HUD has released Mortgagee Letter 2006-27 titled "Enhancements to the Neighborhood Watch Early Warning System."

This Mortgagee Letter announces enhancements to the Neighborhood Watch Early Warning System.

Neighborhood Watch is a web-based software application that permits all FHA-approved mortgagees to analyze their own and others’ early default and claim performance. The application identifies lenders and loan characteristics within various geographic areas that have a high incidence of defaulted single family insured mortgages within the first two years of loan origination.

In order to access Neighborhood Watch, users must have access to the FHA Connection application.  The lender’s FHA Connection Coordinator must update the user’s FHA Connection profile to one or both levels of Neighborhood Watch access (Summary and/or Loan Detail).  Once authorized to use Neighborhood Watch, mortgagees can select the Neighborhood Watch link located on the "Single Family FHA" screen of the FHA Connection to begin using the application.

Improvements made to Neighborhood Watch are released periodically each year.

Following are highlights of the enhancements to Neighborhood Watch released since the issuance of Mortgagee Letter 2005-26.

• (6/24/05) Added All Quarter and Quarter End Date to Performance Period in Early Warnings All Appraiser and Single Appraiser views for nationwide to HUD Office geographic areas for the following categories: all loans, living units (1 – 4), 203K program, and non-profits.
• (8/22/05) Enhanced Direct Endorsement Lender views in Early Warnings to display retail and sponsor compare ratios.  This feature will be used in the future as part of HUD’s performance analysis of a lender for HUD’s Credit Watch Termination Initiative for Direct Endorsement Lenders.
• (11/4/05) Added a new Query – Indemnification – that allows a lender to view FHA-insured loans where HUD and the lender executed an indemnification agreement.  The loan level results include all loans where the lender executed and indemnification agreement, irrespective of the status of the loan (e.g. terminated, paid-in-full, streamline refinance, etc.) or the status of the indemnification agreement (active or expired).  Lenders can use the Indemnification Query to monitor the default status of the loan as reported to HUD’s Single Family Default Monitoring System.  In addition, for those properties conveyed to HUD, a lender can track the acquisition, sales contract and closing date of the property by HUD’s Real Estate Owned Department.
• (11/4/05) Updated Frequently Asked Questions to provide lenders with instructions on how to view performance in Neighborhood Watch with respect to HUD’s Lender Insurance participation qualifications.
• (12/16/05) Modified the Late UFMIP Query to display the new remittance requirement of 10 days from closing for loans that closed on or after November 1, 2005 in accordance with Mortgagee Letter 2005-28.  Loans that closed prior to November 1, 2005, continue to be measured against the 15-day timeframe from the date of closing.
• (12/16/05) Modified the Analysis icon on the Early Warnings All Lenders results screen to display drill down for the same performance period on the Analysis screen.
• (2/17/06) Modified the Early Warnings Loan Level Results display and Case Status Query to include the most recent Post Endorsement Technical Rating (PETR) codes.  The screen will display the new codes for loans recently rated, as well as previous codes that were used under the prior rating system. 
• (2/17/06) Neighborhood Watch was modified to recognize the existence of the new Single Family Default Monitoring System reporting status code “34” – Natural Disaster, and reason code “19” Casualty Loss.  The codes were announced as part of Mortgagee Letter 2006-05 to help identify delinquencies caused by property damage and/or natural disasters.
• (3/17/06) Modified the Early Warnings Loan Level Results display and Case Status Query to identify loans that are insured under the Lender Insurance Program, and provide the binder type for loans where HUD requested the lender’s case binder. 
• (3/17/06) Modified the Lender Details – Lender Summary results screen to display the approval status total (active, terminated, merged) for a lender’s business affiliate type (sponsor, loan correspondent, authorized agent, principal).  The modification also allows a drill down of each status and type. 
• (3/17/06) Added Direct Lending branch identifiers to the Lender Details – Lender Summary results screen, including a count and output report to view the Direct Lending branches by institution.

In addition, HUD’s Office of Lender Activities is working on a number of improvements/additions to Neighborhood Watch including;

• Modification of Early Warnings, Servicing and Query sections in Neighborhood Watch to accommodate Single Family Default Monitoring System conversion as outlined in Mortgagee Letter 2006-15.  This will include the addition of 30 and 60 day defaults to a servicers Current Defaults and provide the servicer with case level detail of this data.  Revised default status and reason codes will also be added to case level data.   
• Addition of a new Query – Default Cases – that will provide a lender the ability to view its originations that have been reported as 30, 60, 90 days delinquent to HUD’s Single Family Default Monitoring System.
• Addition of lender level Home Equity Conversion Mortgage (HECM) production data, along with case level detail of this data. 

Any questions or comments regarding this system can be submitted through the "Feedback" option in the Help/About section of Neighborhood Watch. If you are unable to access this feature, questions or comments can be submitted to the Office of Lender Activities and Program Compliance, Quality Assurance Division at (202) 708-2830.

To access the Mortgagee Letter in its entirety, please click here.