| USFN Atlanta 2006 Summary |
| Tuesday, 30 May 2006 | |
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Session I – P&P Issues: HUD/Conventional
Panelists: I. HUD Demand and Non-Performance Letters Issue: Photos and inspection reports are not being sent with non-performance and demand letters, making it difficult for servicers to research the non-compliance issues. Resolution: HUD advised that M&Ms are required to provide a detailed description of all compliance issues when sending a non-performance or demand letter, but they do not have to include the inspection report or photographs. One M&M advised that they are unable to provide the requested information with each letter because of difficulties with HUD’s electronic monitoring system. All photos and information are scanned into the system; however, the inspection report is often difficult to retrieve and scanned photos print in black and white detail. HUD advised that color photos can be received if sent via email, which would be beneficial to the servicers. Field service providers agree pre-conveyance inspections are one of the best ways to encourage communication, understanding and cooperation between servicers and HUD during conveyance; however, not all servicers perform these inspections. The inspections would be more feasible if servicers were given additional days to convey the property. Issue: M&Ms are requesting full reimbursement for the cost of a service that was partially completed. For example, a servicer was issued a demand letter for the cost of an approved O/A to remove 10 cans of paint when only 1 can was found left at the property during the conveyance inspection. M&Ms use the following verbiage from HUD Mortgagee Letter 2002-10 as support to justify their actions: FHA – General Requirements,
If HUD determines that amounts paid for reimbursement are inappropriate, unnecessary, unsupported, or excessive; or that the mortgagee obtained bids that were not independent and competitive; or that services claimed have not been completely and properly performed, HUD will require repayment of all such claim amounts. Resolution: HUD agreed that claiming full reimbursement when partial work is completed is supported in Mortgagee Letter 2002-10. However, M&Ms should “use common sense” and not charge servicers excessively for small items, such as a few cans of paint. II. HUD Extension Request to Convey Issue: Extensions requested by servicers beyond 90 days are being denied by M&Ms even when there is a hazard claim filed at the property. Hazard claims can take 60-120 days from filing to settlement and repair, yet extension requests are being denied. Resolution: Per HUD, extension requests for hazard claims filing and repairs are to be granted if proper documentation is provided to show that the servicer was diligent in getting the claim settled. All conference attendees were provided with a HUD escalation chart to utilize in handling the denial of hazard claim extensions or any other issues. III. HUD Required Second Bids Issue: Servicers reported they are being asked for unnecessary second bids, making it difficult to comply with conveyance timelines, and that M&Ms are not using a consistent format when requesting second bids. Resolution: Second bids should be required only in “extraordinary” circumstances, such as submission of an unreasonable bid. But servicers report that there is not consistency among the M&Ms as to what is reasonable or unreasonable. HUD confirmed that some discrepancies will be seen because of the cost variation of products and services in different areas. For example, a lock could cost more to install in one state versus another. One M&M contractor explained that the M&Ms have only three options when reviewing bids: approve the bid, ask for a second bid, or deny. M&Ms cannot recommend pricing limits or suggest reduced bid amounts to servicers. In addition, the second bid often comes back at a reduced price from the first bid, justifying the reason for the request. All agreed that a more detailed reason for the second bid should be included in the request. Servicers should forward all examples of serious discrepancies or claims of overuse of second bid requests to HUD for review. Additional Conversation Points at the P&P Issues: HUD/Conventional Discussion Issue: M&Ms are not transferring utility bills into their name at the time of conveyance. Therefore, utilities companies are refusing to turn on the utilities at new properties for servicers because of past due bills not paid by the M&M. Resolution: HUD will not reimburse the servicers or M&Ms for multiple outstanding property utility bills under one account number. HUD will pay for only one utility bill at a time. No official resolution was achieved at this time. HUD advised the issue will be discussed in further detail. Issue: Official consensus has not been reached for identifying health hazards versus general household goods. Resolution: According to HUD, M&Ms should be using “common sense” when issuing demand and non-performance letters for items labeled as health hazards. The upcoming Mortgagee Letter will have more clarity regarding the definition of health and safety hazards. Issue: Can servicers convey properties with a roof tarp? Resolution: Although HUD does not favor conveying properties with tarps because of their appearance and high rate of deterioration, if a property is conveyed within the 30-day timeframe and there is no interior damage to the property, servicers can convey a property with a tarp. If the property is