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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410

December 23, 1980
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER             IN REPLY REFER TO:
Mortgagee Letter 80-49
TO     :  ALL APPROVED MORTGAGEES
SUBJECT:  Change in Method of Payment of Mortgage Insurance Premiums
          With HUD Debentures
 
     The purpose of this letter is to advise approved mortgagees of
the Department's change in policy regarding acceptance of debentures
for payment of mortgage insurance premiums under the "averaging
method."  Existing instructions in Chapter 13 of HUD Handbook 4110.2 ,
The Mortgagees' Guide, provide that mortgagees may determine the face
amount of debentures to be submitted monthly for purchase in
connection with mortgage insurance premiums paid by either of the two
following methods:  (a) the amount of the premiums paid for the month
rounded to the nearest $100, or (b) the monthly average of premiums
paid by the mortgagee under the appropriate HUD insurance fund
rounded to the nearest $100.  Because of frequent changes in
ownership and servicing, it is no longer possible to accurately
determine averages.
 
     Effective on and after the date of this letter, HUD will not
approve any further requests for the submission of debentures under
the averaging method.  Approvals that are presently in existence will
remain in effect until the date the current annual approval expires,
but they will not be renewed or extended.  In addition, HUD will not
accept debentures from mortgagees (including "participating
mortgagees") or servicers, unless they are the mortgagee or servicer
on HUD's records on the premium due date.
 
     The letter transmitting debentures to HUD and requesting that
they be purchased to the extent of current premiums paid should
include the following information:  due date and amount of premium,
by Section of the Act; payment information (check number and date
paid); and name of holding mortgagee and servicer.  The transmittal
letter should also contain a list of the debentures submitted by fund
and series showing the following information:  registered name to
which issued; debenture number; rate of interest; denomination and
maturity date.  Furnishing this information will expedite processing
of the debentures to the Treasury Department, HUD's agent, for
redemption.
 
     Approved mortgagees are also reminded of the provisions of
Mortgagee Letter 80-31, dated July 31, 1980 governing the reporting
of sales of HUD-insured mortgages and loans.  It is very important
that these changes be reported to HUD accurately and timely, since
they not only establish the basis for responsibility for payment of
the premiums, they also establish the "eligibility" for the mortgagee
who may submit debentures to the extent of current premiums paid.
 
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     In summary, debentures will be accepted only from mortgagees or
servicers of record on HUD's books on the date the premium is due,
and debentures submitted for purchase must be registered in the name
of the mortgagee or servicer on the premium due date.  Authority
letters (detailed in Handbook 4110.2 ), as appropriate are required
for each submission.  Operating in this manner -- based on actual
premiums paid by the mortgagee or servicer -- is more in line with
the original intent of the National Housing Act, i.e., to provide a
means for early redemption of debentures to enhance the cash flow of
mortgagees for making more loans available to prospective homeowners
under HUD's mortgage insurance programs.
 
     The Mortgagees' Guide will be amended accordingly and until it
has been amended, the instructions in this letter will prevail.  The
cooperation of all approved mortgagees in connection with the above
will be sincerely appreciated.
 
                              Lawrence B. Simons
                              Assistant Secretary for
                              Housing-Federal Housing Commissioner