The following scenarios include typical situations that result in unreconciled cases that will appear on the Reconciliation file, available to all lenders between the 15th and 17th day of each month. Accessing and comparing the Portfolio file against your records will help resolve many of these errors. The scenarios are shown with the data provided in a sample report layout. Your exception reporting process may differ from the sample shown here. However, the problems and action required for resolution will be the same.
Reconciliation File/Sample Report Field Descriptions
- Amount Due: Amount billed for the current month.
- Current Charges: Monthly premium, late, and interest assessed for that month.
- Paid/Applied: All payments, refunds, adjustments, and debit vouchers that occurred between the two billing cycles (15th and 15th).
- Past Billed: Amount billed the previous month.
- Unapplied Before Current Bill: Overpayment amount on the case prior to billing.
M02 Delinquent
A case with an M02 error code in the Reconciliation report file indicates a delinquency (underpayment). Below are some reasons the delinquency may have occurred and the action to be taken.
Reason 1: Payment Remitted for an Incorrect Case Number
Situation: We made a $45.00 payment for case 200-2000002 on June 9, but $20.00 of that payment should have been remitted for case 211-1111111. This caused an overpayment for case 200-2000002 and an underpayment for case 211-1111111. We are the servicer for both cases. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 211-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M01 | 200-2000002 | Past Billed (due 6/1) | 25.00 | 0.00 | 0.00 | 25.00 |
| Current Charges | 25.00 | 0.00 | 0.00 | 25.00 | ||
| Paid/Applied | 45.00 | 0.00 | 0.00 | 45.00 | ||
| Amount Due (7/1) | 5.00 | 0.00 | 0.00 | 5.00 | ||
| Unapplied Before Current Bill | 20.00 |
The $20.00 overage (Unapplied Before Current Bill) for case 200-2000002 was applied to the bill due July 1.
Lender Action:
- If necessary, determine the correct case number by reviewing the Mortgage Insurance Certificate and/or contacting the HUD Homeownership Center (HOC).
- Remit the shortage amount for case 211-1111111.
- We are responsible for the late fee assessed on case 211-1111111.
- Update our records to allow for the correct remittance in following months.
- Remit $5.00 for case 200-2000002 for June's bill, and thereafter continue making monthly payments of $25.00.
Notes:
- If we remit $20.00 for case 211-1111111 before July 1, interest will not be assessed on the $20.00 amount due June 1.
- If we remit $40.80 for case 211-1111111 before July 15, the case will not appear in the Reconciliation file for July 17 since there is no outstanding balance. However, interest will accrue on $20.00 and be billed on July's bill.
Reason 2: Loan Has Two FHA Case Numbers
Situation: We refinanced a loan, and we submitted it as a purchase. Because of this, the insurance on the old loan (case number 311-1111111) was not terminated. We did not remit a payment for case number 311-1111111. Since case number 311-1111111 appears on the Reconciliation file, the loan has not been terminated by HUD. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 311-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Check our portfolio for the case number.
(a) If the case shows a termination status, the information will be available in HUD's billing system (SFPCS Periodic) and reflected in next month's billing cycle. (b) If the case shows an active status, contact our Upfront Premium Lender Representative.
- Update our records for the terminated insurance on the loan.
Note: Once the termination is processed, HUD removes the charges for the period(s) after the termination date. The case will not be billed the next month if the termination is processed before the first day of the next month.
Reason 3: Duplication of an FHA Case Number - Two Loans with Same FHA Case Number
Situation: Our records show two loans for the same FHA case number, 511-111111. As a result, we remitted two payments for this case number on June 9. Upon further investigation, we discovered that one of the loans is actually case number 411-1111111. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 411-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M01 | 511-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.00 | 0.00 | 20.00 | ||
| Paid/Applied | 40.00 | 0.00 | 0.00 | 40.00 | ||
| Amount Due (7/1) | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Unapplied Before Current Bill | 20.00 |
Lender Action:
- If necessary, determine the correct case number by reviewing the Mortgage Insurance Certificate and/or contacting the HUD Homeownership Center (HOC).
- Remit the amount due for case 411-1111111.
- We are responsible for the late fee assessed on case 411-1111111.
- Update our records to allow for the correct remittance in following months.
Notes:
- If we remit $20.00 (balance due) for case 411-1111111 before July 1, interest will not be assessed on that amount.
- If we remit $40.80 for case 411-1111111 before July 15, this case will not appear in the Reconciliation file for July 17 since there is no outstanding balance. However, interest will accrue on $20.00 and be billed on July's bill.
Reason 4: Insurance on the Case Was Terminated
Situation: We did not remit a payment on the case listed below because the insurance for this loan has been terminated. Since the case appears in the Reconciliation file, the case insurance must not be terminated in HUD's records. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 611-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Submit Notice of Termination to HUD using EDI or the FHA Connection.
