www.hudclips.org 


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

February 23, 1996
 
MORTGAGEE LETTER 96-11
TO:  ALL APPROVED MORTGAGEES
 
ATTENTION:  SINGLE FAMILY SERVICING MANAGERS
 
SUBJECT:  Early Intervention For Curing Defaulted Mortgages
 
     This is to reemphasize HUD's servicing requirements
regarding the utilization of early intervention as a vehicle
for curing defaulted mortgages.  The Department also encourages
lenders to apply those methods whenever appropriate.
 
     In accordance with 24 CFR 203.501, lenders must consider
the comparative effects of their elective servicing actions,
and must take those appropriate actions which can reasonably be
expected to generate the smallest financial loss to the Depart-
ment.  Therefore, a successful servicing strategy considers each
defaulted mortgage individually; and, based on the circumstances
involved, executes a plan which will eliminate the default and
prevent a foreclosure.   Prompt action is almost always required
to cure a default.  It is, therefore, particularly important that
lenders address a default immediately to prevent it from becoming
more serious.
 
     In an effort to clarify misunderstandings of various
alternatives available to homeowners whose mortgages are in a
defaulted status, and to reduce delays in obtaining assistance,
the Department urges lenders to refer those homeowners to HUD-
approved housing counseling agencies early in the default period.
 
     Counseling agencies have established long-standing
relationships with many facets of the business community, and
have assisted in producing debt payment plans that enable
financially troubled homeowners to retain their homes.  They
possess a thorough knowledge of local (public and private),
State, and Federal resources which may be available to homeowners
who are experiencing financial difficulties.  Early intervention
that identifies and attempts to resolve homeowners' underlying
problems has a much better chance of correcting the mortgage
default.  To repeat, early referral to a HUD-approved housing
counseling agency is essential.
 
     Utilizing alternatives to foreclosure is a positive action
which benefits both lenders and homeowners.  Therefore, lenders
should review accounts in default to determine which available
foreclosure avoidance strategy may be most appropriate.  An
extended temporary forbearance (Special Forbearance) is often
enough to cure a default; however, at other times, more long-term
solutions such as refinancing, mortgage modification, prefore-
closure sale, or deed-in-lieu of foreclosure, are appropriate and
should be considered.  Refer to Chapter 7, Paragraph 7-11, HUD
Handbook 4330.1 REV-5, (Administration of Insured Home Mortgages)
for additional information regarding foreclosure avoidance.
 
     We appreciate your cooperation in this matter.
 
Sincerely yours,

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner
.