[StBernard] HUD Policies Regarding Katrina and Insurance

[Westley Annis]

Look letter, but everyone should read this if you have any type of federal
loan.

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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC  20410-8000
 
ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER
 
October 24, 2005
                                                Mortgagee Letter 2005-41

 
TO:            ALL APPROVED MORTGAGEES
 
ATTENTION:     Single Family Servicing Managers
 
SUBJECT:       Update to General Servicing and Preservation
        and Protection Requirements for Presidentially-Declared Major
        Disaster Areas in Alabama, Louisiana, Mississippi and Texas
 
The purpose of this Mortgagee Letter is to supplement HUD's existing
 
cedures for the servicing of loans in states and communities
designated by FEMA as disaster areas as a result of Hurricane Katrina
and Hurricane Rita.  Because of the extreme devastation wrought by
the hurricanes and subsequent flooding, HUD is issuing these special
requirements and recommendations that shall apply to all FHA insured
loans in the areas approved for individual assistance by FEMA in
Alabama, Louisiana, Mississippi and Texas.  These requirements shall
remain in effect until March 31, 2007 unless extended or rescinded by
the Department.
 
Borrower Contact
 
Many borrowers from the affected areas may be unable to send or
receive mail and may have limited access to phone service.
Mortgagees are encouraged to review customer service telephone
options to make it easier for mortgagors calling from pay or cell
phones to quickly reach a human customer service representative.
When appropriate and feasible, mortgagees are encouraged to utilize
email communications in place of mail to retain contact with
displaced borrowers.  If contacted by a borrower:
 
* Record temporary or alternative contact information (cell phone,
relatives, email address).
* Encourage the borrower to keep in contact with updated contact
information.
* Determine status of the mortgaged property to the extent it is
known, employment and borrower's access to financial services.
* Inquire about short term and long term plans for housing and
employment.
* Offer to provide any needed financial records, hazard insurance
information, proof of ownership, etc.
 
Payment Processing/Late Notices/Notifications to Credit Bureaus
 
     Mortgagees should attempt borrower contact on all loans that
are more than 15 days due and unpaid in an effort to account for all
borrowers and to verify their employment status and the condition of
the mortgaged property.  The format and content of late notices
should be redrafted to be sensitive to the conditions borrowers may
be facing and to provide reassurance that mortgage assistance and/or
forbearance is available.  Additionally, FHA strongly recommends that
mortgagees:
 
* Continue to process Automated Clearing House (ACH) and direct debit
payments unless requested by the borrower to discontinue this service
on-sufficient funds (NSF) notice from the
borrower's bank.
* Not charge services fees for ACH or debit transactions that are
unsuccessful.
* Not charge fees for late payments.
* Not report delinquencies to credit reporting agencies until and
unless a mortgage is referred to foreclosure.  To the extent
possible, continue to report all current accounts to credit reporting
agencies as an absence of reporting can adversely impact individual
borrower's credit ratings.
 
     It is not necessary to mail late notices or other required
borrower notices to zip codes for which USPS is not accepting mail or
to individual addresses at which mail service has been discontinued
because the property has been destroyed.  As indicated above,
mortgagees should make every effort to obtain alternative contact
information for borrowers who have been displaced. The servicing file
should document the unavailability of mail delivery and the
mortgagee's efforts to make borrower contact.
 
Delinquency servicing and Loss Mitigation
 
Mortgagees must continue to report 90-day delinquencies to HUD's
Single Family Default Monitoring System (SFDMS) so that accurate
default information is available to the Department.  [Note:  It is
expected that regulations requiring mortgagees to begin reporting
delinquencies at 30 days delinquent will be published during the
period covered by this mortgagee letter.  A subsequent mortgagee
letter will be published advising mortgagees when to begin reporting
using the revised requirements in all areas including disaster
areas.]
 
Whenever borrower contact can be made, mortgagees must fully explore
all loss mitigation strategies especially the use of long-term
special forbearance and any other special loss mitigation options the
Department may make available to disaster victims.  Mortgagees are
reminded that in accordance with the provisions of ML 2002-17 ,
special forbearance may be offered to a borrower who has both a good
payment record and a stable employment history, but has not received
a commitment of re-employment at the time the lender is reviewing the
borrower's financial information.
 
Home retention is a primary goal of HUD's loss mitigation program.  A
commitment to occupy the mortgaged property as a primary residence is
a pre-condition for use of special forbearance, loan modification and
partial claim options.  Unfortunately, many properties in the
affected region are totally demolished and cannot or will not be
rebuilt.  Mortgagees must consider the owner occupancy requirements
when determining appropriate loss mitigation options.  However,
mortgagees are encouraged to offer special forbearance until enough
information is available to determine if a property can and will be
repaired for occupancy by the borrower.
 
