www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 June 15, 1989 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 89-18 TO: ALL APPROVED MORTGAGEES ATTENTION: Servicing Managers (Single Family) SUBJECT: Pre-Foreclosure Reviews and Mortgagee Servicing The Department of Housing and Urban Development (HUD), through its monitoring of mortgagees, both in on-site reviews and the review of cases for assignment, has determined that there is considerable non-compliance with the regulations pertaining to the pre-foreclosure review of mortgages by mortgagees. A number of mortgage lenders issue HUD assignment letters #1, #2, and #3 as if they were part of their routine collection letters, and if the mortgagor applies for, and is denied assignment, then make the decision to foreclose. This practice defeats the intent of the assignment program, and does not comply with our outstanding instructions concerning the servicing of HUD insured mortgages. Our instructions require that a management review, determination to foreclose, and granting of permission to foreclose by the mortgage holder, if the holder and the servicer are not one and the same, have all been accomplished prior to the issuance of the HUD assignment letters. The Code of Federal Regulations, Title 24, Section 203.606(a), states "The mortgagee shall review its file relating to the servicing of a mortgage before initiating foreclosure to satisfy itself that the case has been handled in accordance with the servicing requirements outlined in this subpart." In addition, Handbook HUD 4330.1, Administration of Insured Home Mortgages, Chapter 8, Paragraph 126 a. (1)(b) stipulates that a servicing mortgagee must be able to provide written evidence that the mortgage holder agrees to the foreclosure or has provided the servicing mortgagee a blanket authority to make the decision to initiate foreclosure. Blanket authority from the investor which is conditioned upon HUD's denial of assignment will be acceptable if the mortgage has been serviced in accordance with HUD's policies and regulations. Although circumstances may be such that this decision may be properly reached prior to the submission of HUD letter #1, there must be evidence that a management preforeclosure review has been completed and permission to foreclose has been secured prior to the submission of either the HUD assignment letters #2 or #3. See also Paragraph 126 b. _____________________________________________________________________ 2 Several mortgagees have developed a form to document that they have reviewed a loan for foreclosure. The forms usually include some type of check list to assure themselves that all steps are taken in accordance with HUD's requirements, and the approval to foreclose is signed by a supervisor at least one level higher than the person submitting the mortgage for foreclosure. HUD recommends that all mortgagees utilize this type of format which is comprehensive enough to assure management that they have properly and prudently serviced the mortgage per HUD's regulations, handbooks and mortgagee letters. Effective immediately, each mortgagee must comply with this mortgagee letter prior to sending HUD letters #2 and #3. The mortgagee must also submit with each mortgagor's background data on request for assignment, documentation that the comprehensive management review has been completed and that the mortgagee has the authority to initiate foreclosure and has decided to do so. Mortgagor assignment requests which do not have the proper documentation will be sent back to the mortgagee for additional servicing. Handbook HUD 4330.1, Administration of Insured Home Mortgages, Chapter 8, Paragraph 126 g, Mortgagee Servicing, deals with the adequacy of mortgagee servicing and the conditions under which cases can be returned to mortgagees for additional servicing. In addition to these requirements, the following procedures are added. In cases where HUD determines there has been a flagrant violation of regulations that has materially caused or added to the default, such as improper handling of tax escrows, Section 235 subsidy, or violations of the regulations or guidelines pertaining to the return of partial payments, HUD Field Offices will return such cases to mortgagees for correction of the violation and further servicing. Field Offices will specify the corrective action to be taken. Mortgagees may not institute foreclosure or issue new assignment letters until such corrective action has been completed. We do not believe there will be a large number of cases that will warrant this action. However, it is not appropriate for HUD to accept assignment of mortgages where servicing deficiencies may have contributed to the default. Field Offices will closely review the re-submission of these cases to ensure that the mortgagors have had the benefit of proper mortgage servicing. _____________________________________________________________________ 3 If there are any questions, please contact the Single Family Loan Management Branch in your lending jurisdiction. Sincerely yours, James E. Schoenberger General Deputy Assistant Secretary for Housing _____________________________________________________________________