www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

June 4, 1993
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 93-15
    TO:  ALL APPROVED MORTGAGEES
    SUBJECT:  Delinquent Federal Debt Under HUD's Multifamily Housing
                Programs
 
         In lieu of the requirements promulgated by the Office of
    Management and Budget (OMB), many lenders appear to be treating
    delinquent Federal debt the same as delinquent private debt in
    determining a loan applicant's credit worthiness.  Private sector
    lenders have been submitting applications for mortgage insurance,
    after making a determination that the size of debt delinquency
    does not warrant rejection, without making any distinction as to
    whether or not the debt is owed to the Federal Government.
 
         The provisions of the OMB Circular A-129, "MANAGING FEDERAL
    CREDIT PROGRAMS," issued November 25, 1988, prescribes policies
    and procedures for managing Federal Credit programs and for
    collecting loans and other receivables.  It applies only to the
    applicant of a HUD-insured mortgage (e.g., private nonprofit
    mortgagor applicants, nonprofit public mortgagor applicants,
    corporate mortgagor applicants, partnership applicants, and
    individual mortgagor applicants).  Circular A-129 does not apply
    to any individual signing an application for mortgage insurance
    as an authorized representative of the mortgagor applicant.
    Circular A-129 does not apply to:
 
         A.  Officers, directors or principals of private nonprofit
             mortgagor entities;
 
         B.  Officers, directors or principals of public nonprofit
             mortgagors;
 
         C.  Officers, directors or principals of corporate
             mortgagors;
 
         D.  General and limited partners of a mortgagor entity; and
 
         E.  Corporate general partner of a mortgagor entity where
             the corporate general partner has executed an
             application for mortgage insurance as the authorized
             representative of the mortgagor entity.
 
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                                                               2
 
     However, as part of its credit analysis, HUD does
investigate whether or not a sponsor, principals of the mortgagor
and general contractor for multifamily projects has any
delinquent Federal debt in assessing the credit worthiness of a
principal.
 
     The only exception to the provision of OMB Circular 129 is
delinquent Federal debt arising from owning and operating HUD-insured
and/or HUD-held projects.  In those cases, an application
may be accepted and processing may continue.  The decision for
approval or denial of participation will not be made by the
mortgage credit staff but, will be determined in accordance with
the rules and regulations in HUD's 2530 process.
 
     The prescreening of direct and guarantee loan applications
ensures that only eligible applicants are considered for new or
additional loan guarantees.  If the case is submitted prior to
the formation of a mortgagor entity, the principal(s) comprising
the present makeup of the sponsor/mortgagor entity will be
considered as the applicant.
 
     Examples of Federal debts are direct loans, HUD-insured
loans, student loans, Small Business Administration loans, or
judgment liens against property for a debt owed the Federal
Government.
 
     Lenders are expected to prescreen proposed applications by
verifying the information presented in an application against
information contained in the applicant's credit report(s) and
financial statements.  Continued investigation of the applicant
may reveal other unsatisfactory credit and character traits which
may be a basis for applicant rejection even when found acceptable
by the 2530 staff.  This procedure applies to both individuals
and commercial organizations.  Any applicant with a prior Federal
default or claim must submit to the lender an explanation of the
extenuating circumstances surrounding the delinquent Federal
debt.
 
     The lender must include as part of the required application
exhibits submitted to HUD:
 
     A.  The applicant's detailed explanation of what caused the
         Federal debt to go into default.
 
     B.  A letterhead advice from the affected agency, signed by
         an officer, stating that the defaulted debt is current
         or satisfactory arrangements for repayment have been
         made.
 
     C.  The lender's reason(s) for recommendation of the
         applicant, which may be included in the work sheets and
         remarks sections of the processing documents or a
         covering letter with the submission.
 
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     HUD will review the submission to assure that only
applicants who have resolved or made satisfactory arrangements to
repay their Federal debt are considered for additional awards or
guarantees, while applicants with unresolved Federal debt will
not be accepted for processing.
 
Sincerely,
 

 
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner