HUD Session Summary

Robert Klein, CEO Safeguard Properties facilitated two sessions at the Spring Regional Default Servicing Conference hosted by the USFN.  Both sessions were dedicated to discussing Preservation and Protection issues related to default servicing.  Robert was accompanied by a host of panelists consisting of representatives from HUD, Department of VA, Fannie Mae, Freddie Mac, and several servicers.

HUD ML 2007-03
 
Leslie Bromer opened the first session with an overview of the ML 2007-03 Revision of Preservation and Protection Requirements and Cost Reimbursements.  HUD initially released the new P&P guidelines on January 25, 2007 but delayed implementation until Monday, April 30, 2007. 
 
The implementation was delayed in effort to allocate sufficient time for servicers to complete programming necessary to comply with the new rules and allowables.  Leslie Bromer offered clarification on the following points regarding the new guidelines:

• Non-Monetary Default Inspections - the new guidelines allow servicers to claim reimbursement for inspections completed when the loan is not yet delinquent. This allowable was included in response to the industry's request to do so.  When notified of non-monetary default, servicers should proceed to accelerate foreclosure when the security of the property is at risk.  This provision was included in effort to assist servicers and not meant to over complicate the process.
• Initial Secure Requirement - HUD prior expectation was to have properties secured immediately upon discovery of First Time Vacancy (FTV).  This expectation was clarified in the new guidelines, requiring servicers to secure properties within 5 calendar days of FTV.  This requirement has since been modified allowing servicers up to 15 business days to secure properties that have not yet gone through foreclosure sale.  The extra time was given to allow servicers ample time to review the loan and attempt to obtain contact with the borrower.
• Inspection Fees - Inspections will be reimbursed based on the inspection type completed.  Therefore, if unable to gain access to a vacant property and inspect the interior, the servicer will only be reimbursed for an exterior visual inspection.
• Initial Vacant Inspection - The initial vacant inspection is meant to obtain a full property condition report to establish existing damages.  Servicers cannot complete this inspection until the initial secure, when possession is obtained.  The MBA inspection format, established many years ago, does not allow for servicers to obtain and report the information in the standard inspection format.  Servicers would like to have clarification how to claim this expense since it will not be in the standard inspection format. Leslie will review the issue.

Since the conference in March, HUD has issued a revised and updated mortgagee letter addressing the concerns raised at the conference and by the industry.  The revision included streamlined pricing across the nation and clarification.  The revised ML 2007-03 was posted on April 5, 2007.
 
HUD Demand and Non-Performance Letters
Servicers are still receiving a large number of demand and non-performance letters from the M&M contractors without supporting documentation.  Laurie stated that the issue has been addressed with the REO Directors and HUD will be issuing clarification to the M&M Contractors.  Laurie added that servicers should be following the escalation process when letters are received without documentation, or when servicers are not in agreement with the context of the letter. 
 
Eric Miller inquired as to the appeal process when servicer's rebuttals are denied by the M&M Contractor.  Laurie stated that the appeals should be sent to the respective GTR, not the M&M contractor. 
 
Craig Parker reported a large number of demand letters received for $1 or less.  These letters create a very timely and inefficient process for the servicer to issue and mail payment to the M&M Contractor.  In addition, these letters are logged on the servicer's ARR report.  Laurie agreed that these demands may be inefficient; however it is the M&M Contractor's responsibility to issue when necessary.  Laurie stated the ARR report does account for the amount of the demand, thus a $1 demand is not considered as critical as a $1,000 demand.
 
Servicers often receive both a demand and non-performance letter for the same item, creating additional inefficiencies as the servicer is required to review and respond to both independently.  The M&M Contractor does have the ability to issue both letters and HUD is reviewing the ARR report.  Servicers would like to have access to their respective ARR report to confirm their responses to the demand and non-performance letters are forwarded to HUD.  Laurie stated that HUD cannot provide servicer access to the ARR report at this time, but M&M Contractors are required to respond to every piece of written communication from the servicers, and they are monitored for compliance.
 
Safeguard Properties reviews and responds to every demand and non-performance letter received.  These letters are used as an internal quality control tool.  Some M&Ms Contractors do not acknowledge or respond to rebuttals for non-performance letters because they are not required to, but the servicers and field service providers need the feedback in order to improve the process .
 
