A number of code enforcement officials asked us after the USFN Conference in New Orleans to provide them with some definitions of terms and other information about the different agencies that interact in the performance of property preservation services for FHA-insured loans.  We hope that the following provides some clarification and answers any general questions about the roles of these different entities.

HUD (US Department of Housing and Urban Development): This federal agency is responsible for ensuring that Americans have decent, safe, and sanitary housing.  To that end, HUD funds and oversees publically owned rental housing, provides rental housing vouchers for low income families, provides block grants to cities and counties to develop infrastructure to support housing, oversees the manufactured housing industry, enforces Fair Housing and RESPA laws, and oversees the Federal Housing Administration, whose main activity is the insuring of residential mortgage loans made by private lenders.

FHA (Federal Housing Administration): This agency is a division of HUD.  It insures loans originated by private sector lenders for financing new and existing single and multifamily housing under government-approved programs.

Though HUD's scope is much broader than mortgage insurance, the terms HUD and FHA are used pretty much interchangeably in the industry.  HUD/FHA establishes guidelines for how FHA-insured loans must be serviced and how the properties that are collateral for those loans should be maintained during default.  These guidelines specify what preservation work is expected and what expenditures are pre-approved for different types of work.  These pre-approved limits are called "allowables," and any request to exceed an allowable generally has to be approved by HUD's M&M contractor (see below) before the servicer can proceed.  The servicer of an insured loan will ultimately convey the foreclosed property to HUD, with a claim for reimbursement for preservation work and lost interest.  Conveyance must be accomplished according to HUD's established timelines and with the property in a condition that is acceptable to HUD ("conveyance condition").  HUD will accept conveyance of a property with damages that are due to mortgagor neglect (i.e., general wear and tear), but servicers may not convey properties with damage from any of the six major perils (fire, flood, earthquake, hurricane, tornado, or boiler explosion) or damage due to the servicer's failure to take adequate action to preserve and protect the asset (mortgagee neglect) without prior written permission from HUD and an agreement to reduce the amount of the insurance claim commensurate with the cost to repair the damage.  If HUD determines that a property was not maintained in a manner consistent with the standards set forth in the guidelines, HUD may reconvey the property to the servicer to correct the unacceptable condition(s).  Servicers incur substantial fines and penalties with reconveyances.

M&M (Management & Marketing Contractor): M&Ms are contractors working under contract with HUD to oversee the marketing and management of properties conveyed to HUD by FHA-insured mortgage servicers.  M&M contractors also manage and sell acquired properties following conveyance.  Servicers who obtain bids to complete preservation work in excess of the allowable established in the HUD guidelines must send those bids to the M&M for approval. The M&Ms are charged with ensuring that the servicer has complied with all applicable FHA guidelines prior to conveying the property to HUD and with taking over any necessary preservation activity after conveyance. They also act as asset managers and brokers, marketing HUD-owned properties for sale to third parties. For more information about the role and duties of an M&M contractor, please visit the Management and Marketing Contractors Information Page on the HUD web site.

Servicer: The term "servicer" refers to any bank, lending, or financial institution that services mortgage loans. Servicing includes collecting monthly payments, paying property taxes and insurance premiums out of escrow, pursuing collection activity and loss mitigation options once a loan goes into default, and prosecuting foreclosure if the default cannot be cured. During default and foreclosure, the servicer is responsible for assuring that the collateral is preserved and protected according to the guidelines and requirements of the investor/insurer of the said loan. Servicers of FHA-insured loans engage in preservation activity designed to put the home in conveyance condition, which means condition acceptable for conveyance to HUD. The Servicer may or may not own or have a financial interest in the mortgage note, which can from time to time create a conflict between the FHA requirements and the instruction received from the investor.

Mortgage Field Services Company: Safeguard Properties (SPI) is a mortgage field services company. Though some servicers have established in-house capability to perform property inspections and preservation and protection activities, most servicers find it more economical to contract with firms like SPI to complete preservation work when a loan is in default and the mortgagor is not maintaining the property. For FHA-insured mortgages, SPI must comply with HUD's preservation guidelines to assure that our clients are able to convey the foreclosed property to HUD.

Subcontractor: SPI and other national or regional mortgage field servicer contractors use local subcontractors to perform property inspections and preservation services as required by HUD or investor (Fannie/Freddie/PMI) guidelines. Typical and customary preservation services include yard maintenance, debris removal, securing (lock changes, reglazing/boarding broken windows, etc.), roof repairs or other structural repairs to prevent deterioration, etc. Subcontractors have no authority to complete work that is not either requested in the work order or required under the guidelines and performable within the allowable. 

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