The MBA recently facilitated the annual HUD P&P meeting in Washington D.C. The participants included representatives from HUD, servicers and field service providers

HUD MBA Committee Meeting Summary

Attendees HUD: Joe McCloskey - Laurie Maggiano - Ivery Himes - James McGee - Leslie Bromer and James Hass
 
MBA Committee Chairs: Vicki Vidal and Caroline Reaves
 
Servicers
Marc Hinkle, PHH Mortgage
Sherilee Massier, Wells Fargo
Joe Morrison, M&T Mortgage
Craig Parker, Midland Mortgage
 
Field Service Vendors
Robert Klein, Safeguard Properties
Allan Martin, MCS
Paul Magaha, First American Field Services
 
The MBA facilitated the annual HUD P&P meeting with HUD, the servicers, and field service providers to continue the quest to build understanding, cooperation, and consensus for the betterment of the industry. Through collaborative meetings, open discussions and a review of HUD guideline interpretation differences, a collection of meeting attendees were able to create an agenda that best summarized the most important issues in need of discussion and resolution. HUD was also able to provide an update on the future release of the newest Mortgagee Letter, which will also help to clarify some of the most common issues discussed.
 
HUD Updates
HUD briefly updated attendees on progress with proposed reforms and new products, and advised that a new Mortgagee Letter addressing property preservation is expected to be released later this year. Earlier this year, HUD released ML 2006-08 and ML 2006-10, which explain the establishment of a new FHA Resource Center and special authority for use of Deed-in-Lieu to assist victims of Hurricanes Katrina, Rita, and Wilma. 
 
HUD has not further extended the moratoriums in the hurricane disaster areas, as servicers are expected to work with borrowers, and when reasonable, request an extension of time to start the foreclosure process.
 
HUD and the MBA are working to determine which grant policies are available to victims of the hurricanes.  The MBA is also soliciting feedback and support from the servicers for the LRA and MDA proposals.
 
Directive Number: FR-4916-F-02 was issued by HUD on March 31, advising mortgagees that they will be required to report all 30 day or more delinquencies to HUD on the last day of the month following the delinquency.  This directive is effective as of May 1, 2006, and will also become a requirement of an upcoming mortgagee letter.
 
Extensions of Time
Servicers requested clarification from HUD that pending hazard insurance claims are a valid reason for due diligence timeframe extension requests.  HUD confirmed these are reasonable requests because the servicer would likely avoid bidding full debt at the foreclosure sale. Servicers need to fully document the file with all information and details outlining the due diligence of the hazard insurance claim. If this is completed, the pending claim will be considered a valid reason for extending the due diligence timeframe. 
Action Item: Servicers will provide HUD with the volume of extension requests submitted because of pending hazard insurance claims.
 
Servicers requested that M&M contractors be able to grant extensions beyond 90 days for properties with pending hazard insurance claims, which is a training item being discussed with the M&Ms.  HUD recommends servicers provide detailed documentation to support all follow up with the insurance company and delays in claim settlement on the extension request form.  HUD is working to amend the extension and over allowable request forms to include more detail.
Action Item: Servicers will forward examples of these extension requests to the Principal GTR, Marlene Robinson (Marlene_l._Robinson@hud.gov). 
 
Second Bids
Second bids are required for all debris removal bids that exceed the allowable in effort to control property preservation expenditures.  The cost of obtaining second bids is not reimbursable to the servicer and the M&M contractors are requesting an excessive amount of second bids for unnecessary items. The unnecessary requests for second bids result in inefficiencies, unwarranted costs to the servicers, and delays in conveyance. 
 
HUD does not have a tracking mechanism for second bid requests, but they will research methods to obtain the data regarding the percentage and types of second bids requested from the M&Ms.  
Action Item: Servicers will provide second bid data to HUD (excluding debris removal bids) for their review.
 
Some M&Ms have requested that first and second bids match by quantity, quality, and description of item.  This policy defeats the objective of obtaining two independent bids to complete work. 
Action Item: Servicers will report these situations and escalate them to HUD. 
 
In an effort to preserve the objective of obtaining two independent bids, the committee of servicers and field service providers suggested the M&M automatically approve the lower bid and place the obligation on the servicer to put the property in conveyance condition for the approved amount.  HUD will consider the suggestion.
 
Second bids are often requested for small dollar items ($100.00 or less) despite photo documentation to support the bid. HUD agrees that second bids for small dollar amounts may not be appropriate. 
 
