www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 April 3, 1990 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 90-11 TO: ALL APPROVED MORTGAGEES ATTENTION: Servicing Managers (Single Family) SUBJECT: Automatic assignment of mortgages pursuant to Section 221 (g)(4) of the National Housing Act - NEW Procedures Pursuant to Section 221 (g)(4) of the National Housing Act, as amended, mortgagees have the option to assign (transfer) FHA Section 221 (g)(4) mortgages to HUD when such mortgages are not in default at the expiration of the twentieth anniversary of the date the mortgage was endorsed for insurance. Mortgagees have one year from this anniversary date to simultaneously file for record a mortgage assignment and submit a single family insurance claim. No extension of time will be granted for exercising this option. Mortgages which are ineligible for this option are: 1) those where a commitment was issued on or after December 1, 1983; and 2) where GNMA was or is the holding mortgagee on or after April 1, 1984. (See 24 CFR 221.255, and the Federal Register, Volume 49, No. 98, May 18, 1984, Rules and Regulations, page 21048 ) . This Mortgagee Letter supercedes Mortgagee Letter 84-5, dated March 16, 1984, and Mortgagee Letter 86-19, dated September 26, 1986. It prescribes new procedures For processing an assignment of a 221 (g)(4) mortgage and submitting the Single Family Application for Insurance Benefits, Form HUD-27011 (claim). Mortgagees shall discontinue sending HUD the Notice of Intent to Assign 221 (g)(4) mortgages. NEW PROCEDURES Mortgagees who exercise this option must complete the following actions prior to the (expected) filing date which is the date that the mortgagee simultaneously files the mortgage assignment in the Secretary's name with the local recording authority and submits the claim to HUD: 1. Send Attachment 1 to the mortgagor at least sixty days prior to the filing date. See Attachment 1. _____________________________________________________________________ 2 2. Send Attachment 2 to the mortgagor confirming that the mortgage will be assigned to HUD. Attachment 2 must be sent by the earliest of the following two dates: at least 15 days prior to the filing date or at least 15 days prior to the first mortgage payment due HUD which will occur after the filing date. See Attachment 2. 3. Notify, at least 15 days prior to the filing date, all third parties, such as, taxing authorities and the insurance carriers for the hazard, flood, life, health and disability coverage, that the mortgagor will be responsible for the payment of tax bills and insurance premiums. HUD WILL NOT ESCROW FOR ANY ITEM FOR A 221 (g)(4) mortgage. HUD requires the mortgagor to have adequate hazard and flood insurance coverage even though HUD does not escrow for the premium, therefore, to assure that the initial coverage is in effect the mortgagee must follow these specific instructions: A. DO NOT CANCEL THE HAZARD OR FLOOD INSURANCE CONTRACT UNDER ANY CIRCUMSTANCE. B. Instruct the hazard and flood insurance carrier to substitute as the beneficiary in the mortgagee clause the following: "Secretary of Housing and Urban Development, his successors and assigns, in care of (insert the name and address of local HUD Office)". C. Ensure that the hazard or flood insurance contract will be in effect for a period of at least 90 days beyond the filing date. If less than 90 days the mortgagee must contact the insurance carrier and request a renewal of the insurance contract. See 3 D (below) for further instructions. D. Pay from the escrow account any bill that represents an escrow item and which is received on or by the filing date. These payments must be posted to the mortgage account prior to the completion of the claim (Form HUD 27011). Any bill which is received after the filing date must be sent to the mortgagor for payment. _____________________________________________________________________ 3 E. Send the insurance contract or policy (original) to the local HUD Field Office per the instructions in this Mortgagee Letter. Mortgagees must adhere to the following procedures when completing the claim package (copy of the Mortgage Assignment Document which is filed for recordation, Form HUD-27011 and required documentation) to HUD. This package must be submitted to HUD in its entirety on the filing date. 1. File the Mortgage Assignment Document for record within one year after the 20th anniversary of the date the mortgage was endorsed for insurance. DO NOT FILE THE MORTGAGE ASSIGNMENT DOCUMENT FOR RECORD AND SUBMIT A CLAIM IF THE MORTGAGE IS IN DEFAULT ON THE ANNIVERSARY DATE. 2. Submit Form HUD-27011, Parts A and B (Original) and the required documentation to: Department of Housing and Urban Development (HUD), Mortgage Insurance Accounting and Servicing Division (MIAS). See: Instructions for Single Family Application for Insurance Benefits (Claim Instructions). Required claim package documentation to be attached to the claim (Original): the original Mortgage Insurance Certificate (MIC) or the Affidavit required by MIAS Fiscal Letter 87-8 and the Title Submission Certification which is required by Mortgagee Letter 86-21, dated November 14, 1986. 