Laurie stated that HUD recognizes the inconsistency and tension created with the mortgagee compliance being monitored by the M&M Contractors.  HUD is reviewing the option of centralizing all mortgagee compliance issues with an independent contractor.  The consolidation should create consistency and allow the M&M Contractor to focus on property marketing and disposition.
 
Reconveyance
 
The GTR has the ability to approve a Reconveyance of the property back to the servicer and the M&M contractor is tasked with notifying the servicer of the possible Reconveyance.  Servicers are required to respond to the notice within 10 days by providing the full property history and photos.  If the GTR approves the Reconveyance the servicers is to follow the appeal process set forth in ML 2007-03.
 
HUD may use its discretion when issuing a Reconveyance, but generally will not do so if the damages are estimated at $2,500 or less.  Servicers would like this threshold raised because many times the cost of Reconveyance exceeds the estimated amount of damages.  Laurie stated that HUD will not be revising this rule, but servicers are encouraged to offer a settlement amount to the M&M in lieu of conveyance.  Sherilee Massier commented that agreeing to a settlement amount is difficult due to the difference in opinion of damages.
 
Mold
 
ML 2007-03 does not require servicers to remediate mold.  Servicers are providing bids to eliminate the source of moisture and to mitigate further growth of the mold.  The M&M contractors are denying the bids to remediate mold growth and then issuing large demand letters or reconveying due to mold growth.  Laurie advised servicers to appeal and escalate directly to the GTR and then the REO Director.
 
Utility Transfers at Conveyance
 
The M&M Contractors are required to transfer the utilities into HUD's name after conveyance.  Servicers are also sending notice to the utility companies that Title has transferred to HUD.  Some servicers are even notifying the utility company to discontinue service after a specific number of days following conveyance. Despite these efforts, utility companies continue to issue bills to the servicer following conveyance.  Leslie stated that this is probably not an issue regarding timely recording of the title or deed, but a communication issues with the utility companies.  Leslie suggested that a committee be organized to establish to address the issue and create one point of contact for the utility companies for each servicer. 
 
Claim Reimbursement
 
Servicers often proceed with preservation work necessary to convey before over allowable approval is obtained from the M&M Contractor.  Over allowable requests for the work is submitted when the work is in the process of being ordered/completed.  This process is necessary at times to allow for timely conveyance and prevent damages from worsening.  Leslie agreed that the process is prudent and servicers should receive reimbursement.  Laurie and Sarah will review the process to ensure it does not result in post-claim audit findings.
 
HUD Initiatives
 
The revision to the preservation and protection guidelines, issued in ML 2007-03, was the result of a two year effort.  These guidelines are complex to manage and administer.  HUD continually strives to identify innovative approaches for ensuring that they receive properties into inventory timely, in good condition, and at a fair and reasonable cost.  HUD is reviewing ways to issue simpler instruction to the servicer based on outcomes and not processes. 
 
In order to create an "outcome-based" set of P&P guidelines, HUD needs data to analyze and the input of the affected servicers.  The data and input will be used to create new P&P guidelines, which HUD would like to release in conjunction with the procurement of new M&M contracts in the summer of 2009. 
 
With an assumption that HUD will issue a clear definition of convey condition, they are considering several options for P&P guidelines, including:

• Encouraging more 3rd party sales through strategic bidding process at foreclosure sale;
• Cost-sharing the preservation and protection expenses with the servicer, similar to foreclosure attorney fees;
• Conveying at possession;
• Flat fee of preservation and protection expenses - one flat fee regardless of the amount of work performed;
• Claims without conveyance.

Joe McCloskey suggested a stake-holders meeting to further discuss the implications and benefits of the claims without conveyance option.  This option will require the input of the servicers with regards to the formula set to establish property value, and its effect on HUD and the FHA fund.
 
Other concepts will be considered, but HUD needs the input of the servicers and the data to analyze.
 
Conveyance of Hurricane Damaged Properties
 
FHA has drafted a mortgagee letter allowing servicers to convey hurricane damaged properties.  The rule making needs to be approved by Congress before the mortgagee letter can be released and implemented.  HUD is gathering data to project its losses and needs this information from the servicers.
 
Servicers can convey hurricane damaged properties before the mortgagee letter is releases, but are required to deduct the estimate of damages from their claim for reimbursement. 
 
Some servicers have experienced a delay in conveying properties because titles cannot be obtained until the environmental issues are addressed in the Gulf region.  Some servicers are abandoning properties due to the environmental issues and because they do not want to record the title in their name.  Vicki Vidal will review claims without conveyance of title with HUD.