Reconveyance, Demand, & Non-Compliance Letters
Each M&M has its own format for letters issued to servicers, and each has varying degrees of detail and explanation. The committee suggested that HUD standardize the letters issued and provided HUD with a generic example template that will assist M&Ms and the servicers in providing necessary detail and documentation. However, HUD cannot issue a standard template because it would violate the Paper Reduction Act.  Instead, M&Ms could be provided a checklist that would require specific information be provided for each type of letter. 
Action Item: Servicers will provide a suggested checklist of items to be included with the issuance of these letters.
 
At minimum, servicers would like to receive a copy of the inspection report and color photos with the issuance of HUD Demand and Non-Compliance letters. In cases of denied extension requests, servicers requested a copy of the GTR denial confirmation. 
 
Servicers also advised that offsets to claims are being incurred while the appeal is in progress.
Action Item: Servicers will escalate offset examples to the GTR for review. 
 
Services advised M&Ms are providing automatic approvals of property title packages without first researching the title and addressing existing issues. When the M&Ms are ready to sell the property, which can be months or even years after the original title approval, they are requiring the servicer to correct issues that existed at the time of approval. According to HUD, the only title issues that should be addressed by the servicers after title approval are those not identified in the original title package.
Action Item: HUD will review title approval with the M&Ms.
 
The committee requested aggregate data regarding the number of letters issued and rescinded to reference as a training tool.  HUD does not have a national database to store compliance issue and rescission information; however, an internal work group is working to gather the data for analysis.
 
Servicers want the opportunity to review the loan in detail and the option of accepting reconveyance of the property in lieu of issuing payment for unreported damages.  Current regulations allows HUD the option to reconvey and/or reduce the claim for the amount of damages, the M&M is not required to provide the option to accept reconveyance by the servicer.
 
Utility Bills
Utility companies are requiring past due bills to be paid in full before activating the utilities to maintain sump pumps and heating systems.  M&Ms are not approving bids to pay past due utility bills (pre-foreclosure sale) and they are instructing the servicers to pay the past due amounts.  In addition, M&Ms are not transferring utilities into their name at the time of conveyance, resulting in past due bills.  Utility companies are applying past due funds to other property accounts, shutting off service and refusing to transfer service until the outstanding bills are paid.
 
The M&Ms are responsible for utilities from the date of conveyance to the date of disposition.  
Action Item: Servicers will forward examples of utilities not being transferred timely to HUD for review.
 
M&M Training
In February, the M&Ms and HUD met for additional training and to review a list of issues provided by the servicers.  Going forward, HUD will consider allowing servicers and field service vendors to participate in the M&M training sessions.
 
Response Time from HOC & HUD Headquarters
Servicers reported significant delays in response time to appeals submitted to the GTR and HOC for offsets and reconveyances.  The servicers are submitting multiple requests before receiving a response.  In addition, at the direction of the HOC, the M&Ms are not accepting rebuttals that include documentation from Washington Headquarters, reasoning that the directive is not stated in a ML Release.
 
HUD does not track response time from the GTR or HOC, as the HOC director should be managing the response time.  HUD will follow up with the HOCs and review what is being done to ensure timely responses from the REO Directors on appeals and inquiries from the servicers.  HUD anticipates replacing the current SAMS system with a newer system that will allow for easier tracking of issues.  The implementation is a nine-month process, but the contract has not yet been finalized.
 
Hurricane Properties
HUD requested servicers obtain permission to secure in Orleans Parish from the HOC Office (Judy Thoms, Joyce Jacoby and Laverne Jacobsen).  In a follow up e-mail, Judy Thoms advised the servicers that the requests should be directed to the sheriff of Orleans Parish. HUD will further review the issue of securing in Orleans Parish.
 
Code Enforcement on Current Loans
Servicers requested clarification and specific instruction to resolve city code violations and citations on properties with current loans.  Servicers can proceed with foreclosure because of non-monetary default; however, it is not financially beneficial to enact this process if the loan remains current. Servicers risk loss because of mortgagee neglect if foreclosure action is not taken.   
 
Mortgagees should make every attempt to contact the borrowers and resolve the violation or citation before initiating foreclosure.  In addition, the file should be thoroughly documented to account for the due diligence.  HUD will consider developing a list of steps for servicers to follow in the event of non-monetary default.
 