3. Submit Form HUD-27011, Parts A and B (Copy 1) and the required documentation to: the local HUD Field Office, Single Family Loan Management. See: Claims Instructions. Required claim package documentation to be attached to the claim (Copy 1): (a) copies of the MIC or Affidavit, Title Submission Certification, Attachments 1 and 2 of this Mortgagee Letter, escrow check sent to the mortgagor and Mortgage Assignment Document which was filed for recordation, (b) the original contract or policy for the hazard (and flood) coverage and a copy of the letter requesting that HUD be named the beneficiary, and (c) the title evidence. _____________________________________________________________________ 4 NOTE: Distribution of Items 1, 2 and 3 must be done simultaneously. If these documents are not received as a claim package it is considered incomplete. The Insurance Claims Division or the local HUD Office may send the mortgagee a letter of deficiency which cites the documents necessary to complete the claim package. 4. Send a check to the mortgagor which represents the total amount of the escrow account. The check should be received by the mortgagor no later than 10 days after the claim is submitted. INSTRUCTIONS TO ASSIST THE MORTGAGEE WHEN COMPLETING THE CLAIM The mortgagee must follow the Instructions for Single Family Application for Insurance Benefits, Form HUD-27011, and all current Mortgagee Letters and MIAS Fiscal Letters which have not been superseded or canceled. The mortgagee must incorporate the following into the claim instructions and must prepare all Form HUD-27011's accordingly: 1. If payments in advance of the current due date have been received from the )mortgagor, adjust the mortgage account as appropriate, according to the requirements below. The mortgagee must determine the amount that represents an advanced monthly payment(s) and must send a check which represents this amount to the mortgagor. The mortgagee must enumerate on Form HUD-27011, Part A, Block 8, a due date of the last complete installment paid by the mortgagor which is not later than the filing date (date of the assignment to HUD), otherwise, the claims system will reject the claim. Any prepayment to principal by the mortgagor while being serviced by the mortgagee will not have an affect on the claim. The unpaid principal balance shown on the claim will be used by HUD's system to initiate the first billing statement. _____________________________________________________________________ 5 2. Annotate the Mortgagee's Comment section on the reverse side of Part A by the number and dollar amount of prepayments to principal, and indicate the actual periodic payment and the scheduled periodic payment as it relates to the original amortization schedule, such as, actual : 251st periodic payment, scheduled : 242nd periodic payment. 3. Apply any full monthly payment received on or by the filing date to the mortgagor's account. DO NOT SEND THE FULL MONTHLY PAYMENT TO HUD. 4. Return any monthly (full) payment received from the mortgagor after the filing date. 5. Do not attach any check to the claim package which represents the funds available in escrow to pay taxes as previously instructed by Mortgagee Letter 86-19 which is canceled and is superseded by this Mortgagee Letter. MISCELLANEOUS The mortgagee must ensure that the mortgage assignment document which is filed for record is sent to the local HUD Field Office after recordation. Also, the title evidence which is required by the Claim Instructions must be a part of the claim package which is sent to the local HUD Field Office. DO NOT SEND THE TITLE EVIDENCE SEPARATELY. The Title Approval Letter which is sent to the mortgagee by local office must be incorporated into the claim audit file. This letter becomes effective immediately. If mortgagees have any questions regarding this letter, they should contact the Single Family Loan Management Branch of the local HUD Office. Sincerely yours, C. Austin Fitts Assistant Secretary Attachments _____________________________________________________________________ Attachment 1 Date FHA Case Number _____________________ Loan number _____________________ Dear (Mortgagor's Name), Pursuant to Section 221 (g)(4) of the National Housing Act, as amended, we are planning to exercise an option to transfer (assign) your mortgage to the Department of Housing and Urban Development (HUD) as of its twentieth year. The transfer is not a reflection on your payment history or credit, in fact, your mortgage must be current to be eligible. THIS LETTER SERVES AS YOUR 60 DAYS NOTICE. YOU ARE NOT REQUIRED TO DO ANYTHING AT THIS TIME. WE WILL SEND YOU A SECOND NOTICE APPROXIMATELY 15 DAYS PRIOR TO THE FIRST PAYMENT THAT WILL BE DUE TO HUD OR 15 DAYS PRIOR TO THE TRANSFER OF YOUR MORTGAGE. THE SECOND NOTICE WILL GIVE SPECIFIC