www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 13, 1997 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 97-18 TO: ALL APPROVED MORTGAGEES ATTENTION: Single Family Servicing Managers SUBJECT: Procedural Changes for Single Family Servicing and Single Family Claims The purpose of this Mortgagee Letter is to provide clarification of several recent changes in the policy and procedures related to single family mortgage servicing, reporting to HUD's Single Family Default Monitoring System (SFDMS), and in the submission of claims for insurance benefits. All changes become effective as provided in this Mortgagee Letter. 1. REVISED NOTIFICATION OF FORECLOSURE REQUIREMENTS Mortgagee Letter 96-65 , dated December 2, 1996, provided a revision to HUD's policy regarding the interest curtailment that results from a mortgagee's failure to provide proper notification of the institution of foreclosure (24 CFR 203.356 and 24 CFR 203.402). This policy change is effective for all single family mortgages where the first public legal action to initiate foreclosure takes place on or after November 1, 1996. Due to a clerical error, this date was changed to January 1, 1997, in many of the copies that were distributed. The version of the Mortgagee Letter that was posted to HUD's Home Page on the World Wide Web properly reflected that this change was applicable for all single family FHA-insured mortgages where the first legal action required to initiate foreclosure was taken on or after November 1, 1996. Mortgagees shall be considered to be in compliance with the reporting requirement of 24 CFR 203.356(a), when the case is properly reported to the SFDMS for the reporting cycle (or in the following reporting cycle) in which the first public legal action required to initiate foreclosure is taken. In accordance with Mortgagee Letter 96-49 , dated September 9, 1996, the proper SFDMS status code for reporting the first public legal action required to initiate foreclosure will change from "B" to "68". Effective for all loans where the first public legal action to initiate foreclosure takes place on or after November 1, 1996, and where there is a finding of non-compliance regarding the foreclosure reporting requirement 24 CFR 203.356(a), the following provisions apply: The calculation of interest will take into account the date the first public action to initiate foreclosure was taken and the reporting cycle in which the action was properly reported. The mortgagee will be considered in non-compliance with this requirement until such time (the reporting cycle) as the mortgagee properly reports the foreclosure initiation. For each reporting cycle that the notification of foreclosure is delayed, the mortgagee's claim will be reduced by an amount equivalent to thirty days of interest. Where non-compliance with this requirement is established, the minimum interest reduction will be equal to 30 days of interest. Mortgagees shall continue to be responsible for "self- curtailment",where the reporting requirement was not met. Self-curtailment shall be accomplished by identification of the interest curtailment date on Form HUD-27011, Item 31. Please refer to Appendix 1 for further explanation and examples. 2. STATUS CODE CLARIFICATION FOR REPORTING TO HUD'S SINGLE FAMILY DEFAULT MONITORING SYSTEM (SFDMS) Mortgagee Letter 96-49 , dated September 9, 1996, provided new status codes for reporting loss mitigation initiatives. Missing from the bottom of page 1 of Appendix 1 was status code "39, preclaim enrolled". This code is used to advise HUD when an initial partial claim is filed. Status code "41, subsequent preclaim" is used to report cases where a previous partial claim was filed. Reinstatements resulting from HUD's payment of any partial claim are reported as status code "20, reinstated by mortgagor who retains ownership". To further enhance the Department's ability to monitor lender performance an additional change will be made to the SFDMS status codes. Previously, whenever an account was paid to less than 90 days delinquent, the mortgagee reported status code "14" and was not required to report the account again until the delinquency again became ninety or more days delinquent. To improve the accuracy of SFDMS reporting, mortgagees shall begin reporting status code "19, partial reinstatement", whenever an account is paid to less than 90 days delinquent. Partial reinstatement will no longer be considered a full "close-out" code. Mortgagees shall not be required to continue to report the account as long as it remains in the paid to less than ninety days delinquent status. However, changes in account status such as the borrower completely reinstates the account, must be reported as status code "20, reinstated by mortgagor who retains ownership". Should the mortgagor again become 90 or more days delinquent, the mortgagee shall report status code "42". The Department is ready to accept both status codes "39" and "19" immediately. To provide mortgagees with the opportunity to revise their reporting systems, HUD will continue to accept status code "14" for reporting accounts that become less than 90 days delinquent through the September 30, 1997, reporting cycle. A revised listing of all HUD status codes are provided in Attachment 2. Please direct any questions you may have to the attention of Joe McCloskey, Director, Single Family Servicing Division, at (202) 708-1672. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments Attachment 1: Reporting the Initiation of Foreclosure: Compliance and Non-Compliance Examples Attachment 2: Guidance for Using SFDMS Status Codes