www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 December 20, 1989 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 89-30 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Default Monitoring System (SFDMS) Reporting Errors and Problems Since the issuance of Mortgagee Letter 87-2 in January 1987, and Supplemental Mortgagee Letter 87-2 in July 1987, many lenders remain in non-compliance with HUD's reporting requirements for the Single Family Default Monitoring System (SFDMS). HUD reminds mortgagees that HUD's regulatory requirements, 24 CFR 203.332, are met only when SFDMS reporting requirements are properly and consistently met. This Mortgagee Letter identifies several reporting errors which contribute to the poor quality of data received and several problems created by the improper reporting by mortgagees. First, lenders must ensure that loans which are 90 or more days delinquent are reported each month and ensure that the status is correctly reflected on Form HUD-92O68A each month. Second, all lenders servicing FHA-insured loans are required to report quarterly, on Form HUD-92O68C, all FHA-insured loans serviced. On recent mortgage servicing reviews, the Department reviewed copies of the reports which mortgagees had submitted to HUD. Many of the errors that are reflected in the SFDMS can be traced to errors in the lender's database. Following are examples of what was found. 1. Alpha characters are appearing in numeric fields. For example, we found "HOU" in place of the first three digits of the FHA Case Number rather than the appropriate numeric designation. This error was obviously made when the loan was first established in the lender's system. 2. The Status of Mortgage is entered incorrectly in Section M. This section requires an entry which indicates the status of the mortgage and the effective date of that status. Lenders are careless and do not report the "status of mortgage field" accurately. For example, "AO988" indicates that this loan was first reported as 90 days or more delinquent in September 1988. If this same _____________________________________________________________________ entry is reflected for that same loan in December 1989, it shows that the account has been 90 days or more delinquent for 16 months, since first reported in September 1988. What such a representation usually means is either poor servicing or the lender failed to update the SFDMS. (Section 0 provides another explanation if bankruptcy is involved.) The proper designation for an account which is to be reported as 90 days or more in default in September 1988, should be "AO988", not "A", not "9-88", or "A/9/88", "ASEP88" , or any variance thereof. The instructions for Form HUD-92O68A, Section M are clear. They are printed on the reverse of the Form HUD-92O68A, and an additional explanation may be found in Mortgagee Letter 87-2. Review the instructions for Form HUD-92O68A and proof all reports before submission to HUD. Errors in the Status code represent fatal errors to the system. This means the delinquent mortgage which should be properly reported will be omitted. When mortgages which should be reported are not, lenders are not meeting HUD's regulatory requirements. 3. The first three digits of the FHA Case Number are being entered incorrectly. These types of errors can also be traced directly to errors in the lender's database. Leading zeros are omitted or numbers are transposed. For example, FHA Case Numbers for California mortgages begin with "041 to 049". If the leading zero is dropped, the case will be reflected in an incorrect jurisdiction. In one example, a mortgage which should be "044123456203" will be reported as "44123456203". This entry now reflects a defaulted loan in California as one in Pennsylvania and also reflects an incorrect section of the act ADP code. This type of error will seriously distort our data. A recent statistical summary based upon the information reported by lenders on Form HUD-92O68A reflected Rhode Island as having 163 defaulted loans, but a closer analysis of this data found that 125 of those reported loans were actually in California. 4. The last three digits of the FHA Case Number, the Section of the Act ADP codes, continue to be reported incorrectly. The proper ADP code for each loan should be reported. Too often, all mortgages which were insured _____________________________________________________________________ pursuant to Section 203(b) of the Act are reported as 203" or no ADP Code is even noted. When you first report a loan with "203" as the ADP Code and later update the Status of this loan but use "703", or one of several other valid ADP Codes, the SFDMS will recognize these as different loans. The default rate for both the lender and the jurisdiction will continue to reflect an inflated default rate until these errors are recognized and corrected by the lender. 5. Some mortgagees are not reporting Social Security numbers. Compliance with this requirement must be improved. The Social Security Administration did not assign the numbers "000000000", "999999999", or "123456789" to as many individuals as the SFDMS reports would have us believe. A fake or filler number in the Social Security number field (Section D) is not acceptable. Mortgagees must ensure that accurate Social Security numbers are reported. As SFDMS data is also reflected in HUD's Credit Alert System, your error in reflecting the wrong Social Security number may create additional problems. 6. Surprisingly, some mortgage servicers fail to include the name of the company, the address, ten digit HUD identification number, contact person or telephone number. We have no idea which lender submitted such a report. As a result, the data cannot be entered into the SFDMS. Also accuracy in entering the full ten digit HUD identification number is very important. When the first five places are blank or zero filled, even if the old five digit identification is provided in the last five spaces, the System identifies this lender as "00000.....". For the reporting period ending June 31, 1989, we found the system recognized over sixty lenders with that identification. When submitting your data by hard copy, please ensure that your ten digit identification number is encoded on the top of each page, not just the first page. Failure to include the identification number on each page will result in the data on these pages not being accepted by the system. 7. Care should be taken to encode cases for removal by HUD from SFDMS which no longer require reporting by your company. Because this data is also entered into _____________________________________________________________________ HUD's Credit Alert System, care should be taken to delete cases which have been paid in full, reinstated, assumed, or sold to a different servicer. Caution, delete only those cases which warrant removal from SFDMS. We recognize that many mortgage servicers use an automated system that will produce the monthly report, either on magnetic tape or a printed facsimile. The responsibility for supplying this report (HUD-92O68A) to HUD has sometimes been given either to the mortgagee's mail room or delegated as a support function of the mortgagee's ADP Division. This practice creates several problems: A. The reports are not checked for errors. B. The persons responsible for servicing the loans are not aware of the cases reported, nor have knowledge of the reporting requirements. C. When questioned, many lenders believed the quarterly reports were being submitted with the monthly reports by tape. However, quarterly reports (Form HUD-92O68C) may not be furnished by tape, therefore, these reports have not been submitted to HUD. We reiterate that lenders should ensure that all loans which are 90 or more days delinquent are correctly reflected on Form HUD- 92O68A each month. In addition, all lenders servicing FHA-insured mortgages are required to report all loans serviced, quarterly on Form HUD-92O68C. If the mortgagee's automated system provides either a magnetic tape or a printed facsimile, the reports should follow the proper format and the database should be routinely reviewed and errors corrected. Proper reporting to HUD under the SFDMS must be a part of each lender's quality control plan. We have received several inquiries concerning magnetic tape submission of monthly data (HUD-92O68A). If you wish to begin reporting by magnetic tape, please furnish an initial test tape to Dr. William F. Shaw, Room 9245. If there are no problems with the initial tape, Dr. Shaw will advise you and you may begin routine submission of your monthly data by tape. We would encourage all lenders which have the capacity to furnish monthly data by magnetic tape to do so. Lenders which do not have the capacity to report by tape may continue to report monthly on Form HUD-92O68A or an approved facsimile. Should you have questions concerning submission of the monthly data by magnetic tape, you may contact Dr. Shaw at (202) 755-6190. _____________________________________________________________________ 5 Lenders may refer to Mortgagee Letter 87-2 for specific reporting requirements. Copies of Forms HUD-92O68A and HUD-92O68C were also attached to Mortgagee Letter 87-2. If you do not have a copy of Mortgagee Letter 87-2 available, please contact your local HUD Office for assistance. Sincerely yours, C. Austin Fitts Assistant Secretary for Housing- Federal Housing Commissioner