INSTRUCTIONS ON WHAT YOU WILL NEED TO D0. When your mortgage is transferred, HUD will require that you continue paying the principal and interest to them and have adequate hazard insurance coverage (and flood insurance if it is presently required) to protect their interest in the mortgage. In addition, you will be responsible for the payment of your tax bills and insurance premiums which are associated with the hazard, flood and other insurance coverage. HUD will not escrow for any item. You will also be required to verify your payment of taxes and hazard (and flood) insurance within 30 days of the due date by sending copies of the paid receipts to HUD. HUD reserves the right to escrow for taxes or advance funds to pay taxes if you fail to do so. The monies in your escrow account and (if applicable) any advanced monthly payments will be refunded to you after the transfer of your mortgage occurs. If you prefer to pay your mortgage off rather than have it transferred to HUD, you may request a pay off statement from us and remit payment in full before the transfer occurs. Please contact our Pay Off Department at XXX-XXX-XXXX. If you have any questions concerning your account on this matter, please call XXX-xxx-xxxx. _____________________________________________________________________ Attachment 2 Date FHA Case Number ___________________ Loan Number ___________________ Dear (Mortgagor's Name), As we advised you approximately forty-five days ago, we are transferring your mortgage to the Department of Housing and Urban Development (HUD). THIS LETTER SERVES AS YOUR SECOND NOTICE AND SETS FORTH THE INSTRUCTIONS THAT YOU WILL NEED TO FOLLOW. Beginning with your next monthly payment which is due on the first of each month you will send to HUD the amount of (dollars) This is your monthly payment to HUD (it is equivalent to your scheduled monthly principal and interest). You will make checks or money orders payable to the Department of Housing and Urban Development. It is important that you write your name, property address and FHA case number, which is ________(number)______, on your checks or money orders, otherwise, HUD may not be able to properly identify your monthly payment. HUD will send you each month a billing statement and self-addressed envelopes. Send your next payment to: Department of Housing and Urban Development, Payment Processing Center, P. 0. Box 105652, Atlanta, GA 30348. We will refund the monies in your present escrow account and any advanced monthly payments shortly after the transfer occurs. Also, we have contacted all third parties, such as, taxing authorities and insurance carriers to inform them that you are responsible for the payment of tax bills and premiums. Your hazard insurance carrier (and flood) has been requested to change the named beneficiary in the mortgagee clause to HUD. If you have any questions, please contact us at XXX-XXX-XXXX. If you have any questions after the transfer of your mortgage, you should contact the local Office of the Department of Housing and Urban Development. Their address is (street or P.O. Box, City, State, ZIP). The telephone number of the Single Family Loan Management Branch is XXX-XXX-XXXX. You should address all correspondence to the local HUD Office, as the Payment Processing Center in Atlanta, Georgia, is only HUD's banking facility, and any inquiries sent to them will be delayed or may not be answered at all. We hope these instructions will assist you. PLEASE SEE THE ATTACHED INSTRUCTIONS AND NOTICE. _____________________________________________________________________ Attachment 2 2 TRANSFER OF 221 (g)(4) SPECIAL INSTRUCTIONS AND NOTICE PLEASE BEGIN MAKING YOUR MONTHLY PAYMENTS TO HUD. IF YOU DO NOT REMIT YOUR PAYMENT TO HUD, YOU MAY BE CONSIDERED DELINQUENT IF THE PAYMENT IS NOT RECEIVED. YOUR MONTHLY PAYMENT WILL BE APPLIED FIRST TO ANY DELINQUENCY, THEN TO CURRENT INTEREST DUE, WITH THE REMAINDER TO PRINCIPAL. DO NOT SEND MORE THAN THE AMOUNT DUE UNLESS YOU DESIRE TO REPAY ANY DELINQUENCY, OR TO REDUCE THE PRINCIPAL BALANCE. ANY AMOUNT IN EXCESS OF THIS MONTHLY PAYMENT WILL BE APPLIED AS DESCRIBED ABOVE. YOU WILL RECEIVE A STATEMENT EVERY MONTH UNTIL THE MORTGAGE IS PAID IN FULL. IN ADDITION, YOU ARE REQUIRED TO HAVE ADEQUATE HAZARD INSURANCE COVERAGE (AND FLOOD INSURANCE IF IT IS PRESENTLY REQUIRED) TO PROTECT HUD'S INTEREST IN THE MORTGAGE. HUD MUST BE THE NAMED BENEFICIARY AND MUST RECEIVE THE ORIGINAL POLICY. YOU ARE RESPONSIBLE FOR THE PAYMENT OF YOUR INSURANCE PREMIUMS WHICH ARE ASSOCIATED WITH THE HAZARD, FLOOD OR OTHER INSURANCE COVERAGE AND TAX BILLS. HUD WILL NOT ESCROW FOR ANY ITEM. YOU ARE ALSO REQUIRED TO VERIFY YOUR PAYMENTS OF HAZARD (AND FLOOD) INSURANCE PREMIUMS AND TAXES WITHIN 30 DAYS AFTER THE DUE DATE BY SENDING COPIES OF THE PAID RECEIPTS TO THE LOCAL HUD OFFICE. HUD RESERVES THE RIGHT TO ESCROW FOR TAXES OR ADVANCE FUNDS TO PAY TAXES IF YOU FAIL TO DO SO. HUD ALSO RESERVES THE RIGHT TO CHANGE ITS SERVICING POLICIES AND PROCEDURES AS THEY RELATE TO YOUR MORTGAGE.