation of foreclosure (Status B) was reported to HUD. HUD's first mailing will be for the SFDMS reporting cycles ending July 31, 1992, and August 31, 1992, respectively. A sample confirmation letter is attached. _____________________________________________________________________ 2 Confirmation letters will be sent for all cases where Status B was successfully reported to the SFDMS. Thereafter, confirmation letters will be issued approximately 25 working days following the close of the reporting cycle. At this time, mortgagees will not be provided with a confirmation letter if the account was not properly reported as Status B to the SFDMS. Receipt of a confirmation letter verifies that a specific account was reported to the SFDMS in a specific reporting cycle. It does not confirm that the mortgagee has reported the account timely. A copy of the confirmation letter should be maintained in the claim review file. B. Cases Subject to Notification Requirement Conveyances and non-conveyances (claim types 1 and 6) are subject to the notification requirement under the authority of 24 CFR 203.356. Co-insured cases (claim type 4) have the same requirement under the authority of 24 CFR 204.302. NOTE: Since foreclosure need not be instituted where the mortgagee acquires title by a deed in lieu of foreclosure, the notification requirement does not apply. C. Meeting the Foreclosure Notification Requirement Mortgagees will be considered as meeting the requirement of 24 CFR 203.356 (or 24 CFR 204.302 if the case is co-insured) if Status B is properly reported to the SFDMS for the monthly cycle (or in the following reporting cycle) that the first public action required to initiate foreclosure is taken. See Attachment 2 for example of compliance and non-compliance. D. Date of Interest Curtailment If the case was not properly reported to the SFDMS, interest will be curtailed to a date 30 days from the date of the first public action to foreclose (the date in Block 11a). E. Validation of Key Information If the information reflected on a claim for insurance benefits is incorrect, claim payments may be delayed or curtailed. Your records should agree with the case information provided in the IIF extract shown on the confirmation letter. _____________________________________________________________________ 3 If after careful research you believe that HUD's data is incorrect, you must contact the Single Family Mortgage Credit Branch in the local HUD Office having jurisdiction over the mortgaged property for guidance. A corrected Mortgage Insurance Certificate (MIC) may need to be issued. If so, please follow the outstanding instructions in HUD Handbook 4000.2, Rev-2. If your discrepancies relate only to changes in the mortgagor, holder or servicer, your changes must be made by properly submitting the necessary form(s) HUD 92080 (Mortgage Record Change). 2. New Use for Block 31, Form HUD-27011 Also in Phase 1, mortgagees will notice that the function and identification for Block 31 of Form HUD-27011 has been changed to allow for "self-curtailment". Effective October 1, 1992, the use for Block 31 of Form HUD-27011 will change. There is no longer a need for identifying the date of the appraisal or Conditional Commitment as provided for in Mortgagee Letter 87-20. Block 31 will now be defined as the "Mortgagee Reported Curtailment Date". HUD's automated claim system will not calculate and pay interest beyond the date entered in Block 31. This will allow mortgagees to "self-curtail" themselves rather than filing supplemental claims to return overpayments as instructed in Mortgagee Letter 92-2. With the implementation of this enhancement, mortgagees may use Block 31 to self-curtail for certain situations where the claim system cannot identify a mortgagee's failure to meet a time frame rather than file a supplemental claim as was outlined in Mortgagee Letter 92-2. Situations where this may be necessary include both the reasonable diligence and foreclosure notification requirements of 24 CFR 203.356. Effective October 1, 1992, HUD will fully enforce the notification requirements of 24 CFR 203.356. Where foreclosure was initiated on or after October 1, 1992, and was not reported properly to the SFDMS, mortgagees must complete block 31 to indicate the 30th day following the date foreclosure was instituted (Block 11). (See paragraph 1-D). All resulting overpayment of interest (On both Parts A and B of HUD-27011) will require reimbursement and will be considered as an error on subsequent post claim reviews. 3. Clarification of Existing Policy A. The Correct Date to be entered in Block 104 (Part B) The date that Part B is prepared is the date that should be entered in Block 104. _____________________________________________________________________ 4 This reiterates the procedural change noted in Mortgagee Letter 92-2, dated January 7, 1992. Mortgagees are cautioned not to use this date when determining the date to which debenture interest is calculated if an earlier time requirement has been missed. B. Supplemental Claims - Overpayments If a supplemental claim is being submitted due to an overpayment of the original claim, the mortgagee should provide a copy of the original claim, documentation to explain the reason for the overpayment and the cheek for the overpayment. C. Cramdowns HUD issued Mortgagee Letter 91-27, dated June 4, 1991, concerning HUD's policy regarding "cramdowns". The guidelines provided therein should still be followed except with respect to paragraph (E)(1). The original mortgage amount must be captured for case verification. Therefore, Block 15 of Form HUD-27011 should reflect the original mortgage amount and must not be replaced with the reduced or "crammed down" amount of the secured mortgage. Mortgagees are cautioned that the unpaid principal balance (Block 17) must be equal to or less than the reduced or "crammed down" secured amount resulting from the operation of the court. D. Boarding Mortgagees must provide a copy of the local HUD Office approval for all cases where expenses are being claimed for boarding and the Regional Preservation