HUD Mortgagee Updates

The final rule on revisions for the single family mortgage insurance program follow public comment on provisions HUD proposed on Nov. 10, 2004, and becomes effective this Nov. 1, HUD said in a recent mortgage letter.

This final rule revises HUD’s regulations that govern actions by lenders “with respect to mortgages in default to implement recent statutory changes” and “to make them consistent with industry practices,” HUD said. “The department believes that these changes will help to increase the administrative efficiency of the single family mortgage insurance program.”

HUD has determined it is not feasible for a mandatory escrow requirement for condominium and homeowners association fees. Initially, HUD sought for borrowers to pay homeowner or condominium association fees as part of their monthly mortgage payments and that lenders collect an escrow from the monthly payments for these fees when they became due, according to the letter

Eliminating the escrow requirement for homeowner association and condo fees consequently dissolves HUD’s proposal to reimburse lenders for the payments they made on those fees when borrowers defaulted on the escrow payments, and the proposal to eliminate having the FHA Secretary approve, prior to issuance of a mortgage, of a covenant that provides for charges and fees for the administration, operation, and maintenance of community-owned property, the letter said.

HUD said it will also require lenders to submit the original of the note no later than 60 days after it is executed then recorded, and the original security instrument will be required within six months of being executed. Lenders experiencing a delay from the recording authority may request an extension of time from HUD. The housing agency decided to do away with its previous proposal to receive both the original note and recorded version within 60 days because some jurisdictions might experience difficulty in receiving the recorded instrument from the recording authority and submitting it to HUD within that time frame.

A proposed matter that has yet to come to a final resolution is eliminating the requirement of having a defaulted borrower engage in a face-to-face meeting if the mortgaged property is within 200 miles of any of the lender’s office. HUD noted that, just as it has eliminated the requirement of a face-to-face meeting for loan origination, it may make a similar change in FHA’s servicing requirements, though it strongly believes there must be a minimum standard for lenders to contact a delinquent borrower.

HUD is also considering further change and clarification for the timing of direct conveyance procedures. The agency had proposed that the deed to the FHA Secretary must be recorded within 30 days after the later of the acquisition of possession of the property by the lender or the expiration of the redemption period.

Finally, the Nov. 10 proposed rule also called for clarification on the deadline for a lender to complete a loss mitigation evaluation. This matter, however, was finalized in the April 2005 rule, “Treble Damages for Failure to Engage in Loss Mitigation,” which said lenders failed to engage in loss mitigation when they did not do an evaluation on a loan before four full monthly mortgage installments were due and unpaid.