- If we already sent Notice of Termination, check the case number in the Portfolio file to verify the status of the case
(a) If the case has a termination status, the information was not received by HUD's billing system (SFPCS Periodic) before the current billing cycle. Wait for the next bill. (b) If the case still has an active status, the termination has not been processed. Contact our HUD Data Quality Lender Representative.
Note: Once the termination is processed, HUD removes the charges for the period(s) after the termination date. The case will no longer appear in the monthly Reconciliation file.
Reason 5: Case Was Sold
Situation: We sold the case to another lender in May. The new lender has not paid the premium for the case. HUD has not received the servicing transfer information. Because we are the servicer on record for this loan, it appears in our Reconciliation file for June 17.
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 711-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Review our portfolio file to determine the current servicer on record for the loan. If the case number appears in our portfolio, we are the current servicer or record. If it does not appear in our portfolio, we are not the current servicer on record; use EDI or the FHA Connection to record the servicer transfer or request the buyer do so.
- Update our records, if necessary.
- Contact the buyer and ask them to make the payment, including the late fee.
Notes:
- The buyer is responsible for premium, late, and interest.
- After servicer transfer is processed, the case will not appear in the monthly Reconciliation file.
Reason 6: Wrong Payment Amount Causing Shortage
Situation A: A typographical error was made when entering the payment amount for case number 811-1111111. We remitted a payment amount on June 9 that should have been $20.00, but was $2.00. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 811-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.72 | 0.00 | 20.72 | ||
| Paid/Applied | 2.00 | 0.00 | 0.00 | 2.00 | ||
| Amount Due (7/1) | 38.00 | 0.72 | 0.00 | 38.72 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Remit the shortage amount immediately.
- We are responsible for the late fee.
- Update our records to allow for the correct remittance in following months.
Notes:
- If we remit $18.00 (balance due) before July 1, interest will not be assessed on that amount.
- If we remit $38.72 before July 15, this case will not appear in the Reconciliation file for July 17 since there is no outstanding balance. However, interest will accrue on $18.00 and be billed on July's bill.
Situation B: Oops! We remitted our usual monthly payment of $20.00 on July 8 and failed to include the $18.72 shortage. Interest was assessed on the balance of the payment due June 1 ($18.00). As a result, this case appears in the Reconciliation file for July 17.
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 811-1111111 | Past Billed (due 7/1) |
38.00 | 0.72 | 0.00 | 38.72 |
| Current Charges | 20.00 | 0.00 | 0.07 | 20.07 | ||
| Paid/Applied | 19.28 | 0.72 | 0.00 | 20.00 | ||
| Amount Due (8/1) | 38.72 | 0.00 | 0.07 | 38.79 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Remit the shortage amount immediately.
- We are responsible for the interest accrued.
Reason 7: Missed Payment
Situation: Due to an oversight, we did not remit payment for case 911-1111111. The June 17 Reconciliation file shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 911-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Remit the missed payment immediately.
- Update our records to allow for the correct remittance in following months.
- We are responsible for the late fee.
Notes:
- We can request a penalty adjustment if the reason for the missed payment meets HUD's criteria.
- If we remit $20.00 (balance due) before July 1, interest will not be assessed on that amount.
- If we remit $40.80 before July 15, this case will not appear in the Reconciliation file for July 17 since there is no outstanding balance. However, interest will accrue on $20.00 and be billed on July's bill.
Reason 8: Discrepancy in Premium Calculation Causing Shortage
Situation A: We compared our records against the Portfolio and Reconciliation files and discovered that we have an incorrect loan to value ratio which caused an error in our premium calculation. Our premium calculation is $19.00 and HUD's premium calculation is $20.00. We remitted a $19.00 payment on June 9. The June 17 Reconciliation file shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 100-1111111 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.04 | 0.00 | 20.04 | ||
| Paid/Applied | 19.00 | 0.00 | 0.00 | 19.00 | ||
| Amount Due (7/1) | 21.00 | 0.04 | 0.00 | 21.04 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Review the loan documentation (HUD-1 Settlement Statement, Mortgage Note, etc.).
- Remit the shortage amount immediately.
- Update our records to allow for the correct remittance in following months.
- We are responsible for the late fee.
Notes:
- If we remit $1.00 (balance due) before July 1, interest will not be assessed on that amount.
- If we remit $21.04 before July 15, this case will not appear in the Reconciliation file for July 17 since there is no outstanding balance. However, interest will accrue on $1.00 and be billed on July's bill.
Situation B: We compared our records against the Portfolio and Reconciliation files and discovered that HUD has an incorrect original mortgage amount which caused an error in their premium calculation. Our premium calculation is $17.00 and HUD's premium calculation is $20.00. We remitted a $17.00 payment on June 9. The June 17 Reconciliation file shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 100-2222222 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.12 | 0.00 | 20.12 | ||
| Paid/Applied | 17.00 | 0.00 | 0.00 | 17.00 | ||
| Amount Due (7/1) | 23.00 | 0.12 | 0.00 | 23.12 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
- Review the loan documentation (HUD-1 Settlement Statement , Mortgage Note, etc.).
