HUD released Mortgagee Letter 2005-41, dated Oct. 24, 2005.  This letter follows the release of ML 2005-33, reminding mortgagees of the existing underwriting and servicing policies to assist victims of Presidentially Declared Disaster Areas.  ML 2005-41 outlines servicing, preservation and protection requirements for properties in the disaster-declared areas for Hurricanes Katrina and Rita.

ML 2005-41 requirements and recommendations apply to loans in the areas approved by FEMA for individual assistance.  The parameters of this letter, summarized below, remain in effect until March 31, 2007, unless extended or rescinded. 

Servicing Requirements

• Mortgagees are required to attempt to contact borrowers on all loans that are 15 days or more past due;
• Written communication with borrowers should be sensitive to the challenges borrowers face due to displacement, loss of employment and other circumstances resulting from the disaster;
• Continue automatic debit payments unless requested by the borrower to stop or notified of non-sufficient funds from the bank;
• Discontinue assessing late fees to borrowers and reporting of delinquencies to credit bureaus; and
• Mortgagees are encouraged to offer forbearance to borrowers until a determination of the property condition is available.

Property Inspections

Initial Property Inspections are required if:

·         A mortgage is due and unpaid for at least 45 days and there has been no contact with the borrower;

·         The borrower or others have confirmed that a property is vacant and damaged or unsecured, regardless of the delinquency status; or

·         A property remains vacant for more than three months, regardless of delinquency status.

Property Inspections are not required if the property has been damaged beyond repair and property preservation actions will not prevent further deterioration.

Mortgagees will not be held liable for failure to preserve and protect properties if inspections are completed within 60 days of the required initial inspection date and the property is accessible or within 60 days of the last required completed inspection when effort to complete inspections is documented.  For all other areas, mortgagees are required to inspect properties within 40 days of the initial inspection or last completed inspection date. 

The 60-day provision is applicable those areas FEMA has declared eligible for individual assistance.  Both the 60-day and 40-day provisions will continue for a period of 12 months from the date of the letter or until otherwise extended or withdrawn by HUD.

HUD will reimburse an additional $15 per inspection (above ML 2002-10) for initial inspections and reoccurring inspections completed after Oct. 24, 2005.

HUD will reimburse for 2 inspections per month on properties where an insurance claim has been filed.

Property Preservation & Protection

Mortgagees are reminded to use sound judgment when deciding whether or not to proceed with P&P work and cooperate with local cities and government agencies to coordinate repairs.

A contact card with the mortgagee’s name, address, phone number and emergency contact number should be left for the mortgagor at the time of the initial inspection.

While hazard insurance claims are pending, mortgagees may board windows instead of reglazing.

Mortgagees will be reimbursed for up to 200 photos in conjunction with a hazard insurance claim. 

Mortgagees will be reimbursed for emergency repairs with supporting evidence and documentation of the need and repair. 

$750.00 is available for emergency repairs without further approval.

Requirement of second bids for debris removal is waived in the disaster area.

Mortgagees will not be held liable for failing to notify HUD in advance of demolition actions if the mortgagee did not receive written notification.

Hazard Insurance

Mortgagees are encouraged to assist borrowers by providing insurance information and copies of policies promptly when requested.

HUD is working with FEMA to ensure that checks issued for flood insurance claims are co-payable to the mortgagee and borrower to ensure funds are dispersed for repairs.  Funds issued for replacement of personal property, temporary housing and transition expenses are to be promptly released to the borrower since they are not related to repair work.

Mortgagees must not withhold insurance funds to satisfy delinquency or fees without written consent of the borrower.

Conveyance of Foreclosed Properties

Mortgagees must determine and report property condition to the M&M contractor and report the following as soon as possible:

·         If property has been totally destroyed;

·         If property has been substantially destroyed and is likely to be demolished by local authorities;

·         If property is substantially intact and can be repaired;

·         If property sustained minor (less than $2,500) or no damage;

·         If property is covered by flood or hazard insurance and whether a claim(s) for benefits has been filed.

Mortgagees should convey properties within established guidelines when applicable and have an additional 45 days to provide marketable title.

Mortgagees are reminded that the 90-day moratorium in effect applies to both initiation and completion of foreclosures.  HUD will be issuing additional guidance addressing foreclosures and conveyances.

To view the entire release click the following link:

HUD ML 2005-41