As a reminder, HUD requires a 90-day moratorium on all foreclosure
actions on property directly affected by presidentially-declared
disasters.  This applies to not only new foreclosure initiations, but
for all foreclosures in process and has historically applied for
either areas declared by FEMA for individual assistance and/or for a
public assistance declaration.  This guidance is provided in Chapter
14 of HUD Handbook, 4330.1, Rev-5, Administration of Insured Home
Mortgages, and has been repeated in numerous mortgagee letters and is
also referenced on the following HUD website,
http://www.hud.gov
/offices/hsg/sfh/nsc/disaster.cfm.
 
Property Inspections
 
     In accordance with the requirements of 24 CFR 203.377 and as
restated in Mortgagee Letter 2002-10, a visual inspection of the
property is required when a mortgage is due and unpaid for at least
45 days and there has been no contact with the borrower.  In
addition, where the mortgagee has learned that a property has become
vacant or abandoned, the mortgagee is responsible for an inspection
at least every 30 days.  The Department recognizes that due to the
difficulty in contacting borrowers who have been displaced, making a
determination of vacancy or abandonment is challenging.  Mortgagees
are instructed to perform an initial property inspection 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.
 
     If the initial inspection determines that preservation and
protection actions will prevent further damage to a salvageable
structure, mortgagees should continue monthly property inspections
until the borrower resumes occupancy, there is a hazard insurance
resolution or as long as necessary to ensure that the property is
preserved.  Continued inspections are not required if the mortgagee
has confirmed that the property has been substantially destroyed and
preservation and protection actions are not appropriate.
 
     Because of the extreme conditions in many areas of the Katrina
and Rita hurricane declarations and the diversion of inspection
personnel to other recovery efforts, the Department realizes that it
may be some time before many properties can be inspected.  Mortgagees
who make a good faith effort to inspect all vacant or abandoned
properties and who document these efforts in each servicing file,
will not be considered to have failed to preserve and protect the
property if a required inspection is completed within 60 days of the
date the initial inspection is required and the property is
accessible or within 60 days from the last required and completed
inspection.  This provision will be applicable to those areas that
FEMA has declared eligible for individual assistance and will
continue for a period of 12 months from the date of this mortgagee
letter or until otherwise extended or withdrawn by the Department.
 
For all other areas, the Department will accept as compliant,
inspections that are completed within 40 days of the date that the
initial inspection was required or within 40 days from the last
required and completed inspection.  This temporary 5-day extension
will begin on the date of this mortgagee letter and will continue for
a period of 12 months or until otherwise extended or withdrawn by the
Department.
 
     Mortgagees may elect to conduct inspections more frequently in
areas especially hard hit by hurricanes or flooding.  The Department
cautions mortgagees to gauge the risk of the jurisdiction where the
property is located to determine the frequency of any additional
inspections that may be required to protect the security.  For
properties within areas identified by FEMA as eligible for individual
benefits, the Department will reimburse for 2 inspections each month
on a claim for insurance benefits.
 
In conjunction with a subsequent claim for insurance benefits, HUD
will reimburse mortgagees for disaster inspections at the rates for
initial inspection and recurring inspections as published in
Mortgagee Letter 2002-10 or any subsequent guidance.  From the
effective date of this mortgagee letter and until further notice, all
inspection fees for properties in the areas declared eligible for
individual assistance by FEMA are increased an additional $15 per
inspection.
 
Preservation and Protection
 
HUD's preservation and protection (P&P) requirements provided in both
ML 2002-10, and ML 2005-22  are intended to preserve an individ
ual
vacant property and prevent it from becoming a nuisance to the
community.  Many of the requirements do not make sense when applied
to properties in neighborhoods that have been substantially
destroyed.  Individual remediation actions such as debris removal or
pumping water from basements may not be appropriate when Federal,
state and local resources are being mobilized to perform, coordinate
or financially assist in clean up and preservation actions.
 
Because it is not possible for the Department to anticipate all
possible scenarios, mortgagees must use prudent judgment to determine
what P&P actions are appropriate in each case.  Whenever possible,
mortgagees should work closely with borrowers and governmental and
other relief agencies to identify and coordinate property
preservation and repairs.  For example, the Army Corps of Engineers
is making roof tarps available to hurricane victims.  We are passing
along a toll free number that is provided on the Army Corps of
Engineers website which is 1-888-766-3258.
 
