| HUD ML 2005-22 P&P Procedural Update |
| Monday, 16 May 2005 | |
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HUD has issued Mortgagee Letter 2005-22, Preservation and Protection Procedural Update (http://www.hudclips.org/sub_nonhud/cgi/pdfforms/05-22ml.doc). This mortgagee letter details changes contained in the new M&M contracts and the impact of those changes on mortgagees. The letter refers mortgagees to HUD's new web page for information about the M&M contracts. The web page is found at www.hud.gov/offices/hsg/sfh/reo/mm/mm_info.cfm, and it includes a link to the new M&M contract, a list of the M&M contractors and their points of contact, and the defined geographic boundaries. The mortgagee letter also includes an attachment (http://www.hudclips.org/sub_nonhud/cgi/pdfforms/05-22ml.xls) listing contact information for the various HOCs, including the REO Directors and GTRs for each contract area. Contract areas PB (Philadelphia 2: Michigan and Ohio) and CC (Santa Ana 3: Washington, Oregon, Idaho, and Alaska) are still operating under the old contracts with the old M&M contractors. The area PB changeover is being delayed pending resolution of contract issues; the area CC changeover to the new M&M is expected to take effect June 1, 2005. The letter explains the reduction in the amount of time afforded M&Ms to respond to mortgagee requests for approval of overallowables and extensions of time, from 10 days under the old contracts to 5 days under the new. The letter explains that M&Ms are instructed to accept conveyance of properties with surchargeable damage if the government estimate for repairs is equal to or less than $2500. The M&M must notify the mortgagee of HUD's acceptance of the damaged property and of the amount by which the claim will be reduced (which will be the greater of the government's estimate to repair the damage or the amount of any received or expected insurance recovery). The mortgagee will have the option to revoke the conveyance of the damaged property to repair the property prior to conveyance. There is also some clarification with respect to servicers' overallowable requests. The letter states that the M&M contractor will evaluate such requests on the basis of the work to be performed and the M&M's own knowledge of reasonable and customary preservation expenses. If the M&M believes the expense is not justified, the contractor must provide a written explanation, including evidence of similar bids or past expenses for the same services. If the M&M contractor requires additional information for providing such an explanation, the M&M contractor will request from the mortgagee a second independent bid or further clarification to justify the original bid. With such second bid requests, the M&M is instructed to notify the mortgagee whether a short extension of time is appropriate. The need for an extension may be determined based on a number of considerations, including but not limited to the timeliness of the mortgagee's original bid submission and the complexity of the work to be completed. Though the M&M is required to respond to the mortgagee's request within 5 days, failure to respond within 5 days will not constitute approval of an extension of time to convey. Each request for an extension must be submitted separately and in writing. Any partial approvals (approvals for less than the total bid) must be itemized so the mortgaee knows exactly what amounts may be claimed for each item. The letter discusses non-compliance letters, explaining that HUD aggregates all reports of non-compliance for analysis of servicing policies and mortgagee compliance, and a servicer's record of non-compliance letters may be used as a component in reviewing the mortgagee's overall servicing performance. A mortgagee may send a letter to the M&M to refute any non-compliance claim that they believe is unwarranted, and the M&M must include that letter in the case file to be forwarded to the GTR. The M&Ms are not required to respond to any letters received from mortgagees, but if a mortgagee believes an M&M has a pattern of issuing unwarranted claims of non-compliance, the mortgagee should bring the matter to the attention of the GTR for that contract. The letter also explains
Voluntary Preconveyance Inspections, confirming that the program is
entirely voluntary but that HUD encourages participation. HUD
expects that the program will be especially beneficial in cases
where a property is to be conveyed damaged, as the M&M
will have the opportunity prior to conveyance to
assess the damage and determine whether it's surchargeable, thereby reducing the likelihood of
reconveyance, demand letters, or other sanctions.
Mortgagees should contact the M&M contractors directly for
further information about voluntary pre-conveyance inspections
in their contract areas.
HUD instructs that the inspections should take
place no more than 5 days prior to scheduled conveyance.
Mortgagees will be allowed to claim the cost of one additional
inspection for this program, as long as the preconveyance
inspection doesn't coincide with the regularly scheduled
compliance inspection.
Finally, the letter states that HUD has instructed
M&Ms that they must make electronic copies of their initial
inspection reports available to servicers upon request.
Servicers must request each inspection report in writing and with
reference to the specific property. M&Ms are not obliged
to respond to blanket requests for all inspection reports, but for
properly requested reports, the M&M must respond to the request
within two days. Delivery of the actual report itself may be
delayed beyond that two-day response time to allow the M&M to
perform a quality review of and any necessary corrections to the
inspection reports; the M&M must notify the mortgagee
of any such anticipated delay.
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