Session I - HUD P&P Issues
 
The USFN Conference provides a forum to allow for open dialogue between all segments of the mortgage field servicing industry. Communication, consensus and understanding are necessary to ensure industry progress, partnership and success for all involved.
 
HUD Overview of Property Preservation
Leslie Bromer of HUD provided an update on HUD and upcoming mortgagee letters.  HUD has drafted an update to the P&P schedule and allowables, which is expected to be released before the end of the calendar year.  HUD has incorporated many suggestions received from servicers and discussed at recent conferences.  In effort to make the mortgagee letter more user-friendly, HUD expects to post it on their website with tools for easy reference. 
 
The expected mortgagee letter will provide clear instructions for the servicers regarding over allowable requests for grass re-cuts for over-sized lots.  The mortgagee letter is also expected to provide additional clarification on the definition of health hazards and possible reimbursement for pre-conveyance inspections. 
 
HUD ML 2006-15 was released on June 8 as an update to delinquency reporting requirements.  Mortgagees are to report all accounts that are 30 days delinquent as of the last day of the month.  This is a change to the previous reporting requirement that had mortgagees wait until the mortgage became 90 days delinquent. FHA is requiring mortgagees to report the revised data beginning with the October 2006 reporting cycle.  The data is due to HUD no later than Nov. 7, 2006, the fifth business day of that month.
 
HUD Demand and Non-Performance Letters
The M&M contractors are issuing demand and non-performance letters in different formats.  Servicers would like a standardized format for consistency and would like to receive letters via email.  In addition, supporting documentation and photos should accompany the letters issued.  HUD advised the suggestion of standardized forms will be reviewed; however, M&M contractors do not always have the capability to forward digital color photos to the servicers because of system limitations. 
 
HUD stated that it is acceptable to funnel demand and non-performance letters through the field service providers, but servicers should oversee their field service provider to ensure the quality and accuracy of rebuttals to letters issued.
 
HUD stated that demand letters cannot be issued for work not completed at a property if that work was not claimed for reimbursement; however, a non-performance letter can be issued to the servicer.
 
Servicers are receiving non-performance letters for incomplete over allowable request forms, specifically, for missing convey dates.  HUD advised this is a training issue to be discussed with the M&M contractors.
 
Communications
HUD guidelines require M&M contractors and servicers document all communications via fax or overnight mail services to track the date and time of receipt.  Servicers and field service providers would like HUD to allow for communication via email, as it is faster and more efficient in the transmission of photos and documentation.  HUD agrees that email is faster and will review the issue.
 
Pre-Conveyance Inspections
Servicers, M&M contractors, and field service providers all agree these inspections provide invaluable feedback, clarification, and training to all parties.  However, it is not always feasible to schedule all parties to complete the property visit within the 30-day timeframe to convey. Robert Klein suggested performing the pre-conveyance inspection at the time of the initial secure.  Performing the inspection upon entering the property for the first time would not to hinder the conveyance timeline, but would allow for clear support of property condition and help clarify the work needed to place the property in convey condition. 
 
HUD agrees the timeframe may be difficult to meet in the rural areas and advised they will review the request to grant extensions to complete a pre-conveyance inspection.
 
While these inspections have proven beneficial, the M&M contractors have instructed servicers to complete additional work at the time of the inspection.  Servicers would benefit from HUD clarification on how to address the request for additional work.  Over allowable and extension requests would need to be filed and approved due to the timeframes, and often the additional work is considered by the servicer to be for cosmetic or marketable-condition items.  A pre-conveyance inspection checklist of required items would help reduce the disparity between convey and marketable condition items.
 
HUD agrees a checklist to be completed during the pre-conveyance inspection would be a useful tool and they will review the suggestion.  HUD also reminded servicers that a list of items to be inspected, at a minimum, has already been provided in the servicing handbook.  The M&M contractors have been provided with a standard form of items to be inspected upon conveyance, however, each M&M has created its own form and they are not consistent with one another.
 
Winterizations
Servicers are receiving demand letters for improper winterizations despite providing sufficient photo documentation and no freeze damage reported at the property.  A trickle of water from one faucet or toilet lids not taped shut is not sufficient proof the winterization was not performed and the M&M contractors should use discretion when issuing demands for reimbursement.  HUD has reiterated to the M&M contractors the requirement of inspecting the property within 24 hours of conveyance. 
 
HUD ML 2002-10 requires wet (radiant) heating systems to be drained, pressure tested, restarted, and kept running through conveyance to HUD.  This process cannot be done within the allowable due to the age of these systems and the cost associated with refilling and maintaining the system.  In effort to reduce the chance of freeze damage, servicers are performing a system shut down at their cost while awaiting over allowable approval from the M&M contractor.  The age of the property and heating system, and the cost to maintain the utilities is costly and of no benefit.  Additionally, aged boilers create safety concerns.
 