     Additionally, the following P&P provisions apply within areas
designated by FEMA for individual assistance:
 
* During the initial inspection mortgagees must post a notice in a
conspicuous spot on the property providing contact information
including the mortgagee's name, address and phone number and
emergency contact number.
* While hazard insurance claims are pending, mortgagees may, at their
discretion, board properties, in lieu of replacing windows.
* Mortgagees will be reimbursed for up to 200 photographs in
conjunction with a claim filing.
* Mortgagees have expressed concern about not always being able to
provide itemized billings for certain emergency preservation and
protection costs incurred in the vast disaster area.  Where this is
the case, certain charges may be reimbursed if the mortgagee provides
some supporting evidence, (photos, inspections, etc.) to associate
the charge with the property where it is clear that the mortgagee
(and/or its agent) was responsible in completing the task.
* The requirement to secure second bids for debris removal will be
waived in the declared disaster area until March 31, 2007, unless
extended or rescinded by the Department.
* The $250.00 identified in ML 2002-10, for emergency repairs that
may be expended without further approval is increased to $750.00,
until further notice.
* Mortgagees will not be liable for failing to notify HUD in advance
of demolition actions if the mortgagee did not receive written notice
of the action.
 
Hazard Insurance
 
Timely receipt of flood and hazard insurance proceeds will allow
borrowers to begin rebuilding their homes and lives.  Mortgagees are
encouraged to make exceptional efforts to assist borrowers by
providing insurance information and copies of insurance policies when
needed and by promptly releasing insurance claim proceeds when a
viable repair plan has been approved as well as following standard
procedures to assure that hazard insurance claims are filed and
settled expeditiously.
 
FHA's standard mortgage document requires that the mortgagee be named
as a loss payee on the hazard insurance policy.  This protects
borrowers by ensuring that when it is time to rebuild, the insurance
proceeds have not been used for other purposes and it protects
mortgagees in the event properties cannot be rebuilt and some or all
of the insurance proceeds are required to pay off the outstanding
loan indebtedness.   HUD is working with FEMA to ensure that checks
issued by FEMA for flood insurance claims are payable jointly to the
borrower and the mortgagee.  Mortgagees are encouraged to contact
commercial hazard insurers and remind them of the loss payee
provisions of the mortgage.
 
Some hazard policies include coverage for replacement of personal
property, temporary housing and other transition expenses.  Though it
is likely that a large number of properties damaged by the hurricane
and subsequent flooding cannot or will not be rebuilt, mortgagees
must promptly release to borrowers those portions of a claim payment
that are not related to the repair and rehabilitation of the property
improvements.  Additionally, mortgagees must not retain hazard
insurance proceeds to make up an existing arrearage without the
written consent of the mortgagor.
 
Conveyance of Properties Already Foreclosed
 
     Prior to the hurricane and the disaster declarations, many
mortgagees had completed foreclosure but had not yet conveyed to HUD
many properties in areas designated by FEMA for individual
assistance.  Mortgagees must make every effort to quickly determine
the condition of these properties and must immediately notify the
appropriate Management and Marketing (M&M) contractor whether the
property:
 
* Has been totally destroyed;
* Has been substantially destroyed and is likely to be demolished by
local authorities;
* Is substantially intact and can be repaired;
* Sustained minor (less than $2,500) or no damage;
* Is covered by flood or hazard insurance and whether a claim(s) for
benefits has been filed.
 
Whenever possible, previously foreclosed properties should be
conveyed within the reasonable diligence timeframes established in ML
2005-30.  Also, following conveyance, mortgagees have 45 days to
deliver evidence of marketable title.  Submit any requests for
extensions of time to convey or requests for extensions of time to
submit title evidence through the appropriate Management and
Marketing (M&M) contractor.
 
Future Foreclosures and Conveyances
 
In recent days, mortgagees have asked a number of questions and
mentioned concerns about foreclosure requirements and timeframes.  In
ML 2005-33 published on August 31, 2005, the Department announced a
moratorium on foreclosures on properties directly affected by the
disaster is in effect for a 90-day period from the date the President
declared a disaster to have existed.  The moratorium applies to both
initiation and completion of foreclosures.  Prior to the expiration
of the moratorium, HUD will issue additional guidance related to
foreclosure and conveyance issues.
 
HUD's Office of Inspector General has asked that we remind the
industry of the availability the HUD/OIG Hotline.  Immediately report
any suspicious activity relating to Waste, Fraud, and Abuse to
HUD/OIG Hotline at 1-800-347-3735 or Email to hotline at hudoig.gov."
 
Questions regarding this mortgagee letter may be directed to HUD's
National Servicing Center at (888)-297-8685.
 
      ___________________________________
 
Brian D. Montgomery
Assistant Secretary for Housing-
 
Federal Housing Commissioner