Increase of Inspection Allowables Due to Increased Fuel Costs
HUD advised that all fees from ML 2002-10 are under review and may be adjusted in the new mortgagee letter, expected to be released by the end of the fiscal year.
 
40-Day Inspection Issue
HUD ML 2005-41 temporarily extended the 25-35 day rule to 25-40 days across the entire nation. The extension was temporary and HUD expects to issue retraction soon. 
 
Interior Debris Removal
HUD is reviewing the current policy regarding interior debris removal. The M&M contract requires the removal of interior debris, except for the states of Idaho and Florida.  The proposed change of having servicers complete all interior debris removal would require reprocurement of the M&M contract; therefore, the implementation may be completed in stages.  In the meantime, HUD advised that the upcoming mortgagee letter will better clarify the differences between interior debris and health hazards. 
 
Eviction Costs/Man Hours
Several states require licensed/bonded movers, who require a minimum payment of four hours per each man, to complete evictions. If the sheriff proceeds to cancel the eviction after the movers have arrived, servicers are penalized because HUD will only reimburse for one hour or work per man.  HUD will consider changing the policy to allow servicers to claim four hours of work per man for the states with such laws.
Action Item: Servicers will provide HUD with a list of applicable jurisdictions.
 
Winterizations
Wet heating systems (radiant and steam systems) cannot be winterized per the 2002-10 guidelines for the defined allowables, which results in over allowable requests and the potential of freeze damage while awaiting approval from the M&M.  Additionally, the M&M routinely perform a winterization system shut-down once the property is conveyed and received in inventory.  A more efficient process for winterizing wet heating systems is the system shutdown procedures in ML 97-31.  A number of servicers are completing the system shutdowns detailed in ML 97-31 while awaiting bid approval to prevent freeze damage; however, the cost is not reimbursable. 
Action Item: Servicers will provide HUD with documentation to support the request.
 
M&Ms are issuing HUD Demand letters for improper winterization (regardless of wet or dry heating system) with photographs showing a trickle of water from a faucet, despite the servicer/field service provider providing full photo documentation to justify the winterization.  In addition, the properties have not sustained any freeze damage through the course of the winter months.  Approximately 90% of the letters are rescinded after review of the winterization photos.  This is an operational issue that HUD will review with the HOCs. 
 
Grass Cuts
The guidelines do not allow M&Ms to approve grass re-cut over allowable requests for the entire grass cut season.  HUD advised that the ML expected for release will address this issue.

Holder/Servicer Number
Servicers would like HUD to establish a more efficient procedure for changing holder/servicer numbers. The number must be correct for claims to be paid to the proper servicer. Servicers reported delays in HUD updating the numbers after a change has been requested, and also incorrect numbers when servicers transfer loans. Delays in updating the number can be seen when HUD rejects the request to change the number without providing reasoning and requires additional documentation, which halts the number change process. Numbers must be changed at the time of loan transfer because of the difficultly changing the number after the transfer has been completed. Servicers requested the ability to mass transfer the numbers to help speed number changes and clean up the current back log.
 
Opportunity to Bid Less than Total Debt at Sheriff's Sale
Servicers requested the opportunity to bid less than total debt at the sheriff's sale when the economics of the loan would justify the bid. This would encourage more third party buyers and reduce the mortgagee's loss.  This would also benefit HUD by potentially decreasing the amount of properties in its inventory. 
 
HUD advised this suggestion would require new policies and regulations for valuation procedures.  The cost of the policy and procedures will also need to be reviewed prior to any changes.
Action Item: Servicers will provide feedback on the following:
1. What measures are appropriate to determine the fair market value of the property?
2. How can HUD's review process for approval be streamlined?
 
The committee was able to address several concerns affecting servicers and clarification was provided by HUD.  Many of the topics discussed were regarding challenges with the inconsistencies and discrepancies in communication between the M&Ms and HUD guidelines.  HUD reminded the committee to escalate inconsistencies to the HOC (HOC director, REO director, GTR, M&M) when appropriate.  Please see the following link for an escalation chart: M&M Issues Escalation Chart.
 
HUD was receptive to the committee's suggestion of organizing regional meetings with representatives from the HOC, servicers, and field service providers to continue the dialogue and promote cooperation, as well as provide clarification. 
 
The meeting continued the progress of fostering consensus and open communication. HUD will take many of the issues discussed under advisement and will update the servicers, field service providers, and M&Ms if any changes are enacted.