- Send HUD-1 Settlement Statement and the Mortgage Note to the Homeownership Center (HOC) in our area and request that their records be corrected.
- Continue remitting payments based on our premium calculation.
-or-
Remit payments based on HUD's premium calculation (i.e., billed amount) until HUD's records are corrected. When HUD's records are corrected, apply the overage to future bill(s) or request a refund or reallocation.
Note: When HUD's records are corrected, proper adjustments will be made to the bill to remove penalty charges. If HUD's records are not corrected by July 1, and we continue to make the $17.00 monthly premium payment, this case will appear in the Reconciliation file for July 17 with a M02 discrepancy type (i.e., shortage).
Reason 9: Discrepancy in First Payment Due Date
Situation: We compared our records against the Portfolio and Reconciliation files and discovered that for case 110-1101101, our first payment due date (Begin Amort Date) is July 1, while HUD's due date is June 1. As a result, the case was billed $20.00 for premium due June 1. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 110-1101101 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
Review the loan documentation.
If our records are incorrect:
- Remit payment immediately.
- Update our records to reflect the correct date.
- We are responsible for the late fee.
If HUD's records are incorrect:
- Send a copy of the Mortgage Note to the Homeownership Center (HOC) in our area and request a correction.
- Remit the Current Charges amount before July 10. If we pay the late fee, we can ask for a refund or reallocation after a penalty adjustment is made or leave the overage on the case and apply it to the next bill.
Note: If HUD's records are incorrect and are not updated by July 1, this case will appear in the Reconciliation file for July 17 with a M02 discrepancy type.
Reason 10: Discrepancy in Type of Loan (Section of the Act)
Situation: We compared our records against the Portfolio and Reconciliation files and discovered that HUD has case 220-2202202 recorded as a Risk-based loan, and we have it recorded as a Section 222 loan. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 220-2202202 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
Review the loan documentation.
If our records are incorrect:
- Update our records to show the correct type of loan (Section of the Act).
- Remit payment immediately.
- We are responsible for the late fee.
If HUD's records are incorrect:
- Send a copy of the Mortgage Note to the Homeownership Center (HOC) in our area and request that they correct their records.
- If we have ever made payments on the case, request a refund or reallocation.
Notes:
- If HUD's records are incorrect and not updated by July 1, the case will appear in the Reconciliation file for July 17 with an M02 discrepancy type (i.e., shortage).
- When HUD makes the correction to their records, the charges to the case are removed.
Reason 11: Discrepancy in the Exempt Status
Situation: We compared our records against the Portfolio and Reconciliation files and discovered that for case 330-3303303, there is a discrepancy in the exempt status. Our records indicate that this loan is exempt and HUD's records indicate it is not exempt. The Reconciliation file for June 17 shows the following:
| Error | Case Number | Billing and Payment(s) | Premium | Late | Interest | Total |
|---|---|---|---|---|---|---|
| M02 | 330-3303303 | Past Billed (due 6/1) | 20.00 | 0.00 | 0.00 | 20.00 |
| Current Charges | 20.00 | 0.80 | 0.00 | 20.80 | ||
| Paid/Applied | 0.00 | 0.00 | 0.00 | 0.00 | ||
| Amount Due (7/1) | 40.00 | 0.80 | 0.00 | 40.80 | ||
| Unapplied Before Current Bill | 0.00 |
Lender Action:
Review the loan documentation.
If our records are incorrect:
- Update our records to show the correct status.
- Remit payment immediately.
- We are responsible for the late fee.
If HUD's records are incorrect:
- For streamline refinances exempt from the Risk-based premium program:
(a) Verify the original loan closing prior to July 1, 1991 by submitting the original case number and one of the following from the original loan: HUD-1 Settlement Statement, Mortgage Note, Mortgage Insurance Certificate, Deed of Trust, or Schedule B from the Title Insurance policy of the new loan which reflects the date of the original loan (b) Verify that the refinanced loan closed on or after April 2, 1992 with no cash back to the borrower (except for minor adjustments at closing not to exceed $250) by submitting the HUD-1 Settlement Statement for the new refinanced loan. - For 15-year loans (a) exempt from Risk- based premium program, (b) closed on or after December 26, 1992, and (c) having a LTV ratio < 90%, submit the following: Mortgage Insurance Certificate or the first page of the Mortgage Note, and HUD-1 Settlement Statement.
- Submit the documentation and request for correction to the Homeownership Center (HOC).
- If we have ever made payments on the case request a refund or reallocation.
Notes:
- If HUD's records are incorrect and not updated by July 1, the case will appear in the Reconciliation file for July 17 with an M02 discrepancy type.
- When HUD makes the correction, the charges to the case are removed.
See also Reconciliation Discrepancy Types, Discrepancy Type: M02 Delinquent.