conveyed outside of the 30-day timeframe, a bid should be submitted to repair or replace the roof, rather than convey with a tarp. Servicers agree the costs to repair or replace a damaged roof can be excessive when compared to the overall value of the property. In these cases, HUD advised the servicer should make a “reasonable recommendation” to the M&M using very specific language on the bid, explaining that the overall value of the property does not justify the cost of the repair or replacement of the roof. Issue: Boarding windows outside of pre-approved boarding areas. Resolution: HUD does not want windows boarded at properties unless documentation is provided to support that there have been repeated acts of vandalism at a property and security is an issue. HUD has taken this position because of complaints received from neighboring residents when properties are boarded. A letter from city code enforcement officers documenting a property as high risk is sufficient support for an M&M to approve boarding. HUD advised that the new Mortgagee Letter will add zip codes to the current pre-approved boarding areas defined in the FHA guidelines. Servicers can contact HUD to recommend zip codes to be included in the pre-approved boarding area. Issue: Demand and non-performance letters are not standardized. Resolution: HUD cannot provide a standardized copy of non-performance and demand letters in order to remain compliant with the Paperwork Reduction Act. Issue: In some cases, over allowable work is approved; however, the work is not being completed prior to conveyance. This situation is resulting in the issuance of non-performance and demand letters. Resolution: Servicers explained that bid approval is often granted only a few days before the conveyance deadline and they have difficulty finding a contractor to perform the work on such short notice. In this situation, M&Ms suggested the servicers file a short-term extension, which will be approved if the servicers acted diligently through the conveyance timeline. If diligence was exercised and the extension is denied, HUD advised the issue should be escalated to the regional Government Technical Representative (GTR) for resolution. Session II – P&P Issues: Disaster Aftermath Panelists:
Robert Klein, Safeguard Properties (SPI) Also in attendance:
Michael Hardiman, National Home Mortgage Solutions, Inc. (NHMSI) Robert Klein of Safeguard described his trips to the disaster-affected areas, emphasizing the need to visit the area firsthand to understand the complete impact of damages. Issue: Some mortgagors who are receiving insurance checks for damaged properties in the area are not using the funds to repair their properties. Discussion: Former State of Louisiana Insurance Commissioner Robert Wooley advised that one of the problems in south central Louisiana is insurance carriers having a legal obligation to issue funds on a claim. However, carriers have been so overloaded with claims volume that they are unable to return to the properties to ensure the funds are being utilized for repair. Wooley explained servicers need to urge carriers to issue the check to both the servicer and the mortgagor so the servicer can ensure the property is repaired. Issue: Servicers have been unable to establish contact with many mortgagors in the affected areas seven months after the hurricanes. Discussion: Servicers are still holding off taking action to preserve properties when they are unable to establish contact with the mortgagor. Skip tracing has been beneficial to establish contact. Fannie Mae has offered their employees the opportunity to take a one-week paid trip to visit the devastated areas and to assist Habitat for Humanity. She commended the industry for its efforts and assistance during these times. Fannie Mae also commented on the MBA Grant Program, which is facilitating funds for delinquent borrowers through the combined efforts of the Mississippi Development Authority and HUD. Grant recipients are given the discretion to use funds as they see fit. Fannie Mae explained that a similar program in Louisiana was proposed and approved by the legislature. The Louisiana program offer more incentives to the borrower for using the grant funds to repair their property. Issue: The National Flood Insurance Program released checks to mortgagors in designated areas without first having their property inspected or determining their level of need. Discussion: Funds were released without review of the properties and damages to help negate government criticism for not providing assistance to the mortgagors in the area fast enough. Some of the released funds were grossly under or overpaid. Robert Wooley advised that there has not been much progress in resolving this issue. Issue: Insurance companies continue to settle claims and issue hazard insurance checks for amounts insufficient to properly complete the repairs included in the scope of work, ignoring the rise in the prices of supplies and labor. The insurance industry is still working in “disaster mode” to address damaged properties; therefore, they have not focused efforts on making proactive changes to better handle future disasters. It was noted that hurricane season is about to begin, but debris still litters the disaster area and could be a potential hazard if a storm occurs or strong winds are experienced. Lastly, determining property values remains difficult; it is unknown if the property should be assessed based on pre- or post-Katrina condition.
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