and Protection guidelines did not specifically authorize boarding for the location of the property. If boarding was authorized for the location of the property, but the cost limit was exceeded, the mortgagee must also furnish a copy of the local HUD Office approval with the claim submission. E. Pre-Foreclosure Claims Mortgagees are reminded that Part B interest must be calculated only to the date of the closing. _____________________________________________________________________ 5 F. Payment of Real Property Taxes Mortgagees shall secure and pay all tax bills prior to conveyance, whether the taxes are due before or after the scheduled date of conveyance. Mortgagees that utilize tax services (or other similar agents) for payment of real property taxes, shall take appropriate action to ensure that their agents are also in compliance with these requirements. Very sincerely yours, Arthur J. Hill Assistant Secretary for Housing -Federal Housing Commissioner Attachments _____________________________________________________________________ Attachment 1 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT P.O. BOX 44807 WASHINGTON, DC 20026 GOODGUY SAVINGS RE: S/F DEFAULT CONFIRMATION DEPARTMENT D P.O. BOX 123456 ANYWHERE, CA 54321 Dear Sir or Madam: MORTGAGEE IDENTIFICATION NUMBER: 12345-00009 SUBJECT: FHA CASE NO. 041-1234567-203 DEFAULT REPORT CONFIRMATION (THE FOLLOWING INFORMATION WAS REPORTED ON THE HUD-92068-A) PROPERTY ADDRESS: 7981 ASH STREET, SUNNY, CA MORTGAGOR NAME: JONES, J T MORTGAGE LOAN NUMBER: This is your confirmation that the subject case was reported as status B, institution of foreclosure, to the Single Family Default Monitoring system (SFDMS) for the reporting cycle ending ()7/92. A copy of this letter must be kept in the claim review file. By regulation (24 CFR 203.356) mortgagees are required to give written notice to the commissioner within 30 days after the institution of foreclosure. HUD considers this requirement met when the case has been properly reported to the SFDMS. HUD will compile the date that foreclosure was instituted to the date the case was reported to the SFDMS to determine compliance. Future claims for insurance benefits will be subject to interest curtailment (to the date the action should have been taken) if status B was not reported timely. If this default should result in a claim for insurance benefits, you may help ensure that payment of your claim is not delayed or curtailed because of unnecessary data errors. All the information below is extracted from HUD's Insurance in Force (IIF) file. Your records should agree with ours. PROPERTY ADDRESS: (FYI ONLY, NO CORRECTION IS REQUIRED) 7981 ASH STREET, SUNNY, CA SECTION OF THE ACT : 203 ENDORSEMENT DATE (MONTH/YEAR) : 11/83 SERVICER NAME : GOODGUY SAVINGS HOLDER NAME : GOODGUY SAVINGS ORIGINAL MORTGAGE AMOUNT : 56,100 INTEREST RATE : 12.00 BEGIN AMORTIZATION DATE (MONTH/YEAR) : 07/83 MORTGAGE TERM (IN MONTHS) : 360 AMORTIZATION PLAN (IF APPLICABLE) : Verify your records with your origination documentation including the Mortgage Insurance Certificate (MIC), and security instruments, etc. If after careful research you discover any discrepancies and believe HUD's data in the IIF is incorrect, you must contact the Single Family Mortgage Credit Branch in the HUD office having jurisdiction over the mortgaged property for guidance. If your discrepancies relate only to changes in the mortgagor, holder of servicer, submit Form HUD-92080 (Mortgage Record Change) Immediately. _____________________________________________________________________ Attachment 2 Reporting Requirement Examples. The following examples are provided to illustrate how HUD will evaluate compliance with this requirement. Example 1. First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 07/31/92 The case was properly reported Example 2. First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 08/31/92 The case was properly reported Example 3. First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 09/30/92 The case was not properly reported and is subject to interest curtailment i _____________________________________________________________________ Example 4. States where foreclosure must be reinitiated after a bankruptcy (Generally non-judicial) First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 08/31/92 Bankruptcy filed : 09/02/92 Bankruptcy released : 10/27/92 Mortgagee must reinitiate foreclosure First Public action to foreclose : 11/24/92 SFDMS Reflects Status B for reporting cycle ending : 12/31/92 The case was properly reported Example 5. States where foreclosure need not be reinitiated after a bankruptcy (Generally judicial) First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 08/31/92 Bankruptcy filed : 09/02/92 Bankruptcy released : 10/27/92 Mortgagee resumes foreclosure 11/09/92 (Since the first foreclosure was not voided by the bankruptcy, there is no need to report Status B again to the SFDMS) The case was properly reported ii _____________________________________________________________________ Example 6. States where foreclosure must be reinitiated after a bankruptcy (Generally nonjudicial) First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 08/31/92 Bankruptcy filed : 09/02/92 Bankruptcy released : 10/27/92 Mortgagee must reinitiate foreclosure First Public action to foreclose : 11/24/92 SFDMS Reflects Status B for reporting cycle ending : 01/31/93 The case was not properly reported and is subject to interest curtailment. Example 7. States where foreclosure need not be reinitiated after a bankruptcy (Generally judicial) First Public action to foreclose : 07/02/92 SFDMS Reflects Status B for reporting cycle ending : 09/30/92 Bankruptcy filed : 09/02/92 Bankruptcy released : 10/27/92 Mortgagee resumes foreclosure 11/09/92 (Since the first foreclosure was not voided by the bankruptcy, Status B must not be reported twice to the SFDMS - reporting Status B again will not correct the non-compliance.) The case was not properly reported and is subject to interest curtailment. iii *U.S. Government Printing Office: 1992 - 342-362/60314