HUD has solicited feedback from the servicers and field service providers to support the suggestion of reverting the guidelines to the ML 97-31 standards of performing system shut downs for all heating systems.  HUD will review upon receipt of the information.
 
Conveyance Extension Requests
The current M&M contract does not allow the M&M to automatically grant extensions to convey beyond 90 days from expected convey date.  M&M contractors should be forwarding these extension requests directly to the GTR and not automatically denying the request. 
 
Servicers would like an exception to the 90-day rule for properties with pending hazard insurance claims.  Many hazard insurance claims take 60-90 days to settle with the insurance company and additional time is needed to repair the property prior to conveyance.  The M&M contractor is allowed to deny the extension if the request form does not clearly document the due diligence of the servicer's follow up with the insurance company.  Extension requests can also be denied for failure to file the first legal foreclosure action timely and failure to advise the M&M contractor of damages discovered.
 
The M&M contractor and the GTR are required to respond to extension requests within 5 business days, provided the servicer submits a complete, detailed package.  Servicers are not to assume approval of the extension request when a response is not received, but should follow up with the M&M contractor for a response.
 
Servicers are permitted to file additional extension requests when they have not received a timely response from the M&M contractor or GTR, assuming the first request package was thorough and complete.  HUD suggested that servicers follow up with a phone call to ensure the M&M contractor received the extension request package.
 
Extension requests to convey are to be approved if damages occur after foreclosure sale while the property is vacant. 
 
Bids in Excess of $2,500
Once again, HUD clarified that M&M contractors are not instructed to automatically deny or request second bids for over allowable requests exceeding $2,500.  The M&M contractors are to review these bids with their GTR because many bids of this amount may be considered repairs.
 
City Code Compliance
City Code Officials report improved communication and response from the servicers, but still encounter many properties where work is not completed timely.  They expressed concern over the delays in the bid approval process between the M&M contractor and the servicer.  When city code enforcement issues a violation or citation, they want the issue addressed immediately, not 10 days later.  The delays caused by the bid approval process may result in liens against the property.  HUD guidelines do have a provision granting servicers the ability to respond to emergencies at a property.
 
Kurt Berger from the City of Chicago has a list of 120 properties that are in demolition court awaiting court permission to demolish.  The city does not have current assignment of record, and therefore cannot notify the servicer.  In addition, the contact information for the record is not current or directed to the correct department, so the city is unable to notify the correct persons to represent the property.
 
A list of Chicago properties in demolition court is available here:   

 Chicago.xls

City code violations and citations are posted on many current loans and servicers are not made aware of the citation until the loan goes into default.  HUD is not reimbursing servicers for many of these citations issued prior to default and suggests servicers initiate foreclosure actions for technical (non-monetary) default when necessary.  Servicers should provide clear, detailed documentation in the file when initiating foreclosure as a result of technical default.
 
Utility Transfers
Servicers are receiving utility bills for utility service post-conveyance.  M&M contractors are required to transfer the utilities into their name within 15 days of conveyance.  The REO Directors have been instructed to monitor the M&MS to ensure compliance.  The utility companies are not transferring the utilities when instructed by the M&M and further complicating the issue by applying past due bills to other properties.  HUD will not reimburse the M&M contractor or the servicer for invoices for multiple property accounts.
 
Second Bids
Second bids are required for all debris removal that exceeds the HUD allowable and the M&M contractor should not be requesting second bids for routine items that are bid at reasonable costs.  Unusual situations or large repairs do warrant a second bid request and these are being monitored by the GTR. 
 
The M&M contractors are required to provide a reason as to why they are requesting a second bid.  Servicers are not receiving an explanation from the M&M and it was suggested that the HUD form does not provide a space or room for the explanation.  HUD will review the suggestion to allow second bid requests and responses to be sent via email.
 
HUD SAMS System
HUD anticipates replacing the current SAMS system with a system that will allow for efficient tracking and communication between HUD, servicers, and M&M contractors.  It was suggested that HUD consider expanding the system to include other aspects of the industry as well, including city code enforcement.  HUD agrees including all aspects of the industry is a good idea and will review the option of expanding the existing working group to further brainstorm the suggestion.
 
Throughout the entire session, HUD emphasized the importance of clear, detailed documentation of all loan files to support the condition of the property and show the due diligence of the servicer. Understanding and providing this documentation protects the servicer and ensures the property is correctly maintained, repaired and managed. HUD continues to work toward resolution for outstanding issues. The servicers were reminded of HUD's E scalation Chart, which can be utilized at any time for questions, issues, or information.

To access the audio recording of the session, please click on the following link.

P&P Session Audio

To view the Disaster Session Summary, please click on the following link.

USFN National Dallas Conference Disaster Session Summary